SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
June 11, 1999
MathSoft, Inc.
--------------
(Exact name of Registrant as specified in its charter)
Massachusetts 0-020992 04-2842217
---------------------- ------------ ------------------
(State or jurisdiction (Commission (IRS Employer
of Incorporation) File number) Identification No.)
101 Main Street 02142
Cambridge, Massachusetts -----
(Address of principal (Zip Code)
executive offices)
(617) 577-1017
--------------
Registrant's telephone number, including area code
<PAGE>
Item 5. Other Events.
- ------------------------
On June 1, 1999, MathSoft, Inc. ("MathSoft") took steps to incorporate
FreeScholarships.com, Inc. ("FSC"), a subsidiary of MathSoft, and on June 11,
1999, FSC issued its initial capital stock to MathSoft. FSC will be an Internet
company providing information and assistance to a broad consumer market focused
on funding the costs of education.
MathSoft received 545,455 shares of Series A Convertible Preferred Stock,
with a deemed value of $1.00 per share, in exchange for net assets MathSoft
transferred to FSC, consisting of all of MathSoft's right, title and interest in
the confidential business plan and concepts underlying the FreeScholarships
strategy, including rights to specified URLs, a prototype web site and any other
tangible and intangible assets owned by MathSoft which are associated with the
FreeScholarships strategy. In addition to the asset transfer, FSC also agreed
to reimburse MathSoft $200,000 for business development expenses associated with
FSC. MathSoft also invested $3,000,000 in exchange for 3,000,000 shares of
FSC's Series A Convertible Preferred Stock.
The 3,545,455 shares of FSC's Series A Convertible Preferred stock issued
to MathSoft on June 11, 1999, represent all of FSC's outstanding stock as of the
date hereof. It is the current intention of the MathSoft Board of Directors to
provide FSC with an additional $2,000,000 of financing in the months ahead in
the form of a bridge loan, with an interest rate of 8%, the principal amount of
which will convert automatically into Series B Preferred Stock at 90% of the
price per share paid by other third party purchasers of Series B Preferred Stock
when the Series B round of external financing is consummated.
The Series A Convertible Preferred Stock:
- - carries a cumulative accruing eight percent (8%) annual dividend
- - has a liquidation preference of original cost plus all accrued but unpaid
dividends (initially an aggregate amount equal to $3,545,455) which amount
would be paid in preference to the rights of any holder of Common Stock or
other junior security in the event of a liquidation, dissolution, winding
up, redemption, and in certain cases upon a merger or sale of assets
- - will be redeemable in two installments on July 1, 2004 and July 1, 2005
- - will be converted to common stock of FSC at the option of the holder (on a
one-for-one basis, subject to adjustments for stock splits and the like)
or without the holder's consent upon a firm commitment underwritten public
offering of Common Stock at a price per share of not less than $4.00 that
results in net proceeds to FSC of not less than $20,000,000.
The initial members of the Board of Directors of FreeScholarships.com, Inc.
will be the current four members of the Board of Directors of MathSoft. Mr.
Digate conceived the idea of the principal business plan and concepts underlying
FreeScholarships.com and will be its President and Chief Executive Officer. Mr.
Digate will continue in his existing position as the President and Chief
Executive Officer of MathSoft.
FSC has reserved 1,909,090 shares of Common Stock for issuance under its
1999 Stock Option and Incentive Plan. On June 11, 1999, the Board of Directors
of FSC with the concurrence of the Board of Directors of MathSoft approved a
grant to Mr. Digate of an option to purchase 1,090,909 shares of FSC common
stock at a price of $0.13 per share. Twenty-five percent (25%) of such options
will vest one year from the date of grant, with the remaining options vesting
monthly in equal installments in years two through four so long as Mr. Digate
remains employed by FSC. The Board of Directors of MathSoft, in light of the
formation of FreeScholarships.com and the FSC stock options being granted to Mr.
Digate, decided not to award MathSoft options to Mr. Digate while other senior
officers of MathSoft were granted options.
<PAGE>
MathSoft's cash and cash equivalents totaled approximately $5.8 million at
March 31, 1999. MathSoft also has a line of credit agreement with a commercial
bank, which allows MathSoft to borrow up to a maximum of $2.0 million subject to
adequate accounts receivable coverage and maintenance of certain financial
covenants, and no amounts thereunder are currently outstanding. MathSoft
believes that its present cash position and bank credit line availability, and
income from cash flows will be sufficient to meet its operating needs for the
next 12 months, after taking into account its initial $3.0 million investment
and presently anticipated $2.0 million follow-on investment in FSC. FSC
initially will be a wholly-owned subsidiary of MathSoft (exclusive of options to
acquire stock of FSC) and management anticipates FSC will incur substantial
losses for the foreseeable future. Accordingly, all losses incurred by FSC will
be included in MathSoft's consolidated financial results of operations.
MathSoft's investment in FSC represents a significant departure from MathSoft's
past business model of licensing software products, and there can be no
assurance that the FSC business will be successful or that MathSoft will have
the necessary resources to finance FSC's activities in the future.
On June 14, 1999, the Company issued a press release, a copy of which is
attached as Exhibit 99.1 to this Current Report on Form 8-K.
This report contains forward-looking statements which involve risks and
uncertainties. MathSoft's actual experience may differ materially from that
discussed above. Factors that might cause such differences include, but are not
limited to, those discussed under the heading "Risk Factors" in MathSoft's
Quarterly Report on Form 10-Q for the Quarter Ended March 31, 1999 as well as
future events that have the effect of reducing MathSoft's available cash
balances, such as unexpected operating losses or capital expenditures.
<PAGE>
Item 7. Financial Statements and Exhibits.
- ----------------------------------------------
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<C> <S>
99.1 Press Release of MathSoft, Inc. dated June 14, 1999
99.2 Certificate of Incorporation of FreeScholarships.com, Inc.
99.3 Assignment, Bill of Sale and Stock Issuance Agreement
dated June 11, 1999 by and between MathSoft, Inc. and
FreeScholarships.com, Inc.
99.4 Series A Convertible Preferred Stock Purchase
Agreement dated as of June 11, 1999 by and between
MathSoft, Inc. and FreeScholarships.com, Inc.
99.5 1999 Stock Option and Incentive Plan of
FreeScholarships.com, Inc.
99.6 Form of Incentive Stock Option Agreement
99.7 Form of Non-Qualified Stock Option Agreement
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MATHSOFT, INC.
June 15, 1999 By: /s/ Robert P. Orlando
---------------------------
Robert P. Orlando
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
-------------
Exhibit No. Exhibit
- ----------- -------
<C> <S>
99.1 Press Release of MathSoft, Inc. dated June 14, 1999
99.2 Certificate of Incorporation of FreeScholarships.com, Inc.
99.3 Assignment, Bill of Sale and Stock Issuance Agreement
dated June 11, 1999 by and between MathSoft, Inc. and
FreeScholarships.com, Inc.
99.4 Series A Convertible Preferred Stock Purchase
Agreement dated as of June 11, 1999 by and between
MathSoft, Inc. and FreeScholarships.com, Inc.
99.5 1999 Stock Option and Incentive Plan of
FreeScholarships.com, Inc.
99.6 Form of Incentive Stock Option Agreement
99.7 Form of Non-Qualified Stock Option Agreement
</TABLE>
<PAGE>
Exhibit 99.1
------------
[MATHSOFT LETTERHEAD]
FOR IMMEDIATE RELEASE
Contact: Bob Orlando Emily Fisher
MathSoft, Inc. Schwartz Communications, Inc.
(617) 577-1017 (781) 684-0770
[email protected] [email protected]
MATHSOFT FORMS NEW INTERNET VENTURE
INVESTS $3 MILLION IN FIRST ROUND FINANCING
CAMBRIDGE, Mass.-June 14, 1999-MathSoft, Inc. (NASDAQ:MATH), a leading provider
of technical calculation and data analysis software, today announced plans to
form a new Internet company, which will initially be a majority-owned subsidiary
of MathSoft. An initiative of MathSoft CEO Charles Digate, the new company will
target the mass consumer market and have an educational focus.
MathSoft will initially serve as the sole investor in the new company, funding
the venture with $3 million in a first round of financing. Digate will be
president and CEO of the start-up while retaining his position as president, CEO
and chairman of MathSoft.
"We are creating an Internet company targeted at families with a mission to
improve their ability to afford quality education," said Digate. "Due to
excellent health of its core businesses, MathSoft has the financial resources to
underwrite the first phase of this venture. Although this investment will
adversely impact consolidated earnings for MathSoft, the clear goal of this
program is to radically reinvent the company with the sole objective of creating
substantial value for its stakeholders."
-more-
<PAGE>
MathSoft Forms New Internet Venture
Page 2
ABOUT MATHSOFT, INC.
Founded in 1984, MathSoft is the provider of the broadest line of technical
calculation and analytical software for business and academia. With MathSoft's
products, users can deploy technical calculations and exploratory data analyses
across their entire organizations. The company has more than 1.3 million users
of its Mathcad(R), StudyWorks!(R), S-PLUS(R), StatServer(R) and Axum(R) software
worldwide. Users include technical professionals worldwide at more than 90% of
the Fortune 1,000 companies and over 500 government installations, and students
and faculty at over 2,000 colleges and universities.
# # #
Axum, S-PLUS, StatServer, StudyWorks! and Mathcad are registered trademarks and
the MathSoft logo and the Collaboratory are trademarks of MathSoft, Inc. All
other names or marks may be registered trademarks or trademarks of their
respective owners.
<PAGE>
Exhibit 99.2
------------
CERTIFICATE OF INCORPORATION
OF
FREESCHOLARSHIPS.COM, INC.
* * * * * *
FIRST. The name of the corporation is FreeScholarships.com, Inc. (the
"Corporation").
SECOND. The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH. The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is Thirty Million
(30,000,000) shares, consisting of 20,000,000 shares of Common Stock, par value
$.001 per share (the "Common Stock") and 10,000,000 shares of Preferred Stock,
par value $.001 per share (the "Preferred Stock").
A description of the respective classes of stock and a statement of the
designations, preferences, voting powers (or no voting powers), relative,
participating, optional or other special rights and privileges and the
qualifications, limitations and restrictions of the Preferred Stock and Common
Stock are as follows:
A. PREFERRED STOCK
----------------
The Preferred Stock may be issued in one or more series at such time
or times and for such consideration or considerations as the Corporation's
Board of Directors may determine. Each series of Preferred Stock shall be so
designated as to distinguish the shares thereof from the shares of all other
series and classes. Except as otherwise provided in this Certificate of
Incorporation, different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purpose of voting by classes.
<PAGE>
- 2 -
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more series, each
with such designations, preferences, voting powers (or no voting powers),
relative, participating, optional or other special rights and privileges and
such qualifications, limitations or restrictions thereof as shall be stated in
the resolution or resolutions adopted by the Board of Directors to create such
series, and a certificate of said resolution or resolutions shall be filed in
accordance with the General Corporation Law of the State of Delaware. The
authority of the Board of Directors with respect to each such series shall
include, without limitation of the foregoing, the right to provide that the
shares of each such series may: (i) have such distinctive designation and
consist of such number of shares; (ii) be subject to redemption at such time or
times and at such price or prices; (iii) be entitled to the benefit of a
retirement or sinking fund for the redemption of such series on such terms and
in such amounts; (iv) be entitled to receive dividends (which may be cumulative
or noncumulative) at such rates, on such conditions, and at such times, and
payable in preference to, or in such relation to, the dividends payable on any
other class or classes or any other series of stock; (v) be entitled to such
rights upon the voluntary or involuntary liquidation, dissolution or winding up
of the affairs, or upon any distribution of the assets of the Corporation in
preference to, or in such relation to, any other class or classes or any other
series of stock; (vi) be convertible into, or exchangeable for, shares of any
other class or classes or any other series of stock at such price or prices or
at such rates of exchange and with such adjustments, if any; (vii) be entitled
to the benefit of such conditions, limitations or restrictions, if any, on the
creation of indebtedness, the issuance of additional shares of such series or
shares of any other series of Preferred Stock, the amendment of this
Certification of Incorporation or the Corporation's By-Laws, the payment of
dividends or the making of other distributions on, or the purchase, redemption
or other acquisition by the Corporation of, any other class or classes or series
of stock, or any other corporate action; or (viii) be entitled to such other
preferences, powers, qualifications, rights and privileges, all as the Board of
Directors may deem advisable and as are not inconsistent with law and the
provisions of this Certificate of Incorporation.
<PAGE>
- 3 -
B. COMMON STOCK
-------------
1. RELATIVE RIGHTS OF PREFERRED STOCK AND COMMON STOCK. All
---------------------------------------------------------
preferences, voting powers, relative, participating, optional or other special
rights and privileges, and qualifications, limitations, or restrictions of the
Common Stock are expressly made subject and subordinate to those that may be
fixed with respect to any shares of the Preferred Stock.
2. VOTING RIGHTS. Except as otherwise required by law or this
--------------
Certificate of Incorporation, each holder of Common Stock shall have one vote in
respect of each share of stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a vote
of stockholders of the Corporation. Notwithstanding the provisions of Section
242(b)(2) of the General Corporation Law of the State of Delaware, the Common
Stockholders shall vote together with the Preferred Stockholders as a single
class with respect to any proposed amendment hereto that would increase the
number of shares authorized of Common Stock with each such share being entitled
to such number of votes per share as is provided in this Article FOURTH, and the
Common Stockholders shall not be entitled to a separate class vote with respect
thereto.
3. DIVIDENDS. Subject to the preferential rights of the Preferred
---------
Stock, if any, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock.
4. DISSOLUTION, LIQUIDATION OR WINDING UP. In the event of any
-----------------------------------------
dissolution, liquidation or winding up of the affairs of the Corporation, after
distribution in full of the preferential amounts, if any, to be distributed to
the holders of shares of the Preferred Stock, holders of Common Stock shall be
entitled, unless otherwise provided by law or this Certificate of Incorporation,
to receive all of the remaining assets of the Corporation of whatever kind
available for distribution to stockholders ratably in proportion to the number
of shares of Common Stock held by them respectively.
<PAGE>
- 4 -
FIFTH. The Corporation is to have perpetual existence.
SIXTH. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly
authorized to adopt, amend or repeal the By-Laws of the Corporation.
B. Elections of directors need not be by written ballot unless
the By-Laws of the Corporation shall so provide.
C. The books of the Corporation may be kept at such place within
or without the State of Delaware as the By-Laws of the Corporation may provide
or as may be designated from time to time by the Board of Directors of the
Corporation.
SEVENTH. The Corporation eliminates the personal liability of each
member of its Board of Directors to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided, however,
that, to the extent provided by applicable law, the foregoing shall not
eliminate the liability of a director (i) for any breach of such director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any
transaction from which such director derived an improper personal benefit. No
amendment to or repeal of this provision shall apply to or have any effect on
the liability or alleged liability of any director for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
EIGHTH. The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred upon a stockholder
herein are granted subject to this reservation.
NINTH. The name and mailing address of the sole incorporator is as
follows:
<PAGE>
- 5 -
Name Mailing Address
- ---- ----------------
Gordon H. Hayes c/o Testa, Hurwitz & Thibeault, LLP
125 High Street, High Street Tower
Boston, MA 02110
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
- 6 -
I, THE UNDERSIGNED, being the sole incorporator hereinabove named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true.
Dated: June 1, 1999.
/s/ Gordon H. Hayes
----------------------
Gordon H. Hayes
Sole Incorporator
<PAGE>
Exhibit 99.2
FREESCHOLARSHIPS.COM, INC.
CERTIFICATE OF DESIGNATION
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
JUNE 11, 1999
The undersigned officer of FreeScholarships.com, Inc. (the "Corporation"),
-----------
a corporation organized and existing under the General Corporation Law of the
State of Delaware (the "General Corporation Law"), pursuant to the authority
-----------------------
conferred by the Certificate of Incorporation of the Corporation and pursuant to
the provisions of Section 151 of the General Corporation Law, DOES HEREBY
CERTIFY THAT:
FIRST: That the Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on June 1, 1999.
SECOND: That the Board of Directors of the Corporation, adopted and
approved the following resolution creating a series of the Corporation's
undesignated Preferred Stock to be designated as Series A Convertible Preferred
Stock in accordance with the provisions of Section 151 of the General
Corporation Law.
RESOLVED: That pursuant to the authority vested in the Board of Directors
of the Company and in accordance with the General Corporation Law of the State
of Delaware and the provisions of the Company's Certificate of Incorporation,
that of the 10,000,000 authorized and unissued shares of Preferred Stock, $.001
par value per share, 3,545,455 shares are hereby designated Series A Convertible
Preferred Stock, and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof, are as set forth on
Exhibit A attached hereto.
- ----------
THIRD: That the aforesaid resolution was duly and validly adopted in
accordance with the applicable provisions of Section 151 of the General
Corporation Law of the State of Delaware and the Certificate of Incorporation
and By-Laws of the Corporation.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designation to be duly executed in its corporate name by a duly authorized
officer as of the date first above written.
FREESCHOLARSHIPS.COM, INC.
By: /s/ Gordon H. Hayes
----------------------
Gordon H. Hayes
Secretary
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
FOR
SERIES A CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and
------------------
known as "Series A Convertible Preferred Stock" shall consist of 3,545,455
shares.
2. Voting.
------
2A. General. Except as may be otherwise provided in these terms
-------
of the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock shall vote together with all other classes and series of stock
of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation, including, but not limited to, actions amending
the Certificate of Incorporation of the Corporation to increase the number of
authorized shares of Common Stock. Each share of Series A Convertible Preferred
Stock shall entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of Series A Convertible Preferred
Stock is then convertible.
2B. Board Size. Until the Corporation completes an equity
-----------
financing with gross proceeds of at least $2,000,000 from sources other than
MathSoft, Inc., the Corporation shall not, without the written consent or
affirmative vote of the holders of at least two-thirds of the then outstanding
shares of Series A Convertible Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a series,
increase the maximum number of directors constituting the Board of Directors to
a number in excess of 4.
2C. Board Seats. The holders of the Series A Convertible
------------
Preferred Stock, voting as a separate series, shall be entitled to elect one (1)
director of the Corporation. The holders of the Series A Convertible Preferred
Stock and the Common Stock, voting together as a single class, shall be entitled
to elect three (3) directors of the Corporation. The holders of a majority of
interest in the Series A Convertible Preferred Stock, voting as a separate
class, shall be entitled to elect the majority of the Board of Directors if any
of the following occurs or is continuing: (i) if the Corporation fails or
refuses, for any reason or for no reason, to redeem on the Redemption Date (as
defined in paragraph 7 of the Certificate of Designation of the Series A
Convertible Preferred Stock (the "Certificate of Designation")) all of the then
--------------------------
outstanding shares of Series A Convertible Preferred Stock in accordance with
the terms and provisions of that paragraph 7; (ii) failure to pay the Accruing
Dividends (as defined in Section 3 of the Certificate of Designation) or the
failure to make any liquidation payment which the Corporation is obligated to
make; (iii) failure to perform or observe any covenant contained in this the
Registration Rights Agreement; (iv) false or misleading warranties,
representations, or other statements made by or on behalf of the Corporation in
any material respect in the Registration rights Agreement or Bill of Sale; (v)
failure to make payment when due on any indebtedness or other security and/or if
<PAGE>
the Corporation is in default under any other financing arrangements; (vi)
voluntary or involuntary bankruptcy, receivership, assignment for the benefit of
creditors, liquidation, acceleration of third party obligations or an
unsatisfied judgment in excess of $50,000. At any meeting (or in a written
consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy (or the written consent) of the holders of a
majority of the shares of Series A Convertible Preferred Stock then outstanding
shall constitute a quorum of the Series A Convertible Preferred Stock for the
election of directors to be elected solely by the holders of the Series A
Convertible Preferred Stock or jointly by the holders of the Series A
Convertible Preferred Stock and the Common Stock. A vacancy in any directorship
elected by the holders of the Series A Convertible Preferred Stock shall be
filled only by vote or written consent of the holders of the Series A
Convertible Preferred Stock, a vacancy in any directorship elected by the
holders of the Common Stock shall be filled only by vote or written consent of
the holders of the Common Stock and a vacancy in the directorship elected
jointly by the holders of the Series A Convertible Preferred Stock and the
Common Stock shall be filled only by vote or written consent of the Series A
Convertible Preferred Stock and the Common Stock as provided above.
3. Dividends. The holders of the Series A Convertible Preferred Stock
---------
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate of eight
percent (8%) per annum per share (the "Accruing Dividends"). Accruing Dividends
shall accrue from day to day, whether or not earned or declared, and shall be
cumulative. Accruing Dividends shall be payable only in the event of a
liquidation, dissolution or winding up of the Corporation (and provided that
certain corporate events shall be deemed upon the election of the holders of a
majority of the Series A Convertible Preferred Stock to be a liquidation,
dissolution or winding up, as provided in the penultimate sentence of this
Certificate of Incorporation, or upon redemption of the Series A Convertible
Preferred Stock).
4. Liquidation. Upon any liquidation, dissolution or winding up of the
-----------
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series A
Convertible Preferred Stock, to be paid an amount equal to the greater of (i)
$1.00 per share (the "Original Purchase Price") plus, in the case of each share,
an amount equal to all Accruing Dividends unpaid thereon (whether or not
declared) and any other dividends declared but unpaid thereon, computed to the
date payment thereof is made available, or (ii) such amount per share as would
have been payable had each such share been converted to Common Stock pursuant to
paragraph 6 immediately prior to such liquidation, dissolution or winding up,
and the holders of Series A Convertible Preferred Stock shall not be entitled to
any further payment, such amount payable with respect to one share of Series A
Convertible Preferred Stock being sometimes referred to as the "Liquidation
-----------
Preference Payment" and with respect to all shares of Series A Convertible
- -------------------
Preferred Stock being sometimes referred to as the "Liquidation Preference
----------------------
Payments". If upon such liquidation, dissolution or winding up of the
- --------
Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series A Convertible Preferred Stock shall be insufficient
to permit payment to the holders of Series A Convertible Preferred Stock of the
amount distributable as aforesaid, then the entire assets of the Corporation to
<PAGE>
be so distributed shall be distributed ratably among the holders of Series A
Convertible Preferred Stock. Upon any such liquidation, dissolution or winding
up of the Corporation, after the holders of Series A Convertible Preferred Stock
shall have been paid in full the amounts to which they shall be entitled, the
remaining net assets of the Corporation may be distributed to the holders of
stock ranking on liquidation junior to the Series A Convertible Preferred Stock.
Written notice of such liquidation, dissolution or winding up, stating a payment
date, the amount of the Liquidation Preference Payments and the place where said
Liquidation Preference Payments shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, not less than 20 days prior to the payment date stated
therein, to the holders of record of Series A Convertible Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the
records of the Corporation. At the election of the holders of a majority of the
Series A Convertible Preferred Stock, a consolidation or merger of the
Corporation into or with any other entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof (other than a merger to reincorporate the Corporation in a
different jurisdiction), and the sale, lease, abandonment, transfer or other
disposition by the Corporation of all or substantially all its assets, shall be
deemed to be a liquidation, dissolution or winding up of the Corporation within
the meaning of the provisions of this paragraph 4. For purposes hereof, the
Common Stock shall rank on liquidation junior to the Series A Convertible
Preferred Stock.
5. Restrictions. At any time when shares of Series A Convertible
------------
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Certificate of Incorporation, and in addition to any other vote required
by law or the Certificate of Incorporation, without the approval of the holders
of at least two-thirds of the then outstanding shares of Series A Convertible
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a series, the Corporation will not:
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, or increase the
authorized amount of the Series A Convertible Preferred Stock or increase the
authorized amount of any additional class or series of shares of stock unless
the same ranks junior to the Series A Convertible Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, or create or authorize any obligation or security convertible into
shares of Series A Convertible Preferred Stock or into shares of any other class
or series of stock unless the same ranks junior to the Series A Convertible
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, whether any such creation, authorization or
increase shall be by means of amendment to the Certificate of Incorporation or
by merger, consolidation or otherwise;
<PAGE>
5B. Consent to any liquidation, dissolution, recapitalization,
reorganization or winding up of the Corporation or consolidate or merge into or
with any other entity or entities or sell, lease, abandon, transfer or otherwise
dispose of a substantial portion of its assets or capital stock;
5C. Amend, alter or repeal its Certificate of Incorporation if the
effect would be detrimental or adverse in any manner with respect to the rights
of the holders of the Series A Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock other than the Series
A Convertible Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of Common
Stock and except for the purchase of shares of Common Stock from former
employees of the Corporation who acquired such shares directly from the
Corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares;
5E. Redeem or otherwise acquire any shares of Series A Convertible
Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Series A
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series A Convertible Preferred Stock then held by each such holder.
5F. Enter into any transactions which provide for or create a
change of control of the Corporation; or
5G. Sell, transfer or encumber technology owned or licensed by the
Corporation, other than licenses granted in the ordinary course of business.
6. Conversions. The holders of shares of Series A Convertible
-----------
Preferred Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
------------------
this paragraph 6, the holder of any share or shares of Series A Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series A Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amount
distributable on the Series A Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series A Convertible Preferred Stock so to
be converted by the Original Purchase Price and (ii) dividing the result by the
Original Purchase Price per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of this paragraph 6, then by the
conversion price as last adjusted and in effect at the date any share or shares
of Series A Convertible Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred to as the "Conversion
----------
Price"). Such rights of conversion shall be exercised by the holder thereof by
- -----
giving written notice that the holder elects to convert a stated number of
<PAGE>
shares of Series A Convertible Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the
holders of the Series A Convertible Preferred Stock) at any time during its
usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly
---------------------------------------------------
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares of Series A Convertible Preferred Stock. To the extent
permitted by law, such conversion shall be deemed to have been effected and the
Conversion Price shall be determined as of the close of business on the date on
which such written notice shall have been received by the Corporation and the
certificate or certificates for such share or shares shall have been surrendered
as aforesaid, and at such time the rights of the holder of such share or shares
of Series A Convertible Preferred Stock shall cease, and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
----------------------------------------------------
fractional shares shall be issued upon conversion of Series A Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, excluding Accruing Dividends, accrued
and unpaid on the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 6B. In case the number of shares of Series A
Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series A Convertible Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
<PAGE>
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
--------------------------------------------------
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the Conversion Price
shall be reduced to the price determined by dividing (i) an amount equal to the
sum of (a) the number of shares of Common Stock outstanding immediately prior to
such issue or sale, assuming the conversion or exercise of all then-exercisable
Options or Convertible Securities (each as defined in clause 6D(1) below)
multiplied by the then existing Conversion Price and (b) the consideration, if
any, received by the Corporation upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such issue or
sale, assuming the conversion or exercise of all then-exercisable Options or
Convertible Securities.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
--------------------------------
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or exchangeable
stock or securities being called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph 6D(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
<PAGE>
6D(2) Issuance of Convertible Securities. In case the
-------------------------------------
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible Securities shall
be deemed to have been issued for such price per share as of the date of the
issue or sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (a) except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of such Convertible Securities
and (b) if any such issue or sale of such Convertible Securities is made upon
exercise of any Options to purchase any such Convertible Securities for which
adjustments of the Conversion Price have been or are to be made pursuant to
other provisions of this subparagraph 6D, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
-----------------------------------------------
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subparagraph 6D(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph 6D(1) or 6D(2), or the rate
at which Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at the
time of such event shall forthwith be readjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such adjustment
the Conversion Price then in effect hereunder is thereby reduced; and on the
termination of any such Option or any such right to convert or exchange such
Convertible Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have been in effect
at the time of such termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
----------------
dividend or make any other distribution upon any stock of the Corporation (other
than the Common Stock) payable in Common Stock, Options or Convertible
<PAGE>
Securities, then any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of Common
-------------------------
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take a record
------------
of the holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities or (ii) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Corporation, and the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purpose of this
subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to
-----------------------------------------
the contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance from and after
the date of filing of these terms of the Series A Convertible Preferred Stock of
up to an aggregate of 1,909,090 shares (appropriately adjusted to reflect the
occurrence of any event described in subparagraph 6F) of Common Stock to
directors, officers, employees or consultants of the Corporation in connection
with their service as directors of the Corporation, their employment by the
Corporation or their retention as consultants by the Corporation, plus such
number of shares of Common Stock which are repurchased by the Corporation from
such persons after such date pursuant to contractual rights held by the
Corporation and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation therefor.
<PAGE>
6F. Subdivision or Combination of Common Stock. In case the
-----------------------------------------------
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital
------------------------------------
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series A Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series A Convertible Preferred Stock,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or reclassification not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any reason
-------------------
or for no reason, to redeem on the Redemption Date (as defined in paragraph 7)
all of the then outstanding shares of Series A Convertible Preferred Stock in
accordance with the terms and conditions of paragraph 7, the Conversion Price
then in effect shall be immediately reduced to an amount equal to 90% thereof.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, the Conversion Price shall be further reduced on the 90th
day following the Redemption Date and at the end of each 90-day period
thereafter to an amount equal to 90% of the Conversion Price in effect
immediately prior to each such reduction.
6I. Notice of Adjustment. Upon any adjustment of the Conversion
----------------------
Price, then and in each such case the Corporation shall give written notice
thereof, by delivery in person, certified or registered mail, return receipt
requested, telecopier or telex, addressed to each holder of shares of Series A
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, which notice shall state the Conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
6J. Other Notices. In case at any time:
--------------
<PAGE>
(1) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(2) the Corporation shall offer for subscription pro rata to
--- ----
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into another entity or entities, or a sale,
lease, abandonment, transfer or other disposition of all or substantially all
its assets; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Series A Convertible Preferred
Stock at the address of such holder as shown on the books of the Corporation,
(a) at least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger,
disposition, dissolution, liquidation or winding up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, disposition,
dissolution, liquidation or winding up, at least 20 days' prior written notice
of the date when the same shall take place. Such notice in accordance with the
foregoing clause (a) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto and such notice in accordance with the foregoing
clause (b) shall also specify the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, disposition, dissolution, liquidation or winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times
-----------------------
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series A Convertible Preferred Stock
as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A Convertible
Preferred Stock. The Corporation covenants that all shares of Common Stock
which shall be so issued shall be duly and validly issued and fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Conversion Price in effect at the time. The
Corporation will take all such action as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or regulation, or of any requirement of any national securities exchange
upon which the Common Stock may be listed. The Corporation will not take any
<PAGE>
action which results in any adjustment of the Conversion Price if the total
number of shares of Common Stock issued and issuable after such action upon
conversion of the Series A Convertible Preferred Stock would exceed the total
number of shares of Common Stock then authorized by the Certificate of
Incorporation.
6L. No Reissuance of Series A Convertible Preferred Stock. Shares
-----------------------------------------------------
of Series A Convertible Preferred Stock which are converted into shares of
Common Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Common
----------
Stock upon conversion of Series A Convertible Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Convertible
Preferred Stock which is being converted.
6N. Closing of Books. The Corporation will at no time close its
------------------
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Series A Convertible Preferred Stock, except
as may otherwise be required to comply with applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6, the
--------------------------
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value $.001 per share, as constituted on the date of filing of these
terms of the Series A Convertible Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series A Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6P. Mandatory Conversion. If at any time the Corporation shall
---------------------
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $20,000,000 and (ii) the price paid by the public for such shares shall be
at least $4.00 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock on the basis set forth in this paragraph 6.
Holders of shares of Series A Convertible Preferred Stock so converted may
deliver to the Corporation at its principal office (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to such holders) during its usual business hours, the certificate or
certificates for the shares so converted. As promptly as practicable
<PAGE>
thereafter, the Corporation shall issue and deliver to such holder a certificate
or certificates for the number of whole shares of Common Stock to which such
holder is entitled, together with any cash dividends and payment in lieu of
fractional shares to which such holder may be entitled pursuant to subparagraph
6C. Until such time as a holder of shares of Series A Convertible Preferred
Stock shall surrender his or its certificates therefor as provided above, such
certificates shall be deemed to represent the shares of Common Stock to which
such holder shall be entitled upon the surrender thereof.
7. Redemption. The shares of Series A Convertible Preferred Stock
----------
shall be redeemed as follows:
7A. Mandatory Redemption. On July 1, 2004 and July 1, 2005 (the
---------------------
"Redemption Dates", and each a "Redemption Date"), the Corporation shall redeem
any outstanding shares of Series A Convertible Preferred Stock according to the
percentages listed below:
Percentage of Shares of
Series A Convertible
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ -----------------------------
July 1, 2004 50% of all the shares of Series A Convertible Preferred
Stock Outstanding on June 30, 2004
July 1, 2005 100% of all the shares of Series A Convertible Preferred
Stock outstanding on June 30, 2005
7B. Redemption Price and Payment. The shares of Series A
-------------------------------
Convertible Preferred Stock to be redeemed on any Redemption Date shall be
redeemed by paying for each share in cash an amount equal to the Liquidation
Preference Payment computed to such Redemption Date, such amount being referred
to as the "Redemption Price". Such payment shall be made in full on the
applicable Redemption Date to the holders entitled thereto.
7C. Redemption Mechanics. At least 20 but not more than 30 days
---------------------
prior to each Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by delivery in person, certified or registered mail,
return receipt requested, telecopier or telex, to each holder of record (at the
close of business on the business day next preceding the day on which the
Redemption Notice is given) of shares of Series A Convertible Preferred Stock
notifying such holder of the redemption and specifying the Redemption Price,
such Redemption Date, the number of shares of Series A Convertible Preferred
Stock to be redeemed from such holder (computed on a pro rata basis in
<PAGE>
accordance with the number of such shares held by all holders thereof) and the
place where said Redemption Price shall be payable. The Redemption Notice shall
be addressed to each holder at his address as shown by the records of the
Corporation. From and after the close of business on a Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of shares of Series A Convertible Preferred Stock (except the
right to receive the Redemption Price) shall cease with respect to the shares to
be redeemed on such Redemption Date, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Series A Convertible Preferred Stock on a Redemption
Date are insufficient to redeem the total number of shares of Series A
Convertible Preferred Stock to be redeemed on such Redemption Date, the holders
of such shares shall share ratably in any funds legally available for redemption
of such shares according to the respective amounts which would be payable to
them if the full number of shares to be redeemed on such Redemption Date were
actually redeemed. The shares of Series A Convertible Preferred Stock required
to be redeemed but not so redeemed shall remain outstanding and entitled to all
rights and preferences provided herein. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of such shares
of Series A Convertible Preferred Stock, such funds will be used, at the end of
the next succeeding fiscal quarter, to redeem the balance of such shares, or
such portion thereof for which funds are then legally available, on the basis
set forth above.
7D. Redeemed or Otherwise Acquired Shares to be Retired. Any
--------------------------------------------------------
shares of Series A Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by the Corporation in any manner whatsoever
shall be cancelled and shall not under any circumstances be reissued; and the
Corporation may from time to time take such appropriate corporate action as may
be necessary to reduce accordingly the number of authorized shares of Series A
Convertible Preferred Stock.
8. Amendments. No provision of these terms of the Series A Convertible
----------
Preferred Stock may be amended (whether by merger, consolidation or otherwise),
modified or waived without the written consent or affirmative vote of the
holders of at least two-thirds of the then outstanding shares of Series A
Convertible Preferred Stock.
<PAGE>
Exhibit 99.3
------------
ASSIGNMENT, BILL OF SALE AND STOCK ISSUANCE AGREEMENT
For good and valuable consideration, the receipt of which is hereby
acknowledged by both parties hereto MathSoft, Inc., a Massachusetts corporation
having its principal offices at 101 Main Street, Cambridge, Massachusetts 02142
("Transferor"), hereby sells, exchanges, transfers, assigns and conveys unto
FreeScholarships.com, Inc., a Delaware corporation having its principal offices
at 101 Main Street, Cambridge, Massachusetts 02142 ("Transferee"), its
successors and assigns, all of the right, title and interest of Transferor in
and to the assets and liabilities set forth on Schedule A hereto. The net value
----------
of the assets transferred to Transferee pursuant to this Agreement shall be
deemed a contribution to the capital of Transferee. The parties hereto agree
that the net value of the assets assigned, and a cash payment from Transferor to
Transferee in the amount of $545.46, which amount is equal to the aggregate par
value of the shares to be issued to Transferor, will be the full consideration
for the issuance to Transferor of 545,455 shares of the Transferee's Series A
Convertible Preferred Stock, par value $.001 per share (the "Series A
Convertible Preferred Stock"). Transferee agrees that for purposes of the
liquidation provisions of the Series A Convertible Preferred Stock and for all
other purposes, that Transferor shall be deemed to have paid $1.00 per share for
each of the 545,455 shares of Series A Convertible Preferred stock issued
pursuant to this Agreement. The Series A Convertible Preferred Stock shall be
considered "Series A Convertible Preferred Stock" for all purposes of that
certain Series A Convertible Preferred Stock Purchase Agreement, and shall be
considered "Purchased Shares" for all purposes of that certain Registration
Rights Agreement, each dated the date hereof. The shares of Series A
Convertible Preferred Stock being issued pursuant hereto have been duly
authorized and, when issued and paid for in accordance with the provisions of
this Agreement, will be validly issued, fully paid and nonassessable.
Transferor does hereby covenant and agree that it will, from time to time,
if requested by Transferee or its successors and assigns, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered to Transferee or its successors and assigns, such and all further
acts, transfers, assignments, and additional papers and instruments, and cause
to be done all acts or things as often as may be proper or necessary for better
<PAGE>
- 2 -
assuring, conveying, transferring and assigning all of the said assets hereby
conveyed, transferred or assigned, and effectively to carry out the intent
hereof, and to vest in Transferee the entire right, title and interest of
Transferor in and to all of the said assets, and Transferor will warrant and
defend the same to Transferee, its successors and assigns, forever against all
claims or demands whatsoever.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
- 3 -
IN WITNESS WHEREOF, Transferor and Transferee have caused this Assignment,
Bill of Sale and Stock Issuance Agreement to be made effective as of this 11th
day of June, 1999.
TRANSFEROR:
MATHSOFT, INC.
/s/ Robert P. Orlando
---------------------------------------
By: Robert P. Orlando
Title: Senior Vice President and Chief Financial
Officer
TRANSFEREE:
FREESCHOLARSHIPS.COM, INC.
/s/ Charles J. Digate
--------------------------
By: Charles J. Digate
Title: President
<PAGE>
SCHEDULE A
----------
SCHEDULE OF ASSETS AND LIABILITIES ASSIGNED
-------------------------------------------
Assets:
All of the right, title and interest of MathSoft in and to the following
specified assets and all goodwill associated therewith:
Confidential business plan and concepts underlying the FreeScholarships
strategy, including the rights to specified URLs, a prototype web site and any
other tangible and intangible assets presently owned by MathSoft, Inc. which are
associated with the FreeScholarships strategy.
Liabilities:
FreeScholarships.com, Inc. shall reimburse MathSoft on demand, for $200,000 of
business development expenses associated with FreeScholarships.
<PAGE>
Exhibit 99.4
------------
FREESCHOLARSHIPS.COM, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
1. Subscription. MathSoft, Inc., a Massachusetts corporation ("MathSoft"),
- -- ------------- --------
hereby subscribes for 3,000,000 shares (the "Shares") of the Series A
------
Convertible Preferred Stock, $.001 par value per share ("Series A Convertible
Preferred Stock"), of FreeScholarships.com, Inc. ("FreeScholarships" or the
----------------
"Company") for a purchase price of $1.00 per share.
2. Due Authorization. The Shares have been duly authorized and, when issued
- -- ------------------
and paid for in accordance with the provisions of this Agreement, will be
validly issued, fully paid and nonassessable.
3. Relationship to Other Documents. The Series A Convertible Preferred
- -- -----------------------------------
Stock shall be considered "Purchased Shares" for all purposes of that certain
----------------
Registration Rights Agreement (the "Registration Rights Agreement") dated the
-----------------------------
date hereof.
4. Financial Statements; Reports. FreeScholarships shall furnish to any
- -- --------------------------------
holder of at least 350,000 shares of Series A Convertible Preferred Stock the
following information:
(a) within ninety (90) days after the end of each fiscal year of the
Company a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of such fiscal year and the related consolidated statements
of income, stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles and
certified by a firm of independent public accountants of recognized national
standing selected by the Board of Directors of the Company;
(b) within thirty (30) days after the end of each month and each
quarter in each fiscal year (other than the last month or last quarter in each
fiscal year) a consolidated balance sheet of the Company and its subsidiaries,
if any, and the related consolidated statements of income, stockholders' equity
and cash flows, unaudited but prepared in accordance with generally accepted
accounting principles and certified by the Chief Financial Officer of the
Company, such consolidated balance sheet to be as of the end of such month and
such consolidated statements of income, stockholders' equity and cash flows to
be for such month and for the period from the beginning of the fiscal year to
the end of such month, in each case with comparative statements to the annual
budget;
(c) no later than sixty (60) days prior to the start of each fiscal
year, consolidated capital and operating expense budgets, cash flow projections
and income and loss projections for the Company and its subsidiaries in respect
of such fiscal year, all itemized in reasonable detail and prepared on a monthly
basis, and, promptly after preparation, any revisions to any of the foregoing;
and
<PAGE>
2
(d) the Company's obligations under this Section 4 shall terminate upon
the completion of a Qualifying Public Offering (as defined in Section 5) of the
Company's securities.
5. Right of First Offer. For so long as MathSoft continues to hold at least
- -- ---------------------
350,000 shares of Series A Convertible Preferred Stock, the Company shall, prior
to any issuance by the Company of any of its securities, offer to MathSoft by
written notice the right, for a period of thirty (30) days, to purchase all of
such securities for cash at an amount equal to the price or other consideration
for which such securities are to be issued; provided, however, that the first
offer rights of MathSoft pursuant to this Section 5 shall not apply to
securities issued (A) upon conversion of any of the Preferred Shares, (B) as a
stock dividend or upon any subdivision of shares of common stock, $.001 par
value per share (the "Common Stock"), provided that the securities issued
pursuant to such stock dividend or subdivision are limited to additional shares
of Common Stock, (C) solely in consideration for the acquisition (whether by
merger or otherwise) by the Company or any of its subsidiaries of all or
substantially all of the stock or assets of any other entity, (D) pursuant to a
firm commitment underwritten public offering, (E) pursuant to the exercise of
options to purchase Common Stock granted to directors, officers, employees or
consultants of the Company in connection with their service to the Company, not
to exceed in the aggregate 1,909,090 shares (appropriately adjusted to reflect
stock splits, stock dividends, combinations of shares and the like with respect
to the Common Stock) (the shares exempted by this clause (E) being hereinafter
referred to as the "Reserved Employee Shares"), and (F) upon the exercise of any
------------------------
right which was not itself in violation of the terms of this Section 5. The
Company's written notice to MathSoft shall describe the securities proposed to
be issued by the Company and specify the number, price and payment terms.
MathSoft may accept the Company's offer as to the full number of securities
offered to it or any lesser number, by written notice thereof given by it to the
Company prior to the expiration of the aforesaid thirty (30) day period, in
which event the Company shall promptly sell and MathSoft shall buy, upon the
terms specified, the number of securities agreed to be purchased by MathSoft.
The Company shall be free at any time prior to ninety (90) days after the date
of its notice of offer to MathSoft, to offer and sell to any third party or
parties the number of such securities not agreed by MathSoft to be purchased by
it, at a price and on payment terms no less favorable to the Company than those
specified in such notice of offer to MathSoft. However, if such third party
sale or sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities as shall not have been purchased within
such period without again complying with this Section 5. The Company's
obligations under this Section 5 shall terminate upon the completion of a
"Qualifying Public Offering"of the company's securities. A "Qualifying Public
------------------------
Offering" shall mean a firm commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act covering the offer
and sale by the Company of Common Stock in which the aggregate net proceeds to
<PAGE>
3
the Company after deducting underwriters' discounts and commissions equals or
exceeds $20,000,000 and in which the price per share of Common Stock offered to
the public equals or exceeds $4.00 (such price to be equitably adjusted in the
event of any stock dividend, stock split, combination, recapitalization,
reorganization, reclassification or other similar event).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
4
IN WITNESS WHEREOF, the parties hereto have caused this Series A Preferred
Stock Purchase Agreement to be executed and accepted as of the date set forth
below.
MATHSOFT, INC. FREESCHOLARSHIPS.COM, INC.
By: /s/ Robert P. Orlando By: /s/ Charles J. Digate
- ------------------------------------------ ------------------------------------
Name: Robert P. Orlando Name: Charles J. Digate
Title: Senior Vice President and Chief Title: President
Financial Officer
EIN#: 04-2842217 Date of Acceptance: June 11, 1999
Address: 101 Main Street
Cambridge, MA 02142
Fax: (617) 577-8829
<PAGE>
Exhibit 99.5
------------
FREESCHOLARSHIPS.COM, INC.
1999 Stock Option and Incentive Plan
------------------------------------
1. Purpose and Eligibility
-------------------------
The purpose of this 1999 Stock Option and Incentive Plan (the "Plan") of
----
FreeScholarships.com, Inc. (the "Company") is to provide stock options and other
-------
equity interests in the Company (each an "Award") to employees, officers,
-----
directors, consultants and advisors of the Company and its Subsidiaries, all of
whom are eligible to receive Awards under the Plan. Any person to whom an Award
has been granted under the Plan is called a "Participant". Additional
-----------
definitions are contained in Section 8.
2. Administration
--------------
a. Administration by Board of Directors. The Plan will be administered
------------------------------------
by the Board of Directors of the Company (the "Board"). The Board, in its sole
-----
discretion, shall have the authority to grant and amend Awards, to adopt, amend
and repeal rules relating to the Plan and to interpret and correct the
provisions of the Plan and any Award. All decisions by the Board shall be
final and binding on all interested persons. Neither the Company nor any member
of the Board shall be liable for any action or determination relating to the
Plan.
b. Appointment of Committees. To the extent permitted by applicable
---------------------------
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). All references
---------
in the Plan to the "Board" shall mean such Committee or the Board.
-----
c. Delegation to Executive Officers. To the extent permitted by
-----------------------------------
applicable law, the Board may delegate to one or more executive officers of the
Company the power to grant Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of Awards to be granted and the maximum number of shares issuable to any one
Participant pursuant to Awards granted by such executive officers.
3. Stock Available for Awards
-----------------------------
a. Number of Shares. Subject to adjustment under Section 3(c), the
------------------
aggregate number of shares of Common Stock of the Company (the "Common Stock")
------------
that may be issued pursuant to the Plan is 1,909,090 shares. If any Award, or
shares of Common Stock issued pursuant to an Award, expires, or is terminated,
repurchased, surrendered, forfeited or settled in cash (other than repurchases
or cash settlements purported to be made at fair market value), in whole or in
part, the Common Stock issued or issuable pursuant to such Award as to which
such event has occurred shall again be available for the grant of Awards under
the Plan. Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
<PAGE>
b. Per-Participant Limit. Subject to adjustment under Section 3(c), no
---------------------
Participant may be granted Awards during any one fiscal year to purchase more
than 1,527,272 shares of Common Stock.
c. Adjustment to Common Stock. In the event of any stock split, stock
---------------------------
dividend, extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off, split-up,
or other similar change in capitalization or event, (i) the number and class of
securities available for Awards under the Plan and the per-Participant share
limit, (ii) the number and class of securities, vesting schedule and exercise
price per share subject to each outstanding Option, (iii) the repurchase price
per security subject to repurchase, and (iv) the terms of each other outstanding
stock-based Award shall be adjusted by the Company (or substituted Awards may be
made) to the extent the Board shall determine, in good faith, that such an
adjustment (or substitution) is appropriate. If Section 7(e)(i) applies for any
event, this Section 3(c) shall not be applicable.
4. Stock Options
--------------
a. General. The Board may grant options to purchase Common Stock
-------
(each, an "Option") and determine the number of shares of Common Stock to be
------
covered by each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option and the Common Stock
issued upon the exercise of each Option, including vesting provisions,
repurchase provisions and restrictions relating to applicable federal or state
securities laws, as it considers advisable.
b. Incentive Stock Options. An Option that the Board intends to be an
------------------------
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
---------
Stock Option") shall be granted only to employees of the Company and shall be
- -------------
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Board and the Company shall have no liability if an Option
or any part thereof that is intended to be an Incentive Stock Option does not
qualify as such. An Option or any part thereof that does not qualify as an
Incentive Stock Option is referred to herein as a "Nonstatutory Stock Option".
-------------------------
c. Exercise Price. The Board shall establish the exercise price (or
---------------
determine the method by which the exercise price shall be determined) at the
time each Option is granted and specify it in the applicable option agreement.
d. Duration of Options. Each Option shall be exercisable at such times
-------------------
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. Exercise of Option. Options may be exercised only by delivery to
--------------------
the Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 4(f) for the number of shares for
which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of
----------------------
an Option shall be paid for by one or any combination of the following forms of
payment:
- 2 -
<PAGE>
(i) in cash, by check payable to the order of the Company;
(ii) except as otherwise explicitly provided in the applicable
option agreement, and only if the Common Stock is then publicly traded, delivery
of an irrevocable and unconditional undertaking by a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the exercise price, or
delivery by the Participant to the Company of a copy of irrevocable and
unconditional instructions, satisfactory in form and substance to the Company,
to a creditworthy broker to deliver promptly to the Company cash or a check
sufficient to pay the exercise price; or
(iii) to the extent explicitly provided in the applicable option
agreement, by (x) delivery of shares of Common Stock owned by the Participant
valued at fair market value (as determined by the Board or as determined
pursuant to the applicable option agreement), (y) delivery of a promissory note
of the Participant to the Company (and delivery to the Company by the
Participant of a check in an amount equal to the par value of the shares
purchased), or (z) payment of such other lawful consideration as the Board may
determine.
5. Restricted Stock
-----------------
a. Grants. The Board may grant Awards entitling recipients to acquire
------
shares of Common Stock, subject to (i) delivery to the Company by the
Participant of a check in an amount at least equal to the par value of the
shares purchased, and (ii) the right of the Company to repurchase all or part of
such shares at their issue price or other stated or formula price from the
Participant in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each, a
"Restricted Stock Award").
------------------------
b. Terms and Conditions. The Board shall determine the terms and
----------------------
conditions of any such Restricted Stock Award. Any stock certificates issued in
respect of a Restricted Stock Award shall be registered in the name of the
Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). After the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or, if the Participant has died, to the
beneficiary designated by a Participant, in a manner determined by the Board, to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
-----------------------
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
6. Other Stock-Based Awards
--------------------------
The Board shall have the right to grant other Awards based upon the Common
Stock having such terms and conditions as the Board may determine, including,
without limitation, the grant of shares based upon certain conditions, the grant
of securities convertible into Common Stock and the grant of stock appreciation
rights, phantom stock awards or stock units.
- 3 -
<PAGE>
7. General Provisions Applicable to Awards
-------------------------------------------
a. Transferability of Awards. Except as the Board may otherwise
---------------------------
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. Documentation. Each Award under the Plan shall be evidenced by a
-------------
written instrument in such form as the Board shall determine or as executed by
an officer of the Company pursuant to authority delegated by the Board. Each
Award may contain terms and conditions in addition to those set forth in the
Plan provided that such terms and conditions do not contravene the provisions of
the Plan.
c. Board Discretion. The terms of each type of Award need not be
-----------------
identical, and the Board need not treat Participants uniformly.
d. Termination of Status. The Board shall determine the effect on an
-----------------------
Award of the disability, death, retirement, authorized leave of absence or other
change in the employment or other status of a Participant and the extent to
which, and the period during which, the Participant, or the Participant's legal
representative, conservator, guardian or Designated Beneficiary, may exercise
rights under the Award.
e. Acquisition of the Company
-----------------------------
(i) Consequences of an Acquisition.
---------------------------------
(A) Acquisition Intended to be Accounted for as a
----------------------------------------------------
Pooling-of- Interests.
----------------------
With respect to an Acquisition intended to be accounted for as a
pooling-of-interests: (x) one-half of all outstanding Options held by an officer
of the Company shall become exercisable in full immediately prior to the
consummation of the Acquisition; if the shares of Common Stock subject to such
Options are subject to repurchase provisions, then such repurchase restrictions
shall lapse upon the consummation of the Acquisition; and all outstanding
Options shall remain the obligation of the Company or be assumed by the
surviving or acquiring entity, and there shall be automatically substituted for
the shares of Common Stock then subject to such Options the consideration
payable with respect to the outstanding shares of Common Stock in connection
with the Acquisition; (y) all Restricted Stock Awards then outstanding shall
become immediately free of all repurchase provisions upon the consummation of
the Acquisition; and (z) all other stock-based Awards shall become immediately
exercisable, realizable or vested in full, or shall be immediately free of all
repurchase provisions, as the case may be, upon the consummation of the
Acquisition.
- 4 -
<PAGE>
(B) Acquisition Intended to be Accounted for under the
---------------------------------------------------------
Purchase Method. Unless otherwise expressly provided in the applicable Option or
- ---------------
Award, upon the occurrence of an Acquisition intended to be accounted for under
the purchase method, the Board or the board of directors of the surviving or
acquiring entity (as used in this Section 7(e)(i)(B), also the "Board"), shall,
-----
as to outstanding Awards (on the same basis or on different bases, as the Board
shall specify), make appropriate provision for the continuation of such Awards
by the Company or the assumption of such Awards by the surviving or acquiring
entity and by substituting on an equitable basis for the shares then subject to
such Awards either (a) the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition, (b) shares of stock
of the surviving or acquiring corporation or (c) such other securities as the
Board deems appropriate, the fair market value of which (as determined by the
Board in its sole discretion) shall not materially differ from the fair market
value of the shares of Common Stock subject to such Awards immediately preceding
the Acquisition. In addition to or in lieu of the foregoing, with respect to
outstanding Options, the Board may, upon written notice to the affected
optionees, provide that one or more Options must be exercised, to the extent
then exercisable or to be exercisable as a result of the Acquisition, within a
specified number of days of the date of such notice, at the end of which period
such Options shall terminate; or terminate one or more Options in exchange for a
cash payment equal to the excess of the fair market value (as determined by the
Board in its sole discretion) of the shares subject to such Options (to the
extent then exercisable or to be exercisable as a result of the Acquisition)
over the exercise price thereof.
(C) Acquisition Defined. An "Acquisition" shall mean: (x)
-------------------- -----------
any merger, consolidation or purchase of outstanding capital stock of the
Company after which the voting securities of the Company outstanding immediately
prior thereto represent (either by remaining outstanding or by being converted
into voting securities of the surviving or acquiring entity) less than 50% of
the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such event provided
that any event that reduces the ownership of MathSoft, Inc. to less than 50% of
the outstanding capital stock of the Company shall not be deemed to be an
Acquisition for the purposes of this Section 7; or (y) any sale of all or
substantially all of the assets of the Company (other than in a spin-off or
similar transaction).
(ii) Assumption of Options Upon Certain Events. In connection
---------------------------------------------
with a merger or consolidation of an entity with the Company or the acquisition
by the Company of property or stock of an entity, the Board may grant Awards
under the Plan in substitution for stock and stock-based awards issued by such
entity or an affiliate thereof. The substitute Awards shall be granted on such
terms and conditions as the Board considers appropriate in the circumstances.
(iii) Pooling-of Interests-Accounting. If the Company proposes to
-------------------------------
engage in an Acquisition intended to be accounted for as a pooling-of-interests,
and in the event that the provisions of this Plan or of any Award hereunder, or
any actions of the Board taken in connection with such Acquisition, are
determined by the Company's or the acquiring company's independent public
- 5 -
<PAGE>
accountants to cause such Acquisition to fail to be accounted for as a
pooling-of-interests, then such provisions or actions shall be amended or
rescinded by the Board, without the consent of any Participant, to be consistent
with pooling-of-interests accounting treatment for such Acquisition.
(iv) Parachute Awards. Notwithstanding the provisions of Section
-----------------
7(e)(i), if, in connection with an Acquisition described therein, a tax under
Section 4999 of the Code would be imposed on the Participant (after taking into
account the exceptions set forth in Sections 280G(b)(4) and 280G(b)(5) of the
Code), then the number of Awards which shall become exercisable, realizable or
vested as provided in such section shall be reduced (or delayed), to the minimum
extent necessary, so that no such tax would be imposed on the Participant (the
Awards not becoming so accelerated, realizable or vested, the "Parachute
---------
Awards"); provided, however, that if the "aggregate present value" of the
Parachute Awards would exceed the tax that, but for this sentence, would be
imposed on the Participant under Section 4999 of the Code in connection with the
Acquisition, then the Awards shall become immediately exercisable, realizable
and vested without regard to the provisions of this sentence. For purposes of
the preceding sentence, the "aggregate present value" of an Award shall be
calculated on an after-tax basis and shall be based on economic principles
rather than the principles set forth under Section 280G of the Code and the
regulations promulgated thereunder. All determinations required to be made under
this Section 7(e)(iv) shall be made by the Company.
f. Withholding. Each Participant shall pay to the Company, or make
-----------
provisions satisfactory to the Company for payment of, any taxes required by law
to be withheld in connection with Awards to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part by transferring shares of
Common Stock, including shares retained from the Award creating the tax
obligation, valued at their fair market value (as determined by the Board or as
determined pursuant to the applicable option agreement). The Company may, to
the extent permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to a Participant.
g. Amendment of Awards. The Board may amend, modify or terminate any
---------------------
outstanding Award including, but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that, except as otherwise provided in Section 7(e)(iii), the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
h. Conditions on Delivery of Stock. The Company will not be obligated
--------------------------------
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
- 6 -
<PAGE>
i. Acceleration. The Board may at any time provide that any Options
------------
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of some or all restrictions, or that any other
stock-based Awards may become exercisable in full or in part or free of some or
all restrictions or conditions, or otherwise realizable in full or in part, as
the case may be, despite the fact that the foregoing actions may (i) cause the
application of Sections 280G and 4999 of the Code if a change in control of the
Company occurs, or (ii) disqualify all or part of the Option as an Incentive
Stock Option.
8. Miscellaneous
-------------
a. Definitions.
-----------
(i) "Company," for purposes of eligibility under the Plan, shall
--------
include any present or future subsidiary corporations of FreeScholarships.com,
Inc., as defined in Section 424(f) of the Code (a "Subsidiary"). For purposes
----------
of Awards other than Incentive Stock Options, the term "Company" shall include
-------
any other business venture in which the Company has a direct or indirect
significant interest, as determined by the Board in its sole discretion.
(ii) "Code" means the Internal Revenue Code of 1986, as amended,
----
and any regulations promulgated thereunder.
(iii) "employee" for purposes of eligibility under the Plan shall
--------
include a person to whom an offer of employment has been extended by the
Company.
b. No Right To Employment or Other Status. No person shall have any
-----------------------------------------
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan.
c. No Rights As Stockholder. Subject to the provisions of the
---------------------------
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder thereof.
d. Effective Date and Term of Plan. The Plan shall become effective on
-------------------------------
the date on which it is adopted by the Board. No Awards shall be granted under
the Plan after the completion of ten years from the date on which the Plan was
adopted by the Board, but Awards previously granted may extend beyond that date.
e. Amendment of Plan. The Board may amend, suspend or terminate the
-------------------
Plan or any portion thereof at any time.
- 7 -
<PAGE>
f. Governing Law. The provisions of the Plan and all Awards made
--------------
hereunder shall be governed by and interpreted in accordance with the laws of
the Commonwealth of Massachusetts, without regard to any applicable conflicts of
law.
Adopted by the Board of Directors on
June 1, 1999
Approved by the stockholders on
June 11, 1999
- 8 -
<PAGE>
Exhibit 99.6
------------
FREESCHOLARSHIPS.COM, INC.
Form Of Incentive Stock Option Agreement
----------------------------------------
FreeScholarships.com, Inc. (the "Company") hereby grants as of
-------
_____________ [ = date of Board grant] to ________________ (the "Employee"), an
--------
option to purchase a maximum of _________ shares (the "Option Shares") of its
-------------
Common Stock at the price of $_________ per share on the following terms and
conditions:
1. The Employee must have signed the Stock Restriction Agreement
attached as Exhibit A in order to be eligible to receive the grant of options
----------
pursuant to this Agreement.
2. Grant Under Plan. This option is granted pursuant to and is
------------------
governed by the Company's 1999 Stock Option and Incentive Plan (the "Plan") and,
----
unless the context otherwise requires, terms used herein shall have the same
meaning as in the Plan.
3. Grant as Incentive Stock Option. This option is intended to qualify
--------------------------------
as an incentive stock option under Section 422 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Code").
----
4. Vesting of Option if Employment Continues. If the Employee has
----------------------------------------------
remained continuously employed by the Company through the following dates, the
Employee may exercise this option for the number of shares of Common Stock set
opposite the applicable date:
On the first anniversary of the date - _______ shares
hereof (25% of total)
On the last day of each month - an additional _______ shares
thereafter until all options are
vested (2.08% of total option grant
each month)
Notwithstanding the foregoing, the Board may, in its discretion, accelerate the
date that any installment of this option becomes exercisable. The foregoing
rights are cumulative and (subject to Sections 5 or 6 hereof if the Employee
ceases to be employed by the Company) may be exercised on or before the date
which is ten years from the date this option is granted.
5. Termination of Employment.
---------------------------
(a) Termination Other Than for Cause. If the Employee ceases to be
------------------------------------
employed by the Company, other than by reason of death or disability as defined
in Section 6 or termination for Cause as defined in Section 5(c), no further
installments of this option shall become exercisable, and this option shall
expire (may no longer be exercised) after the passage of three months from the
<PAGE>
- 2 -
Employee's last day of employment, but in no event later than the scheduled
expiration date. For purposes hereof, employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service), provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which the Employee's right to reemployment is guaranteed by statute or by
contract. A bona fide leave of absence with the written approval of the Company
shall not be considered an interruption of employment for purposes hereof,
provided that such written approval contractually obligates the Company to
continue the employment of the Employee after the approved period of absence.
This option shall not be affected by any change of employment within or among
the Company and its Subsidiaries so long as the Employee continuously remains an
employee of the Company or any Subsidiary.
(b) Termination for Cause. If the employment of the Employee is
-----------------------
terminated for Cause (as defined in Section 5(c)), this option shall expire (may
no longer be exercised) upon the Employee's receipt of notice of such
termination and shall thereafter not be exercisable to any extent whatsoever.
(c) Definition of Cause. "Cause" shall mean conduct involving one or
--------------------- -----
more of the following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the Company in accordance
with the terms or requirements of his or her employment; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to
the Company; (iii) deliberate disregard of the rules or policies of the
Company, or breach of an employment or other agreement with the Company, which
results in direct or indirect loss, damage or injury to the Company; (iv) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (v) the commission of an act which constitutes unfair competition
with the Company or which induces any customer or supplier to breach a contract
with the Company.
6. Death; Disability.
------------------
(a) Death. If the Employee dies while in the employ of the Company,
-----
this option may be exercised, to the extent otherwise exercisable on the date of
his or her death, by the Employee's estate, personal representative or
beneficiary to whom this option has been assigned pursuant to Section 11, at any
time within 180 days after the date of death, but not later than the scheduled
expiration date.
(b) Disability. If the Employee ceases to be employed by the Company
----------
by reason of his or her disability, this option may be exercised, to the extent
otherwise exercisable on the date of cessation employment, at any time within
180 days] after such cessation of employment, but not later than the scheduled
expiration date. For purposes hereof, "disability" means "permanent and total
----------
disability" as defined in Section 22(e)(3) of the Code.
<PAGE>
- 3 -
(c) Effect of Termination. At the expiration of the 180-day period
-----------------------
provided in paragraphs (a) or (b) of this Section 6 or the scheduled expiration
date of this option, whichever is the earlier, this option shall expire (may no
longer be exercised).
7. Partial Exercise. This option may be exercised in part at any time
-----------------
and from time to time within the above limits, except that this option may not
be exercised for a fraction of a share.
8. Payment of Exercise Price.
----------------------------
(a) Payment Options. The exercise price shall be paid by one or any
----------------
combination of the following forms of payment:
(i) in cash, or by check payable to the order of the Company;
(ii) by delivery of shares of Common Stock having a fair market value
equal as of the date of exercise to the option price; or
(iii) if the Common Stock is then traded on a national securities
exchange or on the Nasdaq National Market (or successor trading
system), delivery of an irrevocable and unconditional undertaking,
satisfactory in form and substance to the Company, by a
creditworthy broker to deliver promptly to the Company
sufficient funds to pay the exercise price, or delivery by the
Employee to the Company of a copy of irrevocable and unconditional
instructions, satisfactory in form and substance to the Company,
to a creditworthy broker to deliver promptly to the Company cash or
a check sufficient to pay the exercise price.
In the case of (ii) above, fair market value shall be determined by the
Board in its sole discretion or, if the Common Stock is then traded on a
national securities exchange or the Nasdaq National Market (or successor trading
system) as of the last business day for which such prices or quotes are
available prior to the date of exercise and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the Nasdaq National Market (or
successor trading system), if the Common Stock is not then traded on a national
securities exchange.
(b) Limitations on Payment by Delivery of Common Stock. If the
---------------------------------------------------------
Employee delivers Common Stock held by the Employee ("Old Stock") to the Company
---------
in full or partial payment of the exercise price, and the Old Stock so delivered
is subject to restrictions or limitations imposed by agreement between the
Employee and the Company, an equivalent number of Option Shares shall be subject
to all restrictions and limitations applicable to the Old Stock to the extent
<PAGE>
- 4 -
that the Employee paid for the Option Shares by delivery of Old Stock, in
addition to any restrictions or limitations imposed by this Agreement.
Notwithstanding the foregoing, the Employee may not pay any part of the exercise
price hereof by transferring Common Stock to the Company unless such Common
Stock has been owned by the Employee free of any substantial risk of forfeiture
for at least six months.
(c) Permitted Payment by Recourse Note. In addition, if this paragraph
----------------------------------
is initialed below by the person signing this Agreement on behalf of the
Company, the exercise price may be paid by payment in cash or by check payable
to the order of the Company of the par value of the shares being purchased plus
delivery of the Employee's [three]-year personal full recourse promissory note
for the balance of the exercise price, with such note bearing interest payable
not less than annually at the applicable Federal rate, as defined in Section
1274(d) of the Code.
__________
(initials)
9. Restrictions on Resale.
-------------------------
(a) Restrictions. Option Shares may not be transferred without the
------------
Company's written consent except by will, by the laws of descent and
distribution and in accordance with the Stock Restriction Agreement. Option
Shares will be of an illiquid nature and will be deemed to be "restricted
securities" for purposes of the Securities Act of 1933, as amended, or any
successor statute (the "Securities Act"). Accordingly, such shares must be sold
--------------
in compliance with the registration requirements of the Securities Act or an
exemption therefrom. Each certificate evidencing any of the Option Shares shall
bear a legend substantially as follows:
"The shares represented by this certificate are subject to restrictions on
transfer and may not be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of except in accordance with and subject to all the terms
and conditions of a certain Incentive Stock Option Agreement dated as of [date]
and of a certain Stock Restriction Agreement dated June 11, 1999, as it may be
amended from time to time, copies of which the Company will furnish to the
holder of this certificate upon request and without charge."
(b) Termination of Restrictions. The restrictions on transfer
-----------------------------
contained in the first sentence of Section 9(a) shall expire as to Option
Shares on the earliest to occur of (i) the tenth anniversary of the date of this
Agreement, (ii) immediately prior to the closing of a public offering of Common
Stock by the Company pursuant to an effective registration statement filed under
the Securities Act, or (iii) the occurrence of an Acquisition.
10. Method of Exercising Option. Subject to the terms and conditions
-----------------------------
of this Agreement, this option may be exercised by written notice to the Company
at its principal executive office, or to such transfer agent as the Company
shall designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and shall be
signed by the person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and the
Company shall deliver a certificate or certificates representing such shares as
<PAGE>
- 5 -
soon as practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the Employee
and if the Employee shall so request in the notice exercising this option, shall
be registered in the name of the Employee and another person jointly, with right
of survivorship). In the event this option shall be exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such notice
shall be accompanied by appropriate proof of the right of such person or persons
to exercise this option.
11. Option Not Transferable. This option is not transferable or
-------------------------
assignable except by will or by the laws of descent and distribution. During
the Employee's lifetime only the Employee can exercise this option.
12. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option imposes no obligation on the Employee to exercise it.
13. No Obligation to Continue Employment. Neither the Plan, this
----------------------------------------
Agreement, nor the grant of this option imposes any obligation on the Company to
continue the Employee in employment.
14. Adjustments. Except as is expressly provided in the Plan with
-----------
respect to certain changes in the capitalization of the Company, no adjustment
shall be made for dividends or similar rights for which the record date is prior
to such date of exercise.
15. Acquisitions. Notwithstanding the provisions of Section 8(e) of
------------
the Plan, upon the occurrence of an Acquisition, if this option is held by an
officer of the Company, one-half of this Option shall become immediately
exercisable in full immediately prior to the effectiveness of such Acquisition
and will terminate, to the extent unexercised, upon the consummation of such
Acquisition; provided, however, that the Board, in its sole discretion, may
require that the Employee's rights under this section shall be conditioned on
approval by shareholders of the Company in accordance with Section 280G(b)(5)(B)
of the Code.
16. Early Disposition. The Employee agrees to notify the Company
------------------
in writing immediately after the Employee transfers any Option Shares, if such
transfer occurs on or before the later of (a) the date two years after the date
of this Agreement or (b) the date one year after the date the Employee acquired
such Option Shares. The Employee also agrees to provide the Company with any
information concerning any such transfer required by the Company for tax
purposes.
17. Withholding Taxes. If the Company in its discretion determines
------------------
that it is obligated to withhold any tax in connection with the exercise of this
option, or in connection with the transfer of, or the lapse of restrictions on,
any Common Stock or other property acquired pursuant to this option, the
Employee hereby agrees that the Company may withhold from the Employee's wages
or other remuneration the appropriate amount of tax. At the discretion of the
Company, the amount required to be withheld may be withheld in cash from such
wages or other remuneration or in kind from the Common Stock or other property
otherwise deliverable to the Employee on exercise of this option. The Employee
further agrees that, if the Company does not withhold an amount from the
Employee's wages or other remuneration sufficient to satisfy the withholding
obligation of the Company, the Employee will make reimbursement on demand, in
cash, for the amount underwithheld.
<PAGE>
- 6 -
18. Lock-up Agreement. The Employee agrees that in connection with an
------------------
underwritten public offering of Common Stock, upon the request of the Company or
the principal underwriter managing such public offering, the Option Shares may
not be sold, offered for sale or otherwise disposed of without the prior written
consent of the Company or such underwriter, as the case may be, for at least 180
days after the execution of an underwriting agreement in connection with such
offering, or such longer period of time as the Board of Directors may determine
if all of the Company's directors and executive officers agree to be similarly
bound. The obligations under this Section 20 shall remain effective for all
underwritten public offerings with respect to which the Company has filed a
registration statement on or before the date two (2) years after the closing of
the Company's initial public offering; provided, however, that this Section 20
shall cease to apply to any Option Shares sold to the public pursuant to an
effective registration statement or an exemption from the registration
requirements of the Securities Act in a transaction that complied with the terms
of this Agreement.
19. Arbitration. Any dispute, controversy, or claim arising out of, in
-----------
connection with, or relating to the performance of this Agreement or its
termination shall be settled by arbitration in the Commonwealth of
Massachusetts, pursuant to the rules then obtaining of the American Arbitration
Association. Any award shall be final, binding and conclusive upon the parties
and a judgment rendered thereon may be entered in any court having jurisdiction
thereof.
20. Provision of Documentation to Employee. By signing this Agreement
---------------------------------------
the Employee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
21. Miscellaneous.
-------------
(a) Notices. All notices hereunder shall be in writing and shall be
-------
deemed given when sent by certified or registered mail, postage prepaid, return
receipt requested, if to the Employee, to the address set forth below or at the
address shown on the records of the Company, and if to the Company, to the
Company's principal executive offices, attention of the Corporate Secretary.
(b) Entire Agreement; Modification. This Agreement constitutes the
--------------------------------
entire agreement between the parties relative to the subject matter hereof, and
supersedes all proposals, written or oral, and all other communications between
the parties relating to the subject matter of this Agreement. This Agreement
may be modified, amended or rescinded only by a written agreement executed by
both parties.
(c) Fractional Shares. If this option becomes exercisable for a
------------------
fraction of a share because of the adjustment provisions contained in the Plan,
such fraction shall be rounded down.
(d) Issuances of Securities. Except as expressly provided herein or in
------------------------
the Plan, no issuance by the Company of shares of stock of any class, or
<PAGE>
- 7 -
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to this option. No adjustments need be made for dividends
paid in cash or in property other than securities of the Company.
(e) Severability. The invalidity, illegality or unenforceability of
------------
any provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
(f) Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties hereto and their respective successors and
assigns, subject to the limitations set forth in Section 10 hereof.
(g) Governing Law. This Agreement shall be governed by and interpreted
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the principles of the conflicts of laws thereof.
[Remainder of page intentionally left blank]
<PAGE>
- 8 -
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
FREESCHOLARSHIPS.COM, INC.
____________________________________ By:__________________________________
Employee Name of Officer:
Title:
____________________________________
Print Name of Employee
____________________________________
Street Address
____________________________________
City State Zip Code
<PAGE>
Exhibit 99.7
------------
FREESCHOLARSHIPS.COM, INC.
Form Of Non-Qualified Stock Option Agreement
--------------------------------------------
FreeScholarships.com, Inc. (the "Company") hereby grants as of
-------
_____________ [ = date of Board grant] to ________________ (the "Employee"), an
--------
option to purchase a maximum of _________ shares (the "Option Shares") of its
-------------
Common Stock at the price of $_________ per share on the following terms and
conditions:
1. The Employee must have signed the Stock Restriction Agreement
attached as ExhibitA in order to be eligible to receive the grant of options
-------
pursuant to this Agreement.
2. Grant Under Plan. This option is granted pursuant to and is
------------------
governed by the Company's 1999 Stock Option and Incentive Plan (the "Plan") and,
----
unless the context otherwise requires, terms used herein shall have the same
meaning as in the Plan.
3. Grant as Non-Qualified Stock Option. This option is a non-statutory
-----------------------------------
stock option and is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder (the "Code").
----
4. Vesting of Option if Employment Continues. If the Employee has
----------------------------------------------
remained continuously employed by the Company through the following dates, the
Employee may exercise this option for the number of shares of Common Stock set
opposite the applicable date:
On the first anniversary of the date - _______ shares
hereof (25% of total)
On the last day of each month - an additional _______ shares
thereafter until all options are
vested (2.08% of total option grant
each month)
Notwithstanding the foregoing, the Board may, in its discretion, accelerate the
date that any installment of this option becomes exercisable. The foregoing
rights are cumulative and (subject to Sections 5 or 6 hereof if the Employee
ceases to be employed by the Company) may be exercised on or before the date
which is ten years from the date this option is granted.
5. Termination of Employment.
---------------------------
(a) Termination Other Than for Cause. If the Employee ceases to be
------------------------------------
employed by the Company, other than by reason of death or disability as defined
in Section 6 or termination for Cause as defined in Section 5(c), no further
installments of this option shall become exercisable, and this option shall
expire (may no longer be exercised) after the passage of three months from the
<PAGE>
- 2 -
Employee's last day of employment, but in no event later than the scheduled
expiration date. For purposes hereof, employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service), provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which the Employee's right to reemployment is guaranteed by statute or by
contract. A bona fide leave of absence with the written approval of the Company
shall not be considered an interruption of employment for purposes hereof,
provided that such written approval contractually obligates the Company to
continue the employment of the Employee after the approved period of absence.
This option shall not be affected by any change of employment within or among
the Company and its Subsidiaries so long as the Employee continuously remains an
employee of the Company or any Subsidiary.
(b) Termination for Cause. If the employment of the Employee is
-----------------------
terminated for Cause (as defined in Section 5(c)), this option shall expire (may
no longer be exercised) upon the Employee's receipt of notice of such
termination and shall thereafter not be exercisable to any extent whatsoever.
(c) Definition of Cause. "Cause" shall mean conduct involving one or
--------------------- -----
more of the following: (i) the substantial and continuing failure of the
Employee, after notice thereof, to render services to the Company in accordance
with the terms or requirements of his or her employment; (ii) disloyalty, gross
negligence, willful misconduct, dishonesty, fraud or breach of fiduciary duty to
the Company; (iii) deliberate disregard of the rules or policies of the
Company, or breach of an employment or other agreement with the Company, which
results in direct or indirect loss, damage or injury to the Company; (iv) the
unauthorized disclosure of any trade secret or confidential information of the
Company; or (v) the commission of an act which constitutes unfair competition
with the Company or which induces any customer or supplier to breach a contract
with the Company.
6. Death; Disability.
------------------
(a) Death. If the Employee dies while in the employ of the Company,
-----
this option may be exercised, to the extent otherwise exercisable on the date of
his or her death, by the Employee's estate, personal representative or
beneficiary to whom this option has been assigned pursuant to Section 11, at any
time within 180 days after the date of death, but not later than the scheduled
expiration date.
(b) Disability. If the Employee ceases to be employed by the Company
----------
by reason of his or her disability, this option may be exercised, to the extent
otherwise exercisable on the date of cessation employment, at any time within
180 days] after such cessation of employment, but not later than the scheduled
expiration date. For purposes hereof, "disability" means "permanent and total
----------
disability" as defined in Section 22(e)(3) of the Code.
<PAGE>
- 3 -
(c) Effect of Termination. At the expiration of the 180-day period
-----------------------
provided in paragraphs (a) or (b) of this Section 6 or the scheduled expiration
date of this option, whichever is the earlier, this option shall expire (may no
longer be exercised).
7. Partial Exercise. This option may be exercised in part at any time
-----------------
and from time to time within the above limits, except that this option may not
be exercised for a fraction of a share.
8. Payment of Exercise Price.
----------------------------
(a) Payment Options. The exercise price shall be paid by one or any
----------------
combination of the following forms of payment:
(i) in cash, or by check payable to the order of the Company;
(ii) by delivery of shares of Common Stock having a fair market value
equal as of the date of exercise to the option price; or
(iii) if the Common Stock is then traded on a national securities
exchange or on the Nasdaq National Market (or successor trading
system), delivery of an irrevocable and unconditional undertaking,
satisfactory in form and substance to the Company, by a
creditworthy broker to deliver promptly to the Company sufficient
funds to pay the exercise price, or delivery by the Employee to the
Company of a copy of irrevocable and unconditional instructions,
satisfactory in form and substance to the Company, to a
creditworthy broker to deliver promptly to the Company cash or a
check sufficient to pay the exercise price.
In the case of (ii) above, fair market value shall be determined by the
Board in its sole discretion or, if the Common Stock is then traded on a
national securities exchange or the Nasdaq National Market (or successor trading
system) as of the last business day for which such prices or quotes are
available prior to the date of exercise and shall mean (i) the average (on that
date) of the high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the Nasdaq National Market (or
successor trading system), if the Common Stock is not then traded on a national
securities exchange.
(b) Limitations on Payment by Delivery of Common Stock. If the
---------------------------------------------------------
Employee delivers Common Stock held by the Employee ("Old Stock") to the Company
---------
in full or partial payment of the exercise price, and the Old Stock so delivered
is subject to restrictions or limitations imposed by agreement between the
Employee and the Company, an equivalent number of Option Shares shall be subject
to all restrictions and limitations applicable to the Old Stock to the extent
that the Employee paid for the Option Shares by delivery of Old Stock, in
<PAGE>
- 4 -
addition to any restrictions or limitations imposed by this Agreement.
Notwithstanding the foregoing, the Employee may not pay any part of the exercise
price hereof by transferring Common Stock to the Company unless such Common
Stock has been owned by the Employee free of any substantial risk of forfeiture
for at least six months.
(c) Permitted Payment by Recourse Note. In addition, if this paragraph
----------------------------------
is initialed below by the person signing this Agreement on behalf of the
Company, the exercise price may be paid by payment in cash or by check payable
to the order of the Company of the par value of the shares being purchased plus
delivery of the Employee's [three]-year personal full recourse promissory note
for the balance of the exercise price, with such note bearing interest payable
not less than annually at the applicable Federal rate, as defined in Section
1274(d) of the Code.
__________
(initials)
9. Restrictions on Resale.
-------------------------
(a) Restrictions. Option Shares may not be transferred without the
------------
Company's written consent except by will, by the laws of descent and
distribution and in accordance with the Stock Restriction Agreement. Option
Shares will be of an illiquid nature and will be deemed to be "restricted
securities" for purposes of the Securities Act of 1933, as amended, or any
successor statute (the "Securities Act"). Accordingly, such shares must be sold
--------------
in compliance with the registration requirements of the Securities Act or an
exemption therefrom. Each certificate evidencing any of the Option Shares shall
bear a legend substantially as follows:
"The shares represented by this certificate are subject to restrictions on
transfer and may not be sold, exchanged, transferred, pledged, hypothecated or
otherwise disposed of except in accordance with and subject to all the terms
and conditions of a certain Non-Qualified Stock Option Agreement dated as of
[date] and of a certain Stock Restriction Agreement dated June 11, 1999, as it
may be amended from time to time, copies of which the Company will furnish to
the holder of this certificate upon request and without charge."
(b) Termination of Restrictions. The restrictions on transfer
-----------------------------
contained in the first sentence of Section 9(a) shall expire as to Option
Shares on the earliest to occur of (i) the tenth anniversary of the date of this
Agreement, (ii) immediately prior to the closing of a public offering of Common
Stock by the Company pursuant to an effective registration statement filed under
the Securities Act, or (iii) the occurrence of an Acquisition.
10. Method of Exercising Option. Subject to the terms and conditions
-----------------------------
of this Agreement, this option may be exercised by written notice to the Company
at its principal executive office, or to such transfer agent as the Company
shall designate. Such notice shall state the election to exercise this option
and the number of Option Shares for which it is being exercised and shall be
signed by the person or persons so exercising this option. Such notice shall be
accompanied by payment of the full purchase price of such shares, and the
<PAGE>
- 5 -
Company shall deliver a certificate or certificates representing such shares as
soon as practicable after the notice shall be received. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the Employee
and if the Employee shall so request in the notice exercising this option, shall
be registered in the name of the Employee and another person jointly, with right
of survivorship). In the event this option shall be exercised, pursuant to
Section 5 hereof, by any person or persons other than the Employee, such notice
shall be accompanied by appropriate proof of the right of such person or persons
to exercise this option.
11. Option Not Transferable. This option is not transferable or
-------------------------
assignable except by will or by the laws of descent and distribution. During
the Employee's lifetime only the Employee can exercise this option.
12. No Obligation to Exercise Option. The grant and acceptance of this
--------------------------------
option imposes no obligation on the Employee to exercise it.
13. No Obligation to Continue Employment. Neither the Plan, this
----------------------------------------
Agreement, nor the grant of this option imposes any obligation on the Company to
continue the Employee in employment.
14. Adjustments. Except as is expressly provided in the Plan with
-----------
respect to certain changes in the capitalization of the Company, no adjustment
shall be made for dividends or similar rights for which the record date is prior
to such date of exercise.
15. Acquisitions. Notwithstanding the provisions of Section 8(e) of
------------
the Plan, upon the occurrence of an Acquisition, if this option is held by an
officer of the Company, one-half of this Option shall become immediately
exercisable in full immediately prior to the effectiveness of such Acquisition
and will terminate, to the extent unexercised, upon the consummation of such
Acquisition; provided, however, that the Board, in its sole discretion, may
require that the Employee's rights under this section shall be conditioned on
approval by shareholders of the Company in accordance with Section 280G(b)(5)(B)
of the Code.
16. Withholding Taxes. If the Company in its discretion determines
------------------
that it is obligated to withhold any tax in connection with the exercise of this
option, or in connection with the transfer of, or the lapse of restrictions on,
any Common Stock or other property acquired pursuant to this option, the
Employee hereby agrees that the Company may withhold from the Employee's wages
or other remuneration the appropriate amount of tax. At the discretion of the
Company, the amount required to be withheld may be withheld in cash from such
wages or other remuneration or in kind from the Common Stock or other property
otherwise deliverable to the Employee on exercise of this option. The Employee
further agrees that, if the Company does not withhold an amount from the
Employee's wages or other remuneration sufficient to satisfy the withholding
obligation of the Company, the Employee will make reimbursement on demand, in
cash, for the amount underwithheld.
<PAGE>
- 6 -
17. Lock-up Agreement. The Employee agrees that in connection with an
------------------
underwritten public offering of Common Stock, upon the request of the Company or
the principal underwriter managing such public offering, the Option Shares may
not be sold, offered for sale or otherwise disposed of without the prior written
consent of the Company or such underwriter, as the case may be, for at least 180
days after the execution of an underwriting agreement in connection with such
offering, or such longer period of time as the Board of Directors may determine
if all of the Company's directors and executive officers agree to be similarly
bound. The obligations under this Section 20 shall remain effective for all
underwritten public offerings with respect to which the Company has filed a
registration statement on or before the date two (2) years after the closing of
the Company's initial public offering; provided, however, that this Section 20
shall cease to apply to any Option Shares sold to the public pursuant to an
effective registration statement or an exemption from the registration
requirements of the Securities Act in a transaction that complied with the terms
of this Agreement.
18. Arbitration. Any dispute, controversy, or claim arising out of, in
-----------
connection with, or relating to the performance of this Agreement or its
termination shall be settled by arbitration in the Commonwealth of
Massachusetts, pursuant to the rules then obtaining of the American Arbitration
Association. Any award shall be final, binding and conclusive upon the parties
and a judgment rendered thereon may be entered in any court having jurisdiction
thereof.
19. Provision of Documentation to Employee. By signing this Agreement
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the Employee acknowledges receipt of a copy of this Agreement and a copy of the
Plan.
20. Miscellaneous.
-------------
(a) Notices. All notices hereunder shall be in writing and shall be
-------
deemed given when sent by certified or registered mail, postage prepaid, return
receipt requested, if to the Employee, to the address set forth below or at the
address shown on the records of the Company, and if to the Company, to the
Company's principal executive offices, attention of the Corporate Secretary.
(b) Entire Agreement; Modification. This Agreement constitutes the
--------------------------------
entire agreement between the parties relative to the subject matter hereof, and
supersedes all proposals, written or oral, and all other communications between
the parties relating to the subject matter of this Agreement. This Agreement
may be modified, amended or rescinded only by a written agreement executed by
both parties.
(c) Fractional Shares. If this option becomes exercisable for a
------------------
fraction of a share because of the adjustment provisions contained in the Plan,
such fraction shall be rounded down.
(d) Issuances of Securities. Except as expressly provided herein or in
------------------------
the Plan, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to this option. No adjustments need be made for dividends
paid in cash or in property other than securities of the Company.
<PAGE>
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(e) Severability. The invalidity, illegality or unenforceability of any
------------
provision of this Agreement shall in no way affect the validity, legality or
enforceability of any other provision.
(f) Successors and Assigns. This Agreement shall be binding upon and
------------------------
inure to the benefit of the parties hereto and their respective successors and
assigns, subject to the limitations set forth in Section 10 hereof.
(g) Governing Law. This Agreement shall be governed by and interpreted
-------------
in accordance with the laws of the Commonwealth of Massachusetts, without giving
effect to the principles of the conflicts of laws thereof.
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<PAGE>
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IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date first above written.
FREESCHOLARSHIPS.COM, INC.
____________________________________ By:__________________________________
Employee Name of Officer:
Title:
____________________________________
Print Name of Employee
____________________________________
Street Address
____________________________________
City State Zip Code
<PAGE>
