EXHIBIT 99.3
FORM OF EXCHANGE AGREEMENT
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EXCHANGE AGREEMENT
This Agreement is being entered into as of the date set forth on the
signature page hereto by and between CONNECT, Inc. (the "Company") and the
undersigned ("Subscriber").
Background
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On February 26, 1998, the Company issued to Subscriber shares of
Series A Preferred Stock of the Company (the "Series A Preferred Stock")
pursuant to an Exchange Agreement between the Company and Subscriber (the
"Original Exchange Agreement"). The Company and Subscriber desire to exchange
the shares of Series A Preferred Stock held by Subscriber and outstanding on the
Exchange Date (as defined below) for shares of Common Stock of the Company on
the terms set forth in this Exchange Agreement.
For good and valuable consideration, the sufficiency of which is
hereby acknowledged, the Company and Subscriber hereby agree as follows:
I. Certain Representations.
A. The Company represents and warrants to Subscriber as follows:
1. all filings which the Company has made with the Securities
Exchange Commission ("SEC") are correct and accurate in all
material respects and in all material respects state all facts
necessary to make such filings not misleading, and during the last
12 months all such filings required to be made were timely made;
2. there has been no material adverse change in the business, assets
or financial condition of the Company since the most recent such
filing, except for adverse changes in the Company's financial
condition and results of operations since December 31, 1997;
3. except for any stockholder approval that may be required by
NASDAQ, the Company has the full power and authority to enter into
this Agreement and to carry out the transactions contemplated
hereby, all proceedings required to be taken by it or its
stockholders to authorize and to execute, deliver
and perform this Agreement and the agreements relating hereto have
been properly taken, and this Agreement constitutes a valid and
binding obligation of the Company, enforceable in accordance with
its terms;
4. neither the execution, delivery nor performance of this Agreement
by the Company will, with or without the giving of notice or the
passage of time, or both, conflict with, result in a default,
right to accelerate or loss of rights under, or result in the
creation of any lien, charge or encumbrance pursuant to, any
provision of the Company's certificate of incorporation or by-laws
or any franchise, mortgage, deed of trust, lease, license,
agreement, understanding, law, rule or regulation or any order,
judgment or decree to which the Company is a party or by which it
may be bound or affected;
5. except for any stockholder approval that may be required by
NASDAQ, the Company has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder; the execution, delivery and performance of
this Agreement and the consummation of the transactions
contemplated hereby have duly authorized and, except for any
stockholder approval that may be required by NASDAQ, all corporate
actions and all other approvals, consents, authorizations and
filings have been taken or made; and this Agreement constitutes a
valid and binding obligation of the Company, enforceable in
accordance with its terms;
6. the Company's Common Stock is listed on the NASDAQ National Market
and trading in the Common Stock has not been suspended; and
7. there is no action, suit, proceeding or investigation pending or,
to the Company's knowledge, currently threatened against the
Company that questions the validity of this Agreement or the
issuance of the Company's Common Stock pursuant to this Agreement
or the right of the Company to enter into this Agreement or to
consummate the transactions contemplated hereby.
II. Exchange of Shares of Series A Preferred Stock for Common Stock.
A. The Company hereby agrees to issue to Subscriber in exchange for each
share of Series A Preferred Stock held by Subscriber, and in exchange
for the accrued dividends through March 31, 1998 with respect to the
outstanding shares of Series A Preferred Stock, a number of shares of
Common Stock equal to $2.00 divided by $ 1.15 (the "Exchange"). The
number of shares of Common Stock issuable in the Exchange to
Subscriber and to each other holder of Series A Preferred Stock is set
forth on Exhibit A hereto. Subscriber hereby agrees to the Exchange,
subject to the terms hereof. Subscriber confirms that it has not
elected to convert any shares of Series A Preferred Stock after
12:01a.m. California time on March 31, 1998. Subscriber also
acknowledges that Exhibit A hereto sets forth all of the shares of
Series A Preferred Stock held by Subscriber. Subscriber also agrees
not to convert any shares of Series A Preferred Stock on or prior to
the closing of the Exchange.
B. The Exchange shall take place upon, or simultaneously with,
satisfaction of each of the following closing conditions: (i) the
simultaneous exchange of 4,634,772 shares, plus accrued dividends, of
Series A Preferred Stock, for shares of Common Stock as contemplated
by exchange agreements substantially in the form of this Exchange
Agreement entered into with each holder of Series A Preferred Stock;
(ii) all of the representations and warranties set forth in Section 1
of this Agreement shall be true as of the Exchange Date (as defined
below); (iii) on the Exchange Date and giving effect to the exchange
of 4,634,772 shares of Series A Preferred Stock for shares of Common
Stock, the Company shall be in compliance with the listing
requirements of the NASDAQ National Market, other than the
requirements relating to stockholder approval; and (iv) counsel to the
Company shall have delivered to each Subscriber a legal opinion
substantially consistent with the legal opinion delivered in
connection with the Original Exchange Agreement.
C. Subject to compliance with the closing conditions set forth in Section
2(b) above, the closing of the Exchange shall occur on April 1, 1998
or within five days after receipt by Subscriber of notice from the
Company of an alternative date for the closing (the "Exchange Date");
provided, however, that this Exchange Agreement shall terminate and
have no effect if less than all of the holders of the Company's Series
A Preferred Stock execute an exchange agreement substantially in the
form of this Exchange Agreement prior to 12:00 p.m. California time on
April 1, 1998 and that neither party shall be obligated to close the
Exchange after April 30, 1998.
(a) Upon completion of the Exchange, including the delivery to Subscriber
of shares of Common Stock as contemplated by the Exchange, the shares
of Series A Preferred Stock will be canceled and the Original Exchange
Agreement will be superseded by this Agreement. All Warrants issued to
Subscriber on November 18, 1997 (the "Warrants") will be canceled
effective upon completion of the Exchange.
III. Registration.
A. The Company will file, on or before the 2nd business day after the
Exchange Date, amendments to the existing shelf registration
statements on Form S-3 (registration nos. 333-47055 and 333-43197)
(the "Registration Statements") in which the Company will provide that
such Registration Statements also relate to the shares of Common Stock
issuable under this Agreement. The shares to be covered by the
Registration Statements are collectively referred to as the
"registered shares." Subscriber agrees that the shares issuable in the
Exchange or otherwise covered by the Registration Statements are
restricted and may not be sold pursuant to the Registration Statements
until the amendments contemplated by this paragraph are declared
effective by the Securities and Exchange Commission.
B. The Company shall use its best efforts to cause the amendments to the
Registration Statements described in Section 3(a) to become effective
within 15 days after the Exchange Date. The Company shall use its
best efforts to cause the Registration Statements to remain effective
for three years; provided, however, that such three-year period shall
be extended for any amount of time during which such a Registration
Statement is not currently in effect, a stop order is in effect or the
Common Stock is not listed and trading on the NASDAQ National Market.
The registration shall be accompanied by blue sky clearances in such
states as Subscriber may reasonably request.
C. The Company shall pay all expenses of the registrations hereunder,
other than Subscriber's underwriting discounts and counsel or other
fees.
D. The Company shall supply to Subscriber a reasonable number of copies
of all registration materials and prospectuses. The Company shall file
with the SEC such amendments and supplements to the Registration
Statements and the prospectus included therein as may be necessary to
keep the Registration Statements effective and in compliance with the
provisions of the Securities Act. The Subscriber shall reasonably
cooperate with the Company in the preparation and filing of the
Registration Statements and appropriate amendments thereto.
E. Subscriber may transfer all or any part of its registration rights to
"permitted transferees" of the Common Stock. A "permitted transferee"
is a person to whom a transfer of more than 20,000 shares of Common
Stock is made at one time in accordance with the terms of this
Agreement and who in a written notice addressed to the transferor and
to the Company (i) agrees to comply with all covenants and agreements
set forth in this Agreement, and (ii) can and does make each of the
representations and warranties set forth in Section 9 of this
Agreement.
F. Once the amendments contemplated in Section 3(a) are effective and the
Exchange Date has occurred, the Company will issue UNLEGENDED shares
of
Common Stock (in form which can be transmitted electronically if
desired by Subscriber) to the Subscriber in exchange for the
previously issued shares of Common Stock.
G. Should Subscriber from time to time or times give to the Company
notice that it has assigned the shares of Common Stock or any portion
thereof in accordance with Section 3(e), the Company shall, within ten
business days after receipt of such notice as provided below, file a
supplement to the appropriate Registration Statement to reflect the
name(s) of the transferee(s) as a selling stockholder. Each notice
given to the Company pursuant to this Section 3 shall be made in
writing to the Company at the address set forth above (or such other
address of the Company as is provided to Subscriber in writing or by
public announcement), Attention: Chief Financial Officer, shall be
made by overnight courier and shall be deemed made upon the date
submitted to such overnight courier.
H. The Company and the Subscriber agree that the indemnification
agreements between the Company and the Subscriber dated February 26,
1998, as contemplated by the Original Subscription Agreement, shall
apply to the registration and qualification of the Common Stock issued
under this Exchange Agreement, including without limitation the
Registration Statements as amended as contemplated by this Section 3.
IV. Reservation of Shares.
A. The Company confirms that the Board of Directors of the Company has
reserved a sufficient number of shares of Common Stock for issuance
pursuant to the Exchange.
V. The Company shall use its best efforts within ten days after the
Exchange Date and from time to time thereafter, as necessary, to list on NASDAQ
all shares of Common Stock issuable pursuant to this Agreement.
VI. The Company covenants and agrees that all shares of Common Stock
issuable under this Agreement will, upon issuance, be duly and validly issued,
fully paid and non-assessable and no personal liability will attach to the
holder thereof.
VII. The Company represents that the issuance of the Common Stock pursuant
to this Agreement will not trigger any rights or obligations under any
outstanding securities of the Company.
VIII. The Company's obligations under this Agreement shall not be subject to
defense, offset or counterclaim for any matter or thing. All claims by the
Company against Subscriber shall be brought by the Company in separate actions
for monetary damages only, and injunctive relief shall not be available.
IX. Securities Representations.
A. Subscriber represents and warrants that it is acquiring the shares of
Common Stock solely for investment, solely for its own account and not
with a view to or for the resale or distribution thereof except as
permitted under the Registration Statements or as otherwise permitted
under the Securities Act.
B. Subscriber understands that it may sell or otherwise transfer the
shares of Common Stock only if such transaction is duly registered
under the Securities Act, under the Registration Statements or
otherwise, or if Subscriber shall have received the favorable opinion
of counsel to Subscriber to the effect that such sale or other
transfer may be made in the absence of registration under the
Securities Act, and registration or qualification in every applicable
state. The certificates representing the aforesaid securities will be
legended to reflect these restrictions, and stop transfer instructions
will apply. Subscriber realizes that the shares of Common Stock are
not a liquid investment.
C. Subscriber has not relied upon the advice of a "Purchaser
Representative" (as defined in Regulation D of the Securities Act) in
evaluating the risks and merits of this investment. Subscriber has the
knowledge and experience to evaluate the Company and the risks and
merits relating thereto.
D. Subscriber represents and warrants that Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D
promulgated pursuant to the Securities Act, and shall be such on the
date any Common Stock is issued to Subscriber; Subscriber acknowledges
that Subscriber is able to bear the economic risk of losing
Subscriber's entire investment in the shares and understands that an
investment in the Company involves substantial risks; Subscriber has
the power and authority to enter into this agreement, and the
execution and delivery of, and performance under this agreement shall
not conflict with any rule, regulation, judgment or agreement
applicable to the Subscriber; and Subscriber has invested in previous
transactions involving restricted securities. Subscriber has had the
opportunity to discuss the Company's affairs with the Company's
officers.
X. Certain Remedies.
A. If the effective date of the amendments to the Registration Statements
contemplated by Section 3(a) above (the "Effective Date") has not
occurred by May 31, 1998, then, in addition to the Subscriber's other
remedies, the Company shall pay to Subscriber an amount equal to 1%
per month of the number of shares of Series A Preferred Stock
exchanged in the Exchange multiplied by $2.00 (or, if less, the
highest rate permitted by law) for the period from May 31, 1998 until
the Effective Date.
B. If the Effective Date has not occurred by June 30, 1998, then, in
addition to the Subscriber's other remedies, the amount stated in (i)
above shall be increased to 2% per month (or, if less, the highest
rate permitted by law) for the period from June 30, 1998 until the
Effective Date.
C. If the Effective Date has not occurred by July 31, 1998, then, in
addition to the Subscriber's other remedies, the amount stated in (i)
above shall be increased to 3% per month (or, if less, the highest
rate permitted by law) for the period from July 31, 1998 until the
Effective Date.
XI. Miscellaneous
This Agreement may not be changed or terminated except by written
agreement. It shall be binding on the parties and on their personal
representatives and permitted assigns. It sets forth all agreements of the
parties, and may be signed in counterparts. It shall be enforceable by decrees
of specific performance (without posting bond or other security) as well as by
other available remedies. This Agreement shall be governed by, and construed in
accordance with, the laws of Delaware. The federal and state courts sitting in
New York, New York shall have exclusive jurisdiction over all matters relating
to this Agreement. Trial by jury is expressly waived.
All notices, requests, service of process, consents, and other
communications under this Agreement shall be in writing and shall be deemed to
have been delivered (i) on the date personally delivered or (ii) one day after
properly sent by recognized overnight courier, addressed to the respective
parties at their address set forth in this Agreement or (iii) on the day
transmitted by facsimile so long as a confirmation copy is simultaneously
forwarded by recognized overnight courier, in each case addressed to the
respective parties at their address set forth in this Agreement. Either party
hereto may designate a different address by providing written notice of such new
address to the other party hereto as provided above.
XII. Expenses.
Except as otherwise set forth herein, each party hereto shall be
responsible for its own expenses with regard to the negotiation and execution of
this Agreement.
This Agreement may be amended by written agreement signed by the Company
and the original Subscriber.
[SIGNATURE PAGE FOLLOWS]
Dated: ________________
SUBSCRIBER:
Name (print):________________________
Signature: __________________________
Type or print name: _________________
Address: ___________________________
___________________________
___________________________
Fax No.:___________________
Social Security No or EIN: _______________
AGREED:
CONNECT, INC.:
By________________________
Its:________________________
