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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FLEXIINTERNATIONAL SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 7372 06-1309427
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
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TWO ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484
(203) 925-3040
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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STEFAN R. BOTHE
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
FLEXIINTERNATIONAL SOFTWARE, INC.
TWO ENTERPRISE DRIVE
SHELTON, CONNECTICUT 06484
(203) 925-3040
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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COPIES TO:
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JOHN A. BURGESS, ESQ. JEFFREY C. HADDEN, ESQ.
HALE AND DORR LLP GOODWIN, PROCTER & HOAR LLP
60 STATE STREET EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109 BOSTON, MASSACHUSETTS 02109
TELEPHONE: (617) 526-6000 TELEPHONE: (617) 570-1000
TELECOPY: (617) 526-5000 TELECOPY: (617) 523-1231
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $.01 par value
per share..................... 3,450,000 shares $12.00 $41,400,000 $12,546
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(1) Includes 450,000 shares which the Underwriters have the option to purchase
from certain stockholders of the Company to cover over-allotments, if any.
See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
OCTOBER 21, 1997
3,000,000 SHARES
FLEXI LOGO
COMMON STOCK
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Of the 3,000,000 shares of Common Stock offered hereby, 2,250,000 shares
are being sold by FlexiInternational Software, Inc. ("Flexi" or the "Company")
and 750,000 shares are being sold by certain stockholders of the Company (the
"Selling Stockholders"). See "Principal and Selling Stockholders." The Company
will not receive any proceeds from the sale of shares by the Selling
Stockholders. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $10.00 and $12.00 per share. See "Underwriting"
for the factors to be considered in determining the initial public offering
price. Application has been made for the listing of the Common Stock on the
Nasdaq National Market under the symbol "FLXI."
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO PROCEEDS TO SELLING
PUBLIC UNDERWRITING COMPANY(1) STOCKHOLDERS
DISCOUNTS AND
COMMISSIONS
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<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
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Total (2)............. $ $ $ $
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(1) Before deducting estimated expenses of $750,000, all of which will be
payable by the Company.
(2) The Selling Stockholders have granted to the Underwriters a 30-day option to
purchase up to 450,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made at the offices
of BT Alex. Brown Incorporated, Baltimore, Maryland, on or about ,
1997.
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BT ALEX. BROWN
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
THE DATE OF THIS PROSPECTUS IS , 1997.
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[INSIDE FRONT COVER]
The inside front cover graphic depicts a cube which is divided into five
layers, each of which is slightly raised over the other. The top layer depicts
the FlexiFinancials applications and the FlexiInfoSuite applications. This layer
contains a circular piece in the middle which is labeled "Flexi Internet
Universal Interface," and there are eight spokes which connect this circular
piece to eight squares. The eight squares are labelled, starting at the top and
moving in a clockwise direction, as follows: "FlexiPurchasing"; "FlexiOrders";
"FlexiAssets"; "FlexiInventory"; "FlexiInfoSuite"; "FlexiReceivables";
"FlexiLedger"; and "FlexiPayables".
The second layer depicts the FlexiTools applications. This layer is divided
into four squares, which are labelled, starting at the top and moving in a
clockwise direction, as follows: "FlexiDB"; "FlexiDeveloper";
"FlexiActiveControls"; and "FlexiDesigner".
The third layer is labelled "FlexiObject Architecture."
The fourth layer is labelled on one side "Cobra/IIOP" and "Microsoft
Transaction Server/DCOM" on the other edge.
The bottom layer is divided into eight visible smaller squares which
represent various third-party operating systems and databases with which Flexi
software interfaces. These smaller squares are labelled from left to right, as
follows: "DS/390(R)," "AIX(R)," "Solaris(R)", "HPUX(R)," "WinNT(R)," "MS
SOL(R)," "Oracle(R)," "Sybase(R)," and "DB2(R)."
[Caption:] THE FLEXIOBJECT ARCHITECTURE The FlexiFinancial applications
are built upon an open, object-oriented, component-enabled architecture
supported on a wide range of hardware, operating system, relational database
management system and distributed object messaging standards. This approach
combines the adaptable functionality required for the sophisticated financial
accounting user with the sealable deployment options demanded by today's IT
management.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK IN
CONNECTION WITH THE OFFERING, INCLUDING OVER-ALLOTMENT, STABILIZING AND
SHORT-COVERING TRANSACTIONS IN SUCH SECURITIES, AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
---------------
FlexiFinancials, FlexiLedger, FlexiPayables and FlexiReceivables are
registered trademarks, and the Flexi logo, FlexiAnalysis, FlexiAssets, FlexiDB,
FlexiDesigner, FlexiDeveloper, FlexiInfoCenter, FlexiInfoSuite,
FlexiInternational, FlexiInventory, FlexiObjects, FlexiOrders, FlexiPurchasing,
FlexiSecure, FlexiTools and FlexiWorkFlow are trademarks, of FlexiInternational
Software, Inc. All other trademarks or trade names referred to in this
Prospectus are the property of their respective owners.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors," and the Company's Financial Statements
and the Notes thereto, appearing elsewhere in this Prospectus. Unless otherwise
indicated, all information contained in this Prospectus (i) reflects the
conversion of all outstanding shares of the Company's Series A, Series B and
Series C Convertible Preferred Stock (the "Convertible Preferred Stock") into an
aggregate of 7,861,350 shares of Common Stock at the closing of this offering,
(ii) gives effect to a three-for-four reverse split of the Common Stock to be
effected prior to the closing of this offering and (iii) assumes no exercise of
the Underwriters' over-allotment option. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
FlexiInternational Software, Inc. ("Flexi" or the "Company") designs,
develops, markets and supports the Flexi family of financial and accounting
software applications and related tools. The Flexi solution --
FlexiFinancials, FlexiInfoSuite and FlexiTools -- is designed to address the
needs of users with sophisticated financial accounting requirements. The Company
believes that the solution's distributed, object-oriented, component-based
architecture provides significant advantages over traditional financial
accounting software, including greater transaction throughput and scalability,
ease of implementation, modification and use, and reduced cost of ownership.
Flexi products are designed to support new technologies as they develop,
including the Internet and corporate intranets, can be modified quickly and
efficiently by users to create tailored business solutions, and can readily be
integrated with new applications to support evolving business processes.
Rapidly changing market conditions and intensifying competitive pressures
have in recent years increased the need for highly functional, flexible
financial accounting systems. The systems must have sufficient performance and
adaptability to continue to provide timely and accurate information as
organizations change business processes to meet evolving market and operational
requirements. This is particularly true for organizations experiencing rapid
growth in dynamic markets, and for multinational organizations, which face the
complex task of managing financial information in multiple tax jurisdictions,
currencies and languages. Furthermore, large organizations require financial
accounting systems that offer broad functionality across dispersed locations and
workgroups. These functional and technological requirements are especially
critical in businesses centered around the timely collection, analysis and
dissemination of vast amounts of numerical information, such as banking,
insurance and other financial services organizations, as well as healthcare and
technology organizations.
A new generation of object-oriented, component-based technology has evolved
in recent years to address many of the limitations associated with mainframe or
legacy client/server solutions. Object-oriented development methodologies
facilitate the reuse of application logic to adapt to changing technological and
accounting requirements. Component-based architecture allows the timely creation
of tailored business solutions by simplifying and shortening the integration of
software applications from multiple sources and facilitating use of applications
over the Internet. Additionally, the distributed model of computing, in which
processing logic resides at the appropriate level within a client/server
architecture, has created the potential for a higher degree of functionality,
flexibility and scalability than available with legacy client/server or
mainframe systems. The advantages inherent in these new technologies have led
many vendors of legacy client/server solutions, including the Company's
principal competitors, to announce their intention to transition to these new
technologies -- often at the cost of replacing or rewriting their current
products.
The Company believes that its solution is particularly suited for adoption
by users with sophisticated financial accounting requirements and intends to
continue to target its sales and marketing efforts at such users. The Company
sells its products through direct and indirect channels. The Company believes
there is a significant market for the advanced functionality of its products and
intends to supplement its direct sales force by expanding its distribution
network in selected foreign markets. The Company's indirect sales channel
consists of resellers that address select vertical markets ("Flexi Industry
Partners" or "FIPs") and
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international distributors. The Company currently has relationships with FIPs in
the healthcare, real estate, retail and manufacturing industries. In addition,
the Company has an international distributor in Hong Kong and plans to establish
additional distributorships to complement its direct sales force and FIPs and to
provide penetration into additional geographic and vertical markets. The
Company's customers include Banco Popular del Ecuador, Blue Cross/Blue Shield of
South Carolina, Canada Trust, Citibank, N.A., Compaq Capital, Excite, Mutual of
America, Presbyterian Healthcare Systems, Sikorsky Aircraft, Skandinaviska
Enskilda Banken and XcelleNet.
The Company's goal is to establish itself as a global leader in the
financial accounting software market. Key elements of the Company's strategy
include: (i) extending its technological leadership by continuing to invest in
research and development to strengthen the Flexi financial accounting solution;
(ii) continuing to target the solution to users with sophisticated financial
accounting requirements; (iii) delivering a reduced overall cost of ownership of
financial accounting systems to current and prospective customers; (iv)
leveraging strategic relationships, including its relationship with Microsoft
Corporation; and (v) expanding sales and distribution capabilities both in the
U.S. and internationally.
The Company was organized as a Connecticut corporation in 1990 and
reincorporated in Delaware in 1993. The Company's principal office is located at
Two Enterprise Drive, Shelton, Connecticut 06484, and its telephone number is
(203) 925-3040.
4
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THE OFFERING
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Common Stock offered by the Company....................... 2,250,000 shares
Common Stock offered by the Selling Stockholders.......... 750,000 shares
Common Stock to be outstanding after the offering......... 16,274,764 shares(1)
Use of proceeds........................................... Working capital and other general
corporate purposes
Nasdaq National Market symbol............................. FLXI
</TABLE>
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(1) Based on the number of shares of Common Stock outstanding on September 30,
1997. Excludes an aggregate of 1,034,594 shares subject to options
outstanding as of September 30, 1997 at a weighted average exercise price of
$2.28 per share. Also excludes an aggregate of 2,325,000 shares of Common
Stock reserved under the Company's 1997 Stock Incentive Plan, 1997 Director
Stock Option Plan and 1997 Employee Stock Purchase Plan, none of which were
subject to outstanding options as of September 30, 1997. Also excludes an
aggregate of 164,927 shares of Common Stock issuable upon the exercise of
outstanding warrants as of September 30, 1997 at a weighted average exercise
price of $4.64 per share. See "Management -- Executive Compensation" and
Note 7 of Notes to the Company's Financial Statements.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
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1992 1993 1994 1995 1996 1996 1997
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STATEMENT OF OPERATIONS
DATA:
Total revenues............ $ 25 $ 155 $ 853 $ 4,683 $ 8,347 $ 5,136 $12,460
Operating loss............ (346) (1,185) (4,100) (6,439) (7,309) (5,845) (4,635)
Net loss.................. (342) (1,182) (4,087) (6,487) (7,447) (5,956) (4,640)
Pro forma net loss per
share(1)............... $ (0.69) $ (0.33)
Weighted average shares
used to compute pro
forma net loss per
share(1)............... 10,788 13,975
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SEPTEMBER 30, 1997
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PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
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BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 3,257 $ 3,257 $25,525
Working capital.................................... 1,670 1,670 23,938
Total assets....................................... 10,232 10,232 32,500
Redeemable convertible preferred stock............. 15,509 -- --
Stockholders' equity (deficit)..................... (12,728) 2,781 25,049
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(1) See Note 2 of Notes to the Company's Financial Statements.
(2) Reflects conversion of all outstanding shares of Convertible Preferred Stock
into an aggregate of 7,861,350 shares of Common Stock upon the closing of
this offering. See Note 2 of Notes to the Company's Financial Statements.
(3) Adjusted to give effect to the sale by the Company of 2,250,000 shares of
Common Stock offered hereby at an assumed public offering price of $11.00
per share and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company. See "Use of
Proceeds."
5
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered in evaluating an investment in the Common Stock
offered by this Prospectus. This Prospectus contains forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, the Risk
Factors discussed below.
Limited Operating History; Accumulated Deficit; Net Losses. The Company
began operations in 1991 and released its first products in 1993. Most of the
Company's revenues to date have been attributable to the licensing of its
financial accounting software products and the provision of related consulting,
training and software installation services. The Company's FlexiFinancials,
FlexiInfoSuite and FlexiTools financial accounting products, which the Company
anticipates will provide the principal source of new license revenues for the
foreseeable future, have a limited history of customer acceptance and use.
Accordingly, the Company has only a limited operating history upon which an
evaluation of the Company and its prospects can be based. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets. To address these
risks, the Company must, among other things, respond to competitive
developments, continue to attract, retain and motivate qualified management and
other employees, continue to upgrade its technologies and commercialize products
and services that incorporate such technologies and achieve market acceptance
for its products and services. There can be no assurance that the Company will
be successful in addressing such risks. The Company had an accumulated deficit
of $24.2 million at September 30, 1997 and incurred net losses of $7.4 million
and $4.6 million during 1996 and the nine months ended September 30, 1997,
respectively. To date, the quarter ended September 30, 1997 has been the
Company's only profitable quarter, and there can be no assurance that the
Company will sustain profitability.
Potential Fluctuations in Quarterly Performance; Seasonality. The
Company's revenues and operating results have varied substantially from quarter
to quarter. The Company's quarterly operating results may continue to fluctuate
due to a number of factors, including the timing, size and nature of the
Company's licensing transactions; the market acceptance of new services,
products or product enhancements by the Company or its competitors; product and
price competition; the relative proportions of revenues derived from license
fees, services and third-party channels; changes in the Company's operating
expenses; personnel changes; the timing of the introduction, and the performance
of, the Company's Flexi Industry Partners; foreign currency exchange rates; and
fluctuations in economic and financial market conditions.
The timing, size and nature of individual licensing transactions are
important factors in the Company's quarterly results of operations. Many such
transactions involve large dollar amounts, and the sales cycles for these
transactions are often lengthy and unpredictable. In addition, the sales cycles
associated with these transactions are subject to a number of uncertainties,
including customers' budgetary constraints, the timing of customers' budget
cycles and customers' internal approval processes. There can be no assurance
that the Company will be successful in closing such large transactions on a
timely basis or at all. Software license revenues under the Company's license
agreements are recognized upon delivery and installation of the product and when
all significant contractual obligations have been satisfied. Delays in the
installation of the Company's software, including potential delays associated
with contractual enhancements to the Company's software products, could
materially adversely affect the Company's quarterly results of operations. In
addition, as the Company derives a significant proportion of total revenues from
license revenues, the Company may realize a disproportionate amount of its
revenues and income in the last month of each quarter and, as a result, the
magnitude of quarterly fluctuations may not become evident until late in, or at
the end of, a given quarter. Accordingly, delays in product delivery and
installation or in the closing of sales near the end of a quarter could cause
quarterly revenues and, to a greater degree, results of operations to fall
substantially short of anticipated levels. In addition, a limited number of the
Company's client services are performed on a fixed-price basis and, therefore,
the Company bears the risk of cost overruns and inflation. The Company's results
of operations may be adversely affected by inaccurate estimates of completion
costs for such services.
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The Company's expense levels are based, in significant part, on its
expectations as to future revenues and are largely fixed in the short term. As a
result, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues. Accordingly, any
significant shortfall of revenues in relation to the Company's expectations
would have an immediate and material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company plans to
increase operating expenses to expand its research and development, client
services, sales and marketing and administrative organizations. The timing of
such expansion and the rate at which new personnel become productive could cause
material fluctuations in quarterly and annual results of operations.
The Company has experienced, and may experience in the future, significant
seasonality in its business, and the Company's financial condition or results of
operations may be affected by such trends in the future. Revenues have
historically increased at higher rates in the fourth quarter of the year and at
lower rates in the next succeeding quarter, which the Company believes is due to
the Company's quota-based compensation arrangements, typical of those used in
software companies, and year-end budgetary pressures on the Company's customers.
The Company believes that this seasonal trend may continue for the foreseeable
future.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that future revenues and results
of operations will not vary substantially. It is also possible that in some
future quarter the Company's results of operations will be below the
expectations of public market analysts and investors. In either case, the price
of the Company's Common Stock could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management of Growth. The Company is currently experiencing a period of
rapid growth that could place a significant strain on its management and other
resources. The Company's business has grown significantly in size and complexity
over the past three years. Total revenues increased from $853,000 in 1994 to
$8.3 million in 1996 and to $12.5 million for the nine months ended September
30, 1997. In addition, the number of employees increased from 16 in 1994 to 138
as of September 30, 1997, and the Company expects to hire additional personnel
during 1997 and 1998. The growth in the size and complexity of the Company's
business as well as its customer base has placed and is expected to continue to
place a significant strain on the Company's management and operations. Certain
members of the Company's senior management team have been with the Company for
less than a year, and the Company's senior management has had limited experience
in managing publicly traded companies. In addition, more than half of the
Company's sales and marketing professionals have been with the Company for less
than a year. The Company anticipates that continued growth, if any, will require
it to recruit and hire a substantial number of new research and development,
consulting, sales and marketing and administrative personnel. There can be no
assurance that the Company will be successful in hiring or retaining such
personnel. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage its work force. There can be no assurance
that the Company's personnel, systems, procedures and controls will be adequate
to support the Company's operations. In addition, one element of the Company's
business strategy is to seek acquisitions of businesses, products and
technologies that are complementary to those of the Company. There can be no
assurance that the Company will be able to identify and acquire such businesses
on reasonable terms, integrate fully any such acquired businesses with the
Company's existing operations, operate any such businesses profitably or
otherwise implement its growth strategy. If the Company's management is unable
to manage growth effectively, the quality of the Company's products and its
business, financial condition and results of operations could be materially
adversely affected.
Dependence on Key Personnel. The Company's performance depends
substantially on the performance of its executive officers and key employees,
including the Company's sales force and software professionals, particularly
project managers, software engineers and other senior technical personnel. The
Company is dependent on its ability to attract, retain and motivate high-quality
personnel, especially its management, sales staff and highly skilled development
team. The Company does not have employment contracts with any of its key
personnel. The loss of the services of any of the Company's executive officers
or other key employees
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<PAGE> 9
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."
Lengthy Sales Cycle. The Company's software is often used for
business-critical purposes, and its implementation involves significant capital
commitments by customers. Potential customers generally commit significant
resources to an evaluation of available software and require the Company to
expend substantial time, effort and money educating potential customers about
the value of the Company's solutions. Sales of the Company's software products
require an extensive education and marketing effort throughout a customer's
organization because decisions to license such software generally involve the
evaluation of the software by a significant number of customer personnel in
various functional and geographic areas, each having specific and often
conflicting requirements. A variety of factors, including factors over which the
Company has little or no control, may cause potential customers to favor a
competing vendor or to delay or forego a purchase. As a result of these or other
factors, the sales cycle for the Company's products is long, typically ranging
between three and nine months. Due to the length of the sales cycle for its
software products, including delays in implementing the Company's software
across several functional and geographic areas of an organization, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large license transactions could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Product Concentration. To date, substantially all of the Company's
revenues have been attributable to the licensing of its FlexiFinancials,
FlexiInfoSuite and FlexiTools financial accounting products and the provision of
consulting, training and software installation services in connection therewith.
The Company currently expects that the licensing of its financial accounting
software, and the provision of related services, will account for a substantial
portion of its revenues for the foreseeable future. As a result, factors
adversely affecting the pricing of or demand for such products and services,
such as competition or technological change, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's future financial performance will depend, in significant part, on
the continued market acceptance of the Company's existing products and the
successful development, introduction and customer acceptance of new and enhanced
versions of its software products and services. There can be no assurance that
the Company will be successful in developing and marketing its financial
accounting products. See "Business -- Research and Development."
Rapid Technological Change and Evolving Market. The market for the
Company's products and services is characterized by rapidly changing technology,
evolving industry standards and new product introductions and enhancements that
may render existing products obsolete or less competitive. As a result, the
Company's position in the financial applications software market could erode
rapidly due to unforeseen changes in the features and functionality of competing
products, as well as the pricing models for such products. The Company's future
success will depend in part upon the widespread adoption of object-oriented,
component-based standards and the development of the Internet as a viable
commercial marketplace, as well as the Company's ability to enhance its existing
products and services and to develop and introduce new products and services to
meet changing customer requirements. The process of developing products and
services such as those offered by the Company is extremely complex and is
expected to become increasingly complex and expensive in the future with the
introduction of new platforms and technologies. In addition, the Company has on
occasion experienced delays in the scheduled release of software products or the
porting of such products to specific platforms or configurations. There can be
no assurance that the financial services and other industries will adopt
object-oriented, component-based standards, that the Company will successfully
complete the development of new products in a timely fashion or that the
Company's current or future products will satisfy the needs of potential
customers.
Concentration of Customers. Historically, a limited number of customers
have accounted for a significant percentage of the Company's revenues in each
year. During the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997, five customers, one customer, one customer and
two customers, respectively, each represented 10% or more of the Company's total
revenues (or an aggregate of 68.8%, 12.1%, 12.3% and 35.4% of total revenues,
respectively). Although the Company's largest customers have varied from period
to period, the Company anticipates that its results of operations in any given
period will continue to depend to a significant extent upon revenues from a
small number of customers.
8
<PAGE> 10
For instance, during the nine months ended September 30, 1997, Citibank, N.A.
and Skandinaviska Enskilda Banken represented 23.9% and 11.5% of the Company's
total revenues, respectively. The failure of the Company to enter into a
sufficient number of large licensing agreements during a particular period could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Competition. The market for the Company's products and services is
intensely competitive and is characterized by rapid change in technology and
user needs and the frequent introduction of new products. The Company's
principal competitors include PeopleSoft, Inc., SAP AG, Oracle Corporation, GEAC
Computer Corporation Limited, SQL Financials International, Inc. and Lawson
Software. The Company also faces competition from providers of industry-specific
applications as well as indirect competition from in-house, custom-developed
financial management applications. A number of the Company's competitors are
more established, benefit from greater name recognition and have substantially
greater financial, technical and marketing resources than the Company and its
FIPs and distributors. Moreover, other than the need for financial and technical
expertise, there are no significant proprietary or other technological barriers
to entry in the financial accounting software market. There can be no assurance
that the Company's products and services or the solutions offered by the
Company's FIPs will compete effectively with those of their respective
competitors. The Company's FIPs may also develop or offer products and services
that compete with the Company's products and services. There can be no assurance
that the Company's FIPs will not give higher priority to the sales of these or
other competitive products and services. The Company also expects that
competition will increase as a result of software industry consolidation.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations. See "Business -- Competition."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two-digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century dates. As
a result, computer systems and/or software used by many companies may need to be
upgraded to comply with such "year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects associated with
such compliance. Although the Company currently offers software products that
are designed to be year 2000 compliant, there can be no assurance that the
Company's software products contain all necessary date code changes. In
addition, the Company has warranted, and may in the future warrant, to certain
customers that its products will be year 2000 compliant, and the failure of such
products to be year 2000 compliant could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company. Many potential customers may also choose to defer purchasing
year 2000 compliant products until they believe it is absolutely necessary, thus
resulting in potentially stalled market sales within the industry. Conversely,
year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products. Additionally, year 2000 issues could cause a
significant number of companies, including current Company customers, to
reevaluate their current financial accounting system needs, and, as a result,
consider switching to other systems or suppliers. Any of the foregoing could
result in a material adverse effect on the Company's business, financial
condition or results of operations.
Potential for Product Liability. The Company's license agreements with its
customers typically contain provisions designed to limit the Company's exposure
to potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in the Company's license agreements
may not be
9
<PAGE> 11
effective under the laws of certain jurisdictions. The sale and support of
products by the Company and its FIPs may entail the risk of such claims, and
there can be no assurance that the Company will not be subject to such claims in
the future. The Company attempts to limit contractually its liability for
damages arising from negligent acts, errors, mistakes or omissions in rendering
its products and services. Despite this precaution, there can be no assurance
that the limitations of liability set forth in its contracts would be
enforceable or would otherwise protect the Company from liability for damages.
The Company maintains general liability insurance coverage, including coverage
for errors or omissions. However, there can be no assurance that such coverage
will continue to be available on acceptable terms, or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, litigation with respect to liability claims,
regardless of its outcome, could result in substantial cost to the Company and
divert management's attention from the Company's operations. Any product
liability claim or litigation against the Company could, therefore, have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has included security features in its products that are
intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's software products may be
vulnerable to break-ins and similar disruptive problems. Such computer break-ins
and other disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the Company's customers, which may
result in loss of or delay in market acceptance of the Company's products.
Addressing these evolving security issues may require significant expenditures
of capital and resources by the Company, which may have a material adverse
effect on the Company's business, financial condition or results of operations.
Software Errors or Bugs. The Company's software products are highly
complex and sophisticated and could from time to time contain design defects or
software errors that could be difficult to detect and correct. Although the
Company has not experienced material adverse effects resulting from any software
errors, bugs or viruses, there can be no assurance that, despite testing by the
Company and its customers, errors will not be found in new or existing products,
which errors could result in a delay in or inability to achieve market
acceptance and thus could have a material adverse impact upon the Company's
business, financial condition and results of operations.
Limited Protection of Proprietary Rights. The Company's success is heavily
dependent upon its proprietary technology. The Company relies on a combination
of copyright, trademark and trade secret laws and license agreements to
establish and protect its rights in its software products and other proprietary
technology. The Company currently has one registered copyright and four
registered trademarks. In addition, the Company currently requires its employees
and consultants to enter into nondisclosure agreements to limit use of, access
to and distribution of its proprietary information. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate to prevent misappropriation. The laws of some
foreign countries may not protect the Company's proprietary rights as fully or
in the same manner as do the laws of the United States. Also, despite the steps
taken by the Company to protect its proprietary rights, it may be possible for
unauthorized third parties to copy aspects of the Company's products, reverse
engineer such products, develop similar technology independently or obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult and, while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem, particularly in international
markets and as a result of the growing use of the Internet. Furthermore, there
can be no assurance that others will not develop technologies similar or
superior to the Company's technology or design around the proprietary rights of
the Company.
The Company typically licenses its products to end users under the
Company's standard license agreements, although each license is individually
negotiated and may contain variations. In order to facilitate the customization
required by certain of the Company's customers, the Company licenses its
software
10
<PAGE> 12
products in object code (machine-readable) and allows limited access to its
source code (human-readable) format. Although this practice facilitates
customization, making software available in source code also makes it easier for
third parties to copy or modify the Company's software for non-permitted or
unlicensed purposes.
In the future, the Company may receive notice of claims of infringement of
other parties' proprietary rights. Although the Company does not believe that
its products infringe the proprietary rights of third parties, there can be no
assurance that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertions or prosecutions will not materially
adversely affect the Company's business, financial condition or results of
operations. Regardless of the validity or the successful assertion of such
claims, defending against such claims could result in significant costs and
diversion of Company resources with respect to the defense thereof, which could
have a material adverse effect on the Company's business, financial condition or
results of operations. In addition, the assertion of such infringement claims
could result in injunctions preventing the Company from distributing certain
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.
Dependence on Third-Party Technology. The Company's proprietary software
is currently designed, and may in the future be designed, to work on or in
conjunction with certain third-party hardware and/or software products. If any
of these current or future third-party vendors were to discontinue making their
products available to the Company or to licensees of the Company's software or
to increase materially the cost for the Company or its licensees to acquire,
license or purchase the third-party vendors' products, or if a material problem
were to arise in connection with the ability of the Company to design its
software to properly use or operate with any third-party hardware and/or
software products, the Company may be required to identify additional sources
for such products. In such an event, interruptions in the availability or
functioning of the Company's software and delays in the introduction of new
products and services may occur until equivalent technology is obtained. There
can be no assurance that an alternative source of suitable technology would be
available or that the Company would be able to develop an alternative product in
sufficient time or at a reasonable cost. The failure of the Company to obtain or
develop alternative technologies or products on a timely basis and at a
reasonable cost could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Associated with Third-Party Channels. The Company addresses certain
vertical and geographic markets through its FIPs and its distributor. The
Company relies on its third-party channels to provide sales and marketing
presence and name recognition, as well as the resources necessary to offer
industry-specific financial accounting solutions. Although the Company expects
to dedicate significant resources to develop its FIPs, there can be no assurance
that the Company will be able to attract and retain qualified firms in its
targeted vertical markets. The failure of the Company to maintain its current
third-party channels or find other third-party channels, the Company's inability
to adequately support such channels, the development of competitive products and
services by the Company's third-party channels or the entry by such firms into
alliances with competitors of the Company would substantially limit the
Company's ability to provide its products and services and, accordingly, have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company has attempted to seek FIPs and
distributors in distinct vertical markets and distributors in distinct
geographic markets, and to manage them in a manner to avoid potential channel
conflicts, there can be no assurance that channel conflicts may not develop. Any
such conflicts may adversely affect the Company's relationship with third-party
channels or adversely affect its ability to develop new channels.
Risks Associated with International Operations. The Company's
international sales represented approximately 15.2% and 21.6% of total revenues
during 1996 and the nine months ended September 30, 1997, respectively. The
Company has an office in London and a distributor in Hong Kong and intends to
expand its international sales activity as part of its business strategy. In
order to expand international sales in subsequent periods, the Company must
establish additional foreign operations, hire additional personnel and establish
relationships with additional FIPs and distributors. This will require
significant management attention and
11
<PAGE> 13
financial resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products and services. The
Company's international sales are all denominated in U.S. dollars. An increase
in the value of the U.S. dollar relative to foreign currencies could make the
Company's products more expensive and, therefore, potentially less competitive
in those markets. Currently, the Company does not employ currency hedging
strategies to reduce this risk. In addition, the Company's international
business may be subject to a variety of risks, including difficulties in
collecting international accounts receivable or obtaining U.S. export licenses,
potentially longer payment cycles, increased costs associated with maintaining
international marketing efforts, the introduction of non-tariff barriers and
higher duty rates and difficulties in enforcement of contractual obligations and
intellectual property rights. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition or results of
operations.
Significant Influence by Directors and Officers. Upon completion of this
offering, the Company's officers and directors, and their affiliates, will
beneficially own approximately 64.4% of the Company's outstanding Common Stock.
These stockholders, if acting together, would have the ability to elect the
Company's directors and may have the ability to determine the outcome of
corporate actions requiring stockholder approval, irrespective of how other
stockholders of the Company may vote. This concentration of ownership may have
the effect of delaying or preventing a change in control of the Company. See
"Management" and "Principal and Selling Stockholders."
Broad Discretion as to Use of Proceeds. The net proceeds from this
offering will be used, as determined by management in its sole discretion, for
working capital and general corporate purposes, as well as for the possible
acquisition of additional businesses and technologies that are complementary to
the current or future business of the Company. However, the Company has not
determined the specific allocation of the net proceeds among the various uses
described above. Accordingly, investors in this offering will rely upon the
judgment of the Company's management with respect to the use of proceeds, with
only limited information concerning management's specific intentions. See "Use
of Proceeds."
No Public Market. Prior to this offering, there has been no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price will be determined by negotiations among the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Investors should be aware that market prices for securities of
software companies such as the Company are highly volatile.
Dividends. No cash dividends have been paid on the Common Stock to date
and the Company does not anticipate paying cash dividends in the foreseeable
future. In addition, under the terms of the Company's credit agreement there are
certain restrictions on the Company's ability to declare and pay dividends. See
"Dividend Policy."
Dilution. Purchasers of shares of Common Stock in this offering will
suffer an immediate and substantial dilution in the net tangible book value of
the Common Stock from the initial public offering price. See "Dilution."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion of
this offering, the Company will have outstanding 16,274,764 shares of Common
Stock. On the date of this Prospectus, in addition to the 3,000,000 shares
offered hereby, approximately 184,625 shares of Common Stock, which are not
subject to 180-day lock-up agreements (the "Lock-up Agreements") with the
Representatives of the Underwriters, will be eligible for immediate sale in the
public market pursuant to Rule 144(k) under the Securities Act of 1933, as
amended (the "Securities Act"). Approximately 1,290,632 additional shares of
Common Stock, which are not subject to the Lock-up Agreements, will be eligible
for sale in the public market in accordance with Rule 144 or Rule 701 under the
12
<PAGE> 14
Securities Act beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-up Agreements 180 days after the date of this Prospectus,
approximately 11,673,132 additional shares of Common Stock will be available for
sale in the public market, subject to the provisions of Rule 144 under the
Securities Act. Promptly following the consummation of this offering, the
Company intends to register an aggregate of 450,000 shares of Common Stock
issuable under its 1997 Director Stock Option Plan and 1997 Employee Stock
Purchase Plan. In addition, the Company intends to register approximately
2,909,594 shares of Common Stock issuable under its 1992 Stock Option Plan and
1997 Stock Incentive Plan following the 90th day after the date of this
Prospectus. Holders of approximately 12,638,684 shares of Common Stock
(including 853,052 shares of Common Stock that may be acquired pursuant to the
exercise of vested options and warrants held by them) have agreed, pursuant to
the Lock-up Agreements, not to sell, offer, contract or grant any option to
sell, pledge, transfer, establish an open put equivalent position or otherwise
dispose of such shares for 180 days after the date of the final Prospectus. The
Company is unable to predict the effect that sales made under Rule 144, or
otherwise, may have on the then prevailing market price of the Common Stock. The
holders of approximately 7,943,870 shares of Common Stock are entitled to
certain incidental and demand registration rights with respect to such shares.
By exercising their registration rights, such holders could cause a large number
of shares to be registered and sold in the public market. Sales pursuant to Rule
144 or other exemptions from registration, or pursuant to registration rights,
may have an adverse effect on the market price for the Common Stock and could
impair the Company's ability to raise capital through offerings of its equity
securities. See "Description of Capital Stock," "Shares Eligible for Future
Sale" and "Underwriting."
Antitakeover Provisions. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") requires that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing, and requires advance notice by a
stockholder of a proposal or director nomination which such stockholder desires
to present at any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chairman of the Board or the President of
the Company or by the Board of Directors. The Restated Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of the Company
entitled to vote. In addition, shares of the Company's Preferred Stock may be
issued in the future without further stockholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the Board
of Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future. The Company has no present
plans to issue any shares of Preferred Stock. These provisions, and other
provisions of the Restated Certificate of Incorporation, the Company's By-laws
and certain provisions of the Delaware corporation law, may have the effect of
deterring hostile takeovers or delaying or preventing acquisition proposals or
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock -- Delaware Law and Certain Charter
and By-law Provisions."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by the Company hereby are estimated to be $22,267,500 after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company and assuming an initial public offering price of $11.00
per share. The Company will not receive any of the net proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The principal purposes of this offering are to increase the Company's
equity capital, to create a public market for the Company's Common Stock, to
facilitate future access by the Company to public equity markets, to provide
liquidity to existing stockholders, to provide increased visibility and
credibility in a marketplace where many of its current and potential competitors
are or will be publicly held companies, and to enhance the ability of the
Company to use its Common Stock as consideration for acquisitions and as a means
of attracting and retaining key employees.
The Company expects to use the net proceeds from this offering for working
capital and other general corporate purposes. The Company has not as yet
identified specific uses for such proceeds and will have discretion over their
use and investment. Pending use of the net proceeds, the Company intends to
invest the net proceeds from this offering in short-term, investment grade,
interest-bearing instruments. See "Risk Factors -- Broad Discretion as to Use of
Proceeds."
The Company intends to seek acquisitions of businesses, products and
technologies that are complementary to those of the Company, and a portion of
the net proceeds may also be used for such acquisitions. While the Company
engages from time to time in discussions with respect to potential acquisitions,
the Company has no plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus, and there can be no assurances
that any acquisitions will be made.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion. Under the terms of the Company's
credit agreement there are certain restrictions on the Company's ability to
declare and pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 4 of Notes to the Company's Financial Statements.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, (ii) on a pro forma basis giving
effect to the conversion, upon the closing of this offering, of all outstanding
shares of the Company's Convertible Preferred Stock into an aggregate of
7,861,350 shares of Common Stock and the filing of the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, eliminate the terms of the Company's existing series of
Convertible Preferred Stock and create a class of authorized but undesignated
Preferred Stock and (iii) on a pro forma basis, as adjusted to reflect the
issuance and sale of the shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $11.00 per share, after deducting
the estimated underwriting discounts and commissions and offering expenses. The
capitalization information set forth in the table below is qualified by the
Company's Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term portion of capital lease obligations(1)............. $ 171 $ 171 $ 171
Mandatorily redeemable convertible preferred stock:
Series A convertible preferred stock, $.01 par value;
2,840,517 shares authorized; 2,784,483 shares issued and
outstanding (actual); no shares authorized, issued or
outstanding (pro forma and pro forma as adjusted)........ 3,230 -- --
Series B convertible preferred stock, $.01 par value;
5,000,000 shares authorized; 2,813,000 shares issued and
outstanding (actual); no shares authorized, issued or
outstanding (pro forma and pro forma as adjusted)........ 4,220 -- --
Series C convertible preferred stock, $.01 par value;
5,187,357 shares authorized; 4,884,327 shares issued and
outstanding (actual); no shares authorized, issued or
outstanding (pro forma and pro forma as adjusted)........ 8,059 -- --
Stockholders' equity:
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding (actual); 5,000,000 shares
authorized, no shares issued or outstanding (pro forma
and pro forma as adjusted)............................... -- -- --
Common stock, $.01 par value; 18,750,000 shares authorized;
6,163,414 shares issued and outstanding (actual);
50,000,000 shares authorized (pro forma and pro forma as
adjusted); 14,024,764 shares issued and outstanding (pro
forma); 16,274,764 shares issued and outstanding (pro
forma as adjusted)(2).................................... 62 140 163
Additional paid-in-capital.................................. 11,415 26,846 49,091
Accumulated deficit......................................... (24,205) (24,205) (24,205)
------ ---- ----
Total stockholders' equity (deficit)................... (12,728) 2,781 25,049
------ ---- ----
Total capitalization................................ $ 2,952 $ 2,952 $ 25,220
====== ==== ====
</TABLE>
- ---------------
(1) See Note 5 of Notes to the Company's Financial Statements.
(2) Excludes an aggregate of 1,034,594 shares subject to options outstanding as
of September 30, 1997 at a weighted average exercise price of $2.28 per
share. Also excludes an aggregate of 2,325,000 shares of Common Stock
reserved under the Company's 1997 Stock Incentive Plan, 1997 Director Stock
Option Plan and 1997 Employee Stock Purchase Plan, none of which shares were
subject to outstanding options as of September 30, 1997. Also excludes an
aggregate of 164,927 shares of Common Stock issuable upon the exercise of
outstanding warrants as of September 30, 1997 at a weighted average exercise
price of $4.64 per share. See "Management -- Executive Compensation" and
Note 7 of Notes to the Company's Financial Statements.
15
<PAGE> 17
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $2,773,000, or $0.20 per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the Company's tangible net worth
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding, after giving effect to the mandatory conversion of the Company's
Convertible Preferred Stock upon the completion of this offering. After giving
effect to the sale of the shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses, the pro forma net tangible book value of the Company as of September
30, 1997 would have been $1.54 per share. This represents an immediate increase
in such pro forma net tangible book value of $1.34 per share to existing
stockholders and an immediate dilution of $9.46 per share to new investors
purchasing shares in this offering. If the initial public offering price is
higher or lower, the dilution to the new investors will be greater or less,
respectively. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 11.00
Pro forma net tangible book value per share as of September 30,
1997........................................................... $ 0.20
Increase per share attributable to this offering.................. 1.34
------
Pro forma net tangible book value per share after this offering..... 1.54
-------
Dilution per share to new investors................................. $ 9.46
=======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the total number of shares of Common Stock purchased from the Company, the
total consideration paid and the average consideration paid per share by the
existing stockholders and by the new investors based (for new investors) upon an
assumed initial public offering price of $11.00 per share (before deducting the
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...... 14,024,764 86.2% $26,986,000 52.2% $ 1.92
New investors................. 2,250,000 13.8 24,750,000 47.8 $ 11.00
---------- ----- ----------- -----
Total............... 16,274,764 100.0% $51,736,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Excludes 12,375 shares of Common Stock issued after September 30, 1997
pursuant to the exercise of an outstanding option held by a Selling
Stockholder. Sales by the Selling Stockholders in this offering will reduce
the number of shares held by existing stockholders to 13,287,139, or
approximately 81.6% of the total number of shares of Common Stock
outstanding after this offering (or 12,844,639 shares and approximately
78.9% if the Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 3,000,000, or
approximately 18.4% of the total number of shares of Common Stock
outstanding after this offering (or 3,450,000 shares and approximately 21.2%
if the Underwriters' over-allotment option is exercised in full).
16
<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data set forth below for the three years ended
December 31, 1996 and the nine months ended September 30, 1997, and as of
December 31, 1995 and 1996 and September 30, 1997, are derived from the
Company's Financial Statements, which appear elsewhere in this Prospectus and
which have been audited by Price Waterhouse LLP, independent accountants. The
selected financial data set forth below as of December 31, 1994 are derived from
the Company's audited financial statements, which are not included in this
Prospectus. The selected financial data as of and for the years ended December
31, 1992 and 1993 are derived from the Company's unaudited financial statements,
which are not included in this Prospectus. The selected financial data for the
nine months ended September 30, 1996 are derived from the Company's unaudited
financial statements which appear elsewhere in this Prospectus. In the opinion
of management, the unaudited financial statements have been prepared on a basis
consistent with the Financial Statements which appear elsewhere in this
Prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial position and
results of operations for these unaudited periods. The operating results for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1997. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements, including the Notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
----- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license..................... $ -- $ 141 $ 562 $ 3,166 $ 5,205 $ 3,092 $ 7,362
Service and maintenance.............. 25 14 291 1,517 3,142 2,044 5,098
----- ------- ------- ------- ------- ------- -------
Total revenues................ 25 155 853 4,683 8,347 5,136 12,460
Cost of revenues:
Software license..................... -- -- 4 88 311 170 619
Service and maintenance.............. 8 49 324 1,708 2,181 1,583 3,499
----- ------- ------- ------- ------- ------- -------
Total cost of revenues........ 8 49 328 1,796 2,492 1,753 4,118
Operating expenses:
Sales and marketing.................. 51 309 1,927 4,350 4,978 3,405 5,306
Product development.................. 210 587 2,019 3,660 5,733 4,025 5,972
General and administrative........... 102 395 679 1,316 2,453 1,798 1,699
----- ------- ------- ------- ------- ------- -------
Total operating expenses...... 363 1,291 4,625 9,326 13,164 9,228 12,977
Operating loss......................... (346) (1,185) (4,100) (6,439) (7,309) (5,845) (4,635)
Interest income........................ 4 3 41 58 59 50 98
Interest expense....................... -- -- (28) (106) (197) (161) (103)
----- ------- ------- ------- ------- ------- -------
Loss before provision for income
taxes................................ (342) (1,182) (4,087) (6,487) (7,447) (5,956) (4,640)
Provision for income taxes............. -- -- -- -- -- -- --
----- ------- ------- ------- ------- ------- -------
Net loss............................... $(342) $(1,182) $(4,087) $(6,487) $(7,447) $(5,956) $(4,640)
===== ======= ======= ======= ======= ======= =======
Pro forma net loss per share (1)....... $ (0.69) $ (0.33)
Weighted average shares used to compute
pro forma net loss per share(1)...... 10,788 13,975
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -------------
1992 1993 1994 1995 1996 1997
---- ----- ------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $123 $ 189 $ 870 $ 15 $ 3,273 $ 3,257
Working capital (deficit)................... 169 (195) (1,138) (2,917) 1,480 1,670
Total assets................................ 280 326 2,456 2,826 7,833 10,232
Redeemable convertible preferred stock...... -- -- 3,230 7,450 15,509 15,509
Stockholders' equity (deficit).............. 225 (92) (4,045) (10,521) (13,823) (12,728)
</TABLE>
- ---------------
(1) See Note 2 of Notes to the Company's Financial Statements.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops, markets and supports the Flexi family of
financial and accounting software applications and related tools. The Company
began operations in 1991 and released its first FlexiFinancials application
product for general availability during the fourth quarter of 1993.
The Company's revenues are derived from two sources: software license
revenues and service and maintenance revenues. Software license revenues have
grown as additional applications have been released for general availability and
the installed base of customers has increased. Service and maintenance revenues
have grown due to the increase in the Company's installed base of customers and
the growth in the Company's consulting services practice.
Software license revenues include (i) revenues from noncancellable software
license agreements entered into between the Company and its customers with
respect to the Company's products, (ii) royalties due to the Company from third
parties that distribute the Company's products and, to a lesser extent, (iii)
third-party products distributed by the Company. All of the Company's products
can operate on a fully integrated basis, or be licensed separately by a user to
meet that user's specific requirements. Software license revenues under the
Company's license agreements are recognized upon delivery and installation of
the product and when all significant contractual obligations have been
satisfied. Software license revenues under the Company's FIP agreements are
recognized upon execution of an agreement between the end user and the FIP, as
such revenues are reported to the Company. Service revenues include consulting,
implementation and training, and are recognized as services are performed and
delivered. Maintenance revenues for maintaining, supporting and providing
periodic upgrading are recognized ratably over the service period, generally one
year. The Company maintains reserves for potential losses and such losses to
date have been within management's expectations. See Note 2 of Notes to the
Company's Financial Statements.
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, the Company has evaluated the establishment of technological
feasibility of its various products during the development phase. The time
period during which costs could be capitalized from the point of reaching
technological feasibility until the time of general product release is very
short, and, consequently, the amounts that could be capitalized are not material
to the Company's financial position or results of operations. Therefore, the
Company charges all product development expenses to operations in the period
incurred.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license.................... 65.9% 67.6% 62.4% 60.2% 59.1%
Service and maintenance............. 34.1 32.4 37.6 39.8 40.9
------ ------ ----- ------ -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software license.................... 0.5 1.9 3.7 3.3 5.0
Service and maintenance............. 38.0 36.5 26.1 30.8 28.1
------ ------ ----- ------ -----
Total cost of revenues...... 38.5 38.4 29.8 34.1 33.1
Operating expenses:
Sales and marketing................. 225.9 92.9 59.6 66.3 42.6
Product development................. 236.7 78.1 68.7 78.4 47.9
General and administrative.......... 79.6 28.1 29.4 35.0 13.6
------ ------ ----- ------ -----
Total operating expenses.... 542.2 199.1 157.7 179.7 104.1
Operating loss........................ (480.7) (137.5) (87.5) (113.8) (37.2)
Interest income....................... 4.8 1.2 0.7 1.0 0.8
Interest expense...................... (3.3) (2.3) (2.4) (3.1) (0.8)
------ ------ ----- ------ -----
Loss before provision for income
taxes............................... (479.2) (138.6) (89.2) (115.9) (37.2)
Provision for income taxes............ -- -- -- -- --
------ ------ ----- ------ -----
Net loss.............................. (479.2)% (138.6)% (89.2)% (115.9)% (37.2)%
====== ====== ===== ====== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, increased 142.6%, from $5.1 million for the
nine months ended September 30, 1996 to $12.5 million for the nine months ended
September 30, 1997.
Software license revenues increased 138.1%, from $3.1 million for the nine
months ended September 30, 1996 to $7.4 million for the nine months ended
September 30, 1997. The growth was due primarily to increased market acceptance
of the Company's software products and growth in international sales, primarily
in Europe. Service and maintenance revenues increased 149.4%, from $2.0 million
for the nine months ended September 30, 1996 to $5.1 million for the nine months
ended September 30, 1997. The increase was primarily attributable to the growth
of the installed base of customers and the increasing complexity of user
requirements, which resulted in an increase in consulting service revenues.
Cost of Revenues. The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed by the Company and the cost of product media, manuals and
shipping. Cost of service and maintenance revenues consists of costs to provide
consulting, implementation and training to licensees of the Company's products
and the cost of providing software maintenance to customers, technical support
services and periodic upgrades of software.
Cost of software license revenues increased 264.1%, from $170,000 for the
nine months ended September 30, 1996 to $619,000 for the nine months ended
September 30, 1997. Cost of software license revenues as a percentage of
software license revenues increased from 5.5% for the nine months ended
September 30, 1996 to 8.4% for the nine months ended September 30, 1997. The
increase in cost of revenues
19
<PAGE> 21
in dollar amount and as a percentage of software license revenues was primarily
due to an increase in third-party software products distributed by the Company,
as well as costs associated with increased sales volume.
Cost of service and maintenance revenues increased 121.0%, from $1.6
million for the nine months ended September 30, 1996 to $3.5 million for the
nine months ended September 30, 1997. The increase in the dollar amount of such
costs resulted primarily from the addition of service consultants and customer
support personnel to provide services to a larger customer base. Cost of service
and maintenance revenues as a percentage of service and maintenance revenues
decreased from 77.4% for the nine months ended September 30, 1996 to 68.6% for
the nine months ended September 30, 1997. The decrease as a percentage of
service and maintenance revenues was due to an increasing revenue base.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
increased 55.8%, from $3.4 million for the nine months ended September 30, 1996
to $5.3 million for the nine months ended September 30, 1997. The increase in
dollar amount was primarily attributable to an increase in the number of sales
offices, increased staffing in the direct sales force and an increase in
commissions expense due to increased software license fees. Sales and marketing
expenses as a percentage of total revenues decreased from 66.3% for the nine
months ended September 30, 1996 to 42.6% for the nine months ended September 30,
1997 due to an increasing revenue base. The Company is in the process of
expanding its distribution channels, both domestically and internationally and,
accordingly, sales and marketing expenses are expected to increase in dollar
amount in the future.
Product Development. Product development expenses include software
development costs and consist primarily of engineering personnel costs. The
Company has made significant investments in product development in the past
several years to bring its suite of component-based, object-oriented financial
accounting products to market.
Product development expenses increased 48.4%, from $4.0 million for the
nine months ended September 30, 1996 to $6.0 million for the nine months ended
September 30, 1997. The increase in product development expenses was due
primarily to the continued hiring of software specialists, principally in the
quality assurance, product engineering and distributed computing development
areas, as well as normal salary increases. Product development expenses as a
percentage of total revenues decreased from 78.4% for the nine months ended
September 30, 1996 to 47.9% for the nine months ended September 30, 1997 due to
an increasing revenue base. The Company anticipates that product development
expenses will increase in dollar amount in future periods as the Company
continues to enhance the functionality of its core financial accounting and
reporting and workflow applications and as it continues development work on the
next releases of its suite of application modules.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts and outside professional fees. General
and administrative expenses decreased 5.5%, from $1.8 million for the nine
months ended September 30, 1996 to $1.7 million for the nine months ended
September 30, 1997. General and administrative expenses as a percentage of total
revenues decreased from 35.0% for the nine months ended September 30, 1996 to
13.6% for the nine months ended September 30, 1997. The decrease in general and
administrative expenses in dollar amount and as a percentage of total revenues
was primarily due to a nonrecurring charge of $492,000 in executive compensation
in the second quarter of 1996 attributable to stock options granted at less than
market value. The Company expects general and administrative expenses to
increase in dollar amount in future periods due to the Company's growth as well
as the additional expense of being a public company.
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the nine months ended September 30, 1996 or
September 30, 1997 due to the operating losses incurred in the respective
periods. The Company has reported only tax losses to date and consequently has
approximately $16.0 million of net operating loss carryforwards, which expire at
various times through the year 2011, available to offset future taxable income.
The utilization of such net operating losses is subject to limitations as a
result of an ownership change. The annual limitation and the timing of attaining
profitability may result in
20
<PAGE> 22
the expiration of net operating loss carryforwards before utilization. The
Company's deferred tax assets at September 30, 1997 were $7.3 million,
consisting primarily of net operating loss carryforwards. The Company's benefit
of deferred tax assets has been fully reserved as of September 30, 1997 as the
realization of deferred taxes is dependent on future events and earnings, if
any, the timing and extent of which are uncertain.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 78.2%, from $4.7 million for the year
ended December 31, 1995 to $8.3 million for the year ended December 31, 1996.
The increase was attributable to growth in all aspects of the Company's revenues
as outlined below.
Software license revenues increased 64.4%, from $3.2 million for the year
ended December 31, 1995 to $5.2 million for the year ended December 31, 1996.
This growth was due to the availability of the Company's new products and an
increase in new customers.
Service and maintenance revenues increased 107.1%, from $1.5 million for
the year ended December 31, 1995 to $3.1 million for the year ended December 31,
1996. The increase in service and maintenance revenues was primarily
attributable to increases in consulting services and training revenues and an
increase in the installed base of customers.
Cost of Revenues. Cost of software license revenues increased 253.4%, from
$88,000 for the year ended December 31, 1995 to $311,000 for the year ended
December 31, 1996. Cost of software license revenues as a percentage of software
license revenues increased from 2.8% for the year ended December 31, 1995 to
6.0% for the year ended December 31, 1996. The increase in dollar amount and as
a percentage of revenues was primarily due to an increase in third-party
products distributed by the Company, as well as costs associated with increased
sales volume.
Cost of service and maintenance revenues increased 27.7%, from $1.7 million
for the year ended December 31, 1995 to $2.2 million for the year ended December
31, 1996. The increase in dollar amount of such costs resulted primarily from
increased staffing in the consulting and support organizations in response to
increased demand for consulting services and continued growth in the customer
base. Cost of service and maintenance revenues as a percentage of service and
maintenance revenues decreased from 112.6% for the year ended December 31, 1995
to 69.4% for the year ended December 31, 1996 due to an increasing revenue base.
Sales and Marketing. Sales and marketing expenses increased 14.4%, from
$4.4 million for the year ended December 31, 1995 to $5.0 million for the year
ended December 31, 1996. The increase in dollar amount of such expenses was
primarily attributable to increased staffing in the direct sales force and an
increase in commission expense due to increased software license fees. Sales and
marketing expenses as a percentage of total revenues decreased from 92.9% for
the year ended December 31, 1995 to 59.6% for the year ended December 31, 1996,
due to an increasing revenue base.
Product Development. Product development expenses increased 56.6%, from
$3.7 million for the year ended December 31, 1995 to $5.7 million for the year
ended December 31, 1996. The increase was primarily attributable to the
additional engineers retained for development of new product modules as well as
enhancements to existing products. Product development expenses as a percentage
of total revenues were 78.2% for the year ended December 31, 1995 and 68.7% for
the year ended December 31, 1996. The decrease as a percentage of total revenues
was due to an increasing revenue base.
General and Administrative. General and administrative expenses increased
86.4%, from $1.3 million for the year ended December 31, 1995 to $2.5 million
for the year ended December 31, 1996. General and administrative expenses as a
percentage of total revenues increased from 28.1% for the year ended December
31, 1995 to 29.4% for the year ended December 31, 1996. The increases in dollar
amount and as a percentage of revenues resulted primarily from additional costs
associated with the Company's growth, including an increase in executive
compensation attributable to non-qualified stock options granted in the second
quarter of 1996, an increase in the provision for doubtful accounts due to
continued growth in the customer base and an increase in employment recruiting
fees related to an increase in staffing.
21
<PAGE> 23
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the years ended December 31, 1995 or December
31, 1996 due to the operating losses incurred in the respective periods and the
availability of net operating loss carryforwards.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Total revenues increased 449.0%, from $853,000 for the year
ended December 31, 1994 to $4.7 million for the year ended December 31, 1995.
Software license revenues increased 463.4%, from $562,000 for the year ended
December 31, 1994 to $3.2 million for the year ended December 31, 1995 as a
result of the introduction of new applications and increased sales efforts.
Service and maintenance revenues increased 421.3%, from $291,000 for the year
ended December 31, 1994 to $1.5 million for the year ended December 31, 1995 as
a result of increased demand for such services and continued growth in the
customer base.
Cost of Revenues. Cost of software license revenues increased 2100%, from
$4,000 for the year ended December 31, 1994 to $88,000 for the year ended
December 31, 1995. Cost of software license revenues as a percentage of software
license revenues increased from 0.7% for the year ended December 31, 1994 to
2.8% for the year ended December 31, 1995. Such increases in dollar amount and
as a percentage of software license revenues were due to an increase in
third-party products distributed by the Company, as well as costs associated
with increased sales volume.
Cost of service and maintenance revenues increased 427.2%, from $324,000
for the year ended December 31, 1994 to $1.7 million for the year ended December
31, 1995. Cost of service and maintenance revenues as a percentage of service
and maintenance revenues increased from 111.3% for the year ended December 31,
1994 to 112.6% for the year ended December 31, 1995. The increase in dollar
amount and as a percentage of revenues resulted primarily from increased
staffing in the consulting and support organizations in order to meet demand.
Sales and Marketing. Sales and marketing expenses increased 125.7%, from
$1.9 million for the year ended December 31, 1994 to $4.4 million for the year
ended December 31, 1995. The increase in sales and marketing expenses resulted
primarily from additional sales personnel and an increase in public relations
costs. Sales and marketing expenses as a percentage of total revenues decreased
from 225.9% in 1994 to 92.9% in 1995. The decrease as a percentage of revenues
was due to an increasing revenue base.
Product Development. Product development expenses increased 81.3%, from
$2.0 million for the year ended December 31, 1994 to $3.7 million for the year
ended December 31, 1995. The increase in product development expenses reflected
an increase in expenses related to the continued development and enhancement of
FlexiFinancials, FlexiInfoSuite and FlexiTools application products. Product
development expenses as a percentage of total revenues were 236.7% in 1994 and
78.2% in 1995. The decrease as a percentage of total revenues was due to an
increasing revenue base.
General and Administrative. General and administrative expenses increased
93.8%, from $679,000 for the year ended December 31, 1994 to $1.3 million for
the year ended December 31, 1995. The increase in general and administrative
expenses in dollar amount resulted primarily from an increase in the provision
for doubtful accounts due to continued growth in the customer base, higher
personnel costs and an increase in occupancy related expenses. General and
administrative expenses as a percentage of total revenues decreased from 79.6%
in 1994 to 28.1% in 1995, due to an increasing revenue base.
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the years ended December 31, 1994 or December
31, 1995 due to operating losses incurred in the respective periods.
22
<PAGE> 24
SELECTED QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's Common Stock. Quarterly revenues and operating results may
fluctuate as a result of a variety of factors, including the Company's lengthy
sales cycle, the proportion of revenues attributable to software license
revenues versus service and maintenance revenues, changes in the level of
operating expenses, demand for the Company's products, the introduction of new
products and product enhancements by the Company or its competitors, changes in
customer budgets, competitive conditions in the industry and general economic
conditions. Furthermore, the purchase of the Company's products often involves a
significant commitment of capital by its customers with the attendant delays
frequently associated with large capital expenditures and authorization
procedures within an organization. For these and other reasons, the sales cycles
for the Company's products are typically lengthy and subject to a number of
significant risks over which the Company has little or no control. The Company
has often recognized a substantial portion of its revenues in the last month of
the quarter. As a result, software license revenues in any quarter are
substantially dependent on installations performed in the last month of that
quarter. Accordingly, a small variation in the timing of recognition of revenues
for specific transactions is likely to adversely and disproportionately affect
the Company's operating results for a quarter because the Company establishes
its expenditure levels on the basis of its expected future revenues and only a
small portion of the Company's expenses vary with its revenues. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as indicative of future
performance. The Company has only been profitable in one quarterly period, and
there can be no assurance that the Company will remain profitable on a quarterly
basis.
The Company's business has experienced and is expected to continue to
experience significant seasonality with respect to software license fees. In
recent years, the Company has had greater demand for its products in its fourth
quarter and has experienced lower revenues in its succeeding first quarter.
These fluctuations are caused primarily by the Company's quota-based
compensation arrangements, typical of those used in software companies, and
year-end budgetary pressures on the Company's customers. The Company believes
that seasonal trends may continue for the foreseeable future. See "Risk
Factors -- Potential Fluctuations in Quarterly Performance; Seasonality."
23
<PAGE> 25
The following table sets forth unaudited quarterly results of operations of
the Company for each of the quarters in the year ended December 31, 1996 and the
nine months ended September 30, 1997. In management's opinion, this unaudited
information has been prepared on the same basis as the audited Financial
Statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Prospectus. The results
of operations for any quarter are not necessarily indicative of future results
of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license............... $ 659 $ 775 $ 1,658 $ 2,113 $ 1,311 $ 1,510 $4,541
Service and maintenance........ 311 839 894 1,098 1,236 1,465 2,397
-------- -------- -------- -------- -------- -------- ------
Total revenues......... 970 1,614 2,552 3,211 2,547 2,975 6,938
Cost of revenues:
Software license............... 61 73 36 141 296 163 160
Service and maintenance........ 485 616 482 598 777 1,100 1,622
-------- -------- -------- -------- -------- -------- ------
Total cost of
revenues............. 546 689 518 739 1,073 1,263 1,782
Operating expenses:
Sales and marketing............ 928 1,055 1,422 1,573 2,152 1,914 1,240
Product development............ 918 1,546 1,561 1,708 1,561 1,753 2,658
General and administrative..... 403 884 511 655 595 507 597
-------- -------- -------- -------- -------- -------- ------
Total operating
expenses............. 2,249 3,485 3,494 3,936 4,308 4,174 4,495
Operating income (loss).......... (1,825) (2,560) (1,460) (1,464) (2,834) (2,462) 661
Interest expense (income), net... 89 8 14 27 13 (33) 25
-------- -------- -------- -------- -------- -------- ------
Income (loss) before provision
for income taxes............... (1,914) (2,568) (1,474) (1,491) (2,847) (2,429) 636
Provision for income taxes....... -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- ------
Net income (loss)................ $ (1,914) $ (2,568) $ (1,474) $ (1,491) $ (2,847) $ (2,429) $ 636
======== ======== ======== ======== ======== ======== ======
</TABLE>
24
<PAGE> 26
The following table sets forth unaudited quarterly results of operations as
a percentage of revenues for each of the quarters in the year ended December 31,
1996 and the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license.............. 67.9% 48.0% 65.0% 65.8% 51.5% 50.8% 65.5%
Service and maintenance....... 32.1 52.0 35.0 34.2 48.5 49.2 34.5
------ ------ ----- ----- ------ ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software license.............. 6.3 4.5 1.4 4.4 11.6 5.5 2.3
Service and maintenance....... 50.0 38.2 18.9 18.6 30.5 37.0 23.4
------ ------ ----- ----- ------ ----- -----
Total cost of
revenues............ 56.3 42.7 20.3 23.0 42.1 42.5 25.7
Operating expenses:
Sales and marketing........... 95.7 65.4 55.7 49.0 84.5 64.3 17.9
Product development........... 94.6 95.7 61.2 53.2 61.3 58.9 38.4
General and administrative.... 41.5 54.8 20.0 20.4 23.4 17.0 8.6
------ ------ ----- ----- ------ ----- -----
Total operating
expenses............ 231.8 215.9 136.9 122.6 169.2 140.2 64.9
Operating income (loss)......... (188.1) (158.6) (57.2) (45.6) (111.3) (82.7) 9.4
Interest expense (income),
net............................. 9.2 0.5 0.5 0.8 0.5 (1.1) 0.2
------ ------ ----- ----- ------ ----- -----
Income (loss) before provision
for income taxes.............. (197.3) (159.1) (57.7) (46.4) (111.8) (81.6) 9.2
Provision for income taxes...... -- -- -- -- -- -- --
------ ------ ----- ----- ------ ----- -----
Net income (loss)............... (197.3)% (159.1)% (57.7)% (46.4)% (111.8)% (81.6)% 9.2%
====== ====== ===== ===== ====== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has primarily financed its operations
through private placements of its stock to private investors, issuances of
convertible promissory notes and loans and, to a lesser extent, equipment
financing and traditional financing arrangements.
As of September 30, 1997, the Company had cash and cash equivalents of $3.3
million, a decrease of $16,000 from cash and cash equivalents held at December
31, 1996. The Company's working capital at September 30, 1997 was $1.7 million,
compared to $1.5 million at December 31, 1996.
The Company's operating activities resulted in net cash outflow of $6.4
million, $6.2 million and $5.5 million for the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1997, respectively, principally for
product development and sales and marketing. Investing activities, consisting of
capital expenditures (primarily computer equipment), resulted in net cash
outflow of $223,000, $425,000 and $575,000 for the years ended December 31, 1995
and 1996 and the nine months ended September 30, 1997, respectively. At
September 30, 1997, the Company had no material commitments for capital
expenditures. The Company's financing activities generated net cash of $5.7
million, $9.9 million and $6.0 million for the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1997, respectively. Such cash was
primarily attributable to proceeds from private placements of the Company's
stock and from borrowings.
The Company has a working capital revolving line of credit with a bank,
which is secured by the Company's accounts receivable. The amount available
under this facility is limited to the lesser of 80% of the Company's eligible
accounts receivable, as defined, or $2.0 million. The facility will expire on
June 1, 1998. The agreement under which the line of credit was established
contains certain covenants, including provisions requiring the Company to
maintain specified financial ratios. The Company was in compliance with these
covenants at September 30, 1997. At September 30, 1997, $2.0 million was
outstanding under this line of credit.
The Company believes that proceeds generated by the sale of Common Stock
offered by the Company in the offering, cash and cash equivalents, cash
generated internally by operations, and available borrowings under the line of
credit will be sufficient to meet the Company's working capital requirements for
at least the next twelve months.
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<PAGE> 27
BUSINESS
The Company designs, develops, markets and supports the Flexi family of
financial and accounting software applications and related tools. The Flexi
solution -- FlexiFinancials, FlexiInfoSuite and FlexiTools -- is designed to
address the needs of users with sophisticated financial accounting requirements.
The Company believes that the solution's distributed, object-oriented,
component-based architecture provides significant advantages over traditional
financial accounting software, including greater transaction throughput and
scalability, ease of implementation, modification and use, and reduced cost of
ownership. Flexi products are designed to support new technologies as they
develop, including the Internet and corporate intranets, can be modified quickly
and efficiently by users to create tailored business solutions and can readily
be integrated with new applications to support evolving business processes.
INDUSTRY OVERVIEW
Rapidly changing market conditions and intensifying competitive pressures
have in recent years increased the need for highly functional, flexible
financial accounting systems that provide easy access to information. Such
systems generate and manage financial information to formulate and validate
business strategies, satisfy internal and external reporting requirements and
comply with regulatory requirements. The systems must have sufficient
performance and adaptability to continue to provide timely and accurate
information as organizations change business processes to meet evolving market
and operational requirements. This is particularly true for organizations
experiencing rapid growth in dynamic markets, and for multinational
organizations, which face the complex task of managing financial information in
multiple tax jurisdictions, currencies and languages. Furthermore, large
organizations require financial accounting systems that offer broad
functionality across dispersed locations and workgroups. These functional and
technological requirements are especially critical in businesses centered around
the timely collection, analysis and dissemination of vast amounts of numerical
information, such as banking, insurance and other financial services
organizations, as well as healthcare and technology organizations.
The financial accounting software market is well-established and growing
rapidly. Based on available industry information, the Company believes that the
overall market for financial accounting software totalled $4.5 billion in 1996,
of which $2.4 billion was spent on client/server software, and is expected to
grow to more than $9.2 billion by the year 2001, of which $8.5 billion is
expected to be client/server-related. The Company estimates that expenditures
for financial accounting solutions by banking and financial services
organizations alone totalled $2.2 billion in 1996 and will grow to $3.5 billion
by 2001.
The financial accounting software market has undergone a series of
fundamental technology shifts, each of which has brought dramatic improvements,
and created new challenges, in the management of financial information. The
widespread adoption of mainframes and minicomputers during the 1980s first
permitted the automated processing and distribution of massive amounts of
information. However, their centralized operation and closed architecture
prevented businesses from using these systems for purposes other than
maintaining centralized financial records and batch processing of accounting
transactions. Organizations required more flexible accounting solutions that
could adapt rapidly to business changes and scale across multiple platforms as
technology evolved, while performing core accounting functions on a more
cost-effective basis.
The proliferation of PCs and workstations led to the introduction of
client/server-based solutions during the early 1990s. These solutions make
information readily accessible to the desktop and support industry-standard
operating systems -- but often lack robust functionality, performance and ease
of implementation. These first generation (or legacy) client/server accounting
solutions do not duplicate the full functionality of mainframes for
data-intensive applications, are still written in proprietary languages, lack
the security and reliability associated with mainframes, and cannot be
integrated easily with emerging technologies such as the Internet. In addition,
legacy client/server systems often involve a lengthy and costly implementation
process, which industry analysts estimate can cost up to ten times as much as
the underlying software. Until recently, these factors have made many
organizations reluctant to convert from their traditional mainframe solutions to
a client/server environment.
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<PAGE> 28
A new generation of object-oriented, component-based technology has evolved
in recent years to address many of the limitations associated with legacy
client/server solutions and to support the efficient use of the Internet as an
integral part of financial accounting solutions. Object-oriented development
methodologies facilitate the reuse of application logic to adapt to changing
technological and accounting requirements. Component-based architecture allows
the timely creation of tailored business solutions by simplifying and shortening
the integration of software applications from multiple sources and facilitating
use of applications over the Internet. Additionally, the distributed model of
computing, in which processing logic resides at the appropriate level within a
client/server architecture, has created the potential for a higher degree of
functionality, flexibility and scalability than available with legacy
client/server or mainframe systems. The advantages inherent in these new
technologies have led many vendors of legacy client/server solutions, including
the Company's principal competitors, to announce their intention to transition
to these new technologies -- often at the cost of replacing or rewriting their
current products.
This new generation of technology provides a foundation by which users can
address critical business requirements that are not met effectively by legacy
mainframe or client/server accounting systems, including:
- Flexibility to embrace emerging technologies, such as the Internet, as
they are adopted;
- Adaptability to support rapidly evolving business processes and
strategies for organizations with sophisticated financial accounting
requirements;
- Performance, including the functionality, portability and scalability to
process massive amounts of data quickly, efficiently and securely; and
- Reduced cost of ownership through ease and speed of implementation,
integration with installed technology and existing databases without code
reconfiguration or customization, simplified training and reduced
maintenance.
THE FLEXI SOLUTION
The Flexi solution provides easy access to critical financial information
through a suite of open, distributed financial accounting applications and tools
based on an object-oriented, component-based architecture. The business
advantages of the Flexi solution include:
- Deployment of Emerging Technologies. The Flexi solution is designed to
support new technologies as they develop. For example, the Company was
one of the first client/server financial accounting software vendors to
offer Internet enhancements for its products in 1996. It was also one of
the first to introduce a broad range of ActiveX components in 1997,
allowing the Company's products to support Internet or intranet
communications and permitting its users to draw on the Internet for
flexible and cost-effective communications across dispersed locations
without significant code reconfiguration. This greatly increases the
flexibility and breadth of access to the Flexi solution without
significant additional customer investment.
- Ability to Adapt to Changing Business Processes. The Company's
object-oriented, component-based architecture allows the Flexi solution
to be modified quickly and efficiently by users. In addition, users can
seamlessly integrate the Flexi solution with new applications to support
business processes and to address new business strategies as they evolve.
As a result, the Flexi solution can facilitate the implementation by
organizations of new and more efficient ways to conduct their businesses.
- High Performance with Sophisticated Functionality. By offering native
support of multiple databases and server-based processing, the Flexi
solution provides enhanced data and transaction throughput and greater
scalability in comparison with traditional financial accounting
solutions. The Company believes that the Flexi solution is also among the
few client/server solutions offering the functionality and scalability
required by organizations with sophisticated accounting requirements,
especially multinational and rapidly growing organizations. For example,
the Company's FlexiLedger system can support multi-company
consolidations, full currency translation, a high level of user-defined
data security and broad capacity to implement allocations -- critical
functions for sophisticated users that are not
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<PAGE> 29
otherwise available on a comprehensive basis in legacy client/server
systems. The performance and functionality of the Flexi solution allows
organizations to rapidly and efficiently process financial data and
close their books, providing managers with quicker access to critical
business information.
- Reduced Cost of Ownership. The Flexi solution can significantly reduce
the overall cost of ownership for organizations with sophisticated
financial accounting requirements. The Company's object-oriented,
component-based solution is written in an industry-standard language
(C++) and can be quickly and easily implemented, maintained and operated,
and the time involved to add or change features is far less than that
required with legacy client/server systems. The Flexi solution's ability
to operate across a broad range of hardware and database platforms
reduces the need for major technology investments to transition to the
Company's solution, while its data access layer reduces the need by
customers to change or reconfigure their installed databases. The Flexi
solution further reduces the need for hardware investment and reduces
personnel costs as its high performance allows users to satisfy their
processing requirements without the need for more powerful or additional
processing resources.
STRATEGY
The Company's goal is to establish itself as a global leader in the
financial accounting software market. Key elements of the Company's strategy
include:
- Extend Technology Leadership. The Company believes that its
object-oriented, component-based architecture and development expertise
provide it with competitive advantages. The Company intends to maintain a
significant investment in research and development to introduce further
enhancements to its open, distributed financial accounting solution. The
Company's architecture also enables the Company to take advantage of the
adoption of the Internet and corporate intranets as critical components
of an organization's future system deployments, enabling customers to use
cost-effective and security-enhanced communications and information
sharing among their employees without excessive development costs or
delays in implementation.
- Target Users with Sophisticated Financial Accounting Requirements. The
Company believes that its solution is particularly suited for adoption by
users with sophisticated financial accounting requirements. The Company
intends to continue to target its sales and marketing efforts at such
users, including those in the banking, insurance and other financial
services industries, as well as technology and healthcare industries. The
Company believes that a large number of users in these industries have
substantial processing requirements and operate on legacy systems,
including mainframe systems. The Company therefore believes that the
conversion of these systems to open, distributed systems provides a
significant market opportunity.
- Focus on Reduced Cost of Ownership. The Company believes that another
competitive advantage of its architecture is the reduction in cost of
ownership. The Company believes that its architecture allows
organizations to rapidly and easily implement, maintain and alter their
business applications across a number of widely used platforms and
operating systems, thus reducing costs. The Company believes that the
reduction in overall ownership cost is important for organizations
transitioning to a client/server solution and intends to invest in
development and marketing programs to maintain and underscore the
relative economic benefits of its products.
- Leverage Strategic Relationships. The Company has established technology
and marketing relationships with a number of technology firms. For
instance, Microsoft Corporation ("Microsoft") selected the Company as one
of its first Microsoft Solution Developers and listed the Company as one
of the two original Microsoft BackOffice-compliant enterprise accounting
vendors. In addition, the Company has technical and marketing
relationships with Arbor Software Corporation, Comshare Incorporated,
Crystal Computer Services Inc., Digital Equipment Corporation, Filenet
Corporation, Hewlett-Packard Company, IBM Corporation, Oracle
Corporation, SQRiBE Technologies, Sun Microsystems, Inc. and Sybase, Inc.
The Company has leveraged these relationships by taking advantage of its
solution's architecture to support a broad range of industry standards,
including multiple RDBMs, operating systems and hardware platforms. The
Company plans to continue to establish technological relationships and
support emerging industry standards (such as ActiveX controls and the
Java
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programming language) to assure that its products meet the technology
requirements, and can integrate seamlessly with other technology
solutions, of its principal customers.
- Expand Sales and Distribution Resources. The Company intends to extend
its sales resources by increasing the size of its direct sales
organization in major markets to target strategic accounts in both North
America and Europe. The Company believes that many potential customers
can benefit from the advanced functionality of its products (for example,
the abilities of the products to integrate tax computations, currency
fluctuations and multiple language considerations). To date, the Company
has focused its sales and marketing efforts primarily in the financial
services industry, including banks, insurance companies and other
financial services organizations. The Company intends to leverage its
high-profile, referenceable customers in this industry to gain additional
customers in this and other targeted vertical markets. In addition, the
Company has established its Flexi Industry Partner, or FIP, program,
identifying and partnering with software vendors in the healthcare, real
estate, retail and manufacturing industries. By leveraging the sales
organization and market expertise of its FIPs, the Company can focus on
the specific needs of vertical markets without disproportionate
investment.
TECHNOLOGY
To achieve high performance, full portability and scalability across
platforms, rich application functionality and easy access to information, the
Flexi solution incorporates the following key technical features:
- Object-oriented, component-based architecture assures that in addition to
high functionality, the Company's systems are highly flexible. The use of
leading CASE tools and coding in C++ facilitates customization by users
and maximizes reusable code for developers. Furthermore, the use of the
ANSI standards for the C++ language facilitates the portability of the
Company's products, as the code is supported over a range of native C++
compilers available on a number of widely used operating systems.
Component-based architecture allows organizations to create tailored
business solutions by simplifying and shortening the implementation of
applications acquired from multiple sources. The Company's
object-oriented, component-based architecture also facilitates the
support of Internet functionality by the Company's products.
- Distributed architecture to provide platform portability and optimize
performance. If an application's logic resides only on the client, users
are unable to efficiently process high-volume transactions, while if it
is resident only on the server, the interactive performance of the
application is degraded. The Company's multi-tier distributed
architecture allocates system functionality across tiers to avoid these
limitations and assures that the requirements of sophisticated users
needing high performance and immediate access, coupled with ease of use,
are met.
- Data abstraction layer that accesses multiple database systems natively,
enhancing the performance and portability of the Company's solution,
which currently supports Sybase, IBM's DB2, Microsoft's SQL Server and
Oracle.
- Support of open systems and industry standards enhances the portability
and scalability of the Company's products. The Company supports a wide
range of server operating systems (including Windows NT, UNIX and MVS),
traditional client platforms such as Windows (including Windows 3.x, 95
and NT) and emerging technologies such as the Internet, facilitating ease
of use, system portability and smooth integration of packages from
third-party vendors as required to provide generic functionality.
PRODUCTS
The Flexi solution is an integrated set of financial accounting
applications, together with related information applications and development
tools, that address the needs of users with sophisticated financial accounting
requirements and is easily customized and supports the latest technologies as
they evolve. The following table provides selected information relating to the
Company's three core families of products, its FlexiFinancials financial
accounting systems, its FlexiInfoSuite family of reporting and workflow
applications and its FlexiTools development and customization tools. All of the
Company's products can operate on a fully
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<PAGE> 31
integrated basis, or be licensed separately for use on a stand-alone basis or
for integration with products from third-party vendors.
<TABLE>
<CAPTION>
COMMERCIAL COMMERCIAL COMMERCIAL
FLEXIFINANCIALS INTRODUCTION FLEXIINFOSUITE INTRODUCTION FLEXITOOLS INTRODUCTION
- ----------------- ------------ -------------- ---------- ---------------------- ----------
<S> <C> <C> <C> <C> <C>
FlexiLedger 1993 FlexiWriter 1993 FlexiControl 1993
FlexiPayables 1994 FlexiAnalysis 1994 FlexiDesigner 1994
FlexiReceivables 1995 FlexiWorkFlow 1996 FlexiDeveloper 1994
FlexiPurchasing 1996 FlexiNet 1996 FlexiDB 1996
FlexiAssets 1997 FlexiActiveX Controls 1997
FlexiOrders 1997
FlexiInventory 1997
</TABLE>
FlexiFinancials
- FlexiLedger. FlexiLedger, the general ledger module for FlexiFinancials,
provides the functionality required for users with sophisticated
financial accounting requirements, including the ability to support
unlimited number of currencies, multicurrency accounts and multicurrency
sets of books; multi-company consolidations; user-defined subledgers;
flexible account validation; sophisticated summarization and allocation
structure, as well as other normal ledger functions, with levels of
security traditionally associated with mainframes.
- FlexiPayables. FlexiPayables is an accounts payable module that supports
centralized and decentralized accounts payable processing through
sophisticated operation and accounting security controls, while
supporting the generation of invoices and payment authorizations
automatically routed for approval. Users have the flexibility to
establish payment rules, terms for payment, cash management, expense
control and vendor management.
- FlexiReceivables. FlexiReceivables is an accounts receivable module that
supports automatic cash application, invoice aging and discounts, as well
as flexible rules for account group, payment schedule commission and
other terms. It can be easily configured to define multiple account
distribution or multiple-company accounting for management of receivables
across large organizations.
- FlexiPurchasing. FlexiPurchasing is a dynamic purchasing management
module that tracks purchases from requisition to purchase order to
invoicing, as well as delivery and storage, including data ranging from
discount levels to receipt and acceptance of goods. Users can define,
among other items, management approval levels, all relevant report
information and payment terms.
- FlexiAssets. FlexiAssets is a fixed-asset module for controlling and
tracking the physical location of all assets, while providing
depreciation calculations on a fully automated basis. The user can
maintain records on an unlimited number of assets. FlexiAssets permits
the user to choose depreciation methods, and to maintain records to
satisfy GAAP and federal, state and local property tax reporting
requirements.
- FlexiOrders. FlexiOrders handles a user's complete ordering cycle
online, from quotations and order processing to shipment and returns. In
addition, it generates all necessary forms and documentation for
processing and packaging orders and allows designation of multiple
scheduling and delivery dates.
- FlexiInventory. FlexiInventory is an inventory management module that
provides complete inventory control from receipt of stock through
inventory analysis and evaluation, while tracking parts through multiple
warehouses and bin locations. It can support an unlimited number of parts
and can define maximum, minimum and reorder points for each part.
FlexiInfoSuite
The FlexiInfoSuite software takes advantage of the flexibility of the
Company's products and their ability to be integrated seamlessly with other
technologies to provide a "best-of-class" report development, report
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generation and workflow system to serve a broad range of management information
and control requirements, ranging from high-volume batch processing to
interactive, on-line analytical processing to workflow design and
implementation. The FlexiInfoSuite software has the flexibility to provide
highly tailored reports in industry standard formats, with the functionality to
support a high volume of data across organizations, while providing customers
freedom of choice in their selection of GUI, security and presentation.
The FlexiInfoSuite software includes: FlexiWriter, for high-volume general
ledger financial statements, either on-site or at remote locations;
FlexiAnalysis, which provides general ledger access directly from Excel without
leaving the Microsoft spreadsheet environment; and FlexiWorkFlow, which manages
accounting approval processes throughout the organization. To meet specific
customer requirements, the Company also offers imaging, reporting and workflow
solutions developed by third parties as part of its FlexiInfoSuite solution,
including reporting applications by Arbor Software Corporation, imaging
solutions by Filenet Corporation and reporting applications by Crystal Computer
Services Inc.
During the fourth quarter of 1996, the Company released FlexiNet, an
Internet-enabled application extension. FlexiNet includes HTML-based queries for
key functions within the FlexiFinancials applications. These HTML-based queries
provide convenient access over the Internet to functional areas such as vendor
invoice status within FlexiPayables, purchase requisition input, customer
account inquiries within FlexiReceivables and dynamic balance analysis within
FlexiLedger. Full field-level security is maintained through the transparent,
yet secure, use of dual passwords between the browser, the Web server and the
FlexFinancials database.
FlexiTools
FlexiTools are development and customization tools based on the C++
language that permit users to take advantage of the object-oriented,
component-based architecture of the Company's systems to accommodate their
unique requirements in a timely and cost-effective manner. FlexiDesigner,
FlexiDeveloper and FlexiDB provide users with the flexibility to extend Flexi
applications and customize the interface and database definitions. With these
tools, customers may add additional fields to any table, modify the attributes
of a currently existing database or customize their graphical user interface.
Each customer has a high degree of flexibility regarding screen or menu
structure. Through the revision control feature, subsequent updates may be
easily applied without overriding customized modifications. By maintaining
customized applications throughout subsequent software releases, FlexiTools
reduce the risk of both subsequent system errors and overall system costs.
FlexiControl permits users to define and manage system-wide controls such
as security, while FlexiActiveX Controls allows customers to create interfaces
between any Windows-based applications supporting OLE (Object Linking and
Embedding) controls and FlexiFinancials modules. The Company believes that
FlexiTools increase the flexibility of its products and facilitate seamless
integration with customer applications.
Pricing
The Company offers server and client licenses for each of its products.
Such licenses vary broadly based on modules, authorized sites, enabled platforms
and volume discounts, if any. A module with typical configurations ranges in
price from $40,000 to over $300,000.
Product Enhancements and Developments
The Company plans to continue to build on its object-oriented,
component-based expertise and believes that it is particularly well positioned
to take advantage of the adoption of the Internet and corporate intranets as
critical components of an organization's future system deployments. The
Company's technology facilitates the distribution of accounting functionality
across users and workgroups in an automated, "just-in-time" manner over the
Internet, as opposed to the significant implementation efforts required by
networks associated with legacy client/server systems. With the introduction of
FlexiNet in 1996, the Company established itself as one of the first accounting
software vendors to provide Internet/intranet access.
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By the end of 1997, the Company plans to introduce, on a limited basis,
extended distributed computing capabilities incorporating a
platform-independent, Java-based presentation layer and utilizing multiple
network transaction monitors such as Microsoft Transaction Server and IBM
Component Broker. This will permit users to select a browser, spreadsheet or
other data access tool for accessing FlexiFinancials processes without
pre-installed Flexi software, which will allow full use of the Flexi solution as
the Internet increasingly becomes the common data exchange vehicle of choice for
users worldwide. The Company anticipates that it will continue to enhance the
Internet functionality of its products with the inclusion of additional features
on an ongoing basis. The Company will also continue over time to introduce
submodules to its products to meet specific requirements of key industry sectors
such as banking, insurance and other financial services.
SALES AND MARKETING
The Company sells its products through direct and indirect channels. The
Company believes there is a significant market for the advanced functionality of
its products and intends to supplement its direct sales force by expanding its
distribution network in selected foreign markets.
Direct Sales
The Company sells its products directly to end users through eight sales
offices in the United States and one office in the United Kingdom. The Company's
sales staff, which has extensive experience in financial accounting software and
computer technology, consists of account executives who develop leads and
coordinate sales activity, and product representatives with extensive knowledge
of the Company's product offerings. The percentage of the Company's total
revenues attributable to direct sales in 1994, 1995 and 1996 and the nine months
ended September 30, 1997 was 100%, 99.2%, 96.3% and 93.8%, respectively. As of
September 30, 1997, the Company had 28 employees in sales, and the Company plans
a significant expansion of its direct sales force during the remainder of 1997
and the first half of 1998.
Indirect Sales
The Company's indirect sales channel consists of Flexi Industry Partners
("FIPs") and an international distributor. The Company currently has
relationships with FIPs in the healthcare, real estate, retail and manufacturing
industries. By leveraging the sales organization and market expertise of its
FIPs, the Company can focus on the specific needs of vertical markets without
disproportionate investment. To date, the agreements between the Company and its
FIPs have required the payment of an initial technology fee by the FIPs and
additional royalty fees based on product sales by the FIPs.
The Company has an international distributor in Hong Kong and plans to
establish additional distributorships to complement its direct sales force and
FIPs and to provide penetration into additional geographic and vertical markets.
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CUSTOMERS
The Company's customers include a wide range of financial institutions and
other organizations that require a high level of functionality from their
financial accounting software, including banks, insurance companies and other
financial services firms, as well as organizations in other industries such as
healthcare and technology. In each of the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1997, five customers, one
customer, one customer and two customers, respectively, each represented 10% or
more of the Company's total revenues, or an aggregate of 68.8%, 12.1%, 12.3% and
35.4% of total revenues, respectively. See "Risk Factors -- Concentration of
Customers." As of September 30, 1997, the Company, directly and through its FIPs
and distributors, had licensed its financial accounting solutions to more than
100 customers at over 150 sites. The following is a representative list of the
Company's customers as of September 30, 1997:
<TABLE>
<S> <C>
BANKING HEALTHCARE
Citibank, N.A. Enterprise Systems (subsidiary of HBOC)
Banco Popular del Ecuador Loma Linda University Hospital
Canada Trust Presbyterian Healthcare Systems
Skandinaviska Enskilda Banken
TECHNOLOGY
INSURANCE Excite
Blue Cross/Blue Shield of South Carolina Health Images
Cologne Life Reinsurance Compaq Capital
Mercury Casualty SQRiBE Technologies
Mutual of America XcelleNet
NAC Re USA/UK
PEMCO OTHERS
Transport Insurance ABARTA (Coca-Cola Bottling)
American Media Group
OTHER FINANCIAL SERVICES American Red Cross
AON Capital Central Maine Power
Babcock & Brown Consolidated Rail Corporation
Freddie Mac Cowles Publishing
Textainer Heitman Financial Group
TMG Financial Products Packard-Hughes Interconnect
Wheels, Inc. Sikorsky Aircraft
</TABLE>
While each customer engagement differs, the following examples illustrate
the types of business needs the Company has addressed:
Citibank. Citibank is the second largest bank in the United States and
serves customers in more than 3,000 locations in 98 countries and territories.
In 1995, Citibank began an evaluation of several commercial general ledger
packages to find a replacement for its heterogeneous systems. After detailed
presentations, demonstrations and volume benchmarks from two finalists, Citibank
selected the Company's FlexiLedger software to replace its corporate general
ledger. Citibank chose the Flexi solution because of its open, object-oriented
architecture, ease of customization, scalability, robust functionality,
high-volume processing capabilities and support for a variety of server
hardware, operating systems and databases. In early 1997, Citibank implemented
FlexiLedger as its head office general ledger utilizing an HP9000 server and
Sybase database. Since then, Citibank has selected FlexiLedger, FlexiPayables,
FlexiAssets, FlexiProjects and FlexiWorkFlow software for implementation in the
United States and eight other countries in Latin America and Europe.
Canada Trust. As the sixth largest financial institution in Canada, Canada
Trust requires a general ledger system capable of processing 500,000 detailed
transactions during a four-hour month-end processing period. After reviewing
numerous client/server accounting packages to replace its legacy mainframe
general ledger system, Canada Trust chose the Company's financial accounting
solution because of its ability both to support the institution's functional
requirements and to process large volumes of transactional data. During the
first quarter of 1997, Canada Trust, IBM Corporation and Price Waterhouse
performed a benchmark test of
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the FlexiLedger application using an IBM RS/6000 platform and DB2/6000
relational database. During the test, the FlexiLedger software successfully
achieved a posting rate of over 500,000 journal transactions per hour,
representing an internal posting rate of over 5,000,000 journal balances per
hour. Canada Trust purchased the FlexiLedger software in June 1997.
Skandinaviska Enskilda Banken. Skandinaviska Enskilda Banken ("S-E-B"), a
global banking organization based in Stockholm, Sweden, offers a broad range of
banking services to approximately 180 multinational organizations, 850 major
companies and municipalities, 125,000 small and medium-sized companies and 1.8
million private customers in 16 countries. In 1996, S-E-B started a search for a
new general ledger system that was year 2000-compliant and offered Internet
functionality capabilities that could not be addressed by its current system.
After initial presentations by 13 accounting software vendors and follow-up
demonstrations by three vendors, S-E-B chose the Company as its financial
accounting software vendor. According to S-E-B, the Company demonstrated a
superior ability to handle the bank's global requirements of multicompany,
multi-currency processing while supporting S-E-B's network of server platforms.
Excite, Inc. With revenue of $14.8 million in 1996, Excite, Inc.
("Excite") is a leading provider of Web content search services worldwide. In
1996, Excite concluded that it had already outgrown its two-year-old accounting
system and required a sophisticated financial accounting solution that could
support rapid growth and adapt to changes in business requirements and was based
on complementary technologies. After an extensive evaluation, Excite chose the
Company's financial accounting software because of its adaptable,
object-oriented, component-based architecture and strong Internet capabilities.
Utilizing an implementation team composed of personnel from Excite, the Company
and a local systems integration firm, Excite implemented the Microsoft Windows
NT/SQL Server versions of the FlexiPayables and FlexiLedger software in four and
eight weeks, respectively.
Enterprise Systems, Inc. (HBOC's Resource Management Group). HBOC's
Resource Management Group ("HBOC"), formerly Enterprise Systems, Inc. ("ESi"),
provides information systems which allow over 1,000 healthcare organizations to
efficiently manage their most critical resources -- people, supplies, equipment,
facilities and service. In 1994, ESi began upgrading its full line of healthcare
resource management software to fully utilize a Windows-based client/server
architecture. In order to provide its clients with a single source for
operational and financial software, reduce the new product time to market and
minimize overall development costs, ESi chose to review third-party financial
application vendors. After an extensive evaluation, ESi chose the FlexiLedger
and FlexiPayables applications because of their open, scalable architecture,
which is based on industry-standard methodologies and tools consistent with
ESi's own development efforts. In 1996, ESi became a Flexi Industry Partner,
offering these Flexi applications with healthcare-specific capabilities as part
of its new client/server product line. ESi markets the Company's applications
utilizing Microsoft Windows NT/SQL Server and, as of September 1997, over 40
HBOC clients had entered into license agreements for one or more Flexi
applications.
CLIENT SERVICES
The Company's client services organization provides professional services,
technical services, help-desk support and custom development for the Company's
customers. The Company believes that a high level of service and support is
critical to its success. Furthermore, the Company believes that a close and
active service and support relationship is both important to customer
satisfaction and provides the Company with important information regarding
evolving customer requirements. As of September 30, 1997, the Company had 38
employees and eight consultants in its client services organization.
The Company's professional services staff assists customers in the
implementation of the Company's financial accounting software and provides
training, project management, GAAP analysis, migration planning and year 2000
strategies. The Company's technical services personnel install Flexi products
and provide customers with upgrade assistance, migration planning and
implementation, data analysis and database management systems assistance,
systems configuration, and management and integration services. The Company
believes that effective training and technical support are essential to provide
quality service and provides these services to its third-party channels and
customers. When purchasing the Company's products,
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<PAGE> 36
customers generally purchase an implementation consulting package, consisting of
classroom and on-site training, project planning and system review. Depending
upon the complexity of the customer's accounting and system requirements, the
implementation process can extend beyond 90 days.
In addition, the Company generally warrants that product performance will
comply with published specifications for one year after delivery and requires
customers to purchase an initial one-year maintenance contract that includes
updates, error corrections and new releases. The Company generally provides
technical support for the then current release and one prior release. The
Company's standard maintenance contract automatically renews each year, unless
the customer provides 30 days' notice. Annual maintenance fees are typically 17%
of the list price of the underlying products.
The Company's Flexi Support personnel provide toll-free telephone support
from 8:00 a.m. to 8:00 p.m., Eastern Time, with 24-hour/seven-day support
available for an additional fee. In addition, the Company's Flexi Support staff
provides upgrade assistance, premium support, migration assistance and
FlexiCenter remote management.
The Company also leverages the expertise and personnel of a number of
systems integrators and consultants, including Andersen Consulting, Deloitte &
Touche LLP and KPMG Peat Marwick LLP, in connection with the delivery of
sophisticated financial accounting solutions to certain customers.
COMPETITION
The market for the Company's financial accounting software products and
services is intensely competitive and characterized by rapid changes in
technology and the frequent introduction of new products. The Company's
principal competitors in the financial accounting software market include
PeopleSoft, Inc., SAP AG, Oracle Corporation, GEAC Computer Corporation Limited,
SQL Financials International, Inc. and Lawson Software. The Company also faces
competition from providers of industry-specific applications as well as indirect
competition from in-house, custom-developed financial management applications. A
number of the Company's competitors are more established, benefit from greater
name recognition and have substantially greater financial, technical and
marketing resources than the Company and its FIPs and distributors. Moreover,
other than the need for financial and technical expertise, there are no
significant proprietary or other technological barriers to entry in the
financial accounting software market. The Company believes that the principal
factors affecting competition in the financial accounting software market
include product flexibility, performance, functionality and features, use of
standards-based technology, quality of support and service, company reputation,
price and overall cost of ownership. See "Risk Factors -- Competition."
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
requirements. The Company plans to continue to enhance its products and develop
new products, including the development of additional functionality for its
financial accounting products. The Company has generally relied on internal
efforts and resources to develop its software, and, in some limited cases, the
Company has contracted with various firms to develop materials, processes,
software or portions of software for and on behalf of the Company.
As of September 30, 1997, the Company's research and development
organization consisted of 57 employees and 20 consultants. The Company's product
development expenses were $2.0 million, $3.7 million, $5.7 million and $6.0
million, or 236.7%, 78.2%, 68.7% and 48.0% of total revenues, for the years
ended December 31, 1994, 1995 and 1996 and the nine months ended September 30,
1997, respectively.
INTELLECTUAL PROPERTY
The Company relies on a combination of license agreements and copyright,
trade secret, service mark and trademark laws to protect its proprietary rights
in technology. In addition, the Company currently requires its
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<PAGE> 37
employees and consultants to enter into nondisclosure and invention agreements
to limit use of, access to and distribution of its proprietary information.
The Company's business includes the licensing of the Company's proprietary
software to end users, as well as to FIPs and distributors authorized to license
products to third parties. In general, such licensing of the Company's
proprietary software to a licensee is a limited term, limited use, non-exclusive
license that contains restrictions on copying, disclosure, usage, decompiling
and transferability. Within these licensing agreements the Company seeks to
avoid disclosure of its trade secrets, including, but not limited to, generally
requiring those persons with access to the Company's proprietary information to
execute confidentiality agreements restricting use of and access to the
Company's confidential information. In addition, the Company has entered into
license agreements with a limited number of customers that allow these customers
access to and use of the Company's software source code for certain purposes.
Access to the source code may increase the likelihood of misappropriation by
third parties.
The Company generally relies on internal efforts in order to develop its
software. However, in some limited cases the Company has contracted with
consultants to develop software or portions of software for and on behalf of the
Company. Software development by a contractor for the Company is done pursuant
to agreements that generally assign all rights to the Company and contain
nondisclosure provisions. Software developed by a contractor may be merged with
software developed by the Company's own employees.
The Company does not believe that it is infringing any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability to the Company to license the infringed or similar
technology, the Company's business, financial condition and results of
operations would be materially adversely affected.
There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate. The laws of
some foreign countries may not protect the Company's proprietary rights as fully
or in the same manner as do the laws of the United States. Also, despite the
steps taken by the Company to protect its proprietary rights, it may be possible
for unauthorized third parties to copy aspects of the Company's products,
reverse engineer, develop similar technology independently, or obtain and use
information that the Company regards as proprietary. Furthermore, there can be
no assurance that others will not develop technologies similar or superior to
the Company's technologies or design around the proprietary rights owned by the
Company. However, the Company believes that, because of the rapid pace of
technological change in the software industry,trade secret and copyright
protection is less significant to the Company's competitive position than
factors such as the knowledge, ability and experience of its personnel, new
product development, frequent product enhancements, name recognition and ongoing
product maintenance support with regard to developing, establishing and
maintaining a technology leadership position.
EMPLOYEES
As of September 30, 1997, the Company employed 138 employees, including 57
in research and development, 31 in sales and marketing, 38 in client services
and 12 in administration, finance and corporate support, and retained the
service of 20 product development consultants and eight consultants in client
services. The success of the Company depends on its continued ability to attract
and retain highly skilled and qualified personnel. Competition for such
personnel is intense in the software industry, particularly for talented
software developers, service consultants, and sales and marketing personnel.
There can be no assurance that the Company will be able to attract and retain
qualified personnel in the future.
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<PAGE> 38
The Company's employees are not represented by any labor unions. The
Company considers its relations with its employees to be good.
FACILITIES
The Company is headquartered in Shelton, Connecticut, where it leases
approximately 28,630 square feet under a lease expiring in June 2003. In
addition, the Company maintains leased office space in Atlanta, Georgia; Dallas,
Texas; Edmonds, Washington; Oakland and San Diego, California; Melbourne,
Florida; Norwood and Wellesley, Massachusetts; Schaumburg, Illinois; and London,
United Kingdom.
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine commercial litigation
that arises in the ordinary course of its business. For example, in a July 1997
letter to the Company, a former distributor of the Company's products asserted a
claim to commissions on sales to certain of the Company's customers. The Company
believes that this claim is without merit and that any commissions due to this
former distributor have been properly credited or paid. However, if this former
distributor brings formal claims against the Company, the Company believes that
it has meritorious defenses and it will vigorously defend any such claims.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages
as of September 30, 1997 and their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ------ ---------------------------------------------------
<S> <C> <C>
Stefan R. Bothe............... 49 Chairman of the Board and Chief Executive Officer
Jennifer V. Cheng............. 47 President, Treasurer and Director
James W. Schenck (1).......... 48 Executive Vice President, Software Engineering and
Director
Richard P. Horner............. 49 Vice President, Finance
Maureen M. Okerstrom.......... 36 Vice President, Sales
Mark Berlingeri............... 41 Vice President, Client Services
Thomas H. Bredt(2)............ 56 Director
Ellen Carnahan(1)............. 42 Director
Jonathan E. Dick(1)........... 39 Director
Tarek Kettaneh(1)............. 49 Director
John B. Landry(2)(3).......... 49 Director
James L. Luikart(1)........... 52 Director
A. David Tory(3).............. 54 Director
</TABLE>
- ---------------
(1) Not continuing as a director following the closing of this offering.
(2) Member of the Compensation Committee effective as of the closing of this
offering.
(3) Member of the Audit Committee effective as of the closing of this offering.
Mr. Bothe has served as Chairman of the Board and Chief Executive Officer
of the Company since March 1993. From November 1991 to February 1993, Mr. Bothe
was President and Chief Executive Officer of DSI Group N.V., a Dutch-based
international software company. From 1989 to 1991, Mr. Bothe was President and
Chief Executive Officer of GEAC Computer Corporation Limited ("GEAC"), a
software company. Prior to joining GEAC, Mr. Bothe was President of the
Application Products Division of Computer Associates International, Inc.
("Computer Associates"), one of the largest software companies in the industry.
While at Computer Associates, Mr. Bothe held numerous senior management
positions, including President of the International Division, President of the
Micro Products Division and Senior Vice President of Marketing.
Ms. Cheng has served as President of the Company and as a director of the
Company since the Company's inception in 1990. Since 1984, Ms. Cheng has been
General Partner and owner of Cheng Management Company, an investment partnership
specializing in investments in emerging growth companies, including many
technology companies. Prior to forming Cheng Management Company, Ms. Cheng
served with several major financial organizations, including Morgan Stanley &
Co. Inc., as an emerging growth stock analyst, Mutual Life Insurance Company of
New York, as Director of Equity Investments, and Donaldson, Lufkin & Jenrette
Securities Corporation, as Research Analyst.
Mr. Schenck has served as Executive Vice President, Software Engineering of
the Company since the Company's inception in 1990 and has been a director of the
Company since May 1996. Previously, Mr. Schenck was Senior Vice President for
Technology of GEAC, responsible for setting technical direction and evaluating
potential acquisitions. Prior to serving with GEAC, Mr. Schenck was Senior Vice
President of Computer Associates in charge of its application software
development group.
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<PAGE> 40
Mr. Horner has served as Vice President, Finance of the Company since
February 1997. From October 1995 to November 1996, Mr. Horner was Chief
Financial Officer and Vice President, Operations of Marco International, a
computer memory manufacturer. From February 1991 to March 1995, he was Vice
President, Finance of CSK Software (then known as Micrognosis, Inc.), a provider
of computer systems integration services. Prior to 1990, Mr. Horner held various
management positions with Control Data Corporation and IBM Corporation.
Ms. Okerstrom has served as Vice President, Sales of the Company since
August 1997. From August 1994 to July 1997, Ms. Okerstrom served in various
managerial-level sales and marketing positions with the Company. Prior to
joining the Company, Ms. Okerstrom was Vice President, Strategic Operations from
August 1993 to July 1994, and Vice President, Product Representation from
January 1991 to July 1993, with Platinum Software, Inc., a provider of
information management software products and services.
Mr. Berlingeri has served as Vice President, Client Services of the Company
since March 1997. From August 1996 to January 1997, he was President of Blaze
Consulting, a provider of business consulting services. From February 1996 to
August 1996, he was Chief Operating Officer of ATRE Associates, a management
consulting firm. From October 1992 to January 1996, he served as Regional
Director of Professional Services for Sybase, Inc., a provider of distributed,
open computing solutions. Mr. Berlingeri was Consulting Business Manager for
Oracle Corporation, a supplier of information management software, from October
1989 to September 1992.
Mr. Bredt has served on the Board of Directors of the Company since
February 1994. Since 1986, Mr. Bredt has been a general partner or managing
member of a number of Menlo Ventures funds, including MV Management VI, L.P., a
general partner of Menlo Ventures VI, L.P and Menlo Entrepreneurs Fund VI, L.P.,
venture capital investment firms and stockholders of the Company. Mr. Bredt is
also a director of Red Brick Systems, Inc., Clarify, Inc. and Interlink Computer
Sciences, Inc.
Ms. Carnahan has served on the Board of Directors of the Company since
January 1995. Since January 1988, she has been a general partner of William
Blair Venture Management Company, L.P., a private equity investment firm, and a
Managing Director of its successor, William Blair Capital Management, L.L.C.
William Blair Capital Management is the general partner of William Blair Capital
Partners V, L.P., a private equity investment fund and stockholder of the
Company. Ms. Carnahan is also a director of Desktop Data, Inc., Silvon Software,
Inc. and MatrixOne, Inc.
Mr. Dick has served on the Board of Directors of the Company since March
1994. Since December 1993, he has been a Managing Director of Primus Venture
Partners, Inc., the sole general partner of Primus Venture Partners III Limited
Partnership, the sole general partner of Primus Capital Fund III Limited
Partnership, a venture capital investment firm and stockholder of the Company.
From June 1991 to December 1993, Mr. Dick was an Investment Manager at Primus
Venture Partners Limited Partnership.
Mr. Kettaneh has served on the Board of Directors of the Company since
November 1993. Since 1987, he has been Chief Executive Officer of Turnaround
Properties, Inc., an investment firm concentrating in the high technology area.
Mr. Landry has served on the Board of Directors of the Company since
October 1995. Since June 1995, Mr. Landry has been Strategic Technology
Consultant to senior management of IBM Corporation. In addition, since October
1995, he has been Chairman of the Board of Narrative Communications Corporation,
a provider of interactive streaming technology for the distribution of
multimedia over the Internet. From 1990 to 1995, Mr. Landry was Senior Vice
President and Chief Technology Officer of Lotus Development Corporation, a
provider of software products and services. Mr. Landry is also a director of
Epicon Inc. and MCK Communications Corp.
Mr. Luikart has served on the Board of Directors of the Company since May
1996. Since February 1995, he has been Executive Vice President of Furman Selz
SBIC Investments, LLC, a general partner of Furman Selz SBIC, L.P., a private
equity investment firm and stockholder of the Company. From February 1988 to
January 1995, Mr. Luikart was Vice President of Citicorp Venture Capital Ltd., a
private equity investment firm. Mr. Luikart is also a director of Find/SVP, Inc.
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<PAGE> 41
Mr. Tory has served on the Board of Directors of the Company since
September 1997. Since September 1995, Mr. Tory has been an independent
consultant. From November 1988 to September 1995, he was President and Chief
Executive Officer of The Open Software Foundation, a non-profit consortium of
major computer hardware and software companies and user organizations. Mr. Tory
is also a director of ASI Solutions Incorporated.
Pursuant to a Stockholders' Voting Agreement dated May 7, 1996 among the
Company and certain stockholders of the Company (which terminates upon the
closing of this offering), such stockholders were granted the right to designate
representatives on the Company's Board of Directors. Under this agreement, Mr.
Bredt was elected the representative of Menlo Ventures VI, L.P. and Menlo
Entrepreneurs Fund VI, L.P., Ms. Carnahan was elected the representative of
William Blair Capital Partners V, L.P., Mr. Dick was elected the representative
of Primus Capital Fund III Limited Partnership and Mr. Luikart was elected the
representative of Furman Selz SBIC, L.P.
Following this offering, the Board of Directors of the Company will be
divided into three classes, each of whose members will serve for a staggered
three-year term. The Board will consist of two Class I Directors (Messrs. Bothe
and Bredt), one Class II Director (Ms. Cheng) and two Class III Directors
(Messrs. Landry and Tory). At each annual meeting of stockholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I Directors,
Class II Director and Class III Directors expire upon the election and
qualification of successor directors at the annual meeting of stockholders held
during the calendar years 1998, 1999 and 2000, respectively.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. With the exception of Mr. Bothe and Ms. Cheng,
who are husband and wife, there are no family relationships among any of the
directors or executive officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee composed of Messrs.
Bredt and Landry, which makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company and administers and
grants stock options pursuant to the Company's stock option plans, and an Audit
Committee composed of Messrs. Landry and Tory, which reviews the results and
scope of the audit and other services provided by the Company's independent
public accountant.
DIRECTOR COMPENSATION
All of the directors are reimbursed for expenses incurred in connection
with their attendance at Board of Directors and committee meetings. In addition,
non-employee directors of the Company are eligible to receive stock options
under the Company's 1997 Director Stock Option Plan. See " -- Stock
Plans -- 1997 Director Stock Option Plan."
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<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1996 for the Company's Chief Executive Officer and
its two other most highly compensated executive officers in 1996 who were
serving as executive officers on December 31, 1996 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
-------------------- OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1)
- --------------------------------------- -------- ------- ------------ ---------------------
<S> <C> <C> <C> <C>
Stefan R. Bothe........................ $165,000 $57,750 -- 150,000
Chairman of the Board and Chief
Executive Officer
Jennifer V. Cheng...................... 115,000 28,750 -- --
President
James W. Schenck....................... 150,000 -- $ 40,000(2) 75,000
Executive Vice President, Software
Engineering
</TABLE>
- ---------------
(1) Represents the number of shares covered by options to purchase shares of the
Company's Common Stock granted during the year ended December 31, 1996. The
Company has never granted any stock appreciation rights.
(2) Consists of reimbursement of expenses related to relocation.
Option Grants During 1996
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL FAIR AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS MARKET OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR VALUE AT FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE DATE EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR PER SHARE OF GRANT DATE 0% 5% 10%
- ----------------------------- ------------ ----------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stefan R. Bothe.... 150,000 38.1% $ 0.013 $ 2.20 5/7/06 $328,000 $535,535 $853,935
Jennifer V.
Cheng............ -- -- -- -- -- -- -- --
James W. Schenck... 75,000 19.1% 0.013 2.20 5/7/06 164,000 267,768 426,968
</TABLE>
- ---------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (0%, 5% and 10%)
on the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the individuals.
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<PAGE> 43
Year-End Option Values
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
December 31, 1996. All such options were exercisable in full as of such date.
None of the Named Executive Officers exercised any stock options during the year
ended December 31, 1996.
FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
NAME OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
- ------------------------------------------ -------------------------- ---------------------------------
<S> <C> <C>
Stefan R. Bothe........................... 187,500 $ 747,990
Jennifer V. Cheng......................... 112,500 449,489
James W. Schenck.......................... 75,000 299,000
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock at fiscal year end as determined by the Board of
Directors of the Company.
STOCK PLANS
1997 Director Stock Option Plan
The Company's 1997 Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors of the Company in September 1997 and approved
by the stockholders of the Company in October 1997. Under the terms of the
Director Plan, directors of the Company who are not employees of the Company or
any subsidiary of the Company are eligible to receive nonstatutory options to
purchase shares of Common Stock. A total of 150,000 shares of Common Stock may
be issued upon exercise of options granted under the Director Plan.
Pursuant to the Director Plan, each non-employee director continuing as a
director following this offering (each, an "IPO Director") will receive an
option to purchase 7,500 shares of Common Stock on the effective date of this
offering at a price per share equivalent to the initial public offering price.
In addition, each IPO Director will receive an option to purchase 5,250 shares
of Common Stock at the annual meeting of stockholders to be held in 1998, and at
each annual meeting of stockholders thereafter, at an exercise price per share
equal to the closing price of a share of Common Stock on the date of grant. Each
director, other than the IPO Directors, will receive an option to purchase 7,500
shares of Common Stock on the date of his or her initial election to the Board
of Directors and an option to purchase 5,250 shares of Common Stock on the date
of each annual meeting of stockholders after his or her election. The exercise
price per share of such options will be the closing price per share of Common
Stock on the date of grant. All options granted under the Director Plan vest one
year from the date of grant so long as the optionee remains a director of the
Company.
1992 Stock Option Plan and 1997 Stock Incentive Plan
The Company's 1992 Stock Option Plan (the "1992 Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company in November
1993. Amendments to the 1992 Plan increased the number of authorized shares
under the 1992 Plan to 1,362,000 shares of Common Stock as of May 1996. As of
September 30, 1997, options to purchase an aggregate of 1,034,594 shares of
Common Stock at a weighted average exercise price of $2.28 per share were
outstanding under the 1992 Plan. No additional option grants will be made under
the 1992 Plan.
The Company's 1997 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in September 1997 and approved by the stockholders of
the Company in October 1997. The Incentive Plan is intended to replace the
Company's 1992 Plan. Up to 1,875,000 shares of Common Stock (subject to
adjustment in the event of stock splits and other similar events) may be issued
pursuant to awards granted under the Incentive Plan.
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The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, restricted stock awards and
other stock-based awards (collectively, "Awards").
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to receive Awards under the Incentive Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the Incentive Plan may not exceed 750,000 shares per
calendar year.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The Incentive Plan permits the Board of Directors to
determine the manner of payment of the exercise price of options, including
through payment by cash, check or in connection with a "cashless exercise"
through a broker, by surrender to the Company of shares of Common Stock, by
delivery to the Company of a promissory note, or by any combination of the
permitted forms of payment.
The Incentive Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the Incentive Plan and to interpret the
provisions thereof. Pursuant to the terms of the Incentive Plan, the Board of
Directors may delegate authority under the Incentive Plan to one or more
committees of the Board of Directors and, subject to certain limitations, to one
or more executive officers of the Company. The Board of Directors has authorized
the Compensation Committee to administer the Incentive Plan, including the
granting of options to executive officers. Subject to any applicable limitations
contained in the Incentive Plan, the Board of Directors, the Compensation
Committee or any other committee or executive officer to whom the Board of
Directors delegates authority, as the case may be, selects the recipients of
Awards and determines (i) the number of shares of Common Stock covered by
options and the dates upon which such options become exercisable, (ii) the
exercise price of options, (iii) the duration of options, and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including the conditions for
repurchase, issue price and repurchase price.
In the event of a merger, liquidation or other Acquisition Event (as
defined in the Incentive Plan), the Board of Directors is authorized to provide
for outstanding options or other stock-based Awards to be assumed or substituted
for. If the acquiror refuses to assume or substitute for outstanding Awards,
they will accelerate, becoming fully exercisable and free of restriction, prior
to consummation of the Acquisition Event. In addition, following an Acquisition
Event, an assumed or substituted Award will accelerate if the employment of its
holder with the acquiror is terminated other than "for cause" or if the holder
terminates such employment for "good reason," each as defined in the Incentive
Plan.
No Award may be granted under the Incentive Plan after September 2007, but
the vesting and effectiveness of Awards previously granted may extend beyond
that date. The Board of Directors may at any time amend, suspend or terminate
the Incentive Plan, except that no Award granted after an amendment of the
Incentive Plan and designated as subject to Section 162(m) of the Code by the
Board of Directors shall become exercisable, realizable or vested (to the extent
such amendment was required to grant such Award) unless and until such amendment
is approved by the Company's stockholders.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in September 1997 and approved by the
stockholders of the Company in October 1997. The
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<PAGE> 45
Purchase Plan authorizes the issuance of up to a total of 300,000 shares of
Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. As of September 30, 1997, approximately 130 of the Company's
employees would have been eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's base pay) to be deducted by the Company from such employee's
base pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the Purchase
Plan, the option price is an amount equal to 85% of the average market price (as
defined) per share of the Common Stock on either the first day or the last day
of the Offering Period, whichever is lower. In no event may an employee purchase
in any one Offering Period a number of shares which exceeds the number of shares
determined by dividing $12,500 by the average market price of a share of Common
Stock on the commencement date of the Offering Period. The Compensation
Committee may, in its discretion, choose an Offering Period of 12 months or less
for each Offering and choose a different Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Bredt and Landry. No executive officer of the Company has served as
a director or member of the compensation committee (or other committee serving
an equivalent function) of any other entity, whose executive officers served as
a director of or member of the Compensation Committee of the Board of Directors.
CERTAIN TRANSACTIONS
On February 8, 1994, the Company issued an aggregate of 1,750,000 shares of
Series A Convertible Preferred Stock to Menlo Ventures VI, L.P. and Menlo
Entrepreneurs Fund VI, L.P. (collectively, "Menlo") for aggregate consideration
of $2,030,000 (convertible into an aggregate of 1,312,499 shares of Common
Stock). In connection with the issuance of Series A Convertible Preferred Stock,
the Company entered into a Voting Agreement (the "Voting Agreement") with Mr.
Bothe, Ms. Cheng and Mr. Schenck (collectively, the "Founders") and Menlo in
which the Founders and Menlo agreed to elect one member to the Board of
Directors of the Company designated by Menlo and three members designated by the
Founders. Mr. Bothe, Ms. Cheng and Mr. Schenck are the Company's Chairman of the
Board and Chief Executive Officer, President and Treasurer and Executive Vice
President, respectively, and all are members of the Board of Directors. Mr.
Bredt, a director of the Company, is a general partner of MV Management VI,
L.P., a general
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<PAGE> 46
partner of both Menlo partnerships. The Company also entered into a
Participation Agreement (the "Participation Agreement") and a Registration
Rights Agreement (the "Registration Rights Agreement") with Menlo which granted
Menlo a preemptive right on future stock issuances by the Company and certain
rights with respect to registration of shares of Common Stock. See "Shares
Eligible for Future Sale -- Registration Rights." The Voting Agreement and the
Participation Agreement will terminate upon the consummation of this offering.
On March 7, 1994, the Company issued 862,069 shares of Series A Convertible
Preferred Stock to Primus Capital Fund III Limited Partnership ("Primus") for
consideration of $1,000,000 (convertible into 646,551 shares of Common Stock).
In connection with this issuance, the Voting Agreement, the Participation
Agreement and the Registration Rights Agreement were amended to include Primus
as a party to those agreements, granting Primus the right to designate one
representative on the Board of Directors. Mr. Dick, a director of the Company,
is a Managing Director of Primus Venture Partners, Inc., the sole general
partner of Primus Venture Partners III Limited Partnership, the sole general
partner of Primus.
On November 21, 1994, the Company issued Convertible Promissory Notes in
the aggregate principal amount of $1,010,000 and Warrants to purchase an
aggregate of 189,375 shares of Common Stock, exercisable at $1.33 per share, to
Menlo and Primus. Such Convertible Promissory Notes and Warrants were cancelled
in connection with the issuance of shares of the Company's Series B Convertible
Preferred Stock described below.
On January 20, 1995, the Company issued an aggregate of 2,688,000 shares of
Series B Convertible Preferred Stock to Menlo, Primus and William Blair Capital
Partners V, L.P. ("William Blair") for aggregate consideration of $4,032,000
(convertible into an aggregate of 2,015,997 shares of Common Stock). In
connection with this issuance, the Voting Agreement, the Participation Agreement
and the Registration Rights Agreement were amended to include William Blair as a
party to those agreements, granting William Blair the right to designate one
representative on the Board of Directors. Ms. Carnahan, a director of the
Company, is a Managing Director of William Blair Capital Management Company,
L.L.C., the general partner of William Blair.
On October 25, 1995, January 23, 1996 and February 16, 1996, the Company
issued Convertible Promissory Notes in the aggregate principal amount of
$3,000,000, and Warrants to purchase an aggregate of 375,000 shares of Common
Stock exercisable at $2.00 per share, to Menlo, Primus and William Blair. Such
Convertible Promissory Notes and Warrants were cancelled in connection with the
issuance of shares of the Company's Series C Convertible Preferred Stock
described below.
On May 7, 1996, the Company issued an aggregate of 4,838,872 shares of
Series C Convertible Preferred Stock to Menlo, Primus, William Blair and Furman
Selz SBIC, L.P. ("Furman Selz") for aggregate consideration of $7,984,139
(convertible into an aggregate of 3,629,152 shares of Common Stock). In
connection with this issuance, the Voting Agreement, the Participation Agreement
and the Registration Rights Agreement were amended to include Furman Selz as a
party to those agreements, granting Furman Selz the right to designate one
representative on the Board of Directors of the Company. Mr. Luikart, a director
of the Company, is Vice President of Furman Selz SBIC Investments LLC, a general
partner of Furman Selz.
On January 10, 1997 and March 25, 1997, the Company issued an aggregate of
750,000 shares of Common Stock to H&Q Flexi Investors, L.P. ("H&Q") for
aggregate consideration of $3,000,000. In connection with this issuance, the
Registration Rights Agreement was amended to include H&Q as a party to such
agreement. H&Q is an investment company affiliated with Hambrecht & Quist LLC,
one of the managing underwriters of this offering.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 30, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the directors of the Company, (iii)
each of the Named Executive Officers, (iv) all directors and executive officers
as a group and (v) each of the other Selling Stockholders. Except as indicated
in this Prospectus, none of these entities has a relationship with the Company
or, to the knowledge of the Company, any of the Underwriters or their respective
affiliates. Unless otherwise indicated, each person or entity named in the table
has sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity. The address of each of the officers and directors of the
Company is c/o FlexiInternational Software, Inc., Two Enterprise Drive, Shelton,
CT 06484.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES TO BE
OWNED PRIOR TO BENEFICIALLY OWNED
OFFERING(1) SHARES AFTER OFFERING(1)(2)
------------------------- BEING -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED(3) NUMBER PERCENTAGE
- ------------------------------------------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
MV Management VI, L.P.(4).................. 2,710,016 19.3% -- 2,710,016 16.7%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Furman Selz SBIC, L.P.(5).................. 2,238,636 16.0% 223,864 2,014,772 12.4%
230 Park Avenue
New York, NY 10169
William Blair Capital Partners V,
L.P.(6).................................. 1,370,386 9.8% 137,039 1,233,347 7.6%
227 West Munroe Street
Chicago, IL 60606
Primus Capital Fund III Limited
Partnership(7)........................... 1,335,160 9.5% 133,516 1,201,644 7.4%
Suite 2700
1375 East Ninth Street
Cleveland, OH 44114
James W. Schenck(8)........................ 1,249,999 8.9% -- 1,249,999 7.6%
Stefan R. Bothe(9)......................... 1,166,250 8.2% -- 1,166,250 7.1%
Jennifer V. Cheng(10)...................... 851,250 6.0% -- 851,250 5.2%
H&Q Flexi Investors, L.P.(11).............. 750,000 5.3% -- 750,000 4.6%
Hambrecht & Quist LLC
One Bush Street, 18th Floor
San Francisco, CA 94101
OTHER DIRECTORS AND EXECUTIVE OFFICERS
Thomas H. Bredt(4)......................... 2,710,016 19.3% -- 2,710,016 16.7%
Ellen Carnahan(6).......................... 1,370,386 9.8% 137,039 1,233,347 7.6%
Jonathan E. Dick(7)........................ 1,335,160 9.5% 133,516 1,201,644 7.4%
Tarek Kettaneh(12)......................... 182,250 1.3% 182,250 -- --
John B. Landry(13)......................... 45,000 * -- 45,000 *
James L. Luikart(5)........................ 2,238,636 16.0% 223,864 2,014,772 12.4%
A. David Tory.............................. -- -- -- -- --
All executive officers and directors as a
group (13 persons)(14)................... 11,164,697 77.1% 676,669 10,488,028 64.4%
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)(2)
------------------------- BEING -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE OFFERED(3) NUMBER PERCENTAGE
- ------------------------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
OTHER SELLING STOCKHOLDERS
Christopher McManus........................ 241,810 1.7% 73,331 168,479 1.0%
Christiane Lafeld(15)...................... 112,500 * -- 112,500 *
Vincent Montali (16)....................... 60,750 * -- 60,750 *
</TABLE>
- ---------------
* Less than 1%
(1) The number of shares beneficially owned by each stockholder is determined
under rules promulgated by the Securities and Exchange Commission, and the
information is not necessarily indicative of beneficial ownership for any
other purpose. Under such rules, beneficial ownership includes any shares
as to which the individual or entity has sole or shared voting power or
investment power and any shares as to which the individual or entity has
the right to acquire beneficial ownership within 60 days after September
30, 1997 through the exercise of any stock option, warrant or other right.
The inclusion herein of such shares, however, does not constitute an
admission that the named stockholder is a direct or indirect beneficial
owner of such shares.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) In the event that the over-allotment option is exercised in full, Ms.
Lafeld and Messrs. Bothe, Schenck and Montali will offer to sell 37,500,
75,000, 37,500 and 7,500 shares, respectively, and Mr. McManus, Furman
Selz, William Blair and Primus will offer to sell an additional 55,980,
107,092, 65,557 and 63,872 shares, respectively, to the Underwriters. As a
result of such exercise, (i) Ms. Lafeld and Messrs. Bothe, Schenck, McManus
and Montali will thereafter beneficially own 75,000, 1,091,250 (or 6.7%),
1,212,499 (or 7.4%), 112,500 and 68,250, respectively, of the shares
outstanding after this offering and (ii) Furman Selz, William Blair and
Primus will thereafter beneficially own 1,907,680 (or 11.7%), 1,167,790 (or
7.2%) and 1,137,772 (or 7.0%), respectively, of the shares outstanding
after this offering.
(4) Consists of 2,669,969 shares held by Menlo Ventures VI, L.P. ("Menlo
Ventures") and 40,047 shares held by Menlo Entrepreneurs Fund VI, L.P.
("Menlo Entrepreneurs"). MV Management VI, L.P. ("MVM") is a general
partner of Menlo Ventures and Menlo Entrepreneurs. Mr. Bredt, a director of
the Company, is a general partner of MVM. Mr. Bredt disclaims beneficial
ownership of the shares held by Menlo Ventures and Menlo Entrepreneurs,
except to the extent of his pecuniary interests therein.
(5) Mr. Luikart, a director of the Company, is Vice President of Furman Selz
SBIC Investments LLC, a general partner of Furman Selz SBIC, L.P.
(6) Ms. Carnahan, a director of the Company, is a Managing Director of William
Blair Capital Management Company, L.L.C., the general partner of William
Blair Capital Partners V, L.P. Ms. Carnahan disclaims beneficial ownership
of the shares held by William Blair Capital Partners V, L.P., except to the
extent of her pecuniary interest therein.
(7) Mr. Dick, a director of the Company, is a Managing Director of Primus
Venture Partners, Inc., the sole general partner of Primus Venture Partners
III Limited Partnership, the sole general partner of Primus Capital Fund
III Limited Partnership. Mr. Dick shares voting and investment power with
respect to such shares with five other executive officers of Primus Venture
Partners, Inc. Mr. Dick disclaims beneficial ownership of the shares held
by Primus Venture Capital Fund III Limited Partnership, except to the
extent of his pecuniary interest therein.
(8) Includes 75,000 shares subject to options held by Mr. Schenck which are
exercisable within 60 days after September 30, 1997.
(9) Includes 187,500 shares subject to options held by Mr. Bothe which are
exercisable within 60 days after September 30, 1997. Excludes 738,750
shares held by Ms. Cheng, Mr. Bothe's wife, as to which shares Mr. Bothe
disclaims beneficial ownership.
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<PAGE> 49
(10) Includes 112,500 shares subject to options held by Ms. Cheng which are
exercisable within 60 days after September 30, 1997. Excludes 978,750
shares held by Mr. Bothe, Ms. Cheng's husband, as to which shares Ms. Cheng
disclaims beneficial ownership.
(11) H&Q Flexi Investors, L.P. is an investment company affiliated with
Hambrecht & Quist LLC, one of the managing underwriters of this offering.
(12) Includes 12,375 shares subject to options held by Mr. Kettaneh on September
30, 1997 which were exercised on October 13, 1997.
(13) Consists of shares subject to options held by Mr. Landry which are
exercisable within 60 days after September 30, 1997.
(14) Includes an aggregate of 448,125 shares of Common Stock subject to options
which are exercisable within 60 days after September 30, 1997.
(15) Ms. Lafeld is the sister of Mr. Bothe, Chairman of the Board and Chief
Executive Officer of the Company.
(16) Consists of shares subject to options held by Mr. Montali which are
exercisable within 60 days after September 30, 1997. Mr. Montali is an
employee of the Company.
48
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
After the filing of the Company's Restated Certificate of Incorporation
upon the closing of this offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, $.01 par value per share, and
5,000,000 shares of Preferred Stock, $.01 par value per share. As of September
30, 1997 (after giving effect to the three-for-four reverse split of the Common
Stock to be effected prior to the closing of this offering and the conversion of
all outstanding shares of Convertible Preferred Stock into Common Stock to be
effected upon the closing of this offering), there were outstanding (i)
14,024,764 shares of Common Stock held by 52 stockholders of record, (ii)
options to purchase an aggregate of 1,034,594 shares of Common Stock and (iii)
warrants to purchase an aggregate of 164,927 shares of Common Stock.
The following summary of certain provisions of the Company's Common Stock,
Preferred Stock, warrants, Restated Certificate of Incorporation and Amended and
Restated By-laws (the "By-laws") is not intended to be complete and is qualified
by reference to the provisions of applicable law and to the Company's Restated
Certificate of Incorporation, By-laws and warrants included as exhibits to the
Registration Statement of which this Prospectus is a part. See "Additional
Information."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future. Certain holders of Common Stock have the
right to require the Company to effect the registration of their shares of
Common Stock in certain circumstances. See "Shares Eligible for Future Sale."
PREFERRED STOCK
Under the terms of the Restated Certificate of Incorporation, the Board of
Directors is authorized, subject to any limitations prescribed by law, without
stockholder approval, to issue such shares of Preferred Stock in one or more
series. Each such series of Preferred Stock shall have such rights, preferences,
privileges and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be determined by the Board of Directors.
The purpose of authorizing the Board of Directors to issue Preferred Stock
and determine its rights and preferences is to eliminate delays associated with
a stockholder vote on specific issuances. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any shares of Preferred Stock.
WARRANTS
In June 1994, in connection with executing an equipment lease (the
"Equipment Lease") with Comdisco, Inc. ("Comdisco"), the Company issued a
warrant, exercisable at $1.55 per share, to purchase 32,327 shares of Common
Stock. This warrant also covers additional shares of Common Stock equal to ten
percent of the amount by which the cost of equipment purchased under the
Equipment Lease exceeds
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<PAGE> 51
$500,000 divided by the $1.55 exercise price. As of September 30, 1997, no
additional shares were issuable under this warrant. This warrant, which was
assigned to an affiliate of Comdisco in December 1995, expires in June 2004.
In July 1995, in connection with executing a Receivables Loan and Security
Agreement (the "Receivables Loan") with Comdisco, the Company issued two
warrants, each exercisable at $2.00 per share, to purchase 45,000 and 12,600
shares of Common Stock, respectively. The 45,000-share warrant is exercisable
for an additional (i) 22,500 shares if advances under the Receivables Loan
exceed $1.0 million, plus (ii) nine percent of the amount by which advances
under the Receivables Loan exceed $1.5 million divided by the $2.00 exercise
price. The 12,600-share warrant is exercisable for additional shares of Common
Stock equal to nine percent of the amount by which the cost of equipment
purchased under the Equipment Lease exceeds $280,000 divided by the $2.00
exercise price. As of September 30, 1997, no additional shares were issuable
under either of these warrants. Both warrants expire in July 2005.
In August 1995, in connection with entering into a Loan Agreement with the
Connecticut Development Authority, the Company issued a warrant to purchase
75,000 shares of Common Stock, exercisable at $8.00 per share. The exercise
price of this warrant will increase to $12.00 per share and $16.00 per share
upon the Company's attaining annual revenues of $9.0 million and $22.0 million,
respectively. This warrant expires in August 2002.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Restated Certificate of Incorporation provides for the division of the
Board of Directors into three classes as nearly equal in size as possible with
staggered three-year terms. See "Management." In addition, the Restated
Certificate of Incorporation provides that directors may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of
capital stock of the Company entitled to vote. Under the Restated Certificate of
Incorporation, any vacancy on the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the Board of Directors, may
only be filled by vote of a majority of the directors then in office. The
classification of the Board of Directors and the limitations on the removal of
directors and filling of vacancies could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
The Restated Certificate of Incorporation also provides that, after the
closing of this offering, any action required or permitted to be taken by the
stockholders of the Company at an annual meeting or special meeting of
stockholders may only be taken if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Restated
Certificate of Incorporation further provides that special meetings of the
stockholders may only be called by the Chairman of the Board, the President or
the Board of Directors. Under the Company's By-laws, in order for any matter to
be considered "properly brought" before a meeting, a stockholder must comply
with certain requirements regarding advance notice to the Company. The foregoing
provisions could have the effect of delaying until the next stockholders meeting
stockholder actions which are favored by the holders of a majority of the
outstanding voting securities of the Company. These provisions may also
discourage another person or entity from making a tender offer for the Common
Stock, because such person or entity, even if it acquired a majority of the
outstanding voting securities of the Company, would be able to take action as a
stockholder (such as electing new directors or approving a merger) only at a
duly called stockholders' meeting, and not by written consent.
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<PAGE> 52
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The Restated Certificate of Incorporation and
the By-laws require the affirmative vote of the holders of at least 75% of the
shares of capital stock of the Company issued and outstanding and entitled to
vote to amend or repeal any of the provisions described in the prior two
paragraphs.
The Restated Certificate of Incorporation contains certain provisions
permitted under the General Corporation Law of Delaware relating to the
liability of directors. The provisions eliminate a director's liability for
monetary damages for a breach of fiduciary duty, except in certain circumstances
involving wrongful acts, such as the breach of a director's duty of loyalty or
acts or omissions which involve intentional misconduct or a knowing violation of
law. Further, the Restated Certificate of Incorporation contains provisions to
indemnify the Company's directors and officers to the fullest extent permitted
by the General Corporation Law of Delaware. The Company believes that these
provisions will assist the Company in attracting and retaining qualified
individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the securities
of the Company. Upon completion of this offering, based upon the number of
shares outstanding at September 30, 1997, there will be 16,274,764 shares of
Common Stock of the Company outstanding (assuming no exercise of the
Underwriters' over-allotment option or outstanding warrants or options of the
Company). Of these shares, the 3,000,000 shares sold in this offering will be
freely tradeable without restriction or further registration under the
Securities Act, except that any shares purchased by "affiliates" of the Company,
as that term is defined in Rule 144 ("Rule 144") under the Securities Act
("Affiliates"), may generally only be sold in compliance with the limitations of
Rule 144 described below.
SALES OF RESTRICTED SHARES
The remaining 13,274,764 shares of Common Stock are deemed "restricted
securities" under Rule 144. Of the restricted securities, approximately 184,625
shares of Common Stock, which are not subject to the 180-day lock-up agreements
(the "Lock-up Agreements") with the Representatives of the Underwriters, will be
eligible for immediate sale in the public market pursuant to Rule 144(k) under
the Securities Act. Approximately 1,290,632 additional shares of Common Stock,
which are not subject to Lock-up Agreements, will be eligible for sale in the
public market in accordance with Rule 144 or Rule 701 under the Securities Act
beginning 90 days after the date of this Prospectus. Upon expiration of the
Lock-up Agreements 180 days after the date of this Prospectus, approximately
11,673,132 additional shares of Common Stock will be available for sale in the
public market, subject to the provisions of Rule 144 under the Securities Act.
The officers and directors of the Company, and certain securityholders,
which executive officers, directors and securityholders in the aggregate hold
approximately 12,638,684 shares of Common Stock (including 853,052 shares of
Common Stock that may be acquired pursuant to the exercise of options and
warrants held by them) on the date of this Prospectus, have agreed that, for a
period of 180 days after the date of this Prospectus, they will not sell,
consent to sell or otherwise dispose of any shares of Common Stock, or any
shares convertible into or exchangeable for shares of Common Stock, owned
directly by such persons or with respect to which they have the power of
disposition, without the prior written consent of the Representatives of the
Underwriters.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Registration Statement of which this Prospectus is a
part, a stockholder, including an Affiliate, who has beneficially owned his or
her restricted securities (as that term is defined in Rule 144) for at least one
year
51
<PAGE> 53
from the later of the date such securities were acquired from the Company or (if
applicable) the date they were acquired from an Affiliate is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of 1% of the then outstanding shares of Common Stock (approximately
162,748 shares immediately after this offering) or the average weekly trading
volume in the Common Stock during the four calendar weeks preceding the date on
which notice of such sale was filed under Rule 144, provided certain
requirements concerning availability of public information, manner of sale and
notice of sale are satisfied. In addition, under Rule 144(k), if a period of at
least two years has elapsed between the later of the date restricted securities
were acquired from the Company or (if applicable) the date they were acquired
from an Affiliate of the Company, a stockholder who is not an Affiliate of the
Company at the time of sale and has not been an Affiliate of the Company for at
least three months prior to the sale is entitled to sell the shares immediately
without compliance with the foregoing requirements under Rule 144.
Securities issued in reliance on Rule 701 (such as shares of Common Stock
acquired pursuant to the exercise of certain options granted under the Company's
stock plans) are also restricted securities and, beginning 90 days after the
effective date of the Registration Statement of which this Prospectus is a part,
may be sold by stockholders other than Affiliates of the Company subject only to
the manner of sale provisions of Rule 144 and by Affiliates under Rule 144
without compliance with its one-year holding period requirement.
OPTIONS
The Company intends to file registration statements on Form S-8 under the
Securities Act to register all shares of Common Stock issuable under the 1992
Plan, the Incentive Plan, the Director Plan and the Purchase Plan. The Company
intends to file registration statements on Form S-8 with respect to the shares
of Common Stock issuable under the Director Plan and the Purchase Plan promptly
following the consummation of this offering and intends to file registration
statements on Form S-8 relating to the 1992 Plan and the Incentive Plan
following the 90th day after the date of this Prospectus. Shares issued upon the
exercise of stock options after the effective date of the Form S-8 registration
statements will be eligible for resale in the public market without restriction,
subject to Rule 144 limitations applicable to Affiliates and the Lock-up
Agreements noted above, if applicable.
REGISTRATION RIGHTS
Pursuant to a Registration Rights Agreement dated May 7, 1996 among the
Company and certain persons and entities (the "Rightsholders"), including Menlo,
Primus, William Blair, Furman Selz and H&Q, such Rightsholders will be entitled
following the offering to certain rights with respect to the registration under
the Securities Act of a total of approximately 7,943,870 shares of Common Stock
(the "Registrable Stock"). The Registration Rights Agreement generally provides
that, in the event the Company proposes to register any of its securities under
the Securities Act, the Rightsholders shall be entitled to include Registrable
Stock in such Registration, subject to the right of the managing underwriter of
any underwritten offering to limit for marketing reasons the number of shares of
Registrable Stock included in such "piggyback" registration period.
The Rightsholders may, upon the request of holders of Registrable Stock
having an aggregate offering price of at least $10,000,000, require the Company
to prepare and file a registration statement under the Securities Act with
respect to their shares of Registrable Stock at any time after this offering.
The Company need effect only two such demand registrations and is not required
to file a demand registration statement within six months after the effective
date of any other registration statement filed by the Company.
EFFECT OF SALES OF SHARES
Prior to this offering, there has been no public market for the Common
Stock, and no prediction can be made as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of the Common Stock prevailing from time to time. Nevertheless,
sales of significant numbers of shares of the Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
52
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, Hambrecht & Quist LLC and Wessels, Arnold & Henderson,
L.L.C., have severally agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of shares of Common Stock at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated...............................................
Hambrecht & Quist LLC.....................................................
Wessels, Arnold & Henderson, L.L.C........................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives of the
Underwriters.
The Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 450,000 additional shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 3,000,000, and
such Selling Stockholders will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the Common Stock
offered hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 3,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company, each of its officers and directors, and certain of its
stockholders, including all of the Selling Stockholders, have agreed, subject to
certain exceptions, not to offer, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of the Representatives of the Underwriters. BT Alex.
Brown Incorporated, on behalf of the Representatives, may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to Lock-up Agreements. See "Shares Eligible for Future Sale."
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
53
<PAGE> 55
In connection with this offering, the Underwriters and other persons
participating in this offering may
engage in transactions that stabilize, maintain or otherwise affect the price of
the Common Stock. Specifically, the Underwriters may over-allot in connection
with this offering, creating a short position in Common Stock for their own
account. To cover over-allotments or to stabilize the price of the Common Stock,
the Underwriters may bid for, and purchase, shares of Common Stock in the open
market. The Underwriters may also impose a penalty bid whereby they may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing
Common Stock in this offering, if the Underwriters repurchase previously
distributed Common Stock in transactions to cover their short position, in
stabilization transactions or otherwise. Finally, the Underwriters may bid for,
and purchase, shares of Common Stock in market making transactions. These
activities may stabilize or maintain the market price of the Common Stock above
market levels that may otherwise prevail. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company,
representatives of the Selling Stockholders and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations are the
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company, representatives of the Selling Stockholders and the
Representatives of the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant. Application has been
made for quotation of the Common Stock on the Nasdaq National Market under the
symbol "FLXI."
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company and the
Selling Stockholders hereby will be passed upon for the Company by Hale and Dorr
LLP, Boston, Massachusetts, and for the Underwriters by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts.
EXPERTS
The Company's financial statements as of December 31, 1995 and 1996 and
September 30, 1997 and for each of the three years in the period ended December
31, 1996 and the nine months ended September 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
54
<PAGE> 56
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
In addition, the Company is required to file electronic versions to these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
55
<PAGE> 57
FLEXIINTERNATIONAL SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheet as of December 31, 1995 and 1996 and as of September 30, 1997........... F-3
Statement of Operations for the years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1996 (unaudited) and September 30, 1997......... F-4
Statement of Stockholders' Equity (Deficit) for the years ended December 31, 1994,
1995 and 1996 and for the nine months ended September 30, 1997...................... F-5
Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1996 (unaudited) and September 30, 1997......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FlexiInternational Software, Inc.
The reverse stock split described in Note 7 to the financial statements has
not been consummated at October 20, 1997. When it has been consummated, we will
be in a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity (deficit) and of cash
flows present fairly, in all material respects, the financial position of
FlexiInternational Software, Inc. at December 31, 1995 and 1996 and
September 30, 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 and the
nine months ended September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion
expressed above."
PRICE WATERHOUSE LLP
Stamford, Connecticut
October 15, 1997
F-2
<PAGE> 59
FLEXIINTERNATIONAL SOFTWARE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
DECEMBER 31, PRO FORMA
-------------------- STOCKHOLDERS'
1995 1996 ACTUAL EQUITY (NOTE 2)
-------- -------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 15 $ 3,273 $ 3,257
Accounts receivable, net of allowance for doubtful
accounts of $422, $405 and $674, respectively..... 1,385 3,061 4,860
Prepaid expenses and other current assets........... 291 617 833
------- ------- -------
Total current assets......................... 1,691 6,951 8,950
Property and equipment at cost, net of accumulated
depreciation and amortization of $510, $905 and
$1,246, respectively................................ 677 647 1,145
Accounts receivable................................... 300 60 --
Other assets, net of accumulated amortization of $61,
$112 and $176, respectively......................... 158 175 137
------- ------- -------
Total assets................................. $ 2,826 $ 7,833 $ 10,232
======= ======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............... $ 1,462 $ 2,413 $ 2,533
Accrued commissions................................. 134 310 361
Convertible promissory note......................... 1,500 --
Convertible loan.................................... -- 500 --
Short-term borrowings............................... 453 -- 2,000
Current portion of convertible note payable......... 44 135 --
Current portion of capital lease obligations........ 257 238 166
Deferred revenues................................... 758 1,875 2,220
------- ------- -------
Total current liabilities.................... 4,608 5,471 7,280
Long-term portion of convertible note payable......... 707 571 --
Long-term portion of capital lease obligations........ 282 45 171
Deferred revenues..................................... 300 60 --
------- ------- -------
Total liabilities............................ 5,897 6,147 7,451
------- ------- -------
Commitments and contingencies (Note 8)
Mandatorily redeemable convertible preferred stock
(Note 6)............................................ 7,450 15,509 15,509 $ --
Stockholders' equity (deficit):
Preferred stock, $.01 par value; no shares
authorized, issued or outstanding; 5,000,000
shares authorized, no shares issued or outstanding
(pro forma)....................................... -- -- -- --
Common stock; $.01 par value; 18,750,000 shares
authorized; issued and outstanding
shares -- 3,774,522, 4,744,144 and 6,163,414,
respectively; 50,000,000 shares authorized pro
forma; 14,024,764 shares issued and outstanding
pro forma......................................... 38 48 62 140
Additional paid-in-capital.......................... 1,559 5,694 11,415 26,846
Accumulated deficit................................. (12,118) (19,565) (24,205) (24,205)
------- ------- ------- -------
Total stockholders' equity (deficit)......... (10,521) (13,823) (12,728) $ 2,781
-------- -------- -------- ===========
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (deficit)............. $ 2,826 $ 7,833 $ 10,232
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 60
FLEXIINTERNATIONAL SOFTWARE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -----------------------
1994 1995 1996 1997
------- ------- ------- 1996 -------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................... $ 562 $ 3,166 $ 5,205 $ 3,092 $ 7,362
Service and maintenance............ 291 1,517 3,142 2,044 5,098
-------- -------- -------- -------- --------
Total revenues............. 853 4,683 8,347 5,136 12,460
Cost of revenues:
Software license................... 4 88 311 170 619
Service and maintenance............ 324 1,708 2,181 1,583 3,499
-------- -------- -------- -------- --------
Total cost of revenues..... 328 1,796 2,492 1,753 4,118
Operating expenses:
Sales and marketing................ 1,927 4,350 4,978 3,405 5,306
Product development................ 2,019 3,660 5,733 4,025 5,972
General and administrative......... 679 1,316 2,453 1,798 1,699
-------- -------- -------- -------- --------
Total operating expenses... 4,625 9,326 13,164 9,228 12,977
-------- -------- -------- -------- --------
Operating loss....................... (4,100) (6,439) (7,309) (5,845) (4,635)
Interest income...................... 41 58 59 50 98
Interest expense..................... (28) (106) (197) (161) (103)
-------- -------- -------- -------- --------
Loss before provision for income
taxes.............................. (4,087) (6,487) (7,447) (5,956) (4,640)
Provision for income taxes........... -- -- -- -- --
-------- -------- -------- -------- --------
Net loss............................. $(4,087) $(6,487) $(7,447) $(5,956) $(4,640)
======== ======== ======== ======== ========
Unaudited pro forma net loss per
share (Note 2)..................... $ (0.69) $ (0.33)
======== ========
Shares used in computing unaudited
pro forma net loss per share (Note
2)................................. 10,788 13,975
======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 61
FLEXIINTERNATIONAL SOFTWARE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............ 100,768 $ 1 $ 1,705 $ (1,544) $ 162
Common stock split in the form of a
dividend......................... 3,706,492 37 (37) -- --
Exchange of common stock for Series
A convertible preferred stock.... (107,138) (1) (138) -- (139)
Compensation expense related to
stock options granted and
vested........................... -- -- 19 -- 19
Exercise of stock options........... 65,625 1 (1) -- --
Net loss............................ -- -- -- (4,087) (4,087)
--------- --- ------ -------- --------
Balance at December 31, 1994.......... 3,765,747 38 1,548 (5,631) (4,045)
Exercise of stock options........... 8,775 -- 11 -- 11
Net loss............................ -- -- -- (6,487) (6,487)
--------- --- ------ -------- --------
Balance at December 31, 1995.......... 3,774,522 38 1,559 (12,118) (10,521)
Issuance of common stock............ 885,000 9 3,531 -- 3,540
Compensation expense related to
stock options granted and
vested........................... -- -- 492 -- 492
Exercise of stock options........... 84,622 1 112 -- 113
Net loss............................ -- -- -- (7,447) (7,447)
--------- --- ------ -------- --------
Balance at December 31, 1996.......... 4,744,144 48 5,694 (19,565) (13,823)
Issuance of common stock............ 1,074,998 11 4,289 -- 4,300
Issuance of common stock to
vendor........................... 31,619 -- 289 -- 289
Exchange of debt for common stock... 275,003 3 1,097 -- 1,100
Exercise of stock options........... 37,650 -- 46 -- 46
Net loss............................ -- -- -- (4,640) (4,640)
--------- --- ------ -------- --------
Balance at September 30, 1997......... 6,163,414 $ 62 $ 11,415 $ (24,205) $(12,728)
========= === ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 62
FLEXIINTERNATIONAL SOFTWARE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1994 1995 1996 1997
------- ------- ------- 1996 -------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(4,087) $(6,487) $(7,447) $(5,956) $(4,640)
Non-cash items included in net loss:
Depreciation and amortization................ 166 393 466 354 404
Provision for doubtful accounts.............. 84 476 665 511 275
Conversion of accrued interest to preferred
stock..................................... -- 11 59 59 --
Expense related to stock options............. 19 -- 640 492 141
Loss on sale of property..................... 7 -- -- -- --
Change in operating accounts:
Accounts receivable.......................... (1,050) (1,160) (2,097) (2,713) (2,014)
Prepaid expenses and other assets............ (230) (259) (117) (751) (241)
Accounts payable and accrued expenses........ 731 817 738 798 319
Deferred revenues............................ 1,212 (172) 877 2,126 285
------- ------- ------- ------- -------
Net cash used in operating activities.......... (3,148) (6,381) (6,216) (5,080) (5,471)
Cash flows from investing activities:
Proceeds from sale of property and
equipment................................. 232 113 -- -- --
Purchase of property and equipment........... (303) (336) (425) (271) (575)
------- ------- ------- ------- -------
Net cash used in investing activities.......... (71) (223) (425) (271) (575)
Cash flows from financing activities:
Proceeds from sales of preferred stock....... 3,030 3,262 5,000 5,000 --
Proceeds from sales of common stock.......... -- -- 3,540 -- 4,300
Proceeds from exercise of stock options...... -- 11 113 113 46
Proceeds from convertible loan and
promissory notes.......................... 1,010 1,500 2,000 1,500 --
Proceeds from (repayments of) line of credit,
net....................................... -- 453 (453) 393 2,000
Proceeds from (repayments of) convertible
note payable.............................. -- 750 (45) (11) (106)
Payments of capital lease obligations........ (40) (227) (256) (190) (210)
Payment of note payable to officer........... (100) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities...... 3,900 5,749 9,899 6,805 6,030
------- ------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents.................................. 681 (855) 3,258 1,454 (16)
------- ------- ------- ------- -------
Cash and cash equivalents at beginning of
year......................................... 189 870 15 15 3,273
------- ------- ------- ------- -------
Cash and cash equivalents at end of year....... $ 870 $ 15 $ 3,273 $ 1,469 $ 3,257
======= ======= ======= ======= =======
Supplemental disclosures:
Interest paid in cash........................ $ 22 $ 105 $ 197 $ 161 $ 91
Assets acquired through capital lease
obligations............................... $ 354 $ 423 $ -- $ -- $ 264
Exchange of loan and accrued interest for
preferred stock........................... $ -- $ 1,021 $ 3,059 $ 3,059 $ --
Exchange of loans for common stock........... $ -- $ -- $ -- $ -- $ 1,100
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 63
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1 -- THE COMPANY
FlexiInternational Software, Inc. (the "Company") began operations in 1991.
The Company offers an integrated suite of object-oriented, component-based
financial accounting applications, reporting and workflow applications, and
development and customization tools based upon a client/server, multi-tier
architecture and rule-driven design to address the needs of users with
sophisticated financial accounting requirements, including high functionality,
high adaptability and scalability, low cost of implementation and capacity to
support new and emerging technologies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Company licenses software under noncancellable license agreements
through direct and indirect channels, and provides services including
maintenance, training, and consulting. Software license revenues through the
Company's direct sales channel are recognized when a noncancellable license
agreement has been signed, the product has been delivered and installed,
collection is considered probable by management and all significant contractual
obligations have been satisfied. Software license revenues through the Company's
indirect sales channel are recognized as such fees are reported to the Company.
Revenues on all software license transactions in which there are significant
outstanding obligations are not recognized until such obligations are fulfilled.
Maintenance revenues for maintaining, supporting, and providing periodic
upgrading are deferred and recognized ratably over the maintenance period,
generally one year. Revenues from training and consulting services are
recognized as such services are performed. The Company does not require
collateral for its receivables and reserves are maintained for potential losses.
International sales
International sales for the years ended December 31, 1995 and 1996 and for
the nine months ended September 30, 1997 were approximately 17%, 15%, and 22%,
respectively. All international sales are denominated in U.S. dollars.
Product development costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed," the Company has evaluated the establishment of technological
feasibility of its various products during the development phase. The time
period during which costs could be capitalized from the point of reaching
technological feasibility until the time of general product release is very
short and, consequently, the amounts that could be capitalized are not material
to the Company's financial position or results of operations. Therefore, the
Company charges all product development expenses to operations in the period
incurred.
Cash and cash equivalents
The Company considers all interest-bearing securities having original
maturities of three months or less to be cash equivalents.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
The Company controls this risk through credit approvals, customer limits and
monitoring procedures. The Company can, however, limit the amount of support
provided to its customers in the event of non-performance. Five customers, one
customer, one customer and two customers,
F-7
<PAGE> 64
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively, each represented 10% or more of the Company's total revenues, or
an aggregate of 68.8%, 12.1%, 12.3% and 35.4% of total revenues for the years
ended December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1997, respectively. Three customers represented approximately 39% of the
Company's total accounts receivable at September 30, 1997.
Prepaid expenses and other assets
Prepaid expenses and other assets consist primarily of prepaid expenses,
organizational costs and other intangible assets. Organizational costs and other
intangible assets are being amortized over periods not exceeding five years.
Amortization expense for the years ended December 31, 1994, 1995 and 1996 and
for the nine months ended September 30, 1997 was $4, $45, $71 and $63,
respectively. The Company periodically reviews the recoverability of intangible
and other long-lived assets based upon anticipated cash flows generated from
such underlying assets.
Property and equipment
Property and equipment is composed of furniture and equipment and is stated
at cost less accumulated depreciation and amortization. Depreciation is
calculated using an accelerated method over the estimated useful lives of the
assets ranging from three to seven years. Depreciation expense for the years
ended December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1997 amounted to $162, $348, $395 and $341, respectively, and includes
amortization of assets recorded under capital lease obligations.
Income taxes
Deferred taxes are determined under the asset and liability approach.
Deferred tax assets and liabilities are recognized on differences between the
book and tax bases of assets and liabilities using presently enacted tax rates.
Fair value disclosure of financial instruments
The Company's financial instruments consist of cash, accounts receivable,
capital lease obligations, accounts payable and other short-term borrowings. The
current carrying amount of these instruments approximates fair market value.
Accounting for stock based compensation
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation." As permitted by this statement,
the Company continues to apply Accounting Practices Board Opinion No. 25
"Accounting for Stock Issued to Employees" to account for its stock-based
employee compensation arrangements.
Unaudited pro forma net loss per share
Unaudited pro forma net loss per share is based on the unaudited pro forma
weighted average number of shares of common stock and common equivalent shares
outstanding for the period. The unaudited pro forma weighted average number of
shares assumes the conversion of the Company's mandatorily redeemable
convertible preferred stock into 6,640,268 shares of common stock for the year
ended December 31, 1996 and 7,861,350 shares of common stock for the nine months
ended September 30, 1997. Because of the significant impact of the assumed
conversion on the Company's capital structure and loss per share, historical
loss per share has been excluded from the financial statements as they are not
considered meaningful. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, options granted with exercise prices below the
initial public offering price during the 12-month period preceding the date of
the initial filing of the
F-8
<PAGE> 65
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Registration Statement have been included in the calculation of pro forma net
loss per share, using the treasury stock method based on the initial public
offering price, as if the options were outstanding for all periods presented.
Pro forma stockholders' equity (unaudited)
If the offering contemplated by this Prospectus is consummated, all of the
mandatorily redeemable convertible preferred stock outstanding at the closing
date will be converted into shares of common stock. The unaudited pro forma
stockholders' equity as of September 30, 1997 reflects the conversion of all
outstanding preferred stock at September 30, 1997 into 7,861,350 shares of
common stock.
Recently issued accounting standards
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The adoption of this standard had no material effect on the Company's
financial statements. In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued. Management has adopted this standard effective
January 1, 1996 by means of disclosure of the pro forma effect of the
compensation components of stock-based compensation in Note 7.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. Under
SFAS No. 128 the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
Upon adoption of SFAS No. 128 the Company will be required to disclose basic
earnings per share and diluted earnings per share.
The pro forma effect of applying SFAS No. 128 on the Company's unaudited
pro forma net loss per share as reported is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
As reported:
Unaudited pro forma loss per share....... $ (0.69) $ (0.33)
Weighted average common shares
outstanding........................... 10,788,000 13,983,000
Pro forma effect of applying SFAS No. 128:
Basic loss per share..................... $ (0.71) $ (0.34)
Weighted average common shares
outstanding........................... 10,531,000 13,718,000
Diluted loss per share................... $ (0.69) $ (0.33)
Weighted average common shares
outstanding........................... 10,788,000 13,975,000
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statement No.
130 "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 applies to
all companies and is effective for fiscal years beginning after December 15,
1997. SFAS No. 130 establishes standards for the reporting and display of
comprehensive income in a set of financial statements. Comprehensive income is
defined as the change in net assets of a business enterprise during a period
from transactions generated from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners
F-9
<PAGE> 66
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and distributions to owners. Management believes that the adoption of SFAS No.
130 will not have a material impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 applies to all public companies and is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 requires that
business segment financial information be reported in the financial statements
utilizing the management approach. The management approach is defined as the
manner in which management organizes the segments within the enterprise for
making operating decisions and assessing performance. Management believes the
adoption of SFAS No. 131 will not have a material impact on the financial
statements.
Use of estimates
The accompanying financial statements reflect estimates and assumptions
made in the application of generally accepted accounting principles. Actual
results may vary from those estimates.
Interim financial information
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and cash flows for the nine months
ended September 30, 1996 as presented in the accompanying unaudited financial
statements.
NOTE 3 -- INCOME TAXES
Significant components of the Company's deferred tax asset at December 31,
1995 and 1996 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards........... $ 3,669 $ 6,436 $ 6,436
Other...................................... 474 818 895
------- ------- -------
Subtotal......................... 4,143 7,254 7,331
Valuation allowance........................ (4,143) (7,254) (7,331)
------- ------- -------
Net deferred tax asset..................... $ -- $ -- $ --
======= ======= =======
</TABLE>
No provision or benefit for federal or state income taxes has been made for
the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997 given the Company's loss position. At September 30, 1997, the
Company had domestic net operating loss carryforwards of approximately $16,000
which expire through the year 2011. The deferred tax assets at December 31,
1995, 1996 and September 30, 1997 have been fully reserved due to the
uncertainty of their realization, primarily attributed to the Company's
historical losses.
For tax purposes, there is an annual limitation on the utilization of the
net operating loss carryforwards resulting from an ownership change as defined
by Internal Revenue Code Section 382. Due to this annual limitation, the net
operating loss carryforwards may expire prior to when otherwise utilizable.
F-10
<PAGE> 67
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- BORROWINGS
Convertible note payable
In August 1995, the Company executed a note agreement which provided
financing totaling $750. The note bore interest at the LIBOR rate, adjusted
annually. The note was convertible, subsequent to August 1, 1996 at the option
of the holder, into common stock at a price of $4.00 per share and was secured
by certain assets of the Company. In August 1997, the remaining principal
balance of the note of $600 was converted, pursuant to its terms, into 150,000
shares of the Company's common stock.
Accounts receivable line of credit
In April 1997, the Company entered into a revolving credit agreement with a
financial institution. The agreement allows the Company to borrow up to $2,000,
with maximum borrowings not to exceed 80% of eligible receivables as defined by
the agreement. Interest on borrowings is set at the lender's prime rate plus
0.5%. Among other provisions, the Company is required to maintain certain
financial covenants. In addition, payment of cash dividends is prohibited
without the lender's consent. The line of credit agreement expires in June 1998.
At September 30, 1997, total borrowings outstanding under this credit facility
were $2,000.
The Company maintained a line of credit facility with a holder of shares of
the Company's Series B convertible preferred stock, which allowed for borrowings
of the lesser of 75% of eligible receivables, as defined by the agreement, or
$1,500. This line of credit was extended through December 31, 1996 and then
canceled. There were no amounts outstanding under this credit facility at
December 31, 1995.
Convertible loan
In November 1996, the Company issued a convertible loan totaling $500 to a
private investor. In January 1997, the loan was converted into 125,002 shares of
common stock at a price of $4.00 per share.
Convertible promissory notes
In February 1996, the Company issued convertible promissory notes payable
totaling $900 to certain of its Series B preferred stockholders. The notes bore
interest at a rate of 5.33% and was canceled in connection with the issuance of
shares of Series C convertible preferred stock in May 1996 (Note 6).
In January 1996, the Company issued convertible promissory notes payable
totaling $600 to certain of its Series B preferred stockholders. The notes bore
interest at a rate of 5.33% and was converted into Series C convertible
preferred stock in May 1996 (Note 6).
In October 1995, the Company issued a convertible promissory note payable
totaling $1,500 to certain of its Series B preferred stockholders. The note bore
interest at a rate of 5.33% and was converted into Series C convertible
preferred stock in May 1996 (Note 6).
In November 1994, the Company issued a convertible promissory note payable
totaling $1,010 to certain of its Series A preferred stockholders. The note bore
interest at a rate of 6.24% and was converted into Series B preferred stock in
January 1995 (Note 6).
NOTE 5 -- CAPITAL LEASE OBLIGATIONS
In June 1995, the Company financed, under a sale leaseback arrangement, all
property and equipment it purchased from September 1994 to June 1995 and
received $113 in cash. The transaction was accounted for as a capital lease
wherein the property and equipment remained an asset of the Company and
continued to be depreciated. In addition, all purchases of property and
equipment made between June 1995 and December 1995, as well as certain fixed
asset acquisitions during the nine months ended September 30, 1997, were
F-11
<PAGE> 68
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financed through a capital lease arrangement. Total property and equipment
acquired under these capitalized leases, which consisted primarily of computer
equipment, at December 31, 1995 and 1996 and at September 30, 1997 amounted to
$782, $782 and $1,057, respectively. Accumulated depreciation on these assets at
December 31, 1995 and 1996 and September 30, 1997 amounted to $360, $561 and
$689, respectively. The annual interest rates on such obligations range from
8.5% to 11.5%.
Approximate maturities of such capital lease obligations are as follows at
September 30, 1997:
<TABLE>
<S> <C>
Remainder of 1997..................................... $ 66
1998.................................................. 148
1999.................................................. 104
2000.................................................. 57
----
Total................................................. 375
Less amounts representing interest.................... 38
----
Total capital lease obligation........................ 337
Less amounts due within one year...................... 166
----
Long-term portion capital lease obligations........... $171
====
</TABLE>
NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 13,027,874 shares of preferred stock, $.01 par
value per share and has designated the following series:
Series A mandatorily redeemable convertible preferred stock
In February 1994, the Company sold 1,750,000 shares of Series A convertible
preferred stock ("Series A Preferred Stock") to a private investor group for
$1.16 per share and sold 862,069 shares for $1.16 per share in March 1994 to
another private investor group. In addition, in July 1994, the board of
directors approved the exchange by a stockholder of 107,137 shares of common
stock for 172,414 shares of Series A preferred stock. Each share of Series A
preferred stock is convertible at any time into .75 shares of common stock, as
adjusted in the event of future dilution, and has full voting rights. The total
number of Series A preferred shares authorized is 2,840,517, with a par value of
$.01. In the event of involuntary liquidation or some other event as described
in the Company's certificate of incorporation, a holder of such Series A
preferred stock is entitled to receive up to $3.30 per share (for a total of
$9,189). Further, beginning May 7, 2001, and on the 7th day of each May, August,
November and February thereafter, a portion of all outstanding shares of the
Series A preferred stock must be redeemed by the Company at a price of $1.16 per
share plus any accrued but unpaid dividends. The right to receive dividends is
noncumulative. Dividends are payable when and as declared by the Company's board
of directors at the rate of $0.0812 per share per annum. The Series A preferred
shares are mandatorily convertible upon the closing of the Company's initial
public offering of shares of common stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, subject to a minimum per
share price and gross proceeds.
Series B mandatorily redeemable convertible preferred stock
In January 1995, the Company sold 2,007,645 shares of Series B convertible
preferred stock ("Series B Preferred Stock") to a private investor group for
$1.50 per share. In addition, in July 1995, the Company sold 125,000 shares of
Series B preferred stock to a private investor group for $2.00 per share. In
connection with the sale, the convertible promissory note issued in November
1994 totaling $1,010 and related accrued interest were converted into 680,355
shares of Series B convertible preferred stock and such note was canceled. Each
share of Series B preferred stock is convertible at any time into .75 shares of
common stock, as adjusted in the
F-12
<PAGE> 69
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
event of future dilution, and has full voting rights. The total number of Series
B preferred shares authorized is 5,000,000 with a par value of $.01. In the
event of involuntary liquidation or some other event as described in the
Company's certificate of incorporation, a holder of such Series B preferred
stock is entitled to receive up to $3.30 per share (for a total of $9,283).
Further, beginning May 7, 2001, and on the 7th day of each May, August, November
and February thereafter, a portion of all outstanding shares of the Series B
preferred stock must be redeemed by the Company at a price of $1.50 per share
plus any accrued but unpaid dividends. The right to receive dividends is
noncumulative. Dividends are payable when and as declared by the Company's board
of directors at the rate of $0.105 per share per annum. The Series B preferred
shares are mandatorily convertible upon the closing of the Company's initial
public offering of shares of common stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, subject to a minimum per
share price and gross proceeds.
Series C mandatorily redeemable convertible preferred stock
In May 1996, the Company sold 3,030,303 shares of Series C convertible
preferred stock ("Series C Preferred Stock") to a private investor group for
$1.65 per share. In connection with the sale, the convertible promissory notes
issued in October 1995, January 1996 and February 1996 totaling $3,000 and
related accrued interest were converted into 1,854,024 shares of Series C
preferred stock and such notes were canceled. Each share of Series C preferred
stock is convertible at any time into .75 shares of common stock, as adjusted in
the event of future dilution, and has full voting rights. The total number of
Series C preferred shares authorized is 5,187,357 with a par value of $.01. In
the event of involuntary liquidation or some other event as described in the
Company's certificate of incorporation, a holder of such Series C preferred
stock is entitled to receive up to $3.30 per share (for a total of $16,118).
Further, beginning May 7, 2001, and on the 7th day of each May, August, November
and February thereafter, a portion of all outstanding shares of the Series C
preferred stock must be redeemed by the Company at a price of $1.65 per share
plus any accrued but unpaid dividends. The right to receive dividends is
noncumulative. Dividends are payable when and as declared by the Company's board
of directors at the rate of $0.1155 per share per annum. The Series C preferred
shares are mandatorily convertible upon the closing of the Company's initial
public offering of shares of common stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, subject to a minimum per
share price and gross proceeds.
NOTE 7 -- STOCKHOLDERS' EQUITY
Common stock
In December 1996, the Company sold 885,000 shares of the Company's common
stock to a private investor group. The shares were sold for $4.00 per share and
the total proceeds were $3,540.
On January 10, 1997, January 15, 1997, February 28, 1997, and March 25,
1997, the Company sold 500,000, 75,000, 249,998 and 250,000 shares of the
Company's common stock, respectively. The shares were sold for $4.00 per share
and the total proceeds were $4,300.
In October 1997, the board of directors approved a three-for-four reverse
stock split of the Company's common stock. All references to common stock
amounts, shares, per share data, and preferred stock conversion rights included
in the financial statements and notes have been adjusted to give retroactive
effect to the stock split.
Stock warrants
In conjunction with the issuance of a note payable in August 1995, the
Company issued a warrant for the purchase of 75,000 shares of its common stock
at a price of $8.00 per share subject to adjustment, exercisable at the holder's
election at any time after August 1, 1997. This warrant expires in August 2002.
F-13
<PAGE> 70
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Company's 1995 financing arrangements, a warrant was
issued for the purchase of 76,800 shares of Series B preferred stock for $1.50
per share. This warrant expires in July 2005.
In connection with the Company's capital lease obligations in 1994, a
warrant was issued for the purchase of 43,103 shares of Series A preferred stock
for $1.16 per share. This warrant expires in June 2004.
Stock plans
The Company's 1992 Stock Option Plan provides for the issuance of up to
1,362,000 shares of common stock through the granting of stock options to
employees, officers, directors, consultants and advisors. The board of directors
has authority to determine awards and establish the exercise price. Such options
vest over various periods up to five years and expire on various dates through
2007. No additional option grants will be made under this plan after September
1997.
Options to purchase 47,938 shares of common stock were granted to a
consultant for services rendered in 1996 and 1997. Such options vest after 6
months, are exercisable at $.01 per share and expire in 2006. The Company has
reserved an additional 8,311 shares of common stock for issuance to a
third-party supplier for services rendered.
The Company's 1997 Stock Incentive Plan (the "Incentive Plan") was adopted
by the board of directors in September 1997 and was approved by the stockholders
in October 1997. The Incentive Plan is intended to replace the Company's 1992
Plan. Up to 1,875,000 shares of common stock (subject to adjustment in the event
of stock splits and other similar events) may be issued pursuant to awards
granted under the Incentive Plan. Options may be granted at an exercise price
which may be less than, equal to or greater than the fair market value of the
common stock on the date of grant. Officers, employees, directors, consultants
and advisors of the Company and its subsidiaries are eligible to receive awards
under the Incentive Plan.
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the board of directors in September 1997 and was approved by the
stockholders in October 1997. The Purchase Plan authorizes the issuance of up to
a total of 300,000 shares of common stock to participating employees. Under the
terms of the Purchase Plan, the option price is an amount equal to 85% of the
average market price (as defined) per share of the common stock on either the
first day or the last day of the offering period, whichever is lower.
The Company's 1997 Director Stock Option Plan (the "Director Plan") was
adopted by the board of directors in September 1997 and was approved by the
stockholders in October 1997. Under the terms of the Director Plan, directors of
the Company who are not employees of the Company or any subsidiary of the
Company are eligible to receive nonstatutory options to purchase shares of
common stock. A total of 150,000 shares of common stock may be issued upon
exercise of options granted under the Director Plan. The exercise price per
share for shares granted initially will be equivalent to the initial public
offering price. The exercise price per share for all shares thereafter will be
the closing price per share of common stock on the date of grant. All options
granted under the Director Plan vest one year from the date of grant so long as
the optionee remains a director of the Company.
F-14
<PAGE> 71
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table describes the Company's stock option activity under the
1992 Stock Option Plan:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- -------------------------
(PRICED AT DATE OF GRANT)
<S> <C> <C>
Outstanding at January 1, 1994............... 349,875 $0.0003 - $1.33
Granted.................................... 468,150 $0.67 - $2.00
Exercised.................................. (65,625) $0.0003
Canceled................................... (6,750) $ 2.00
-------
Outstanding at December 31, 1994............. 745,650 $0.0003 - $2.00
-------
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
NUMBER OF PER SHARE
OPTIONS -------------------------
--------- (PRICED AT DATE OF GRANT)
<S> <C> <C>
Outstanding at January 1, 1995............... 745,650 $1.12
---------
Granted.................................... 328,725 $1.68
Exercised.................................. (8,775) $1.33
Canceled................................... (297,600) $1.41
---------
Outstanding at December 31, 1995............. 768,000 $1.24
---------
Granted.................................... 425,144 $0.92
Exercised.................................. (84,622) $1.33
Canceled................................... (192,578) $1.81
---------
Outstanding at December 31, 1996............. 915,944 $0.96
---------
Granted.................................... 437,894 $4.49
Exercised.................................. (69,269) $1.29
Canceled................................... (249,975) $1.59
---------
Outstanding at September 30, 1997............ 1,034,594 $2.28
=========
Exercisable at December 31, 1995............. 361,642 $0.73
Exercisable at December 31, 1996............. 636,854 $0.52
Exercisable at September 30, 1997............ 578,264 $0.48
Options available for grant at
September 30, 1997......................... --
</TABLE>
F-15
<PAGE> 72
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information regarding stock options granted
during 1995, 1996 and the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE WEIGHTED
NUMBER OF PRICE AVERAGE
OPTIONS PER FAIR
GRANTED SHARE VALUE
--------- -------- --------
<S> <C> <C> <C>
1995:
Options granted at less than market value............ 121,875 $ 0.93 $ 1.89
Options granted at market value...................... 170,625 $ 2.00 $ 0.57
Options granted above market value................... 36,225 $ 2.67 $ 0.03
1996:
Options granted at less than market value............ 256,619 $ 0.01 $ 2.19
Options granted at market value...................... 168,525 $ 2.09 $ 0.53
1997:
Options granted at less than market value............ 136,319 $ 1.33 $ 3.04
Options granted at market value...................... 301,575 $ 5.75 $ 1.55
</TABLE>
The following table summarizes information regarding stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
WEIGHTED AVERAGE ---------------------------
AVERAGE EXERCISE WEIGHTED
RANGE OF NUMBER REMAINING PRICE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL LIFE PER EXERCISABLE EXERCISE
PRICES AT 9/30/97 IN YEARS SHARE AT 9/30/97 PRICE
- --------------- ----------- ---------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.0003 - $0.01 404,444 7.61 $0.0009 403,694 $0.0009
$ 1.33 - $2.00 264,150 6.96 $ 1.45 158,025 $ 1.41
$ 2.20 - $2.67 79,050 8.71 $ 2.33 16,545 $ 2.40
$4.00 150,300 9.43 $ 4.00 -- --
$8.67 136,650 9.84 $ 8.67 -- --
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123"), on January 1, 1996.
The Company continues to apply Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," in accounting for its stock based
compensation plans. If the Company had recorded compensation cost based upon the
fair value at the grant date for awards under these plans, consistent with SFAS
No. 123, the Company's net loss would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED NINE
DECEMBER 31, MONTHS ENDED
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Net loss as reported....................... $(6,487) $(7,447) $(4,640)
Net loss pro forma......................... $(6,495) $(7,452) $(4,671)
Net loss per share as reported............. $ (0.69) $ (0.33)
Net loss per share pro forma............... $ (0.69) $ (0.33)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 6.48% for the years ended December 31,
1995 and 1996 and 6.37% for the nine months ended September 30, 1997 and an
expected option life of 5 years. In accordance with SFAS No. 123, the fair value
method of accounting has not
F-16
<PAGE> 73
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
been applied to options granted prior to January 1, 1995. Therefore, the
resulting pro forma impact may not be representative of that to be expected in
future years.
The Company has reserved 9,216,243 shares of common stock for the
conversion of preferred stock, outstanding stock options and exercisable
warrants and 43,103 shares of Series A convertible preferred stock and 76,800
shares of Series B convertible preferred stock for the exercise of warrants.
Exercise price per share approximates market value at the date of the grant.
The Company has reserved an additional 2,325,000 shares of common stock for
issuance under the 1997 option plans.
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company leases space in several buildings which it uses for offices and
development facilities as well as various equipment and vehicles, all subject to
operating leases. As of September 30, 1997, the minimum annual rental payments
under the terms of such noncancelable leases which expire at various dates
through 2003 are as follows:
<TABLE>
<S> <C>
Remainder of 1997................................... $ 163
1998................................................ 480
1999................................................ 370
2000................................................ 316
2001................................................ 297
2002................................................ 297
Thereafter.......................................... 154
------
Total minimum lease payments.............. $2,077
======
</TABLE>
Rent expense for the years ended December 31, 1994, 1995 and 1996 and the
nine months ended September 30, 1997 amounted to $158, $251, $317 and $344,
respectively.
From time to time in the ordinary course of business, the Company is
subject to legal proceedings. While it is impossible to determine the ultimate
outcome of such matters, it is management's opinion that the resolution of any
pending issues will not have a material adverse effect on the financial
position, results of operations or cash flows of the Company.
F-17
<PAGE> 74
[INSIDE BACK COVER]
The inside back cover graphic is a circular flow chart, divided into three
horizontal sections which are distinguishable by their background shading. The
top section contains the text "Flexi Windows Desktop," the center section
contains the text "Flexi Internet Universal Interface," and the bottom section
contains the text "Flexi ActiviteX Controls Integrated with Third Party
Productivity Tools."
Superimposed on the three sections of the circle and five different
representations of computer screens showing Flexi software in use. Two of the
five screens are in the top section, two are in the middle section and one is in
the bottom section. The five screens are linked with arrows, so that together
the arrows and the screens form a circle.
[Caption:] FLEXI'S ADAPTABLE COMPUTING STRATEGY The FlexiFinancials
applications provide our clients with a highly tailored financial accounting
environment encompassing Windows(R)-based desktops, Internet access through
Flexi's Universal Interface, and seamless integration with third-party
productive tools such as Microsoft Office(R).
<PAGE> 75
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 6
Use of Proceeds................... 14
Dividend Policy................... 14
Capitalization.................... 15
Dilution.......................... 16
Selected Financial Data........... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 18
Business.......................... 26
Management........................ 38
Certain Transactions.............. 44
Principal and Selling
Stockholders.................... 46
Description of Capital Stock...... 49
Shares Eligible for Future Sale... 51
Underwriting...................... 53
Legal Matters..................... 54
Experts........................... 54
Additional Information............ 55
Index to Financial Statements..... F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
3,000,000 SHARES
flexi logo
COMMON STOCK
---------------
PROSPECTUS
---------------
BT ALEX. BROWN
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
, 1997
======================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 12,546
NASD filing fee........................................................... 4,640
Nasdaq National Market listing fee........................................ 50,000
Blue Sky fees and expenses................................................ 15,000
Transfer Agent and Registrar fees......................................... 10,000
Accounting fees and expenses.............................................. 190,000
Legal fees and expenses................................................... 250,000
Director and Officer Liability Insurance.................................. 100,000
Printing and mailing expenses............................................. 100,000
Miscellaneous............................................................. 17,814
--------
Total........................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the
II-1
<PAGE> 77
Registrant fails to make an indemnification payment within 60 days after such
payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is entitled
to indemnification. As a condition precedent to the right of indemnification,
the director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of Common
Stock and Preferred Stock issued, warrants issued and options granted by the
Registrant since September 1994 (after giving effect to the Registrant's
three-for-four reverse stock split to be effected prior to the closing of this
offering). Further included is the consideration, if any, received by the
Registrant for such shares, warrants and options and information relating to the
section of the Securities Act of 1933, as amended (the "Securities Act"), or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed.
1. On November 21, 1994, the Registrant issued Convertible Promissory Notes
to three private investors, in the aggregate principal amount of $1,010,000. The
principal amount of these Notes together with all accrued interest thereon was
subsequently cancelled in connection with the issuance to such investors of
shares of Series B Convertible Preferred Stock. The Registrant also issued
five-year Warrants to purchase an aggregate of 189,375 shares of Common Stock at
an exercise price of $1.33 per share to such investors. These Notes and Warrants
were subsequently cancelled in connection with the issuance to such investors of
shares of Series B Convertible Preferred Stock.
2. On January 12, 1995, the Registrant issued a total of 172,414 shares of
Series A Convertible Preferred Stock to an employee in exchange for 107,137
shares of Common Stock.
3. On January 20, 1995 and June 30, 1995, the Registrant sold a total of
2,813,000 shares of Series B Convertible Preferred Stock to five institutional
investors for an aggregate purchase price of $4,282,000.
4. On July 25, 1995, the Registrant issued a ten-year warrant to purchase
12,600 shares of Series B Convertible Preferred Stock at an exercise price of
$2.00 per share to Comdisco, Inc. in connection with the execution of an
equipment schedule to an equipment lease. This warrant is exercisable for
additional shares of Series B Convertible Preferred Stock equal to nine percent
of the amount by which the cost of equipment under the equipment lease exceeds
$280,000 divided by the exercise price of $2.00. As of September 30, 1997, no
additional shares were issuable under this warrant.
II-2
<PAGE> 78
5. On July 25, 1995, the Registrant issued a ten-year warrant to purchase
an aggregate of 45,000 shares of Series B Convertible Preferred Stock at an
exercise price of $2.00 per share to Comdisco, Inc. in connection with the
execution of an accounts receivable and security agreement. This warrant is
exercisable for an additional 22,500 shares, if advances under the agreement
exceed $1,000,000, plus shares equal to nine percent of the amount by which
advances under the agreement exceed $1,500,000 divided by the $2.00 exercise
price. As of September 30, 1997, no additional shares were issuable under this
warrant.
6. On August 1, 1995, the Registrant issued a Convertible Note to the
Connecticut Development Authority in the aggregate principal amount of $750,000.
Part of the principal amount of this Note together with all accrued interest
thereon was subsequently paid. The remaining principal amount of this Note was
converted into 150,000 shares of Common Stock.
7. On August 1, 1995, the Registrant issued an seven-year warrant to
purchase 75,000 shares of Common Stock at an exercise price of $8.00 per share
to the Connecticut Development Authority in connection with the execution of a
loan agreement.
8. On October 25, 1995, January 23, 1996 and February 16, 1996, the
Registrant issued Convertible Promissory Notes in the aggregate original
principal amount of $3,000,000 to three of its current institutional
stockholders. The principal amount of these Notes together with all accrued
interest thereon was subsequently cancelled in connection with the issuance to
such stockholders of shares of Series C Convertible Preferred Stock.
9. On October 25, 1995, the Registrant issued five-year warrants to
purchase an aggregate of 375,000 shares of Common Stock at an exercise price of
$2.00 per share to three of its current institutional investors. These warrants
have since been cancelled.
10. On May 7, 1996, the Registrant sold a total of 4,884,327 shares of
Series C Convertible Preferred Stock to one individual and four of its current
institutional investors for an aggregate purchase price of $8,059,134.
11. On December 23, 1996, January 10, 1997, January 15, 1997, January 28,
1997, February 28, 1997 and March 25, 1997, the Registrant sold a total of
2,085,002 shares of Common Stock to ten private investors, for an aggregate
purchase price of $8,340,010.
12. On August 14, 1997, the Registrant issued 150,000 shares of Common
Stock to the Connecticut Development Authority, upon conversion of $600,000 in
principal outstanding under a Convertible Note.
Certain of the transactions described above involved directors, officers
and 5% Stockholders of the Registrant. See "Certain Transactions."
The Registrant's 1992 Stock Option Plan was adopted by the Board of
Directors and approved by the stockholders of the Registrant in November 1993.
As of September 30, 1997, options to purchase 228,292 shares of Common Stock had
been exercised for an aggregate consideration of $170,000 and options to
purchase 1,034,594 shares of Common Stock were outstanding under such plan.
The securities issued in the foregoing transactions were either (i) offered
and sold in reliance upon exemptions from Securities Act registration set forth
in Sections 3(b) and 4(2) of the Securities Act, or any regulations promulgated
thereunder, relating to sales by an issuer not involving any public offering, or
(ii) in the case of certain options to purchase shares of Common Stock and
shares of Common Stock issued upon the exercise of such options, such offers and
sales were made in reliance upon an exemption from registration under Rule 701
of the Securities Act. No underwriters were involved in the foregoing sales of
securities.
II-3
<PAGE> 79
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
*1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of the Registrant, as amended.
3.2 Amended and Restated Certificate of Incorporation of the Registrant, to be effective
upon the closing of this offering.
3.3 By-Laws of the Registrant, as amended.
3.4 Amended and Restated By-Laws of the Registrant, to be effective upon the closing of
this offering.
*4.1 Specimen certificate for shares of Common Stock.
*5 Opinion of Hale and Dorr LLP.
10.1 1992 Stock Option Plan, as amended.
10.2 1997 Stock Incentive Plan.
10.3 1997 Director Stock Option Plan.
10.4 1997 Employee Stock Purchase Plan.
10.5 Registration Rights Agreement dated May 7, 1996, as amended, among the Registrant and
the Purchasers (as defined therein).
10.6 Series A Preferred Stock Purchase Agreement dated February 8, 1994 among the
Registrant and the Purchasers (as defined therein).
10.7 Series B Preferred Stock Purchase Agreement dated January 20, 1995 among the
Registrant and the Purchasers (as defined therein).
10.8 Series C Preferred Stock Purchase Agreement dated May 7, 1996 among the Registrant
and the Purchasers (as defined therein).
10.9 Common Stock Warrant dated August 1, 1995 issued to the Connecticut Development
Authority.
10.10 Warrant Agreement dated June 28, 1994 held by CDC Realty, Inc.
10.11 Warrant Agreement dated July 25, 1995 issued to Comdisco, Inc. (exercisable for
45,000 shares).
10.12 Warrant Agreement dated July 25, 1995 issued to Comdisco, Inc. (exercisable for
12,600 shares).
10.13 Master Lease Agreement dated June 28, 1994 between the Registrant and Comdisco, Inc.
10.14 Receivables Loan and Security Agreement dated July 10, 1995 between the Registrant
and Comdisco, Inc.
10.15 Letter Agreement dated April 30, 1997 between the Registrant and Fleet National Bank
("Fleet").
10.16 Accounts Receivable Security Agreement dated April 30, 1997 between the Registrant
and Fleet.
10.17 Promissory Note of the Registrant dated April 30, 1997 to Fleet in the principal
amount of $2,000,000.
10.18 Subordination Agreement dated April 30, 1997 between the Registrant and the
Connecticut Development Authority.
10.19 Standard Sublease Agreement dated February 7, 1996 between the Registrant and
Symantec Corporation.
11 Computation of earnings per common share.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Hale and Dorr LLP (included in Exhibit 5).
24 Power of Attorney (included on page II-6).
</TABLE>
II-4
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<S> <C>
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted form the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Shelton, Connecticut, on this 21st
day of October, 1997.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ STEFAN R. BOTHE
----------------------------------
STEFAN R. BOTHE, CHAIRMAN OF THE
BOARD
AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of FlexiInternational Software,
Inc., hereby severally constitute and appoint Stefan R. Bothe, Jennifer V. Cheng
and John A. Burgess, and each of them singly, our true and lawful attorneys with
full power to them, and each of them singly, to sign for us and in our names in
the capacities indicated below, the Registration Statement on Form S-1 filed
herewith and any and all pre-effective and post-effective amendments to said
Registration Statement, and any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b), and generally to do all such
things in our names and on our behalf in our capacities as officers and
directors to enable FlexiInternational Software, Inc. to comply with the
provisions of the Securities Act of 1933, as amended, and all requirements of
the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys, or any of them, to said
Registration Statement and any and all amendments thereto or to any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b).
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- --------------------------------- -------------------
<C> <S> <C>
/s/ STEFAN R. BOTHE Chairman of the Board and
- --------------------------------- Chief Executive Officer
STEFAN R. BOTHE (Principal Executive Officer) October 21, 1997
/s/ RICHARD P. HORNER Vice President, Finance
- --------------------------------- (Principal Financial and
RICHARD P. HORNER Accounting Officer) October 21, 1997
/s/ THOMAS H. BREDT
- ---------------------------------
THOMAS H. BREDT Director October 21, 1997
/s/ ELLEN CARNAHAN
- ---------------------------------
ELLEN CARNAHAN Director October 21, 1997
/s/ JENNIFER V. CHENG
- ---------------------------------
JENNIFER V. CHENG Director October 21, 1997
/s/ JONATHAN E. DICK
- ---------------------------------
JONATHAN E. DICK Director October 21, 1997
- ---------------------------------
TAREK KETTANEH Director October 21, 1997
- ---------------------------------
JOHN B. LANDRY Director October 21, 1997
- ---------------------------------
JAMES L. LUIKART Director October 21, 1997
/s/ JAMES W. SCHENCK
- ---------------------------------
JAMES W. SCHENCK Director October 21, 1997
/s/ A. DAVID TORY
- ---------------------------------
A. DAVID TORY Director October 21, 1997
</TABLE>
II-6
<PAGE> 82
FLEXIINTERNATIONAL SOFTWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1996 EXPENSES DEDUCTIONS SEPTEMBER 30, 1997
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 405 $ 275 $ (6) $ 674
Valuation allowance for deferred tax
asset................................. $ 7,254 $ 77 $7,331
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1995 EXPENSES DEDUCTIONS DECEMBER 31, 1996
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 422 $ 665 $ (682) $ 405
Valuation allowance for deferred tax
asset................................. $ 4,143 $3,111 $7,254
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1994 EXPENSES DEDUCTIONS DECEMBER 31, 1995
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 75 $ 476 $ (129) $ 422
Valuation allowance for deferred tax
asset................................. $ 1,630 $2,513 $4,143
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1993 EXPENSES DEDUCTIONS DECEMBER 31, 1994
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 0 $ 75 $ 75
Valuation allowance for deferred tax
asset................................. $ 617 $1,013 $1,630
</TABLE>
S-1
<PAGE> 1
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
FIRST. The name of the Corporation is:
Flexiware Corporation
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. 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 as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 1,000,000 shares of Common Stock, $.01 par value per
share.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
Jennifer V. Cheng 173B Allyn Road
Goshen, CT 06756
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
<PAGE> 2
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay
<PAGE> 3
such payment if it is ultimately determined that such person is not entitled to
indemnification under this Article, which undertaking may be accepted without
reference to the financial ability of such person to make such repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Goshen, Connecticut, on the 4th day of November, 1993.
/s/ Jennifer V. Cheng
-----------------------------
Jennifer V. Cheng
<PAGE> 4
CERTIFICATE OF MERGER
OF
FLEXIWARE CORPORATION
(a Connecticut corporation)
INTO
FLEXIWARE CORPORATION
(a Delaware corporation)
FlexiWare Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
Name State of Incorporation
FlexiWare Corporation Connecticut
FlexiWare Corporation Delaware
SECOND: That a Plan of Merger between the parties to the merger has been
approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Subsection (c)
of Section 252 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
FlexiWare Corporation.
FOURTH: That the Certificate of Incorporation of FlexiWare Corporation, a
Delaware corporation which will survive the merger, shall be the Certificate of
Incorporation of the surviving corporation.
FIFTH: That the executed Plan of Merger is on file at the principal place
of business of the surviving corporation. The address of said principal place of
business is One Research Drive, Shelton, Connecticut 06484.
SIXTH: That a copy of the Plan of Merger will be furnished by the
surviving corporation upon request and without cost to any stockholder of any
constituent corporation.
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SEVENTH: That this Certificate of Merger shall be effective immediately
upon filing with the Office of the Secretary of State of the State of Delaware.
EIGHTH: FlexiWare Corporation, a Connecticut corporation, is authorized to
issue 100,000 shares of Common Stock, no par value per share.
IN WITNESS WHEREOF, FlexiWare Corporation has caused this Certificate to
be executed by its Chairman and attested by its Secretary this 4th day of
November, 1993.
FLEXIWARE CORPORATION
(a Delaware corporation)
By: /s/ Stefan R. Bothe
------------------------------
Chairman
Dated: November 4, 1993
ATTEST
/s/ Jennifer V. Cheng
- -------------------------------
Secretary
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<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
FLEXIWARE CORPORATION (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
By written action of the Board of Directors of the Corporation in lieu of
a meeting, resolutions were duly adopted, pursuant to Sections 141(f) and 242 of
the General Corporation Law of the State of Delaware, setting forth an amendment
to the Certificate of Incorporation of the Corporation and declaring said
amendment to be advisable. The stockholders of the Corporation duly approved
said proposed amendment by written consent in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendment. The resolution setting forth the amendment is as
follows:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is amended by
deleting such paragraph in its entirety and by inserting the
following in lieu thereof:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is one million five hundred thousand
(1,500,000) shares of Common Stock, $.01 par value per share."
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested to by its Secretary this 22nd day of December, 1993.
FLEXIWARE CORPORATION
By: /s/ Stefan R. Bothe
---------------------------
Chairman
ATTEST:
/s/ Jennifer V. Cheng
- -----------------------
Secretary
[Corporate Seal]
2
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
FlexiWare Corporation (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and that the following
Article FOURTH be and hereby is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 10,000,000 shares of Common Stock,
$.01 par value per share ("Common Stock"), and (ii) 2,625,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which
2,625,000 shares are hereby designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock").
<PAGE> 9
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A CONVERTIBLE PREFERRED STOCK.
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series A Preferred Stock shall be as
follows:
1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.0812 per share per annum (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), payable
when and as declared by the Board of Directors of the Corporation. The right to
receive dividends on Series A Preferred Stock shall be non-cumulative, and no
right to dividends shall accrue by
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<PAGE> 10
reason of the fact that no dividend has been declared on the Series A Preferred
Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or other
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding shall have first received a
dividend at the rate specified in Subsection 1(a) above. After payment of any
dividends or distributions to holders of Series A Preferred Stock as specified
in such Subsection 1(a), the Board of Directors of the Corporation may declare
and pay dividends or other distributions on the Common Stock from funds legally
available therefor; provided, however, that the holders of Series A Preferred
Stock shall be entitled to receive concurrently a dividend or other distribution
on each outstanding share of Series A Preferred Stock in an amount at least
equal to the product of (i) the per share amount, if any, of the dividend or
other distribution to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series A Preferred Stock is then convertible.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
(d) Notwithstanding the provisions of this Section 1, the Board of
Directors shall not declare or pay any dividends or other distributions on
shares of Series A Preferred Stock or Common Stock if and for so long as the
Corporation is in a Financial Crisis, as such term is defined in Subsection 3(d)
below.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock or
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<PAGE> 11
any other class or series of stock ranking on liquidation junior to the Series A
Preferred Stock (such Common Stock and other stock being collectively referred
to as "Junior Stock") by reason of their ownership thereof, an amount equal to
$1.16 per share (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid on such shares. If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series A Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series A Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series A Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the remaining assets and funds of the Corporation
available for distribution to its stockholders shall be distributed (i) first,
among the holders of shares of Series A Preferred Stock, Common Stock and any
other class or series of stock entitled to participate in liquidation
distributions with the holders of Common Stock, pro rata based on the number of
shares of Common Stock held by each (assuming conversion into Common Stock of
all such shares) until the holders of Series A Preferred Stock shall have
received an amount equal to $2.32 per share (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares); (ii) second, among the holders of
shares of Common Stock and any other class or series of stock entitled to
participate in liquidation distributions with the holders of Common Stock, pro
rata based on the number of shares of Common Stock held by each (assuming
conversion into Common Stock of all such shares) until the holders of Common
Stock and any other such class or series of stock shall have received an amount
equal to $2.32 per share (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares); and (iii) third, among the holders of shares of Series A
Preferred Stock, Common Stock and any other class or series of stock entitled to
participate in liquidation distributions with the holders of Common Stock, pro
rata based on the number of shares of Common Stock held by each (assuming
conversion into Common Stock of all such shares).
(c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of
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<PAGE> 12
the Corporation immediately prior to such merger or consolidation continue to
hold at least 51% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 51% of the then outstanding shares of
Series A Preferred Stock so elect by giving written notice thereof to the
Corporation at least three days before the effective date of such event, then
such merger, consolidation or asset sale shall be deemed to be a liquidation of
the Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) and 2(b)
above. The Corporation shall promptly provide to the holders of shares of Series
A Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock in order
to assist them in determining whether to make such an election. If the holders
of the Series A Preferred Stock make such an election, the Corporation shall use
its best efforts to amend the agreement or plan of merger or consolidation to
adjust the rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property to give
effect to such election. The amount deemed distributed to the holders of Series
A Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation or, in the case of securities, as set forth in Subsection 2(d)
below. If no notice of the election permitted by this Subsection (c) is given,
the provisions of Subsection 4(h) shall apply.
(d) Any securities requiring valuation as noted in Subsection 2(c)
above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through
Nasdaq-NNM, the value shall be deemed to be the average of the closing prices of
the securities on such exchange or market over the 30-day period ending three
days prior to the closing;
(b) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the 30-day period ending three days prior to the closing; and
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<PAGE> 13
(c) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least a majority of the voting power of all then
outstanding shares of Series A Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (a), (b) or (c) to reflect the approximate fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least a majority of the voting power of all then outstanding
shares of Series A Preferred Stock.
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsections 3(b),
3(c) or 3(d) below or by the provisions establishing any other series of
Preferred Stock, holders of Series A Preferred Stock and of any other
outstanding series of Series Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) Subject to the provisions of Subsection 3(d) below, the holders
of a majority of the then outstanding shares of Series A Preferred Stock, voting
as a separate class, shall be entitled to elect one (1) director of the
Corporation (such director and any additional directors elected or to be elected
pursuant to Subsection 3(d) below shall be individually referred to as a "Series
A Director" and collectively referred to as the "Series A Directors"). At any
meeting (or written action of stockholders in lieu of a meeting) held for the
purpose of electing Series A Directors, each share of Series A Preferred Stock
shall be entitled to the number of votes specified in Subsection 3(a) above, and
the presence in person or by proxy (or by written consent) of the holders of a
majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for the election of Series A
Directors. A vacancy in any Series A Directorship shall be filled only by vote
at a meeting or by written consent of the holders of the Series A Preferred
Stock.
(c) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series A Preferred Stock shall be outstanding, the
Corporation
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<PAGE> 14
shall not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the then outstanding shares of Series A Preferred
Stock:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock;
(ii) Increase the authorized number of shares of Series A
Preferred Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series A Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's assets; or
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation.
(d) If, prior to the earlier of (i) the Mandatory Conversion Date
(as defined in Subsection 5(a) below) or (ii) February 7, 1996, the Corporation
has a Financial Crisis (as defined in Subsection 3(e) below), the management of
the Corporation shall present, within ten days of the commencement of the
Financial Crisis, a plan (the "Plan") to the Board of Directors of the
Corporation to alleviate such Crisis. If all the members of the Board of
Directors then in office do not unanimously approve the Plan, or the Plan is not
presented to the Board of Directors within ten days of the commencement of the
Financial Crisis, (i) as of the close of business of such tenth day, the number
of Series A Directors (and the number of directors of the Corporation) shall
automatically increase by such number of additional directors as, when added to
the number one, would constitute a majority of the Board. The vacancies so
created shall be filled by the Series A Director elected pursuant to Subsection
3(b). If, for any reason, such vacancies are not so filled, the holders of
shares of Series A Preferred Stock (voting separately as a class) shall be
entitled to fill such vacancies at a meeting or by written consent of the
holders of Series A Preferred Stock. The right of the holders of shares of
Series A Preferred Stock to elect such additional Series A Directors shall
terminate when the Financial Crisis terminates. The terms of office of all
Series A Directors elected pursuant to this Subsection 3(d) shall terminate
immediately upon the termination of the right to
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<PAGE> 15
elect such additional Series A Directors, and the number of Series A Directors
shall automatically thereupon be reduced to one.
The foregoing right of the holders of shares of Series A Preferred Stock
with respect to the election of directors may be exercised at any annual meeting
of stockholders or at any special meeting of stockholders held for such purpose.
If the right to elect directors shall have accrued to the holders of shares of
Series A Preferred Stock more than ten days preceding the date established for
the next annual meeting of stockholders, the President of the Corporation shall,
within two days after the delivery to the Corporation at its principal office of
a written request for a special meeting signed by the holders of at least 10% of
all outstanding shares of Series A Preferred Stock, call a special meeting of
the holders of Series A Preferred Stock to be held within ten days after the
delivery of such request for the purpose of electing such additional Series A
Directors.
The holders of shares of Series A Preferred Stock voting as a class shall
have the right to remove without cause at any time and replace any Series A
Directors.
Notwithstanding the foregoing provisions of this Subsection 3(d), if (i)
any member of the Board of Directors other than the Series A Director elected
pursuant to Subsection 3(b), holds, or represents a holder of, not less than
500,000 shares of Series A Preferred Stock, and (ii) a Plan to alleviate a
Financial Crisis is proposed before the Board of Directors as provided in
paragraph (d), the vote of all but one director shall be sufficient to approve
the Plan.
(e) The Corporation shall be deemed to be in a "Financial Crisis"
for purposes of this Certificate of Incorporation when and if (i) the sum of the
Corporation's cash, amounts available under lines of credit with its banks or
other financial institutions and accounts receivable of not more than 90 days'
duration, reduced by any amounts owed under notes payable to holders of Series A
Preferred Stock ("Net Liquid Assets"), is less than the Corporation's average
monthly operating loss (as calculated by averaging, on a rolling basis, the
monthly operating loss of the previous three months) or (ii) the Corporation
files for bankruptcy or defaults under debt instruments under which the
Corporation has a material amount of indebtedness outstanding and which defaults
are not being contested in good faith by the Corporation. The Corporation shall
no longer be in a Financial Crisis when it has Net Liquid Assets in excess of
the average monthly operating loss (in the case of (i) above) or cures, to the
satisfaction of its creditors, any default enumerated in (ii) above.
4. Optional Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
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(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.16 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" shall initially be
$1.16. Such initial Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A
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Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared or accrued but unpaid thereon. Any shares of Series A Preferred Stock
so converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after February 8, 1994 (the "Original
Issue Date") effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date effect a subdivision of the Series A
Preferred Stock, the Conversion Price then in effect immediately before that
subdivision shall be proportionately increased. If the Corporation shall at any
time or from time to time
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after the Original Issue Date combine the outstanding shares of Common Stock,
the Conversion Price then in effect immediately before the combination shall be
proportionately increased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Series A
Preferred Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately decreased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(f) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
for the Series A Preferred Stock shall make or issue, or fix a record date for
the
11
<PAGE> 19
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
(g) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
12
<PAGE> 20
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
(k) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
13
<PAGE> 21
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
5. Mandatory Conversion.
(a) Upon the closing of the Corporation's initial public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of gross
proceeds to the Corporation (the "Mandatory Conversion Date"), (i) all
outstanding shares of Series A Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective conversion rate and (ii) the
number of authorized shares of Preferred Stock shall be automatically reduced by
the number of shares of Preferred Stock that had been designated as Series A
Preferred Stock, and all provisions included under the caption "Series A
Convertible Preferred Stock", and all references to the Series A Preferred
Stock, shall be deleted and shall be of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock will
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock pursuant to this Section 5. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock at such holder's address last shown on the records of the transfer agent
for the Series A Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Series A Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such
14
<PAGE> 22
notice, and shall thereafter receive certificates for the number of shares of
Common Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date, all rights with respect to the Series A Preferred
Stock so converted, including the rights, if any, to receive notices and vote,
will terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the Mandatory Conversion Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
A Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
15
<PAGE> 23
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 7th day of February, 1994.
FLEXIWARE CORPORATION
By: /s/ Stefan R. Bothe
--------------------------
Chairman
ATTEST:
/s/ Jennifer V. Cheng
- ----------------------------
Secretary
[Corporate Seal]
16
<PAGE> 24
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
Pursuant to Section 242
of the General Corporation Law of
the State Of Delaware
FlexiWare Corporation (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Section B(3) of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is deleted in its entirety and
that the following Section B(3) be and hereby is inserted in lieu thereof:
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders
<PAGE> 25
in lieu of meetings) with respect to any and all matters presented to the
stockholders of the Corporation for their action or consideration. Except as
provided by law, by the provisions of Subsections 3(b), 3(c) or 3(d) below or by
the provisions establishing any other series of Preferred Stock, holders of
Series A Preferred Stock and of any other outstanding series of Series Preferred
Stock shall vote together with the holders of Common Stock as a single class.
(b) Subject to the provisions of Subsection 3(d) below, the holders
of a majority of the then outstanding shares of Series A Preferred Stock, voting
as a separate class, shall be entitled to elect two (2) directors of the
Corporation (such directors and any additional directors elected or to be
elected pursuant to Subsection 3(d) below shall be individually referred to as a
"Series A Director" and collectively referred to as the "Series A Directors").
At any meeting (or written action of stockholders in lieu of a meeting) held for
the purpose of electing Series A Directors, each share of Series A Preferred
Stock shall be entitled to the number of votes specified in Subsection 3(a)
above, and the presence in person or by proxy (or by written consent) of the
holders of a majority of the shares of Series A Preferred Stock then outstanding
shall constitute a quorum of the Series A Preferred Stock for the election of
Series A Directors. A vacancy in any Series A Directorship shall be filled only
by vote at a meeting or by written consent of the holders of the Series A
Preferred Stock.
(c) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series A Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the then outstanding shares of Series A
Preferred Stock:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock;
(ii) Increase the authorized number of shares of Series A
Preferred Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series A Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
2
<PAGE> 26
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's assets; or
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation.
(d) If, prior to the earlier of (i) the Mandatory Conversion Date
(as defined in Subsection 5(a) below) or (ii) February 7, 1996, the Corporation
has a Financial Crisis (as defined in Subsection 3(e) below), the management of
the Corporation shall present, within ten days of the commencement of the
Financial Crisis, a plan (the "Plan") to the Board of Directors of the
Corporation to alleviate such Crisis. If all the members of the Board of
Directors then in office do not unanimously approve the Plan, or the Plan is not
presented to the Board of Directors within ten days of the commencement of the
Financial Crisis, (i) as of the close of business of such tenth day, the number
of Series A Directors (and the number of directors of the Corporation) shall
automatically increase by such number of additional directors as, when added to
the number two, would constitute a majority of the Board. The vacancies so
created shall be filled by the Series A Directors elected pursuant to Subsection
3(b). If, for any reason, such vacancies are not so filled, the holders of
shares of Series A Preferred Stock (voting separately as a class) shall be
entitled to fill such vacancies by a written consent of the holders of Series A
Preferred Stock or at any meeting of stockholders of the Corporation at which
directors are to be elected held during the period such Financial Crisis remains
in effect. Thereafter, at any meeting of the stockholders of the Corporation (or
in any written consent used for such purpose) during the period such Financial
Crisis remains in effect, the holders of a majority of the then outstanding
shares of Series A Preferred Stock, voting as a separate class, shall be
entitled to elect that number of directors of the Corporation as shall
constitute a majority of the number of directors of the Corporation then
authorized. At any meeting (or written action of stockholders in lieu of a
meeting) held for the purpose of electing directors, each share of Series A
Preferred Stock shall be entitled to the number of votes specified in Subsection
3(a) above, and the presence in person or by proxy (or by written consent) of
the holders of a majority of the shares of Series A Preferred Stock then
outstanding shall constitute a quorum of the Series A Preferred Stock for the
election of directors to be elected solely by the holders of the Series A
Preferred Stock. A vacancy in any directorship elected by the holders of the
Series A Preferred Stock shall be filled only by vote at a meeting or by written
consent of the holders of the Series A Preferred Stock.
The right of the holders of shares of Series A Preferred Stock to elect
such additional Series A Directors shall terminate when the Financial Crisis
terminates. The terms of office of all Series A Directors elected pursuant to
this Subsection 3(d) shall terminate immediately upon the termination of the
right to elect such additional
3
<PAGE> 27
Series A Directors, and the number of Series A Directors shall automatically
thereupon be reduced to two.
The foregoing right of the holders of shares of Series A Preferred Stock
with respect to the election of directors may be exercised at any annual meeting
of stockholders or at any special meeting of stockholders held for such purpose.
If the right to elect directors shall have accrued to the holders of shares of
Series A Preferred Stock more than ten days preceding the date established for
the next annual meeting of stockholders, the President of the Corporation shall,
within two days after the delivery to the Corporation at its principal office of
a written request for a special meeting signed by the holders of at least 10% of
all outstanding shares of Series A Preferred Stock, call a special meeting of
the holders of Series A Preferred Stock to be held within ten days after the
delivery of such request for the purpose of electing such additional Series A
Directors.
The holders of shares of Series A Preferred Stock voting as a class shall
have the right to remove without cause at any time and replace any Series A
Directors.
Notwithstanding the foregoing provisions of this Subsection 3(d), if (i)
any member of the Board of Directors other than the Series A Directors elected
pursuant to Subsection 3(b), holds, or represents a holder of, not less than
500,000 shares of Series A Preferred Stock, and (ii) a Plan to alleviate a
Financial Crisis is proposed before the Board of Directors as provided in
paragraph (d), the vote of all but one director shall be sufficient to approve
the Plan.
(e) The Corporation shall be deemed to be in a "Financial Crisis"
for purposes of this Certificate of Incorporation when and if (i) the sum of the
Corporation's cash, amounts available under lines of credit with its banks or
other financial institutions and accounts receivable of not more than 90 days'
duration, reduced by any amounts owed under notes payable to holders of Series A
Preferred Stock ("Net Liquid Assets"), is less than the Corporation's average
monthly operating loss (as calculated by averaging, on a rolling basis, the
monthly operating loss of the previous three months) or (ii) the Corporation
files for bankruptcy or defaults under debt instruments under which the
Corporation has a material amount of indebtedness outstanding and which defaults
are not being contested in good faith by the Corporation. The Corporation shall
no longer be in a Financial Crisis when it has Net Liquid Assets in excess of
the average monthly operating loss (in the case of (i) above) or cures, to the
satisfaction of its creditors, any default enumerated in (ii) above.
4
<PAGE> 28
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 7th day of March, 1994.
FLEXIWARE CORPORATION
By: /s/ Stefan R. Bothe
-------------------------
Chairman
ATTEST:
/s/ Jennifer V. Cheng
- ------------------------
Secretary
[Corporate Seal]
5
<PAGE> 29
FLEXIWARE CORPORATION
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Stefan R. Bothe and Brian A. Marks, Ph.D. certify:
1. That they are the Chief Executive Officer and Secretary, respectively, of
FlexiWare Corporation, a Delaware corporation;
2. That (i) the directors acting in accordance with Section 141 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 28th day of June, 1994; and (ii) the
shareholders acting in accordance with Sections 228 and 242 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 1st day of July, 1994; the following
resolutions:
RESOLVED: That (i) Article FIRST of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and
that the following be and hereby is inserted in lieu thereof:
"FIRST: The name of the Corporation is: FlexiInternational
Software, Inc." and
(ii) that the first paragraph of Article FOURTH of the
Certificate of incorporation of the Corporation be and hereby
is deleted in its entirety and that the following paragraph be
and hereby is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
10,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 2,840,517 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock")."
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 1st day of July, 1994.
/s/ Stefan R. Bothe /s/ Brian A. Marks
- -------------------------- -------------------------
Stefan R. Bothe Brian A. Marks, Ph.D.
Chief Executive Officer Secretary
<PAGE> 30
FLEXIINTERNATIONAL SOFTWARE, INC.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Stefan R. Bothe and Brian A. Marks, Ph.D. certify:
1. That they are the Chief Executive Officer and Secretary, respectively, of
FlexiInternational Software, Inc., a Delaware corporation;
2. That (i) the directors acting in accordance with Section 141 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 21st day of November, 1994; and (ii) the
shareholders acting in accordance with Sections 228 and 242 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 21st day of November, 1994; the following
resolutions:
RESOLVED: That (i) that the first paragraph of Article FOURTH of
the Certificate of Incorporation of the Corporation be and hereby
is deleted in its entirety and that the following paragraph be and
hereby is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
10,252,500 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 2,840,517 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock")."
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 11 January 1995.
/s/ Stefan R. Bothe /s/ Brian A. Marks
- ----------------------------- -----------------------------
Stefan R. Bothe Brian A. Marks, Ph.D.
Chief Executive Officer Secretary
<PAGE> 31
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
FlexiInternational Software, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and that the following
Article FOURTH be and hereby is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 15,000,000 shares of Common Stock,
$.01 par value per share ("Common Stock"), and (ii) 5,528,517 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock")
<PAGE> 32
and 2,688,000 shares are hereby designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class or series of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available there for as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK.
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series A Preferred Stock and the Series B
Preferred Stock shall be as follows:
1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.0812 per share per annum and the holders of
Series B
2
<PAGE> 33
Preferred Stock shall be entitled to receive dividends of $.105 per annum (in
each case subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares), payable when and as declared by the Board of Directors of the
Corporation. The rights to receive dividends on Series A Preferred Stock and
Series B Preferred Stock shall be non-cumulative, and no right to dividends
shall accrue by reason of the fact that no dividend has been declared on the
Series A Preferred Stock or the Series B Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or other
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock and Series B Preferred Stock then outstanding shall
have first received dividends at the respective rates specified in Subsection
1(a) above. After payment of any dividends or distributions to holders of Series
A Preferred Stock and Series B Preferred Stock as specified in such Subsection
1(a), the Board of Directors of the Corporation may declare and pay dividends or
other distributions on the Common Stock from funds legally available therefor;
provided, however, that the holders of Series A Preferred Stock and Series B
Preferred Stock shall be entitled to receive concurrently a dividend or other
distribution on each outstanding share of Series A Preferred Stock and Series B
Preferred Stock in an amount at least equal to the product of (i) the per share
amount, if any, of the dividend or other distribution to be declared, paid or
set aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, is then convertible.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be distributed among the
holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock
then outstanding as follows:
3
<PAGE> 34
(i) first, pro rata based on Common Equivalent Shares to the
holders of shares of Series A Preferred Stock and Series B Preferred Stock, in
the proportion which the number of shares of Series A Preferred Stock then
outstanding multiplied by $1.16 bears to the number of shares of Series B
Preferred Stock then outstanding multiplied by $1.50, until the holders of
Series A Preferred Stock have received a total of $1.16 per share plus any
dividends declared but unpaid on such shares, and the holders of Series B
Preferred Stock have received a total of $1.50 per share plus any dividends
declared but unpaid on such shares;
(ii) second, pro rata based on Common Equivalent Shares to the
holders of shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock then outstanding, in equal amount per Common Equivalent Share,
until the holders of Series A Preferred Stock have received an aggregate of
$2.32 per share of Series A Preferred Stock when taking into account both the
amount distributed with respect to such share of Series A Preferred Stock
pursuant to Section 2(a)(i) above and the amount distributed with respect to
such share pursuant to this Section 2(a)(ii);
(iii) third, pro rata based on Common Equivalent Shares to the
holders of Common Stock and Series B Preferred Stock then outstanding, in equal
amounts per Common Equivalent Share, until the holders of Series B Preferred
Stock have received an aggregate of $3.00 per share of Series B Preferred Stock
when taking into account the amount distributed with respect to such share of
Series B Preferred Stock pursuant to Section 2(a)(i) above, the amount
distributed with respect to such share pursuant to Section 2(a)(ii) above and
the amount distributed with respect to such share pursuant to this Section
2(a)(iii);
(iv) fourth, pro rata to the holders of Common Stock then
outstanding until such holders have received an aggregate of $2.32 per share
when taking into account the amount distributed with respect to such share of
Common Stock pursuant to Section 2(a)(ii) above, the amount distributed with
respect to such share pursuant to Section 2(a)(iii) above and the amount
distributed with respect to such share pursuant to this Section 2(a)(iv);
(v) fifth, pro rata based on Common Equivalent Shares to the
holders of Common Stock and Series A Preferred Stock then outstanding, in equal
amounts per Common Equivalent Share, until the holders of Common Stock and
Series A Preferred Stock have each received an aggregate of $3.00 per share of
Common Stock or Series A Preferred Stock, as the case may be, when taking into
account the amount distributed with respect to such share of Common Stock or
Series A Preferred Stock, as the case may be, pursuant to Section 2(a)(i) above,
the amount distributed with respect to each such share pursuant to Section
2(a)(ii) above, the amount distributed with respect to each such share pursuant
to Section 2(a)(iii) above, the amount distributed with respect to each such
share pursuant to Section
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(a)(iv) above and the amount distributed with respect to each such share
pursuant to this Section 2(a)(v); and
(vi) sixth, to the extent of all amounts remaining
undistributed, pro rata based on Common Equivalent Shares to the holders of
Common Stock, Series A Preferred Stock and Series B Preferred Stock.
In each case, appropriate adjustment shall be made to reflect
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares. The term "Common Equivalent Share" shall mean, (i) in the
case of Common Stock, the number of shares of Common Stock outstanding, (ii) in
the case of Series A Preferred Stock, the number of shares of Common Stock
issuable upon conversion of outstanding Series A Preferred Stock at the time of
the particular distribution and (iii) in the case of Series B Preferred Stock,
the number of shares of Common stock issuable upon conversion of outstanding
Series B Preferred Stock at the time of the particular distribution.
(b) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 51% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, if the holders of at least 66% of the then outstanding shares
of Series A Preferred Stock and Series B Preferred Stock, each voting separately
as a class, so elect by giving written notice thereof to the Corporation at
least three days before the effective date of such event, then such merger,
consolidation or asset sale shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) above.
The Corporation shall promptly provide to the holders of shares of Series A
Preferred Stock and Series B Preferred Stock such information concerning the
terms of such merger, consolidation or asset sale and the value of the assets of
the Corporation as may reasonably be requested by such holders in order to
assist them in determining whether to make such election. If the holders of the
Series A Preferred Stock and the Series B Preferred Stock make such an election,
the Corporation shall use its best efforts to amend the agreement or plan of
merger or consolidation to adjust the rate at which the shares of capital stock
of the Corporation are converted into or exchanged for cash, new securities or
other property to give effect to such election. The amount deemed distributed to
the holders of Series A Preferred Stock and the Series B Preferred Stock upon
any such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holders by the acquiring person, firm
or other entity. The value of such property, rights or other securities shall be
determined in good
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<PAGE> 36
faith by the Board of Directors of the Corporation or, in the case of
securities, as set forth in Subsection 2(c) below. If no notice of the election
permitted by this Subsection (b) is given, the provisions of Subsection 4(i)
shall apply.
(c) Any securities requiring valuation as noted in Subsection 2(b)
above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through
Nasdaq-NMS, the value shall be deemed to be the average of the closing prices of
the securities on such exchange or market over the 30-day period ending three
days prior to the closing;
(b) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the 30-day period ending three days prior to the closing; and
(c) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least 66% of the voting power of all then
outstanding shares of Series B Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(a), (b) or (c) to reflect the approximate fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least 66% of the voting power of all then outstanding shares of
Series A Preferred Stock and Series B Preferred Stock, each voting separately as
a class.
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
and each holder of Series B Preferred Stock shall be entitled to the number of
votes equal to the number of whole shares of Common Stock into which the shares
of Series A Preferred Stock or Series B Preferred Stock, as the case may be,
held by such holder are then convertible (as adjusted from time to time pursuant
to Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsections 3(b)
below or by the provisions establishing any other
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series of Preferred Stock, holders of Series A Preferred Stock and Series B
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series A Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of 66% of the then outstanding shares of Series A
Preferred Stock, voting separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock;
(ii) Increase the authorized number of shares of Preferred
Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series A Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's
intellectual property or other assets;
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation;
(vi) Redeem, purchase or otherwise acquire, directly or
indirectly, any of the Company's equity securities other than securities issued
pursuant to options granted pursuant to an incentive stock option plan of the
Corporation; or
(vii) Fix the size of the Corporation's board of directors at
any number other than seven or alter the composition of such board in any manner
inconsistent with the provisions of the Stockholders Voting Agreement dated
January 20, 1995 among the Corporation and the holders of its Preferred Stock,
as such Agreement may be amended from time to time.
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(c) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series B Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of 66% of the then outstanding shares of Series B
Preferred Stock, voting separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series B Preferred
Stock;
(ii) Increase the authorized number of shares of Preferred
Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series B Preferred Stock, or authorized or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series B
Preferred Stock;
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's assets;
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation;
(vi) Redeem, purchase or otherwise acquire, directly or
indirectly, any of the Company's equity securities other than securities issued
pursuant to options granted pursuant to an incentive stock option plan of the
Corporation; or
(vii) Fix the size of the Corporation's board of directors at
any number other than seven or alter the composition of such board in any manner
inconsistent with the provisions of the Stockholders Voting Agreement dated
January 20, 1995 among the Corporation and the holders of its Preferred Stock,
as such Agreement may be amended from time to time.
4. Optional Conversion. The holders of the Series A Preferred Stock and
the Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
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(a) Right to Convert. Each share of Series A Preferred Stock and
each share of Series B Preferred Stock shall be convertible, at the option of
the holder thereof, at any time and from time to time, and without the payment
of additional consideration by the holder thereof, into such number of fully
paid and nonassessable shares of Common Stock as is determined (i) in the case
of the Series A Preferred Stock, by dividing $1.16 by the Series A Conversion
Price (as defined below) in effect at the time of conversion and (ii) in the
case of the Series B Preferred Stock, by dividing $1.50 by the Series B
Conversion Price (as defined below) in effect at the time of conversion. The
"Series A Conversion Price" shall initially be $1.16, and the "Series B
Conversion Price" shall initially be $1.50. Each such initial Conversion Price,
and the rate at which shares of Series A Preferred Stock and Series B Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock and Series B Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock or the Series B Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock or
Series B Preferred Stock to convert such shares into shares of Common Stock,
such holder shall surrender the certificate or certificates for such shares of
Series A Preferred Stock or Series B Preferred Stock at the office of the
transfer agent for the Series A Preferred Stock or Series B Preferred Stock, as
the case may be (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock or Series B Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the
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<PAGE> 40
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock or Series B Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock or Series B Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock or Series B Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Series A
Preferred Stock and Series B Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock or Series B Preferred Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock or Series B Preferred Stock surrendered for conversion
or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock and Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange there
for and payment of any dividends declared or accrued but unpaid thereon. Any
shares of Series A Preferred stock or Series B Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock or Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock and Series B
Preferred Stock pursuant to this Section 4. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Preferred Stock or Series B Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the
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<PAGE> 41
person or entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(vi) Notwithstanding any other provision hereof, if a
conversion of Series A Preferred Stock or Series B Preferred Stock is to be made
in connection with a public offering of Common Stock, the conversion of any
shares of Series A Preferred Stock or Series B Preferred Stock may, at the
election of the holder of such shares, be conditioned upon the consummation of
such public offering in which case such conversion shall not be deemed to be
effective until the consummation of such public offering.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in subsection 4(d)(i)(D)(IV) below.
(B) "Original Issue Date" shall mean the date on which a
share of Series B Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(I) upon conversion of any Convertible
Securities outstanding on the Original Issue
Date, or upon exercise of any Options
outstanding on the Original Issue Date;
(II) as a dividend or distribution on Series A
Preferred Stock or Series B Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares of
Common
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Stock that is covered by Subsection 4(e) or
4(f) below; or
(IV) to employees or directors of, or consultants
to, the Corporation pursuant to a plan
adopted by the Board of Directors of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock is convertible shall be made, by adjustment in the
applicable Conversion Price thereof: (a) unless the consideration per share
(determined pursuant to Subsection 4(d)(v)) for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
applicable Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least 66% of the then
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
each acting separately as a class, agreeing that no such adjustment shall be
made as the result of the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
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<PAGE> 43
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any
unexercised Option or any unexercised rights of conversion or exchange under any
Convertible Security, the Conversion Price shall be readjusted to eliminate the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option or such Convertible Security;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuances
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d) (iii) shall
apply.
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(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock without consideration or for a
consideration per share less than the applicable Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event, such
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, (A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock which the aggregate consideration received or to be
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided that, (i) for the purpose of this Subsection 4(d)(iv), all
shares of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to such issue shall be
deemed to be outstanding, and (ii) the number of shares of Common Stock deemed
issuable upon exercise or conversion of such outstanding Options and Convertible
Securities shall not give effect to any adjustments to the conversion price or
conversion rate of such Options or Convertible Securities resulting from the
issuance of Additional Shares of Common Stock that is the subject of this
calculation.
Notwithstanding the provisions of this Subsection 4(d)(iv), in
the event the Corporation makes a Dilutive Issuance (as defined below), the
adjustment to the Conversion Price of shares of Series A Preferred Stock and
Series B Preferred Stock provided for in this Subsection 4(d)(iv) as a result of
such Dilutive Issuance shall not be made with respect to shares of Series A
Preferred Stock or Series B Preferred Stock held by a person or entity who was
given the opportunity to purchase its Pro Rata Portion (as defined below) of
such Dilutive Issuance (whether pursuant to a right of first refusal or
otherwise), and who failed to purchase its Pro Rata Portion of such Dilutive
Issuance. Each such holder shall be deemed to have waived (i) the reduction in
the Conversion Price of such holder's shares of Series A Preferred Stock or
Series B Preferred Stock that would have otherwise resulted pursuant to this
Subsection 4(d)(iv) from such Dilutive Issuance, (ii) the right to receive, upon
conversion of its Series A Preferred Stock or Series B Preferred Stock pursuant
to this Section 4, any additional shares of Common Stock that would have been
issuable as a result of such reduction in the Conversion Price; and such waiver
shall be binding upon any transferee of the shares of Series A Preferred Stock
and Series B Preferred Stock held by such holder and (iii) the right to a
reduction in the Conversion Price of such holder's shares of Series A Preferred
Stock or Series B Preferred Stock pursuant to this Section 4(d)(iv) upon any
subsequent Dilutive
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<PAGE> 45
Issuance. A "Dilutive Issuance" shall mean any issuance of Additional Shares of
Common Stock that results (or would result, except for this paragraph) in a
reduction in the Conversion Price pursuant to this Subsection 4(d)(iv). A
holder's "Pro Rata Portion" of a Dilutive Issuance shall mean the number of
Additional Shares of Common Stock issued in such Dilutive Issuance, multiplied
by a fraction, the numerator of which is the number of shares of Common Stock
issuable upon conversion of all shares of Preferred Stock (including the Series
A Preferred Stock and Series B Preferred Stock) of the Corporation then held by
such holder, and the denominator of which is the aggregate number of shares of
Common Stock issuable upon conversion of all shares of Preferred Stock
(including the Series A Preferred Stock and Series B Preferred Stock) of the
Corporation then outstanding. For purposes of this paragraph, the portion of a
Dilutive Issuance purchased by a holder of Series A Preferred Stock or Series B
Preferred Stock shall be deemed to include any portion of such Dilutive Issuance
purchased by an "affiliate" (as defined in Rule 144 under the Securities Act of
1933, as amended) of such holder.
All certificates representing shares of Series A Preferred Stock or Series
B Preferred Stock shall have affixed thereto a legend substantially in the
following form:
"The shares represented by this certificate are convertible into
shares of common stock at a rate which may vary among different
stockholders of the corporation. Information concerning the
conversion rate applicable to the shares represented by this
certificate may be obtained from the Secretary of the corporation."
(v) Determination of Consideration. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
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<PAGE> 46
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d) (iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 30 days, then the Series A
Conversion Price and the Series B Conversion Price shall each be adjusted only
once on account of such issuances, with such adjustment to occur upon the final
such issuance and to give effect to all such issuances as if they occurred on
the date of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price and
the Series B Conversion Price then in effect immediately before that subdivision
shall each be proportionately decreased. If the Corporation shall at any time or
from time to time after the Original Issue Date effect a subdivision of the
Series A Preferred Stock or the Series B Preferred Stock, the Series A
Conversion Price and the Series B Conversion Price then in effect immediately
before that subdivision shall be proportionately increased. If the Corporation
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Series A Conversion Price and the Series
B Conversion Price then in effect immediately before the combination shall each
be proportionately increased. If the
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<PAGE> 47
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Series A Preferred Stock or Series B Preferred
Stock, the Series A Conversion Price and the Series B Conversion Price then in
effect immediately before the combination shall be proportionately decreased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price and the Series B Conversion Price then in effect shall each be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price and the Series B Conversion Price then
in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and the Series B Conversion Price shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price and the Series B Conversion Price shall
be adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock and Series B
Preferred Stock simultaneously receive a dividend or other distribution of
shares of Common Stock in a number equal to the number of shares of Common Stock
as they would have received if all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock had been converted into Common Stock on the
date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the
17
<PAGE> 48
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series A Preferred Stock and
the Series B Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had the Series A
Preferred Stock and the Series B Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series A Preferred
Stock and the Series B Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock and the
Series B Preferred Stock simultaneously receive a dividend or other distribution
of such securities in an amount equal to the amount of such securities as they
would have received if all outstanding shares of Series A Preferred Stock and
the Series B Preferred Stock had been converted into Common Stock on the date of
such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock or
Series B Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock and each share
of Series B Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock or Series B Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock and each share of
Series B Preferred Stock shall thereafter be convertible (or shall be converted
into a security which shall be convertible) into the kind and amount of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock of the Corporation deliverable upon conversion of such
Series A Preferred Stock or Series B Preferred Stock would have been entitled
upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board
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<PAGE> 49
of Directors) shall be made in the application of the provisions in this Section
4 set forth with respect to the rights and interest thereafter of the holders of
the Series A Preferred Stock and Series B Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock and Series B Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock and Series B Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price or the Series B
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock or Series B Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price then in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which then would be received upon the conversion of Series A
Preferred Stock or Series B Preferred Stock, as the case may be.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
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<PAGE> 50
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock and Series B
Preferred Stock, and shall cause to be mailed to the holders of the Series A
Preferred Stock and Series B Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the date specified in (A) below or twenty days before the date specified in
(B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
5. Mandatory Conversion.
(a) Upon the closing of the Corporation's initial public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, at a price of not less than $3.00 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) and
resulting in at least $10,000,000 of gross proceeds to the Corporation (the
"Mandatory Conversion Date"), (i) all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock shall automatically be converted into shares
of Common Stock, at the then effective conversion rate and (ii) the number of
authorized shares of Preferred Stock shall be automatically reduced by the
number of shares of Preferred Stock that had been designated as Series A
Preferred Stock and Series B Preferred Stock, and all provisions included under
the caption "Series A Preferred Stock and Series B
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<PAGE> 51
Convertible Preferred Stock", and all references to the Series A Preferred Stock
and Series B Preferred Stock, shall be deleted and shall be of no further force
or effect.
(b) All holders of record of shares of Series A Preferred Stock and
Series B Preferred Stock will be given written notice of the Mandatory
Conversion Date and the place designated for mandatory conversion of all such
shares of Series A Preferred Stock and Series B Preferred Stock pursuant to this
Section 5. Such notice shall be sent by first class or registered mail, postage
prepaid, to each record holder of Series A Preferred Stock and Series B
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock and Series B Preferred Stock (or
the records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A Preferred Stock and
each holder of Series B Preferred Stock shall surrender his or its certificate
or certificates for all such shares to the Corporation at the place designated
in such notice, and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to this Section
5. On the Mandatory Conversion Date, all rights with respect to the Series A
Preferred Stock and Series B Preferred Stock so converted, including the rights,
if any, to receive notices and vote, will terminate, except only the rights of
the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series A Preferred Stock and Series B Preferred Stock has been
converted, and payment of any declared or accrued but unpaid dividends thereon
(all of which shall be deemed to be declared by the Board of Directors on the
Mandatory Conversion Date). If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock and
Series B Preferred Stock, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
and Series B Preferred Stock which are required to be surrendered for conversion
in accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A Preferred Stock and Series B Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for
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<PAGE> 52
stockholder action) as may be necessary to reduce the authorized Series A
Preferred Stock and Series B Preferred Stock accordingly.
6. Mandatory Redemption.
(a) Irrespective of the provisions of Section 5, the Corporation
shall, subject to the conditions set forth in Subsection 6(b) below, on January
20, 2000 and on the 17th day of each April, July, October and January thereafter
until all amounts payable under this Section 6 have been paid in full (each such
date being referred to hereinafter as a "Mandatory Redemption Date"), redeem
from each holder of shares of Series A Preferred Stock, at a price equal to
$1.16 per share, and from each holder of Series B Preferred Stock, at a price
equal to $1.50 per share, plus in each case any dividends declared but unpaid
thereon, and subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the following respective
portions of the number of shares of Series A Preferred Stock and Series B
Preferred Stock held by such holder on the applicable Mandatory Redemption Date:
Portion of Shares of Preferred
Mandatory Redemption Date Stock To Be Redeemed
January 20, 2000 12.5%
April 20, 2000 14.29%
July 20, 2000 16.67%
October 20, 2000 20.0%
January 20, 2001 25.0%
April 20, 2001 33.3%
July 20, 2001 50.0%
October 20, 2001 All outstanding shares of Series A and
B Preferred Stock
Notwithstanding the foregoing, no redemption shall be required with
respect to Series A Preferred Stock if the holders of more than 66% of the then
outstanding shares of Series A Preferred Stock waive such redemption obligation,
or with respect to Series B Preferred Stock if the holders of more than 66% of
the then outstanding shares of Series B Preferred Stock waive such redemption
obligation.
(b) The Corporation shall not, during any fiscal year, be required
to pay more than 50% of its consolidated net cash flow, for the immediately
preceding fiscal year to redeem shares of the Series A Preferred Stock and
Series B Preferred Stock pursuant to Subsection 6(a) above. If the Corporation
cannot by application of this Subsection (b) redeem all of the shares subject to
mandatory redemption on a particular Mandatory Redemption Date, it shall redeem
the maximum possible number of whole shares of Series A Preferred Stock and
Series B Preferred Stock
22
<PAGE> 53
ratably on the basis of the number of shares of Series A Preferred Stock and
Series B Preferred Stock which would be redeemed on such date if the Corporation
were not prevented by this Subsection 6(b) from redeeming any shares.
Notwithstanding the foregoing, the Corporation shall, subject to Subsection 6(c)
below, be obligated to redeem 100% of the then outstanding shares of Series A
Preferred Stock and Series B Preferred Stock on January 20, 2005.
(c) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock and Series B Preferred Stock on any Mandatory
Redemption Date are insufficient to redeem the number of shares of Series A
Preferred Stock and Series B Preferred Stock required under this Section 6 to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares of Series A Preferred Stock
and Series B Preferred Stock ratably on the basis of the number of shares of
Series A Preferred Stock and Series B Preferred Stock which would be redeemed on
such date if the funds of the Corporation legally available there for had been
sufficient to redeem all shares of Series A Preferred Stock and Series B
Preferred Stock required to be redeemed on such date. At any time thereafter
when additional funds of the Corporation become legally available for the
redemption of Series A Preferred Stock and Series B Preferred Stock, such funds
will be used, at the next succeeding Mandatory Redemption Date, to redeem the
balance of the shares which the Corporation was theretofore obligated to redeem,
ratably on the basis set forth in the preceding sentence.
(d) The Corporation shall provide notice of any redemption of Series
A Preferred Stock or Series B Preferred Stock pursuant to this Section 6
specifying the time and place of redemption and the Mandatory Redemption Price,
by first class or registered mail, postage prepaid, to each holder of record of
Series A Preferred Stock or Series B Preferred Stock, as the case may be, at the
address for such holder last shown on the records of the transfer agent therefor
(or the records of the Corporation, if it serves as its own transfer agent), not
more than 60 nor less than 30 days prior to the date on which such redemption is
to be made. If less than all Series A Preferred Stock or Series B Preferred
Stock owned by such holder is then to be redeemed, the notice will also specify
the number of shares which are to be redeemed. Upon mailing any such notice of
redemption, the Corporation will become obligated to redeem at the time of
redemption specified therein all Series A Preferred Stock and Series B Preferred
Stock specified therein (other than such shares of Series A Preferred Stock and
Series B Preferred Stock as are duly converted pursuant to Section 4 prior to
the close of business on the fifth full day preceding the Mandatory Redemption
Date). In case less than all Series A Preferred Stock and Series B Preferred
Stock represented by any certificate is redeemed in any redemption pursuant to
this Section 6, a new certificate will be issued representing the unredeemed
Series A Preferred Stock and Series B Preferred Stock without cost to the holder
thereof.
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<PAGE> 54
(e) Unless there shall have been a default in payment of the
Mandatory Redemption Price, no share of Series A Preferred Stock or Series B
Preferred Stock shall be entitled to any dividends declared after its Mandatory
Redemption Date, and on such Mandatory Redemption Date all rights of the holder
of such share as a stockholder of the Corporation by reason of the ownership of
such share will cease, except the right to receive the Mandatory Redemption
Price of such share, without interest, upon presentation and surrender of the
certificate representing such share, and such share will not from and after such
Mandatory Redemption Date be deemed to be outstanding.
(f) Any Series A Preferred Stock or Series B Preferred Stock
redeemed pursuant to this Section 6 will be cancelled and will not under any
circumstances be reissued, sold or transferred and the Corporation may from time
to time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock or Series B Preferred Stock accordingly.
7. Events of Noncompliance.
(a) Definition. An Event of Noncompliance shall be deemed to have
occurred if:
(i) the Corporation fails to make any redemption payment with
respect to the Series B Preferred Stock which it is obligated to make under
Section 6(a), whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject and whether or
not such payment is not required by virtue of Section 6(b);
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Series B
Preferred Stock Purchase Agreement dated as of January 20, 1995 by and among the
Corporation and the investors named therein (the "Purchase Agreement"), provided
that no Event of Noncompliance shall be deemed to have occurred under this
subparagraph (ii) if the Corporation established that (a) the particular Event
of Noncompliance has not been caused by knowing or purposeful conduct by the
Corporation or any subsidiary, (b) the Corporation has exercised, and continues
to exercise, best efforts to expeditiously cure the Event of Noncompliance (if
cure is possible), (c) the Event of Noncompliance is not material to the
financial condition, operating results, operations, assets or business prospects
of the Corporation and its subsidiaries, taken as a whole, and (d) the Event of
Noncompliance is not material to any holder's investment in the Series B
Preferred Stock; or
(iii) to the best of the Corporation's knowledge, after
reasonable inquiry, any representation or warranty made by the Corporation and
24
<PAGE> 55
contained in the Purchase Agreement is false or misleading in any material
respect on the date made.
(b) Consequences of Certain Events of Noncompliance
(i) If any Event of Noncompliance has occurred, the holder or
holders of 66% of the Series B Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of all or any
portion of the Series B Preferred Stock owned by such holder or holders at a
price of $3.00 per share, plus any dividends declared by unpaid thereon. The
Corporation shall give prompt written notice of such election to the other
holders of Series B Preferred Stock (but in any event within five days after
receipt of the initial demand for redemption), and each such other holder may
demand immediate redemption of all or any portion of such holder's Series B
Preferred Stock by giving written notice thereof to the Corporation within seven
days after receipt of the Corporation's notice. The Corporation shall redeem all
Series B Preferred Stock as to which rights under this paragraph have been
exercised within 15 days after receipt of the initial demand for redemption.
(ii) If any Event of Noncompliance has occurred, the number of
directors constituting the Corporation's board of directors will, at the request
of more than 20% of the Series B Preferred Stock then outstanding, be increased
by one member, and the holders of Series B Preferred Stock will have the special
right, voting as a single class (with each share being entitled to one vote) and
to the exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy of such
directorship and to remove any individual elected to such directorship. The
newly created directorship will constitute a separate class of directors, and
the director elected by the holders of the Series B Preferred Stock will be
entitled to cast a number of votes on each matter considered by the board of
directors (including for purposes of determining the existence of a quorum)
equal to the sum of the number of votes entitled to be case by all of the other
directors plus one. The special right of the holders of Series B Preferred to
elect a member of the board of directors may be exercised at the special meeting
called pursuant to this subparagraph (ii), at any annual or other special
meeting of stockholders and, to the extent and in the manner permitted by
applicable law, pursuant to a written consent in lieu of a stockholders meeting.
Such special right shall continue until such time as there is no longer any
Event of Noncompliance in existence, at which time such special right shall
terminate subject to revesting upon the occurrence and continuation of any Event
of Noncompliance which gives rise to such special right hereunder.
At any time when such special right has vested in the holders of
Series B Preferred Stock, a proper officer of the Corporation shall, upon the
written request of the holder of at least 20% of the Series B Preferred Stock
then outstanding,
25
<PAGE> 56
addressed to the secretary of the Corporation, call a special meeting of the
holders of Series B Preferred Stock for the purpose of electing a director
pursuant to this subparagraph. Such meeting shall be held at the earliest
legally permissible date at the principal office of the Corporation, or at such
other place designated by the holders of at least 20% of the Series B Preferred
Stock then outstanding. If such meeting has not been called by a proper officer
of the Corporation within 10 days after personal service of such written request
upon the secretary of the Corporation or within 20 days after mailing the same
to the secretary of the Corporation at its principal office, then the holders of
at least 20% of the Series B Preferred Stock then outstanding may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such holder so designated upon
the notice required for annual meetings of stockholders and shall be held at the
Corporation's principal office, or at such other place designated by the holders
of at least 20% of the Series B Preferred Stock then outstanding. Any holder of
Series B preferred Stock so designated shall be given access to the stock record
books of the Corporation for the purpose of causing a meeting of stockholders to
be called pursuant to this paragraph.
At any meeting or at any adjournment thereof at which the holders of
Series B Preferred Stock have the special right to elect directors, the
presence, in person or by proxy, of the holders of at least 66% of the Series B
Preferred Stock then outstanding shall be required to constitute a quorum for
the election or removal of any director by the holders of the Preferred Stock
exercising such special right. The vote of at least 66% of the Preferred Stock
shall be required to elect or remove any such director.
Any director so elected by the holders of Series B Preferred Stock
shall continue to serve as a director until the expiration of the lesser of (a)
a period of three months following the date on which there is not longer any
Event of Noncompliance in existence or (b) the remaining period of the full term
for which such director has been elected. After the expiration of such
three-month period or when the full term for which such director has been
elected ceases (provided that the special right to elect directors has
terminated), as the case may be, the number of directors constituting the board
of directors of the Corporation shall decrease to such number as constituted the
whole board of directors of the Corporation immediately prior to the occurrence
of the Events of Noncompliance giving rise to the special right to elect
directors.
(iii) If any Event of Noncompliance exists, each holder of
Series B Preferred Stock shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other rights
which such holder may have pursuant to applicable law.
26
<PAGE> 57
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 20th day of January, 1995.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan R. Bothe
-----------------------------------
Chairman
ATTEST:
/s/ Brian A. Marks, Ph.D.
- ----------------------------
Secretary
[Corporate Seal]
27
<PAGE> 58
FlexiInternational Software, Inc.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Stefan R. Bothe and Brian A. Marks, Ph.D. certify;
1. That they are the Chief Executive Officer and Secretary, respectively, of
FlexiInternational Software, Inc., a Delaware corporation;
2. That (i) the directors acting in accordance with Section 141 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 30th day of June 1995; and (ii) the
shareholders acting in accordance with Sections 228 and 242 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 30th day of June, 1995; the following
resolution:
RESOLVED: That the first paragraph of Article FOURTH of the
Certificate of Incorporation of the Corporation be and hereby is
deleted in its entirety and that the following paragraph be and
hereby is inserted In lieu thereof:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
15,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 5,821,428 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and 2,980,911
shares are hereby designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock")."
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the
seal of the Corporation this 12th day of July 1995.
/s/ Stefan R. Bothe /s/ Brian A. Marks, Ph.D
- -------------------------------- --------------------------------
Stefan R. Bothe Brian A. Marks
Chief Executive Officer Secretary
<PAGE> 59
CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR
IN THE CERTIFICATE OF AMENDMENT OF CERTIFICATE OF
INCORPORATION OF FLEXIINTERNATIONAL SOFTWARE, INC.
FlLED IN THE OFFICE OF THE SECRETARY OF STATE OF
DELAWARE ON JULY 12, 1995
FlexiInternational Software, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation").
DOES HEREBY CERTIFY:
1. The name of the corporation is FlexiInternational Software, Inc.
2. That a Certificate of Amendment of Certificate of Incorporation was filed
by the Secretary of State of Delaware on July 12, 1995 and that said
Certificate requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: the shareholders of the Corporation did not unanimously adopt the
resolution set forth in said Certificate.
4. The amendment to the first paragraph of Article FOURTH of the Certificate
of Amendment of Certificate of Incorporation of the Corporation is hereby
eliminated, and the Certificate of Amendment as filed July 12, 1995, is
hereby rendered null and void.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Correction to
be signed by its Secretary this 24th day of July, 1995.
/s/ Brian A. Marks, Ph.D.
- -----------------------------
Brian A. Marks, Ph.D.
Secretary
2
<PAGE> 60
FlexiInternational Software, Inc,
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Brian A. Marks, Ph.D. certifies:
1. That I am the Secretary of FlexiInternational Software, Inc., a Delaware
Corporation;
2. That (i) the directors acting in accordance with Section 141 and Section
242 of the Delaware General Corporation Law and the Corporation's
Certificate of Incorporation adopted on the 30th day of June, 1995; and
(ii) the shareholders acting in accordance with Sections 228 and 242 of
the Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 30th day of June, 1995; the following
resolution:
RESOLVED: That the first paragraph of Article FOURTH of the
Certificate of Incorporation of the Corporation be and hereby is
deleted in its entirety and that the following paragraph be and
hereby is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
15,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 5,821,428 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and 2,980,911
shares are hereby designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock")."
3. That written notice of such resolution has been given to all shareholders
who have not consented in writing to said resolution.
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 24th day of July, 1995.
/s/ Brian A. Marks, Ph.D.
- -------------------------------
Brian A. Marks
Secretary
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FlexiInternational Software,Inc.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Brian A. Marks, Ph.D. certifies:
1. That he is the Secretary of FlexiInternational Software, Inc., a Delaware
Corporation;
2. That (i) the directors acting in accordance with Section 141 and Section
242 of the Delaware General Corporation Law and the Corporation's
Certificate of Incorporation adopted on the 25th day of October, 1995; and
(ii) the shareholders acting in accordance with Sections 228 and 242 of
the Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 25th day of October, 1995; the following
resolution:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is deleted in its entirety
and that the following paragraph be and hereby is inserted in lieu
thereof:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 20,000,000 shares
of Common Stock, $0.01 par value per share ("Common Stock"), and
(ii) 7,840,517 shares of Preferred Stock, $0.01 par value per share
("Preferred Stock"), of which 2,840,517 shares are hereby designated
as Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and 5,000,000 shares are hereby designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock")."
3. That written notice of such resolution has been given to all shareholders who
have not consented in writing to said resolution.
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 26th day of October 1995.
/s/ Brian A. Marks, Ph.D.
- ----------------------------
Brian A. Marks, Ph.D.
Secretary
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
FlexiInternational Software, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and that the following
Article FOURTH be and hereby is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 25,000,000 shares of Common Stock,
$.01 par value per share ("Common Stock"), and (ii) 13,027,874 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), 5,000,000 shares are hereby designated as
Series B Convertible Preferred Stock (the
<PAGE> 63
"Series B Preferred Stock"), and 5,187,357 shares are hereby designated as
Series C Convertible Preferred Stock (the "Series C Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class or series of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available there for as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A, SERIES B AND SERIES C CONVERTIBLE PREFERRED STOCK.
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock shall be as follows:
1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.0812 per share per annum, the holders of
Series B Preferred
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Stock shall be entitled to receive dividends of $.105 per annum, and the holders
of Series C Preferred Stock shall be entitled to receive dividends of $.1155 per
annum (in each case subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), payable when and as declared by the Board of Directors of the
Corporation. The rights to receive dividends on Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock shall be non-cumulative, and no
right to dividends shall accrue by reason of the fact that no dividend has been
declared on the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or other
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock then outstanding shall have first received dividends at the respective
rates specified in Subsection 1(a) above. After payment of any dividends or
distributions to holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock as specified in such Subsection 1(a), the Board of
Directors of the Corporation may declare and pay dividends or other
distributions on the Common Stock from funds legally available therefor;
provided, however, that the holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be entitled to receive
concurrently a dividend or other distribution on each outstanding share of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
in an amount at least equal to the product of (i) the per share amount, if any,
of the dividend or other distribution to be declared, paid or set aside for the
Common Stock, multiplied by (ii) the number of whole shares of Common Stock into
which such share of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, as the case may be, is then convertible.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available
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for distribution to its stockholders shall be distributed among the holders of
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock then outstanding as follows:
(i) first, pro rata based on Common Equivalent Shares to the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, in the proportion which (x) the number of shares of Series A
Preferred Stock then outstanding multiplied by $1.16 bears to (y) the number of
shares of Series B Preferred Stock then outstanding multiplied by $1.50 bears to
(z) the number of shares of Series C Preferred Stock then outstanding multiplied
by $1.65, until the holders of Series A Preferred Stock have received a total of
$1.16 per share plus any dividends declared but unpaid on such shares, the
holders of Series B Preferred Stock have received a total of $1.50 per share
plus any dividends declared but unpaid on such shares, and the holders of Series
C Preferred Stock have received a total of $1.65 per share plus any dividends
declared but unpaid on such shares;
(ii) second, pro rata based on Common Equivalent Shares to the holders of
shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock then outstanding, in equal amount per Common Equivalent
Share, until the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock have received an aggregate of $2.32 per share of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, when taking into account both the amount distributed with
respect to such share of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be, pursuant to Section 2(a)(i) above
and the amount distributed with respect to such share pursuant to this Section
2(a)(ii);
(iii) third, pro rata based on Common Equivalent Shares to the holders of
Common Stock and Series B Preferred Stock then outstanding, in equal amounts per
Common Equivalent Share, until the holders of Series B Preferred Stock have
received an aggregate of $3.00 per share of Series B Preferred Stock when taking
into account the amount distributed with respect to such share of Series B
Preferred Stock pursuant to Section 2(a)(i) above, the amount distributed with
respect to such share pursuant to Section 2(a)(ii) above and the amount
distributed with respect to such share pursuant to this Section 2(a)(iii);
(iv) fourth, pro rata based on Common Equivalent Shares to the holders of
Common Stock, Series A Preferred Stock and Series C Preferred Stock then
outstanding, in equal amounts per Common Equivalent Share, until the holders of
Series A Preferred Stock and Series C Preferred Stock have received an aggregate
of $3.00 per share of Series A Preferred Stock or Series C Preferred Stock, as
the case may be, when taking into account the amount distributed with respect to
such share of Series A Preferred Stock or Series C Preferred Stock, as the case
may be, pursuant to Section 2(a)(i) above, the amount distributed with respect
to such share pursuant
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<PAGE> 66
to Section 2(a)(ii) above (if any) and the amount distributed with respect to
such share pursuant to this Section 2(a)(iv);
(v) fifth, pro rata based on Common Equivalent Shares to the holders of
Common Stock and Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock then outstanding, in equal amounts per Common Equivalent Share,
until the holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock have received an aggregate of $3.30 per share of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, when taking into account the amount distributed with respect to
such share of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, pursuant to Section 2(a)(i) above, the
amount distributed with respect to such share pursuant to Section 2(a)(ii) above
(if any), the amount distributed with respect to such share pursuant to Section
2(a)(iii) above (if any), the amount distributed with respect to such share
pursuant to Section 2(a)(iv) above (if any), and the amount distributed with
respect to such share pursuant to this Section 2(a)(v);
(vi) sixth, pro rata to the holders of Common Stock then outstanding until
such holders have received an aggregate of $3.30 per share when taking into
account the amount distributed with respect to such share of Common Stock
pursuant to Section 2(a)(ii) above, the amount distributed with respect to such
share pursuant to Section 2(a)(iii) above, the amount distributed with respect
to such share pursuant to Section 2(a)(iv) above, the amount distributed with
respect to such share pursuant to Section 2(a)(v) above, and the amount
distributed with respect to such share pursuant to this Section 2(a)(vi); and
(vii) seventh, to the extent of all amounts remaining undistributed, pro
rata based on Common Equivalent Shares to the holders of Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
In each case, appropriate adjustment shall be made to reflect
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares. The term "Common Equivalent Share" shall mean, (i) in the
case of Common Stock, the number of shares of Common Stock outstanding, (ii) in
the case of Series A Preferred Stock, the number of shares of Common Stock
issuable upon conversion of outstanding Series A Preferred Stock at the time of
the particular distribution, (iii) in the case of Series B Preferred Stock, the
number of shares of Common Stock issuable upon conversion of outstanding Series
B Preferred Stock at the time of the particular distribution, and (iv) in the
case of Series C Preferred Stock, the number of shares of Common Stock issuable
upon conversion of outstanding Series C Preferred Stock at the time of the
particular distribution.
(b) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of
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<PAGE> 67
the Corporation immediately prior to such merger or consolidation continue to
hold at least 51% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 64% of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
all voting together as a single class of Preferred Stock, so elect by giving
written notice thereof to the Corporation at least three days before the
effective date of such event, then such merger, consolidation or asset sale
shall be deemed to be a liquidation of the Corporation, and all consideration
payable to the stockholders of the Corporation (in the case of a merger or
consolidation), or all consideration payable to the Corporation, together with
all other available assets of the Corporation (in the case of an asset sale),
shall be distributed to the holders of capital stock of the Corporation in
accordance with Subsection 2(a) above. The Corporation shall promptly provide to
the holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by such holders in order to assist them in
determining whether to make such election. If the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
make such an election, the Corporation shall use its best efforts to amend the
agreement or plan of merger or consolidation to adjust the rate at which the
shares of capital stock of the Corporation are converted into or exchanged for
cash, new securities or other property to give effect to such election. The
amount deemed distributed to the holders of Series A Preferred Stock, the Series
B Preferred Stock and the Series C Preferred Stock upon any such merger or
consolidation shall be the cash or the value of the property, rights or
securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation or, in the
case of securities, as set forth in Subsection 2(c) below. If no notice of the
election permitted by this Subsection (b) is given, the provisions of Subsection
4(i) shall apply.
(c) Any securities requiring valuation as noted in Subsection 2(b)
above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through Nasdaq-NMS, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange or market over the 30-day period ending three days prior to the
closing;
(b) If actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid or sale prices (whichever is applicable)
over the 30-day period ending three days prior to the closing; and
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(c) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least 64% of the voting power of all then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
(all voting together as a single class of Preferred Stock).
(ii) The method of valuation of securities subject to investment letter or
other restrictions on free marketability (other than restrictions arising solely
by virtue of a stockholder's status as an affiliate or former affiliate) shall
be to make an appropriate discount from the market value determined as above in
(i)(a), (b) or (c) to reflect the approximate fair market value thereof, as
mutually determined by the Board of Directors and the holders of at least 64% of
the voting power of all then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (all voting together as a
single class of Preferred Stock).
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock,
each holder of Series B Preferred Stock and each holder of Series C Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock, as the case may be, held by such
holder are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or elsewhere in the Corporation's Certificate of Incorporation, as
amended, or by the provisions establishing any other series of Preferred Stock,
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) Except as provided by law, so long as at least 500,000 shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
shall be outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of 64% of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, all voting together as a single class of Preferred
Stock:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock;
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<PAGE> 69
(ii) Increase the authorized number of shares of Preferred Stock;
(iii) Authorize or issue any new or existing class or classes or series of
capital stock having any preference or priority as to dividends, assets or
voting superior to or on a parity with any such preference or priority of the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
or authorize or issue shares of stock of any class or any bonds, debentures,
notes or other obligations convertible into or exchangeable for, or having
rights to purchase, any shares of stock of the Corporation having any preference
or priority as to dividends, assets or voting superior to or on a parity with
any such preference or priority of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock;
(iv) Merge or consolidate into or with any other corporation or other
entity or sell all or substantially all of the Corporation's intellectual
property or other assets;
(v) Effect a reclassification or recapitalization of the outstanding
capital stock of the Corporation;
(vi) Redeem, purchase or otherwise acquire, directly or indirectly, any of
the Company's equity securities other than securities issued pursuant to options
granted pursuant to an incentive stock option plan of the Corporation; or
(vii) Fix the size of the Corporation's board of directors at any number
other than nine or alter the composition of such board in any manner
inconsistent with the provisions of the Stockholders' Voting Agreement dated May
7, 1996 among the Corporation, the holders of its Preferred Stock and certain
other parties, as such Agreement may be amended from time to time.
4. Optional Conversion. The holders of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock, each
share of Series B Preferred Stock and each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined (i) in the case of the Series A Preferred Stock, by dividing
$1.16 by the Series A Conversion Price (as defined below) in effect at the time
of conversion, (ii) in the case of the Series B Preferred Stock, by dividing
$1.50 by the Series B Conversion Price (as defined below) in effect at the time
of conversion, and (iii) in the case of the Series C Preferred Stock, by
dividing $1.65 by the Series C Conversion Price (as defined below) in effect at
the time of conversion. The "Series A Conversion Price" shall initially be
$1.16, the "Series B Conversion Price" shall initially be $1.50 and the
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"Series C Conversion Price" shall initially be $1.65. Each such initial
Conversion Price, and the rate at which shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock, the Series B Preferred
Stock or the Series C Preferred Stock. In lieu of any fractional shares to which
the holder would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock to convert such shares into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock at the office of the transfer agent for the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be
(or at the principal office of the Corporation if the Corporation serves as its
own transfer agent), together with written notice that such holder elects to
convert all or any number of the shares of the Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock shall be outstanding,
reserve and
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keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion Price
shall be made for any declared but unpaid dividends on the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock which shall have been surrendered for conversion as
herein provided shall no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Conversion Date, except only
the right of the holders thereof to receive shares of Common Stock in exchange
there for and payment of any dividends declared or accrued but unpaid thereon.
Any shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may from
time to time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that may
be payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock pursuant to this Section 4. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of Common Stock in a
name other than that in which the shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock so converted were registered, and no
such issuance or delivery shall be made unless and until the person or entity
requesting such issuance has paid to the Corporation the amount of any such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
(vi) Notwithstanding any other provision hereof, if a conversion of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock is to be
made in
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connection with a public offering of Common Stock, the conversion of any shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock may, at the election of the holder of such shares, be conditioned upon the
consummation of such public offering in which case such conversion shall not be
deemed to be effective until the consummation of such public offering.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection 4(d), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible Securities,
excluding options described in subsection 4(d)(i)(D)(IV) below.
(B) "Original Issue Date" shall mean the date on which a share of
Series C Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of any Convertible Securities outstanding
on the Original Issue Date, or upon exercise of any Options outstanding on the
Original Issue Date;
(II) as a dividend or distribution on Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock;
(III) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that is covered by Subsection 4(e) or
4(f) below; or
(IV) to employees or directors of, or consultants to, the
Corporation pursuant to a plan adopted by the Board of Directors of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the number of
shares of Common Stock into which the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock is convertible shall be made, by
adjustment in the
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applicable Conversion Price thereof: (a) unless the consideration per share
(determined pursuant to Subsection 4(d)(v)) for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
applicable Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least 64% of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, all acting together as a single class of Preferred
Stock, agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
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(C) Upon the expiration or termination of any
unexercised Option or any unexercised rights of conversion or exchange under any
Convertible Security, the Conversion Price shall be readjusted to eliminate the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option or such Convertible Security;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuances
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d) (iii) shall
apply.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock.
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock without consideration or for a
consideration per share less than the applicable Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event, such
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, (A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock which the aggregate consideration received or to be
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the
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number of such Additional Shares of Common Stock so issued; provided that, (i)
for the purpose of this Subsection 4(d)(iv), all shares of Common Stock issuable
upon exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon exercise or conversion of
such outstanding Options and Convertible Securities shall not give effect to any
adjustments to the conversion price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
Notwithstanding the provisions of this Subsection 4(d)(iv), in the event
the Corporation makes a Dilutive Issuance (as defined below), the adjustment to
the Conversion Price of shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock provided for in this Subsection 4(d)(iv) as a
result of such Dilutive Issuance shall not be made with respect to shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
held by a person or entity who was given the opportunity to purchase its Pro
Rata Portion (as defined below) of such Dilutive Issuance (whether pursuant to a
right of first refusal or otherwise), and who failed to purchase its Pro Rata
Portion of such Dilutive Issuance. Each such holder shall be deemed to have
waived (i) the reduction in the Conversion Price of such holder's shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
that would have otherwise resulted pursuant to this Subsection 4(d)(iv) from
such Dilutive Issuance, (ii) the right to receive, upon conversion of its Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock pursuant
to this Section 4, any additional shares of Common Stock that would have been
issuable as a result of such reduction in the Conversion Price; and such waiver
shall be binding upon any transferee of the shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock held by such holder and
(iii) the right to a reduction in the Conversion Price of such holder's shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock pursuant to this Section 4(d)(iv) upon any subsequent Dilutive Issuance. A
"Dilutive Issuance" shall mean any issuance of Additional Shares of Common Stock
that results (or would result, except for this paragraph) in a reduction in the
Conversion Price pursuant to this Subsection 4(d)(iv). A holder's "Pro Rata
Portion" of a Dilutive Issuance shall mean the number of Additional Shares of
Common Stock issued in such Dilutive Issuance, multiplied by a fraction, the
numerator of which is the number of shares of Common Stock issuable upon
conversion of all shares of Preferred Stock (including the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock) of the Corporation
then held by such holder, and the denominator of which is the aggregate number
of shares of Common Stock issuable upon conversion of all shares of Preferred
Stock (including the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock) of the Corporation then outstanding. For purposes of
this paragraph, the portion of a Dilutive Issuance purchased by a holder of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
shall be deemed
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to include any portion of such Dilutive Issuance purchased by an "affiliate" (as
defined in Rule 144 under the Securities Act of 1933, as amended) of such
holder.
All certificates representing shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock shall have affixed thereto a legend
substantially in the following form:
"The shares represented by this certificate are convertible into
shares of common stock at a rate which may vary among different
stockholders of the corporation. Information concerning the
conversion rate applicable to the shares represented by this
certificate may be obtained from the Secretary of the corporation."
(v) Determination of Consideration. For purposes of this Subsection 4(d),
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (11) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Subsection 4(d) (iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities,
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or in the case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall issue on
more than one date Additional Shares of Common Stock which are comprised of
shares of the same series or class of Preferred Stock, and such issuance dates
occur within a period of no more than 30 days, then the Series A Conversion
Price, the Series B Conversion Price and the Series C Conversion Price shall
each be adjusted only once on account of such issuances, with such adjustment to
occur upon the final such issuance and to give effect to all such issuances as
if they occurred on the date of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before that subdivision shall each be proportionately decreased. If
the Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the Series A Preferred Stock, the Series B
Preferred Stock or Series C Preferred Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before that subdivision shall be proportionately increased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Series A Conversion Price,
the Series B Conversion Price and the Series C Conversion Price then in effect
immediately before the combination shall each be proportionately increased. If
the Corporation shall at any time or from time to time after the Original Issue
Date combine the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before the combination shall be proportionately decreased. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price, the Series
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B Conversion Price and the Series C Conversion Price then in effect shall each
be decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price, the Series B Conversion Price and the
Series C Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, the Series B Conversion Price and the
Series C Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price shall be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock simultaneously receive a dividend or other distribution
of shares of Common Stock in a number equal to the number of shares of Common
Stock as they would have received if all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
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paragraph with respect to the rights of the holders of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock; and
provided further, however, that no such adjustment shall be made if the holders
of Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock simultaneously receive a dividend or other distribution of such
securities in an amount equal to the amount of such securities as they would
have received if all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock had been converted into Common
Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock shall be changed into the
same or a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holder of each such share of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock might have been converted immediately prior to
such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(b)), each share of Series A Preferred Stock, each share of Series B
Preferred Stock and each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter
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deliverable upon the conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price or the Series C Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other distribution)
on its Common Stock payable in Common Stock or other securities of the
Corporation;
(ii) that the Corporation subdivides or combines its outstanding shares of
Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
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(iv) of the involuntary or voluntary dissolution, liquidation or winding
up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, and shall cause to be mailed to the holders
of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock at their last addresses as shown on the records of the Corporation or such
transfer agent, at least ten days prior to the date specified in (A) below or
twenty days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
5. Mandatory Conversion.
(a) Upon the closing of the Corporation's initial public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, at a price of not less than $3.30 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) and
resulting in at least $10,000,000 of gross proceeds to the Corporation (the
"Mandatory Conversion Date"), (i) all outstanding shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall automatically
be converted into shares of Common Stock, at the then effective conversion rate
and (ii) the number of authorized shares of Preferred Stock shall be
automatically reduced by the number of shares of Preferred Stock that had been
designated as Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, and all provisions included under the caption "Series A, Series
B and Series C Convertible Preferred Stock", and all references to the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, shall be
deleted and of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock will be given written
notice of the Mandatory Conversion Date and the place designated for mandatory
conversion of
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all such shares of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock pursuant to this Section 5. Such notice shall be sent by first
class or registered mail, postage prepaid, to each record holder of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock at such
holder's address last shown on the records of the transfer agent for the Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall surrender his or its
certificate or certificates for all such shares to the Corporation at the place
designated in such notice, and shall thereafter receive certificates for the
number of shares of Common Stock to which such holder is entitled pursuant to
this Section 5. On the Mandatory Conversion Date, all rights with respect to the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
so converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock has been converted, and
payment of any declared but unpaid dividends thereon. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after the
Mandatory Conversion Date and the surrender of the certificate or certificates
for Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, the Corporation shall cause to be issued and delivered to such holder, or
on his or its written order, a certificate or certificates for the number of
full shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Subsection 4(b) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock which are required to be
surrendered for conversion in accordance with the provisions hereof shall, from
and after the Mandatory Conversion Date, be deemed to have been retired and
cancelled and the shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock represented thereby converted into Common Stock for
all purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock accordingly.
6. Mandatory Redemption.
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(a) Irrespective of the provisions of Section 5, the Corporation
shall, subject to the conditions set forth in Subsection 6(b) below, on May 7,
2001 and on the 7th day of each August, November, February and May thereafter
until all amounts payable under this Section 6 have been paid in full (each such
date being referred to hereinafter as a "Mandatory Redemption Date"), redeem
from each holder of shares of Series A Preferred Stock, at a price equal to
$1.16 per share, from each holder of Series B Preferred Stock, at a price equal
to $1.50 per share, and from each holder of Series C Preferred Stock, at a price
equal to $1.65 per share, plus in each case any dividends declared but unpaid
thereon, and subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the following respective
portions of the number of shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock held by such holder on the applicable
Mandatory Redemption Date:
Portion of Shares of Preferred
Mandatory Redemption Date Stock To Be Redeemed
May 7, 2001 12.5%
August 7, 2001 14.29%
November 7, 2001 16.67%
February 7, 2002 20.0%
May 7, 2002 25.0%
August 7, 2002 33.3%
November 7, 2002 50.0%
February 7, 2003 All outstanding shares of Series A,
B and C Preferred Stock
Notwithstanding the foregoing, no redemption shall be required with
respect to any series of Preferred Stock if the holders of more than 64% of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock (all acting together as a single class of Preferred
Stock) waive such redemption obligation.
(b) The Corporation shall not, during any fiscal year, be required
to pay more than 50% of its consolidated net cash flow, for the immediately
preceding fiscal year to redeem shares of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock pursuant to Subsection 6(a) above.
If the Corporation cannot by application of this Subsection (b) redeem all of
the shares subject to mandatory redemption on a particular Mandatory Redemption
Date, it shall redeem the maximum possible number of whole shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ratably
on the basis of the number of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock which would be redeemed on such
date if the Corporation were not prevented
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by this Subsection 6(b) from redeeming any shares. Notwithstanding the
foregoing, the Corporation shall, subject to Subsection 6(c) below, be obligated
to redeem 100% of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock on May 7, 2006.
(c) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock on any Mandatory Redemption Date are insufficient to redeem the number of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock required under this Section 6 to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock ratably on the basis of the number of shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock which
would be redeemed on such date if the funds of the Corporation legally available
therefor had been sufficient to redeem all shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock required to be redeemed on
such date. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock, such funds will be used, at the
next succeeding Mandatory Redemption Date, to redeem the balance of the shares
which the Corporation was theretofore obligated to redeem, ratably on the basis
set forth in the preceding sentence; provided, however, that, if less than all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock were redeemed on the last Mandatory Redemption Date
specified in Section 6(a) above, then all such shares not so redeemed shall,
subject to Section 6(b) above, be redeemed by the Corporation promptly after
funds become legally available therefor.
(d) The Corporation shall provide notice of any redemption of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock pursuant
to this Section 6 specifying the time and place of redemption and the Mandatory
Redemption Price, by first class or registered mail, postage prepaid, to each
holder of record of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, as the case may be, at the address for such holder last shown
on the records of the transfer agent therefor (or the records of the
Corporation, if it serves as its own transfer agent), not more than 60 nor less
than 30 days prior to the date on which such redemption is to be made. If less
than all Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock owned by such holder is then to be redeemed, the notice will
also specify the number of shares which are to be redeemed. Upon mailing any
such notice of redemption, the Corporation will become obligated to redeem at
the time of redemption specified therein all Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock specified therein (other than such
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock as are duly converted pursuant to Section 4 prior to the
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<PAGE> 85
close of business on the fifth full day preceding the Mandatory Redemption
Date). In case less than all Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock represented by any certificate is redeemed in any
redemption pursuant to this Section 6, a new certificate will be issued
representing the unredeemed Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock without cost to the holder thereof.
(e) Unless there shall have been a default in payment of the
Mandatory Redemption Price, no share of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock shall be entitled to any dividends
declared after its Mandatory Redemption Date, and on such Mandatory Redemption
Date all rights of the holder of such share as a stockholder of the Corporation
by reason of the ownership of such share will cease, except the right to receive
the Mandatory Redemption Price of such share, without interest, upon
presentation and surrender of the certificate representing such share, and such
share will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(f) Any Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock redeemed pursuant to this Section 6 will be cancelled and will
not under any circumstances be reissued, sold or transferred and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock accordingly.
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<PAGE> 86
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 7th day of May, 1996.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan R. Bothe
----------------------------------
Chairman
ATTEST:
/s/ Brian A. Marks, Ph.D.
- --------------------------------
Secretary
[Corporate Seal]
25
<PAGE> 1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
FlexiInternational Software, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify as follows:
1. The Corporation filed its original Certificate of Incorporation with
the Secretary of the State of Delaware on November 4, 1993, which was amended by
Certificates of Amendment filed on December 22, 1993, February 7, 1994, March 7,
1994, July 20, 1994, January 12, 1995, January 20, 1995, July 12, 1995, July 25,
1995, October 26, 1995 and May 7, 1996.
2. At a duly called meeting of the Board of Directors of the
Corporation at which a quorum was present at all times, a resolution was duly
adopted, pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware, setting forth an Amended and Restated Certificate of
Incorporation of the Corporation and declaring said Amended and Restated
Certificate of Incorporation advisable. The stockholders of the Corporation duly
approved said proposed Amended and Restated Certificate of Incorporation by
written consent in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice of such consent has
been given to all stockholders who have not consented in writing to said
amendment and restatement. The resolution setting forth the Amended and Restated
Certificate of Incorporation is as follows:
RESOLVED: That the Certificate of Incorporation of the Corporation, be
and hereby is amended and restated in its entirety so that the
same shall read as follows:
FIRST. The name of the Corporation is:
FlexiInternational Software, Inc.
SECOND. The address of its registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of
<PAGE> 2
New Castle. 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 as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 55,000,000 shares, consisting of
(i) 50,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock"), and (ii) 5,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders. There shall be no cumulative
voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock
from funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
2
<PAGE> 3
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. Any shares of
Preferred Stock which may be redeemed, purchased or acquired by the Corporation
may be reissued except as otherwise provided by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided.
Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock in one or more series, and in
connection with the creation of any such series, by resolution or resolutions
providing for the issue of the shares thereof, to determine and fix such voting
powers, full or limited, or no voting powers, and such designations, preferences
and relative participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation thereof, dividend rights, conversion rights, redemption privileges
and liquidation preferences, as shall be stated and expressed in such
resolutions, all to the full extent now or hereafter permitted by the General
Corporation Law of Delaware. Without limiting the generality of the foregoing,
the resolutions providing for issuance of any series of Preferred Stock may
provide that such series shall be superior or rank equally or be junior to the
Preferred Stock of any other series to the extent permitted by law. Except as
otherwise provided in this Certificate of Incorporation, no vote of the holders
of the Preferred Stock or Common Stock shall be a prerequisite to the
designation or issuance of any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this Certificate of
Incorporation, the right to have such vote being expressly waived by all present
and future holders of the capital stock of the Corporation.
FIFTH. The Corporation shall have a perpetual existence.
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt,
amend or repeal the By-Laws of the Corporation.
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation
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<PAGE> 4
or of any creditor or stockholder thereof, or on the application of any receiver
or receivers appointed for this corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for this corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH. Except to the extent that the General Corporation Law of
Delaware prohibits the elimination or limitation of liability of directors for
breaches of fiduciary duty, no director of the Corporation shall be personally
liable to the Corporation or its stockholders for monetary damages for any
breach of fiduciary duty as a director, notwithstanding any provision of law
imposing such liability. No amendment to or repeal of this provision shall apply
to or have any effect on the liability or alleged liability of any director of
the Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. 1. Actions, Suits and Proceedings Other than by or in the Right
of the Corporation. The Corporation shall indemnify each person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation), by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) (all such persons being
referred to hereafter as an "Indemnitee"), or by reason of any action alleged to
have been taken or omitted in such capacity, against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with such action, suit
or proceeding and any appeal therefrom, if he acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in
4
<PAGE> 5
good faith and in a manner which he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that his conduct was
unlawful. Notwithstanding anything to the contrary in this Article, except as
set forth in Section 7 below, the Corporation shall not indemnify an Indemnitee
seeking indemnification in connection with a proceeding (or part thereof)
initiated by the Indemnitee unless the initiation thereof was approved by the
Board of Directors of the Corporation. Notwithstanding anything to the contrary
in this Article, the Corporation shall not indemnify an Indemnitee to the extent
such Indemnitee is reimbursed from the proceeds of insurance, and in the event
the Corporation makes any indemnification payments to an Indemnitee and such
Indemnitee is subsequently reimbursed from the proceeds of insurance, such
Indemnitee shall promptly refund such indemnification payments to the
Corporation to the extent of such insurance reimbursement.
2. Actions or Suits by or in the Right of the Corporation. The
Corporation shall indemnify any Indemnitee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving, or has agreed to serve, at the
request of the Corporation, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees) and, to the extent permitted by law,
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware shall
determine upon application that, despite the adjudication of such liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses (including attorneys' fees)
which the Court of Chancery of Delaware shall deem proper.
3. Indemnification for Expenses of Successful Party. Notwithstanding
the other provisions of this Article, to the extent that an Indemnitee has been
successful, on the merits or otherwise, in defense of any action, suit or
proceeding referred to in Sections 1 and 2 of this Article, or in defense of any
claim, issue or matter therein, or on appeal from any such action, suit or
proceeding, he shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by him or on his behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition
5
<PAGE> 6
without prejudice), without (i) the disposition being adverse to the Indemnitee,
(ii) an adjudication that the Indemnitee was liable to the Corporation, (iii) a
plea of guilty or nolo contendere by the Indemnitee, (iv) an adjudication that
the Indemnitee did not act in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation, and (v) with
respect to any criminal proceeding, an adjudication that the Indemnitee had
reasonable cause to believe his conduct was unlawful, the Indemnitee shall be
considered for the purposes hereof to have been wholly successful with respect
thereto.
4. Notification and Defense of Claim. As a condition precedent to his
right to be indemnified, the Indemnitee must notify the Corporation in writing
as soon as practicable of any action, suit, proceeding or investigation
involving him for which indemnity will or could be sought. With respect to any
action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee. After notice from the
Corporation to the Indemnitee of its election so to assume such defense, the
Corporation shall not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with such claim,
other than as provided below in this Section 4. The Indemnitee shall have the
right to employ his own counsel in connection with such claim, but the fees and
expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employment of counsel by the Indemnitee has been authorized by
the Corporation, (ii) counsel to the Indemnitee shall have reasonably concluded
that there may be a conflict of interest or position on any significant issue
between the Corporation and the Indemnitee in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of counsel for the Indemnitee shall be at the expense of the Corporation, except
as otherwise expressly provided by this Article. The Corporation shall not be
entitled, without the consent of the Indemnitee, to assume the defense of any
claim brought by or in the right of the Corporation or as to which counsel for
the Indemnitee shall have reasonably made the conclusion provided for in clause
(ii) above.
5. Advance of Expenses. Subject to the provisions of Section 6 below,
in the event that the Corporation does not assume the defense pursuant to
Section 4 of this Article of any action, suit, proceeding or investigation of
which the Corporation receives notice under this Article, any expenses
(including attorneys' fees) incurred by an Indemnitee in defending a civil or
criminal action, suit, proceeding or investigation or any appeal therefrom shall
be paid by the Corporation in advance of the final disposition of such matter;
provided, however, that the payment of such expenses incurred by an Indemnitee
in advance of the final disposition of such matter shall be made only upon
receipt of an undertaking by or on behalf of the Indemnitee
6
<PAGE> 7
to repay all amounts so advanced in the event that it shall ultimately be
determined that the Indemnitee is not entitled to be indemnified by the
Corporation as authorized in this Article. Such undertaking shall be accepted
without reference to the financial ability of the Indemnitee to make such
repayment.
6. Procedure for Indemnification. In order to obtain indemnification or
advancement of expenses pursuant to Section 1, 2, 3 or 5 of this Article, the
Indemnitee shall submit to the Corporation a written request, including in such
request such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what extent
the Indemnitee is entitled to indemnification or advancement of expenses. Any
such indemnification or advancement of expenses shall be made promptly, and in
any event within 60 days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section 1, 2 or 5 the
Corporation determines within such 60-day period that the Indemnitee did not
meet the applicable standard of conduct set forth in Section 1 or 2, as the case
may be. Such determination shall be made in each instance by (a) a majority vote
of the directors of the Corporation consisting of persons who are not at that
time parties to the action, suit or proceeding in question ("disinterested
directors"), whether or not a quorum, (b) a majority vote of a committee of
disinterested directors designated by majority vote of disinterested directors,
whether or not a quorum, (c) a majority vote of a quorum of the outstanding
shares of stock of all classes entitled to vote for directors, voting as a
single class, which quorum shall consist of stockholders who are not at that
time parties to the action, suit or proceeding in question, (d) independent
legal counsel (who may, to the extent permitted by law, be regular legal counsel
to the Corporation), or (e) a court of competent jurisdiction.
7. Remedies. The right to indemnification or advances as granted by
this Article shall be enforceable by the Indemnitee in any court of competent
jurisdiction if the Corporation denies such request, in whole or in part, or if
no disposition thereof is made within the 60-day period referred to above in
Section 6. Unless otherwise required by law, the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of expenses under
this Article shall be on the Corporation. Neither the failure of the Corporation
to have made a determination prior to the commencement of such action that
indemnification is proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination by the
Corporation pursuant to Section 6 that the Indemnitee has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Indemnitee has not met the applicable standard of conduct.
The Indemnitee's expenses (including attorneys' fees) incurred in connection
with successfully establishing his right to indemnification, in whole or in
part, in any such proceeding shall also be indemnified by the Corporation.
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<PAGE> 8
8. Subsequent Amendment. No amendment, termination or repeal of this
Article or of the relevant provisions of the General Corporation Law of Delaware
or any other applicable laws shall affect or diminish in any way the rights of
any Indemnitee to indemnification under the provisions hereof with respect to
any action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the final adoption of such
amendment, termination or repeal.
9. Other Rights. The indemnification and advancement of expenses
provided by this Article shall not be deemed exclusive of any other rights to
which an Indemnitee seeking indemnification or advancement of expenses may be
entitled under any law (common or statutory), agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in any other capacity while holding office for the
Corporation, and shall continue as to an Indemnitee who has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of the Indemnitee. Nothing contained in this
Article shall be deemed to prohibit, and the Corporation is specifically
authorized to enter into, agreements with officers and directors providing
indemnification rights and procedures different from those set forth in this
Article. In addition, the Corporation may, to the extent authorized from time to
time by its Board of Directors, grant indemnification rights to other employees
or agents of the Corporation or other persons serving the Corporation and such
rights may be equivalent to, or greater or less than, those set forth in this
Article.
10. Partial Indemnification. If an Indemnitee is entitled under any
provision of this Article to indemnification by the Corporation for some or a
portion of the expenses (including attorneys' fees), judgments, fines or amounts
paid in settlement actually and reasonably incurred by him or on his behalf in
connection with any action, suit, proceeding or investigation and any appeal
therefrom but not, however, for the total amount thereof, the Corporation shall
nevertheless indemnify the Indemnitee for the portion of such expenses
(including attorneys' fees), judgments, fines or amounts paid in settlement to
which the Indemnitee is entitled.
11. Insurance. The Corporation may purchase and maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise (including any employee benefit plan) against any expense,
liability or loss incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the General
Corporation Law of Delaware.
12. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
8
<PAGE> 9
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article with respect to any action, suit, proceeding or
investigation arising out of or relating to any actions, transactions or facts
occurring prior to the date of such merger or consolidation.
13. Savings Clause. If this Article or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Indemnitee as to any expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement in
connection with any action, suit, proceeding or investigation, whether civil,
criminal or administrative, including an action by or in the right of the
Corporation, to the fullest extent permitted by any applicable portion of this
Article that shall not have been invalidated and to the fullest extent permitted
by applicable law.
14. Definitions. Terms used herein and defined in Section 145(h) and
Section 145(i) of the General Corporation Law of Delaware shall have the
respective meanings assigned to such terms in such Section 145(h) and Section
145(i).
15. Subsequent Legislation. If the General Corporation Law of Delaware
is amended after adoption of this Article to expand further the indemnification
permitted to Indemnitees, then the Corporation shall indemnify such persons to
the fullest extent permitted by the General Corporation Law of Delaware, as so
amended.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and this
Amended and Restated Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. This Article is inserted for the management of the business
and for the conduct of the affairs of the Corporation.
1. Number of Directors. The number of directors of the Corporation
shall not be less than three. The exact number of directors within the
limitations specified in the preceding sentence shall be fixed from time to time
by, or in the manner provided in, the Corporation's By-Laws.
2. Classes of Directors. The Board of Directors shall be and is divided
into three classes: Class I, Class II and Class III. No one class shall have
more than one director more than any other class. If a fraction is contained in
the quotient arrived at by dividing the designated number of directors by three,
then, if such fraction is one-third, the extra director shall be a member of
Class I, and if such fraction is two-thirds, one of the extra directors shall be
a member of Class I and one of the
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extra directors shall be a member of Class II, unless otherwise provided from
time to time by resolution adopted by the Board of Directors.
3. Election of Directors. Elections of directors need not be by written
ballot except as and to the extent provided in the By-Laws of the Corporation.
4. Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting in 1998; each initial
director in Class II shall serve for a term ending on the date of the annual
meeting in 1999; and each initial director in Class III shall serve for a term
ending on the date of the annual meeting in the year 2000; and provided further,
that the term of each director shall be subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
5. Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease shall be apportioned by the Board of Directors among the
three classes of directors so as to ensure that no one class has more than one
director more than any other class. To the extent possible, consistent with the
foregoing rule, any newly created directorships shall be added to those classes
whose terms of office are to expire at the latest dates following such
allocation, and any newly eliminated directorships shall be subtracted from
those classes whose terms of offices are to expire at the earliest dates
following such allocation, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
6. Quorum; Action at Meeting. A majority of the directors at any time
in office shall constitute a quorum for the transaction of business. In the
event one or more of the directors shall be disqualified to vote at any meeting,
then the required quorum shall be reduced by one for each director so
disqualified, provided that in no case shall less than one-third of the number
of directors fixed pursuant to Section 1 above constitute a quorum. If at any
meeting of the Board of Directors there shall be less than such a quorum, a
majority of those present may adjourn the meeting from time to time. Every act
or decision done or made by a majority of the directors present at a meeting
duly held at which a quorum is present shall be regarded as the act of the Board
of Directors unless a greater number is required by law, by the ByLaws of the
Corporation or by this Amended and Restated Certificate of Incorporation.
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7. Removal. Directors of the Corporation may be removed only for cause
by the affirmative vote of the holders of at least two-thirds of the shares of
the capital stock of the Corporation issued and outstanding and entitled to
vote.
8. Vacancies. Any vacancy in the Board of Directors, however occurring,
including a vacancy resulting from an enlargement of the board, shall be filled
only by a vote of a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. A director elected to fill a vacancy
shall be elected to hold office until the next election of the class for which
such director shall have been chosen, subject to the election and qualification
of his successor and to his earlier death, resignation or removal.
9. Stockholder Nominations and Introduction of Business, Etc. Advance
notice of stockholder nominations for election of directors and other business
to be brought by stockholders before a meeting of stockholders shall be given in
the manner provided by the By-Laws of the Corporation.
10. Amendments to Article. Notwithstanding any other provisions of law,
this Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article ELEVENTH.
TWELFTH. Stockholders of the Corporation may not take any action by
written consent in lieu of a meeting. Notwithstanding any other provisions of
law, the Amended and Restated Certificate of Incorporation or the By-Laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the shares of capital stock of the Corporation issued and
outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, this Article TWELFTH.
THIRTEENTH. Special meetings of stockholders may be called at any time
by only the Chairman of the Board of Directors, the President or the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting. Notwithstanding any other provision of law, this Amended and Restated
Certificate of Incorporation or the By-Laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least seventy-five percent (75%) of the
shares of capital stock of the Corporation issued and outstanding and entitled
to vote shall be required to amend or repeal, or to adopt any provision
inconsistent with, this Article THIRTEENTH.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Amended and Restated Certificate of Incorporation to be
signed by its President this __ day of _____ , 1997.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: ______________________________
Stefan R. Bothe
Chairman of the Board and
Chief Executive Officer
12
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BY-LAWS
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or the Chief Executive
Officer or, if not so designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors, the President or the Chief Executive Officer (which date shall not be
a legal holiday in the place where the meeting is to be held) at the time and
place to be fixed by the Board of Directors or the President and stated in the
notice of the meeting. If no annual meeting is held in accordance with the
foregoing provisions, the Board of Directors shall cause the meeting to be held
as soon thereafter as convenient. If no annual meeting is held in accordance
with the foregoing provisions, a special meeting may be held in lieu of the
annual meeting, and any action taken at that special meeting shall have the same
effect as if it had been taken at the annual meeting, and in such case all
references in these By-Laws to the annual meeting of the stockholders shall be
deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President, the Chief Executive Officer or by the Board of
Directors. Business transacted at any special meeting of stockholders shall be
limited to matters relating to the purpose or purposes stated in the notice of
meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
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1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city where the meeting is to
be held. The list shall also be produced and kept at the time and place of the
meeting during the whole time of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the
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stockholders at such meeting, except when a different vote is required by
express provision of law, the Certificate of Incorporation or these By-Laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. Except as otherwise provided by
the Certificate of Incorporation or by any written voting agreement among the
stockholders of the corporation, the number of directors which shall constitute
the whole Board of Directors shall be determined by resolution of the
stockholders or the Board of Directors, but in no event shall be less than one.
Except as otherwise provided by the Certificate of Incorporation or by any
written voting agreement among the stockholders of the corporation, the number
of directors may be decreased at any time and from time to time either by the
stockholders or by a majority of the directors then in office, but only to
eliminate vacancies existing by reason of the death, resignation, removal or
expiration of the term of one or more directors. Except as otherwise provided by
the Certificate of Incorporation or by any written voting agreement among the
stockholders of the corporation, the directors shall be elected at the annual
meeting of stockholders by such stockholders as have the right to vote on such
election. Directors need not be stockholders of the corporation.
2.3 Enlargement of the Board. Except as otherwise provided by the
Certificate of Incorporation or by any written voting agreement among the
stockholders of the corporation, the number of directors may be increased at any
time
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and from time to time by the stockholders or by a majority of the directors then
in office.
2.4 Tenure. Except as otherwise provided by the Certificate of
Incorporation or by any written voting agreement among the stockholders of the
corporation, each director shall hold office until the next annual meeting and
until his successor is elected and qualified, or until his earlier death,
resignation or removal.
2.5 Vacancies. Except as otherwise provided by the Certificate of
Incorporation or by any written voting agreement among the stockholders of the
corporation, unless and until filled by the stockholders, any vacancy in the
Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Except as otherwise provided by the Certificate of Incorporation or by any
written voting agreement among the stockholders of the corporation, a director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office, and a director chosen to fill a position resulting from
an increase in the number of directors shall hold office until the next annual
meeting of stockholders and until his successor is elected and qualified, or
until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram, telecopy
or telex, or delivering written notice by
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hand, to his last known business or home address at least 48 hours in advance of
the meeting, or (iii) by mailing written notice to his last known business or
home address at least 72 hours in advance of the meeting. A notice or waiver of
notice of a meeting of the Board of Directors need not specify the purposes of
the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any
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absent or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors and subject to the provisions of the
General Corporation Law of the State of Delaware, shall have and may exercise
all the powers and authority of the Board of Directors in the management of the
business and affairs of the corporation and may authorize the seal of the
corporation to be affixed to all papers which may require it. Each such
committee shall keep minutes and make such reports as the Board of Directors may
from time to time request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is
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elected and qualified, unless a different term is specified in the vote choosing
or appointing him, or until his earlier death, resignation or removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
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3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
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The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its
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transfer agent may reasonably require. Except as may be otherwise required by
law, by the Certificate of Incorporation or by these By-Laws, the corporation
shall be entitled to treat the record holder of stock as shown on its books as
the owner of such stock for all purposes, including the payment of dividends and
the right to vote with respect to such stock, regardless of any transfer, pledge
or other disposition of such stock until the shares have been transferred on the
books of the corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
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ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or
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the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be
less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present, provided that such alteration, amendment
or repeal is not inconsistent with the provisions of any written voting
agreement among the stockholders of the corporation.
6.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
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AMENDED AND RESTATED BY-LAWS
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
<PAGE> 2
AMENDED AND RESTATED BY-LAWS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 - Stockholders..........................................................................................1
1.1 Place of Meetings...............................................................................1
1.2 Annual Meeting..................................................................................1
1.3 Special Meetings................................................................................1
1.4 Notice of Meetings..............................................................................1
1.5 Voting List.....................................................................................1
1.6 Quorum..........................................................................................2
1.7 Adjournments....................................................................................2
1.8 Voting and Proxies..............................................................................2
1.9 Action at Meeting...............................................................................2
1.10 Nomination of Directors.........................................................................3
1.11 Notice of Business at Annual Meetings...........................................................3
1.12 Action without Meeting..........................................................................4
1.13 Organization....................................................................................5
ARTICLE 2 - Directors.............................................................................................6
2.1 General Powers..................................................................................6
2.2 Number; Election and Qualification..............................................................6
2.3 Classes of Directors............................................................................6
2.4 Terms of Office.................................................................................6
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors............................................................6
2.6 Vacancies.......................................................................................7
2.7 Resignation.....................................................................................7
2.8 Regular Meetings................................................................................7
2.9 Special Meetings................................................................................7
2.10 Notice of Special Meetings......................................................................7
2.11 Meetings by Telephone Conference Calls..........................................................8
2.12 Quorum..........................................................................................8
2.13 Action at Meeting...............................................................................8
2.14 Action by Consent...............................................................................8
2.15 Removal.........................................................................................8
2.16 Committees......................................................................................8
2.17 Compensation of Directors.......................................................................9
ARTICLE 3 - Officers..............................................................................................9
3.1 Enumeration.....................................................................................9
3.2 Election........................................................................................9
3.3 Qualification...................................................................................9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
3.4 Tenure..........................................................................................9
3.5 Resignation and Removal.........................................................................9
3.6 Vacancies......................................................................................10
3.7 Chairman of the Board and Vice Chairman of the Board...........................................10
3.8 President......................................................................................10
3.9 Vice Presidents................................................................................10
3.10 Secretary and Assistant Secretaries............................................................11
3.11 Treasurer and Assistant Treasurers.............................................................11
3.12 Salaries.......................................................................................12
ARTICLE 4 - Capital Stock........................................................................................12
4.1 Issuance of Stock..............................................................................12
4.2 Certificates of Stock..........................................................................12
4.3 Transfers......................................................................................12
4.4 Lost, Stolen or Destroyed Certificates.........................................................13
4.5 Record Date....................................................................................13
ARTICLE 5 - General Provisions...................................................................................13
5.1 Fiscal Year....................................................................................13
5.2 Corporate Seal.................................................................................13
5.3 Waiver of Notice...............................................................................13
5.4 Voting of Securities...........................................................................14
5.5 Evidence of Authority..........................................................................14
5.6 Certificate of Incorporation...................................................................14
5.7 Transactions with Interested Parties...........................................................14
5.8 Severability...................................................................................15
5.9 Pronouns.......................................................................................15
ARTICLE 6 - Amendments...........................................................................................15
6.1 By the Board of Directors......................................................................15
6.2 By the Stockholders............................................................................15
6.3 Certain Provisions.............................................................................15
</TABLE>
ii
<PAGE> 4
AMENDED AND RESTATED BY-LAWS
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held within six months after the end of each
fiscal year of the corporation on a date to be fixed by the Board of Directors
or the President (which date shall not be a legal holiday in the place where the
meeting is to be held) at the time and place to be fixed by the Board of
Directors or the President and stated in the notice of the meeting. If no annual
meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the Chairman of the Board of Directors, the President or the Board
of Directors. Business transacted at any special meeting of stockholders shall
be limited to matters relating to the purpose or purposes stated in the notice
of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a
<PAGE> 5
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, at a place within the city where the meeting is to be held. The list
shall also be produced and kept at the time and place of the meeting during the
whole time of the meeting, and may be inspected by any stockholder who is
present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
by the General Corporation Law of the State of Delaware, the Certificate of
Incorporation or these By-Laws. Each stockholder of record entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may vote or express such consent or dissent in person
or may authorize another person or persons to vote or act for him by written
proxy executed by the stockholder or his authorized agent and delivered to the
Secretary of the corporation. No such proxy shall be voted or acted upon after
three years from the date of its execution, unless the proxy expressly provides
for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express
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provision of law, the Certificate of Incorporation or these By-Laws. Any
election by stockholders shall be determined by a plurality of the votes cast by
the stockholders entitled to vote at the election.
1.10 Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nomination for election to the Board of Directors of the corporation
at a meeting of stockholders may be made by the Board of Directors or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting who complies with the notice procedures set forth in this Section
1.10. Such nominations, other than those made by or on behalf of the Board of
Directors, shall be made by notice in writing delivered or mailed by first class
United States mail, postage prepaid, to the Secretary, and received not less
than 60 days nor more than 90 days prior to such meeting; provided, however,
that if less than 70 days' notice or prior public disclosure of the date of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the Secretary not later than the close of business on the 10th day
following the date on which the notice of the meeting was mailed or such public
disclosure was made, whichever occurs first. Such notice shall set forth (a) as
to each proposed nominee (i) the name, age, business address and, if known,
residence address of each such nominee, (ii) the principal occupation or
employment of each such nominee, (iii) the number of shares of stock of the
corporation which are beneficially owned by each such nominee, and (iv) any
other information concerning the nominee that must be disclosed as to nominees
in proxy solicitations pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to be named as
a nominee and to serve as a director if elected); and (b) as to the stockholder
giving the notice (i) the name and address, as they appear on the corporation's
books, of such stockholder and (ii) the class and number of shares of the
corporation which are beneficially owned by such stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of such
proposed nominee to serve as a director of the corporation.
The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
1.11 Notice of Business at Annual Meetings. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (b) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (c) otherwise properly brought before an annual meeting by a
stockholder. For business to be
3
<PAGE> 7
properly brought before an annual meeting by a stockholder, if such business
relates to the election of directors of the corporation, the procedures in
Section 1.10 must be complied with. If such business relates to any other
matter, the stockholder must have given timely notice thereof in writing to the
Secretary. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation not less than
60 days nor more than 90 days prior to the meeting; provided, however, that in
the event that less than 70 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 10th day
following the date on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever occurs first. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (a) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (c) the class
and number of shares of the corporation which are beneficially owned by the
stockholder, and (d) any material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this Section 1.11 and except that any stockholder proposal which
complies with Rule 14a-8 of the proxy rules (or any successor provision)
promulgated under the Securities Exchange Act of 1934, as amended, and is to be
included in the corporation's proxy statement for an annual meeting of
stockholders shall be deemed to comply with the requirements of this Section
1.11.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 1.11, and if he should so
determine, the chairman shall so declare to the meeting that any such business
not properly brought before the meeting shall not be transacted.
1.12 Action without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action required or permitted to be taken by
stockholders for or in connection with any corporate action may be taken without
a meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted and shall be delivered to the
corporation by delivery to its registered office in Delaware by hand or
certified or registered mail, return receipt requested, to its principal place
of business or to an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Each such
written consent shall bear the date of signature of each stockholder who signs
the consent.
4
<PAGE> 8
No written consent shall be effective to take the corporate action referred to
therein unless written consents signed by a number of stockholders sufficient to
take such action are delivered to the corporation in the manner specified in
this paragraph within sixty days of the earliest dated consent so delivered.
If action is taken by consent of stockholders and in accordance with
the foregoing, there shall be filed with the records of the meetings of
stockholders the writing or writings comprising such consent.
If action is taken by less than unanimous consent of stockholders,
prompt notice of the taking of such action without a meeting shall be given to
those who have not consented in writing and a certificate signed and attested to
by the Secretary of the corporation that such notice was given shall be filed
with the records of the meetings of stockholders.
In the event that the action which is consented to is such as would
have required the filing of a certificate under any provision of the General
Corporation Law of the State of Delaware, if such action had been voted upon by
the stockholders at a meeting thereof, the certificate filed under such
provision shall state, in lieu of any statement required by such provision
concerning a vote of stockholders, that written consent has been given under
Section 228 of said General Corporation Law and that written notice has been
given as provided in such Section 228.
Notwithstanding the foregoing, if at any time the corporation shall
have a class of stock registered pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, for so long as such class is registered, any
action by the stockholders of such class must be taken at an annual or special
meeting of stockholders and may not be taken by written consent.
1.13 Organization. The Chairman of the Board, or in his absence the
Vice Chairman of the Board designated by the Chairman of the Board, or the
President, in the order named, shall call meetings of the stockholders to order,
and shall act as chairman of such meeting; provided, however, that the Board of
Directors may appoint any stockholder to act as chairman of any meeting in the
absence of the Chairman of the Board. The Secretary of the corporation shall act
as secretary at all meetings of the stockholders; but in the absence of the
Secretary at any meeting of the stockholders, the presiding officer may appoint
any person to act as secretary of the meeting.
5
<PAGE> 9
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the Board of Directors, but in no event shall be less than three. The number
of directors may be decreased at any time and from time to time by a majority of
the directors then in office, but only to eliminate vacancies existing by reason
of the death, resignation, removal or expiration of the term of one or more
directors. The directors shall be elected at the annual meeting of stockholders
by such stockholders as have the right to vote on such election. Directors need
not be stockholders of the corporation.
2.3 Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the designated number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class I, and if such fraction is two-thirds, one of the
extra directors shall be a member of Class I and one of the extra directors
shall be a member of Class II, unless otherwise provided from time to time by
resolution adopted by the Board of Directors.
2.4 Terms of Office. Each director shall serve for a term ending on the
date of the third annual meeting following the annual meeting at which such
director was elected; provided, that each initial director in Class I shall
serve for a term ending on the date of the annual meeting of stockholders in
1998; each initial director in Class II shall serve for a term ending on the
date of the annual meeting of stockholders in 1999; and each initial director in
Class III shall serve for a term ending on the date of the annual meeting of
stockholders in 2000; and provided further, that the term of each director shall
be subject to the election and qualification of his successor and to his earlier
death, resignation or removal.
2.5 Allocation of Directors Among Classes in the Event of Increases or
Decreases in the Number of Directors. In the event of any increase or decrease
in the authorized number of directors, (i) each director then serving as such
shall nevertheless continue as a director of the class of which he is a member
and (ii) the newly created or eliminated directorships resulting from such
increase or decrease
6
<PAGE> 10
shall be apportioned by the Board of Directors among the three classes of
directors so as to ensure that no one class has more than one director more than
any other class. To the extent possible, consistent with the foregoing rule, any
newly created directorships shall be added to those classes whose terms of
office are to expire at the latest dates following such allocation, and any
newly eliminated directorships shall be subtracted from those classes whose
terms of offices are to expire at the earliest dates following such allocation,
unless otherwise provided from time to time by resolution adopted by the Board
of Directors.
2.6 Vacancies. Any vacancy in the Board of Directors, however
occurring, including a vacancy resulting from an enlargement of the Board, shall
be filled only by vote of a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. A director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office,
and a director chosen to fill a position resulting from an increase in the
number of directors shall hold office until the next election of the class for
which such director shall have been chosen, subject to the election and
qualification of his successor and to his earlier death, resignation or removal.
2.7 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.8 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.9 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.10 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 24 hours in advance of the meeting, (ii) by sending a telegram, telecopy,
or telex, or delivering written notice by hand, to his last known business or
home address at least 24 hours in advance of the meeting, or (iii) by mailing
written notice to his last known business or home address
7
<PAGE> 11
at least 72 hours in advance of the meeting. A notice or waiver of notice of a
meeting of the Board of Directors need not specify the purposes of the meeting.
2.11 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.12 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.13 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.14 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.15 Removal. Directors of the corporation may be removed only for
cause by the affirmative vote of the holders of two-thirds of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote.
2.16 Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent
8
<PAGE> 12
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-laws for the Board of Directors.
2.17 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or
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<PAGE> 13
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board. If the Board of Directors
appoints a Chairman of the Board, he shall perform such duties and possess such
powers as are assigned to him by the Board of Directors. If the Board of
Directors appoints a Vice Chairman of the Board, he shall, in the absence or
disability of the Chairman of the Board, perform the duties and exercise the
powers of the Chairman of the Board and shall perform such other duties and
possess such other powers as may from time to time be vested in him by the Board
of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions
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upon the President. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
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3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
stockholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of
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such stock until the shares have been transferred on the books of the
corporation in accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders, or entitled to receive payment of any
dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than 10 days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - General Provisions
5.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall begin on the
first day of January in each year and end on the last day of December in each
year.
5.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
5.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of
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<PAGE> 17
such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
5.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
5.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
5.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
5.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board or committee in good
faith authorizes the contract or transaction by the affirmative votes
of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum;
(2) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or
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<PAGE> 18
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
5.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
5.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 6 - Amendments
6.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
6.2 By the Stockholders. Except as otherwise provided in Section 6.3,
these By-Laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of such
alteration, amendment, repeal or adoption of new by-laws shall have been stated
in the notice of such regular or special meeting.
6.3 Certain Provisions. Notwithstanding any other provision of law, the
Certificate of Incorporation or these By-Laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least seventy-five percent (75%) of the shares of the capital stock of the
corporation issued and outstanding and entitled to vote shall be required to
amend or repeal, or to adopt any provision inconsistent with Section 1.3,
Section 1.10, Section 1.11, Section 1.12, Section 1.13, Article 2 or Article 6
of these By-Laws.
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<PAGE> 1
FLEXIWARE CORPORATION
1992 STOCK OPTION PLAN
May 29, 1992
1. Purpose.
The purpose of this plan (the "Plan") is to secure for FlexiWare
Corporation (the "Company") and its shareholders the benefits arising from
capital stock ownership by employees, officers and directors of, and
consultants or advisors to, the Company and its parent and subsidiary
corporations who are expected to contribute to the Company's future growth and
success. Except where the context otherwise requires, the term "Company" shall
include the present and all present and future subsidiaries of the Company as
defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as
amended or replaced from time to time (the "Code"). Those provisions of the
Plan which make express reference to Section 422 shall apply only to Incentive
Stock Options (as that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by the Board of
Directors of the Company, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The Board of
Directors may in its sole discretion grant options to purchase shares of the
Company's Common Stock ("Common Stock") and issue shares upon exercise of such
options as provided in the Plan. The Board shall have authority, subject to the
express provisions of the Plan, to construe the respective option agreements
and the Plan, to prescribe, amend and rescind rules and regulations relating to
the Plan, to determine the terms and provisions of the respective option
agreements, which need not be identical, and to make all other determinations
in the judgment of the Board of Directors necessary or desirable for the
administration of the Plan. The Board of Directors may correct any defect or
supply any omission or reconcile any inconsistency in the Plan or in any
option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith.
<PAGE> 2
The Board of Directors may, to the full extent permitted by or consistent with
applicable laws or regulations (including, without limitation, applicable state
law and Rule 16b-3 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act"), or any successor rule ("Rule 16b-3")), delegate any or all of
its powers under the Plan to a committee (the "Committee") appointed by the
Board of Directors, and if the Committee is so appointed all references to the
Board of Directors in the Plan shall mean and relate to such Committee.
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply only to such persons as are required
to file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company; provided, that the class of employees, to whom Incentive Stock Options
may be granted shall be limited to all employees of the Company. A person who
has been granted an option may, if he or she is otherwise eligible, be granted
additional options if the Board of Directors shall so determine.
(b) Grant of Options to Directors and Officers. From and after the
registration of the Common Stock of the Company under the Exchange Act, the
selection of a director or an officer (as the terms "director" and "officer" are
defined for purposes of Rule 16b-3) as a recipient of an option, the timing of
the option grant, the exercise price of the option and the number of shares
subject to the option shall be determined either (i) by the Board of Directors,
of which all members shall be "disinterested persons" (as hereinafter defined),
or (ii) by two or more directors having full authority to act in the matter,
each of whom shall be a "disinterested person." For the purposes of the Plan, a
director shall be deemed to be a "disinterested person" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3, as such
term is interpreted from time to time means (including, without limitation, by
delivery of a promissory note of the optionee payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent with the purpose of the Plan and with the applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common Stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
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4. Stock Subject to Plan.
Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Common stock of the Company which may be issued and sold under the
Plan is _____________ shares. If an option granted under the Plan shall expire
or terminate for any reason without having been exercised in full, the
unpurchased shares subject to such option shall against be available for
subsequent option grants under the Plan. If shares issued upon exercise of an
option under the Plan are tendered to the Company in payment of the exercise
price of an option granted under the Plan, such tendered shares shall again be
available for subsequent option grants under the Plan; provided, that in no
event shall (i) the total number of shares issued pursuant to the exercise of
Incentive Stock Options under the Plan, on a cumulative basis, exceed the
maximum number of shares authorized for issuance under the Plan exclusive of
shares made available for issuance pursuant to this sentence or (ii) the total
number of shares issued pursuant to the exercise of options by Reporting
Persons, on a cumulative basis, exceed the maximum number of shares authorized
for issuance under the Plan exclusive of shares made available for issuance
pursuant to this sentence.
5. Forms of Option Agreements.
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan it may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors, provided,
however, that in the case of an Incentive Stock Option, the exercise price shall
not be less than 100% of the fair market value of such stock, as determined by
the Board of Directors, at the time of grant of such option, or less than 110%
of such fair market value in the case of options described in Section 11(b).
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or to the extent provided in the applicable option agreement, (i) by delivery to
the Company of shares of Common Stock of the Company already owned by the
optionee having a fair market value equal in amount to the exercise price of the
options being exercised, (ii) by any other means (including, without limitation,
by delivery of a promissory note of the optionee payable on such terms as are
specified by the Board of Directors) which the Board of Directors determines are
consistent
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<PAGE> 4
with the purpose of the Plan and with applicable laws and
regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment. The fair market value of any shares of
the Company's Common stock or other non-cash consideration which may be
delivered upon exercise of an option shall be determined by the Board of
Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the case
of an Incentive Stock Option, such date shall not be later than ten years after
the date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable 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 optionee, shall be
exercisable only by the optionee; provided, however, that non-statutory options
may be transferred pursuant to a qualified domestic relations order (as defined
in Rule 16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors
shall determine the period of time during which an optionee may exercise an
option following (i) the termination of the optionee's employment or other
relationship with the Company or (ii) the death or disability of the optionee.
Such periods shall be set forth in the agreement evidencing such option means
(including without limitation, by delivery of a promissory note of the optionee
payable on such terms as are specified by the Board of Directors) which the
Board of Directors determines are consistent with the purpose of the Plan and
with applicable laws and regulations (including, without limitation, the
provisions of Rule 16b-3 and Regulation T promulgated by the Federal Reserve
Board) or (iii) by any combination of such methods of payment. The fair market
value of any shares of the Company's Common Stock or other non-cash
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consideration which may be delivered upon exercise of an option shall be
determined by the Board of Directors.
7. Option Period.
Each option and all rights thereunder shall expire on such date as
shall be set forth in the applicable option agreement, except that, in the case
of an Incentive Stock Option, such date shall not be later than ten years after
the date on which the option is granted and, in all cases, options shall be
subject to earlier termination as provided in the Plan.
8. Exercise of Options.
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the agreement evidencing such option, subject to the provisions of the
Plan.
9. Nontransferability of Options.
Incentive Stock Options, and all options granted to Reporting Persons,
shall not be assignable or transferable 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 optionee, shall be exercisable
only by the optionee; provided, however, that non-statutory options may be
transferred pursuant to a qualified domestic relations order (as defined in Rule
16b-3).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, the Board of Directors shall
determine the period of time during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee. Such periods
shall be set forth in the agreement evidencing such option.
11. Incentive Stock Options
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under the Plan
shall, at the time of grant, be specifically designated as such in the option
agreement covering such Incentive Stock Options.
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(b) 10% Shareholder. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to
such Incentive Stock Option shall not be less than 110% of the fair
market value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years
from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under the Plan (and any other incentive stock
option plans of the Company) which are intended to constitute Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any one
calendar year for shares of Common Stock with an aggregate fair market value
(determined as of the respective date or dates of grant) of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option,
employed by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period
of three months after the date the optionee ceases to be an employee of
the Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect
to such option may designate a longer exercise period and that the
exercise after such three-month period shall be treated as the exercise
of a non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee,
the Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period
as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provision thereto) while
in the employ of
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<PAGE> 7
the Company, the Incentive Stock Option may be exercised within the
period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may
be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its
sole discretion, include additional provisions in option agreements covering
options granted under the Plan, including without limitation restrictions on
transfer, repurchase rights, commitments to pay cash bonuses, to make, arrange
for or guaranty loans or to transfer other property to optionees upon exercise
of options, or such other provisions as shall be determined by the Board of
Directors; provided that such additional provisions shall not be inconsistent
with any other term or condition of the Plan and such additional provisions
shall not cause any Incentive Stock Option granted under the Plan to fail to
qualify as an Incentive Stock Option within the meaning of Section 422 of the
Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any
particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all, or any particular, option or options granted
under the Plan may be exercised; provided, however, that no such extension
shall be permitted if it would cause the Plan to fail to comply with Section
422 of the Code or with Rule 16b-3.
13. General Restrictions.
(a) Investment Representations. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Company in connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that the
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<PAGE> 8
listing, registration or qualification of the shares subject to such option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is necessary
as a condition of, or in connection with, the issuance or purchase of shares
thereunder, such option may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Shareholder.
The holder of an option shall have no rights as a shareholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to him or her for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalization and Related Transactions.
(a) General. If, through or as a result of any merger, consolidation,
sale of all or substantially all of the assets of the Company, reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, (i) the outstanding shares of Common Stock
are increased, decreased or exchanged for a different number or kind of shares
or other securities of the Company, or (ii) additional shares or new or
different shares or other securities of the Company or other non-cash assets
are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment many be made in (x) the
maximum number and kind of shares reserved for issuance under the Plan, (y) the
number and kind of shares or other securities subject to any then outstanding
options under the Plan, and (z) the price for each share subject to any then
outstanding options under the Plan, without changing the aggregate purchase
price as to which such options remain exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment would cause the Plan to fail to comply with Section 422 of the Code
or with Rule 16b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
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16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger or sale of all
or substantially all of the assets of the Company in which outstanding
shares of Common Stock are exchanged for securities, cash or other property of
any other corporation or business entity or in the event of a liquidation of the
Company, the Board of Directors of the Company, or the board of directors of any
corporation assuming the obligations of the Company, may, in its discretion,
take any one or more of the following actions, as to outstanding options: (1)
provide that such options shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation (or an affiliate
thereof), provided that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the optionees, provide that all unexercised options will terminate
immediately prior to the consummation of such transaction unless exercised by
the optionee within a specified period following the date of such notice, (iii)
in the event of a merger under the terms of which holders of the Common Stock of
the Company will receive upon consummation thereof a cash payment for each share
surrendered in the merger (the "Merger Price"), make or provide for a cash
payment to the optionees equal to the difference between (A) the Merger Price
times the number of shares of Common Stock subject to such outstanding Options
(to the extent then exercisable at prices not in excess of the Merger Price) and
(B) the aggregate exercise price of all such outstanding options in exchange for
the termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the
Plan in substitution for options held by employees of another corporation who
become employees of the Company, or a subsidiary of the Company, as the result
of a merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment
by the Company or interfere in any way with the right of the Company at any
time to terminate such employment or to increase or decrease the compensation
of the optionee.
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18. Other Employee Benefits.
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares
received upon such exercise will not constitute compensation with respect to
which any other employee benefits of such employee are determined, including,
without limitation, benefits under any bonus, pension, profit-sharing, life
insurance or salary continuation plan, except as otherwise specifically
determined by the Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the
approval of the shareholders of the Company is required under Section 422 of
the Code or any successor provision with respect to Incentive Stock Options, or
under Rule 16b-3, the Board of Directors may not effect such modification or
amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her. With the consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in a
manner not inconsistent with the Plan. The Board of Directors shall have the
right to amend or modify (i) the terms and provisions of the Plan and of any
outstanding Incentive Stock Options granted under the Plan to the extent
necessary to qualify any or all such options for such favorable federal income
tax treatment (including deferral of taxation upon exercise) as may be afforded
incentive stock options under Section 422 of the Code and (ii) the terms and
provisions of the Plan and of any outstanding option to the extent necessary to
ensure the qualification of the Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any
kind required by law to be withheld with respect to any shares issued upon
exercise of options under the Plan. Subject to the prior approval of the
Company, which may be withheld by the Company in its sole discretion, the
optionee may elect to satisfy such obligations, in whole or in part, (i) by
causing the Company to withhold shares of Common Stock otherwise issuable
pursuant to the exercise of an option or (ii) by delivering to the Company
shares of Common Stock already owned by the optionee. The shares so delivered
or withheld shall have a fair market value equal to such withholding
obligation. The fair market value of the shares used to satisfy such
withholding
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<PAGE> 11
obligation shall be determined by the Company as of the date that
the amount of tax to be withheld is to be determined. An optionee who has made
an election pursuant to this Section 20(a) may only satisfy his or her
withholding obligation with shares of Common Stock which are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of
the cancelled options or (ii) the amendment of the terms of any and all
outstanding options under the Plan to provide an option exercise price per
share which is higher or lower than the then-current exercise price per share
of such outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by
the Board of Directors, but no Incentive Stock Option granted under the Plan
shall become exercisable unless and until the Plan shall have been approved by
the Company's shareholders. If such shareholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring shareholder approval shall become effective when adopted by
the Board of Directors; amendments requiring shareholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's shareholders. If such shareholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
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<PAGE> 12
(b) Termination. Unless sooner terminated in accordance with
Section 16, the Plan shall terminate, with respect to Incentive Stock Options,
upon the earlier of (i) the close of business on the day next preceding the
tenth anniversary of the date of its adoption by the Board of Directors, or
(ii) the date on which all shares available for issuance under the Plan shall
have been issued pursuant to the exercise or cancellation of options granted
under the Plan. Unless sooner terminated in accordance with Section 16, the
Plan shall terminate with respect to options which are not Incentive Stock
Options on the date specified in (ii) above. If the date of termination is
determined under (i) above, then options outstanding on such date
shall continue to have force and effect in accordance with the provisions of
the instruments evidencing Such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities,
currency, employee benefit or other matters.
Adopted by the Board of Directors on May 29, 1992.
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<PAGE> 13
FLEXIWARE CORPORATION
First Amendment to
1992 Stock Option Plan
The 1992 Stock Option Plan (the "Plan") of FlexiWare Corporation (the
"Company") pursuant to Section 19 thereof, is hereby amended as follows:
1. Section 4 of the Plan is amended to increase the number of shares of
FlexiWare Corporation Common Stock, $.01 par value per share, subject to the
Plan, so that, as amended, the first sentence of Section 4 shall read as
follows:
"Subject to adjustment as provided in Section 15 below, the maximum number
of shares of Common Stock of the Company which may be issued and sold under
the Plan is 1,016,500 shares."
2. Section 19 of the Plan is hereby amended to include a provision related
to Section 162(m) of the Internal Revenue Code so that, as amended, Section 19
will read in its entirety as follows:
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect, except that if at any time the
approval of the shareholders of the Company is required (I) under Section
162(m) to ensure that any compensation attributable to any option under the
Plan is deductible by the Company for Federal income tax purposes and if
Section 162(m) requires such approval, or (ii) under Section 422 of the
Code or any successor provision with respect to Incentive Stock Options, or
(iii) under Rule 16b-3, the Board of Directors may not effect such
modification or amendment without such approval.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his or her rights under an
option previously granted to him or her, with consent of the optionee
affected, the Board of Directors may amend outstanding option agreements in
a manner not inconsistent with the Plan. The Board of Directors shall have
the right to amend or modify (i) the terms and provisions of the Plan and
of any outstanding Incentive Stock Options granted under the Plan to the
extent necessary (i) to qualify any or all such options for such favorable
federal income tax treatment (including deductibility as aforesaid and
deferral of taxation upon exercise) as may be afforded incentive stock
options under Section 162(m) or Section 422 of the Code and (ii) to ensure
the qualification of the Plan under Rule 16b-3.
<PAGE> 14
3. The following text is hereby inserted immediately following the
first paragraph of Section 4, captioned Stock Subject to the Plan:
Subject to the adjustment as provided in Section 15 of the Plan, the
maximum number of shares with respect to which options may be granted to
any employee under the Plan shall not exceed 500,000 shares of Common
Stock in any calendar year. For the purpose of calculating such maximum
number, (a) an option shall continue to be treated as outstanding
notwithstanding Its repricing, cancellation or expiration and (b) the
repricing of an outstanding option or the issuance of a new option in
substitution for a cancelled option shall be deemed to constitute the
grant of a new additional option separate from the original grant of the
option that is repriced or cancelled.
The foregoing amendment shall take effect upon the date approved by the
Board of Directors, subject to ratification and approval by the stockholders of
FlexiWare Corporation. Except as so amended, the Plan shall remain in full
force and effect.
Adopted by the Board of Directors
June 28, 1994
Approved by the Stockholders of the
Company on July 1, 1994.
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<PAGE> 15
FLEXIWARE CORPORATION
Second Amendment to
1992 Stock Option Plan
The 1992 Stock Option Plan (the "Plan") of FlexiWare Corporation (the
"Company"), pursuant to Section 19 thereof, is hereby amended as follows:
1. Section 1 of the Plan is amended to change the name of the Company to
Flexiinternational Software, Inc., so that, as amended, the first sentence of
Section 1 shall read as follows:
"The purpose of this plan (the "Plan") is to secure for
Flexiinternational Software, Inc. (the "Company") and its shareholders
the benefits arising from capital stock ownership by employees,
officers and directors of, and consultants or advisors to, the Company
and its parent and subsidiary corporations who are expected to
contribute to the Company's future growth and success."
2. Section 4 of the Plan is amended to increase the number of shares of
FlexiInternational Software, Inc. Common Stock, $0.01 par value per share,
subject to the Plan, so that, as amended, the first sentence of Section 4 shall
read as follows:
"Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock of the Company which may be issued and
sold under the Plan is 1,516,000 shares."
The foregoing amendment shall take effect upon the date approved by the Board
of Directors, subject to ratification and approval by the stockholders of
FLEXIINTERNATIONAL Software, Inc. Except as so amended, the Plan shall remain
in full force and effect.
Adopted by the Board of Directors January 26, 1995.
Approved by the Stockholders of the Company on March 8, 1995.
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<PAGE> 16
FLEXIINTERNATIONAL SOFTWARE, INC.
Third Amendment to
1992 Stock Option Plan
The 1992 Stock Option Plan (the "Plan") of FlexiInternational Software, Inc.
(the "Company"), pursuant to Section 19 thereof, is hereby amended as follows:
1. Section 4 of the Plan is amended to increase the number of shares of
FlexiInternational Software, Inc. Common Stock, $0.01 par value per share,
subject to the Plan, so that, as amended, the first sentence of Section 4 shall
read as follows:
"Subject to adjustment as provided in Section 15 below, the maximum
number of shares of Common Stock of the Company which may be issued and
sold under the Plan is 1,816,000 shares."
The foregoing amendment shall take effect upon the date approved by the Board
of Directors, subject to ratification and approval by the stockholders of
FlexiInternational Software, Inc. Except as so amended, the Plan shall remain
in full force and effect.
Adopted by the Board of Directors May 6, 1996.
Approved by the Stockholders of the Company on May 6, 1996.
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<PAGE> 1
FLEXIINTERNATIONAL SOFTWARE, INC
1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1997 Stock Incentive Plan (the "Plan") of
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of
FlexiInternational Software, Inc. as defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder
(the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
a. Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
<PAGE> 2
b. 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 make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
c. 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"). If and when the
common stock, $.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act. All references in the Plan to the "Board" shall mean the
Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. Stock Available for Awards
a. Number of Shares. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 2,500,000 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 4(c), for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 1,000,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
c. Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the
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<PAGE> 3
number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.
5. 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, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
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 only be granted 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 Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. Exercise Price. The Board shall establish the exercise price 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 5(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 granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the Company;
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<PAGE> 4
ii. except as the Board may otherwise provide in an Option
Agreement, 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 to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
iii. to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
iv. any combination of the above permitted forms of payment.
6. Restricted Stock
a. Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to the right of the Company to repurchase all or
part of such shares at their issue price or other stated or formula price (or to
require forfeiture of such shares if issued at no cost) from the recipient 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, "Restricted Stock Award").
b. Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. 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). At 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, in a manner determined by the Board, by a Participant 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.
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<PAGE> 5
7. 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 the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. 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. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
c. Board Discretion. Except as otherwise provided by the Plan, each
type of Award may be made alone or in addition or in relation to any other type
of Award. 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, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. Acquisition Events
i. Consequences of Acquisition Events. Upon the occurrence of
an Acquisition Event (as defined below), each outstanding Option or Award shall
be assumed or an equivalent option or award substituted by the successor
corporation or a parent or subsidiary of the successor corporation, provided
that any such Options substituted for Incentive Stock Options shall satisfy, in
the determination of the Board, the requirements of Section 424(a) of the Code,
unless the successor corporation refuses to assume or substitute for the Option
or Award, in which case (i) the Participant shall have the right to exercise the
Option in full, including with respect to shares of Common Stock as to which it
would not otherwise be exercisable,
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<PAGE> 6
(ii) all Restricted Stock Awards then outstanding shall become free of all
restrictions prior to the consummation of the Acquisition Event; and (iii) any
other stock-based Awards outstanding shall become exercisable, realizable or
vested in full, or shall be free of all conditions or restrictions, as
applicable to each such Award, prior to the consummation of the Acquisition
Event. If an Option or Award is exercisable in lieu of assumption or
substitution in the event of an Acquisition Event, the Board shall notify the
Participant in writing or electronically that the Option or Award shall be fully
exercisable for a period of not less than forty-five (45) days from the date of
such notice, and the Option or Award shall terminate upon the expiration of such
period.
Each Option or other Award assumed or substituted pursuant to the
immediately preceding paragraph shall include a provision to the effect that
such Option or Award shall become immediately exercisable (or vested) in full
if, on or prior to the first anniversary of the Acquisition Event, the
Participant terminates his or her employment for Good Reason or is terminated
without Cause by the surviving or acquiring corporation. "Good Reason" shall
mean any significant diminution in the optionee's title, authority, or
responsibilities from and after such Acquisition Event or any reduction in the
annual cash compensation payable to the Participant from and after such
Acquisition Event. "Cause" shall mean any willful misconduct by the Participant
which affects the business reputation of the Company or willful failure by the
Participant to perform his or her material responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company). The Participant
shall be considered to have been discharged for "Cause" if the Company
determines, within 30 days after the Participant's resignation, that discharge
for Cause was warranted.
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (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 merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
ii. Assumption of Options Upon Certain Events. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board
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<PAGE> 7
considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board 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 in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. 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 Award. 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 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.
(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 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.
9. Miscellaneous
a. 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
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<PAGE> 8
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
b. 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 of such shares.
c. Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
e. Stockholder Approval. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
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 State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
on September 22, 1997
Approved by the Stockholders
on ____________, 1997
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<PAGE> 1
FLEXIINTERNATIONAL SOFTWARE, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. Purpose
The purpose of this 1997 Director Stock Option Plan (the "Plan") of
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate outside directors ("Directors") of the
Company by providing such Directors with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders.
2. Eligibility
Each Director of the Company who is not an employee of the Company (an
"Eligible Director") is eligible to be granted options (an "Option") under the
Plan. Any person who has been granted an Option under the Plan shall be deemed a
"Participant".
3. Administration, Delegation
The Plan will be administered by the Board of Directors of the Company
(the "Board"). The Board shall have authority to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Option. No
Director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
4. Stock Available for Options
a. Number of Shares. Subject to adjustment under Section 4(b), Options
may be made under the Plan for up to 200,000 shares of Common Stock. If any
Option expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Option shall
again be
<PAGE> 2
available for the grant of Options under the Plan. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares.
b. Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of securities and exercise price per
share subject to each outstanding Option and (iii) the number and class of
securities available for automatic grants shall be appropriately adjusted by the
Company (or substituted Options may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(b) applies and Section 6(c) also
applies to any event, Section 6(c) shall be applicable to such event, and this
Section 4(b) shall not be applicable.
5. Stock Options
a. Automatic Grants.
(i) Each Eligible Director who is serving on the Board on
the effective date (the "Effective Date") of the
initial public offering (the "IPO") of the Common
Stock and who continues to serve after the closing of
the IPO (an "IPO Director") shall be granted an
Option to purchase 10,000 shares of Common Stock as
of the Effective Date.
(ii) Each IPO Director who is serving on the Board at the
adjournment of the annual meeting of the Company held
in the year 1998 or at the adjournment of any
subsequent annual meeting shall be granted an option
to purchase 7,000 shares of Common Stock at the close
of business on the date of each such adjournment;
provided, however, that no further grants shall be
made after the Eligible Director has received five
such grants.
(iii) Each Eligible Director who is not an IPO Director
shall be granted an Option to purchase 10,000 shares
of Common Stock at the close of business on the date
such Eligible Director is first elected to serve on
the Board.
(iv) Each Eligible Director who is not an IPO Director and
who is serving on the Board at the adjournment of any
annual meeting
2
<PAGE> 3
which begins after the date of his or her election
shall be granted an Option to purchase 7,000 shares
of Common Stock at the close of business on the date
of each such adjournment; provided, however, that no
further grants shall be made after the Eligible
Director has received five such grants.
b. Option Exercise Price. The option exercise price per share for each
Option granted under the Plan shall equal (i) the last reported sales price per
share of the Company's Common Stock as listed on a nationally recognized
securities exchange, on the date of grant (or, if no such price is reported on
such date, such price as reported on the nearest preceding day); or (ii) the
fair market value of the stock on the date of grant, as determined by the Board
of Directors, if the Common Stock is not publicly traded. Notwithstanding the
preceding sentence, the option exercise price per share for each Option granted
on the Effective Date shall be the price per share for which the Common Stock
was offered to the public.
c. Exercise Period. Each Option granted on the Effective Date shall
vest and be exercisable on the first anniversary of the date of the grant of
such option, provided that, subject to the provisions of Section 5(d), no Option
may be exercised more than 90 days after the optionee ceases to serve as a
director of the Company and such option may only be exercised for the purchase
of such number of shares as were vested and exercisable at the time of such
termination. No Option shall be exercisable after the expiration of ten (10)
years from the date of grant or prior to approval of the Plan by the
stockholders of the Company.
d. Exercise Period Upon Death or Disability. Notwithstanding the
provisions of Section 5(c), any Option granted under the Plan:
(i) may be exercised in full by an optionee who becomes
disabled (within the meaning of Section 22(e)(3) of
the Code or any successor provision thereto) while
serving as a Director of the Company; or
(ii) may be exercised
(x) in full upon the death of an optionee while
serving as a Director of the Company, or
(y) to the extent then exercisable upon the
death of an optionee within 90 days of
ceasing to serve as a Director of the
Company,
3
<PAGE> 4
by the person to whom it is transferred by will, by
the laws of descent and distribution, or by written
designation of beneficiary filed with the Company;
in each such case within the period of one year after the date the optionee
ceases to be such a director by reason of such death or disability; provided,
that no Option shall be exercisable after the expiration of ten (10) years from
the date of grant.
e. Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the Company;
ii. except as the Board may otherwise provide in an Option
Agreement, 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 to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
iii. to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
iv. any combination of the above permitted forms of payment.
6. General Provisions Applicable to Options
a. Transferability of Options. Except as the Board may otherwise
determine or provide in an Option, Options 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.
4
<PAGE> 5
b. Documentation. Each Option under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine. Each Option may
contain terms and conditions in addition to those set forth in the Plan.
c. Acquisition Events. Upon the occurrence of an Acquisition Event (as
defined below), the Participant shall have the right to exercise the Option in
full, including with respect to shares of Common Stock as to which it would not
otherwise be exercisable. In the event of an Acquisition Event, the Board shall
notify the Participant in writing or electronically that the Option shall be
fully exercisable for a period of not less than forty-five (45) days from the
date of such notice, and the Option shall terminate upon the expiration of such
period. An "Acquisition Event" shall mean: (a) any merger or consolidation which
results in the voting securities of the Company outstanding immediately prior
thereto representing immediately thereafter (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
merger or consolidation; (b) any sale of all or substantially all of the assets
of the Company; or (c) the complete liquidation of the Company.
d. Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options 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 in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. 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.
e. 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 Option 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.
f. Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part.
5
<PAGE> 6
7. Miscellaneous
a. No Right To Board Membership or Other Status. Neither the Plan nor
the granting of an Option shall be construed as giving a Participant the right
to continue as a Director of the Company.
b. No Rights As Stockholder. Subject to the provisions of the
applicable Options, 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 Option until becoming the record holder of such
shares.
c. Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Options shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Options previously granted may extend beyond
that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
e. Governing Law. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
on September 22, 1997
Approved by the Stockholders
on ____________, 1997
6
<PAGE> 1
FLEXI INTERNATIONAL SOFTWARE, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
September 22, 1997
The purpose of this Plan is to provide eligible employees of
FlexiInternational Software, Inc. (the "Company") and certain of its
subsidiaries with opportunities to purchase shares of the Company's common
stock, $.01 par value (the "Common Stock"). Four Hundred Thousand (400,000)
shares of Common Stock in the aggregate have been approved for this purpose.
1. Administration. The Plan will be administered by the Company's Board of
Directors (the "Board") or by a Committee appointed by the Board (the
"Committee"). The Board or the Committee has authority to make rules and
regulations for the administration of the Plan and its interpretation and
decisions with regard thereto shall be final and conclusive.
2. Eligibility. Participation in the Plan will neither be permitted nor
denied contrary to the requirements of Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"), and regulations promulgated thereunder. All
employees of the Company, including Directors who are employees, and all
employees of any subsidiary of the Company (as defined in Section 424(f) of the
Code) designated by the Board or the Committee from time to time (a "Designated
Subsidiary"), are eligible to participate in any one or more of the offerings of
Options (as defined in Section 9) to purchase Common Stock under the Plan
provided that:
(a) they are customarily employed by the Company or a Designated
Subsidiary for more than 20 hours a week and for more than five months in
a calendar year; and
(b) they have been employed by the Company or a Designated
Subsidiary for at least three months prior to enrolling in the Plan; and
(c) they are employees of the Company or a Designated Subsidiary on
the first day of the applicable Plan Period (as defined below).
No employee may be granted an option hereunder if such employee,
immediately after the option is granted, owns 5% or more of the total combined
voting power or value of the stock of the Company or any subsidiary. For
purposes of the preceding sentence, the attribution rules of Section 424(d) of
the Code shall apply in determining the stock ownership of an employee, and all
stock which the
<PAGE> 2
employee has a contractual right to purchase shall be treated as stock owned by
the employee.
3. Offerings. The Company will make one or more offerings ("Offerings") to
employees to purchase stock under this Plan. Offerings will begin on such date
or dates as may be established by the Board from time to time (the "Offering
Commencement Dates"). Each Offering Commencement Date will begin a 6-month
period (a "Plan Period") during which payroll deductions will be made and held
for the purchase of Common Stock at the end of the Plan Period. The Board or the
Committee may, at its discretion, choose a different Plan Period of twelve (12)
months or less for subsequent Offerings.
4. Participation. An employee eligible on the Offering Commencement Date
of any Offering may participate in such Offering by completing and forwarding a
payroll deduction authorization form to the employee's appropriate payroll
office at least 14 days prior to the applicable Offering Commencement Date. The
form will authorize a regular payroll deduction from the Compensation received
by the employee during the Plan Period. Unless an employee files a new form or
withdraws from the Plan, his deductions and purchases will continue at the same
rate for future Offerings under the Plan as long as the Plan remains in effect.
The term "Compensation" means the amount of money reportable on the employee's
Federal Income Tax Withholding Statement, excluding overtime, shift premium,
incentive or bonus awards, allowances and reimbursements for expenses such as
relocation allowances for travel expenses, income or gains on the exercise of
Company stock options or stock appreciation rights, and similar items, whether
or not shown on the employee's Federal Income Tax Withholding Statement, but
including, in the case of salespersons, sales commissions to the extent
determined by the Board or the Committee.
5. Deductions. The Company will maintain payroll deduction accounts for
all participating employees. With respect to any Offering made under this Plan,
an employee may authorize a payroll deduction in any dollar amount up to a
maximum of 10% of the Compensation he or she receives during the Plan Period or
such shorter period during which deductions from payroll are made.
No employee may be granted an Option (as defined in Section 9) which
permits his rights to purchase Common Stock under this Plan and any other
employee stock purchase plan (as defined in Section 423(b) of the Code) of the
Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the Offering Commencement
Date of the Plan Period) for each calendar year in which the Option is
outstanding at any time.
2
<PAGE> 3
6. Deduction Changes. An employee may decrease or discontinue his payroll
deduction once during any Plan Period, by filing a new payroll deduction
authorization form. However, an employee may not increase his payroll deduction
during a Plan Period. If an employee elects to discontinue his payroll
deductions during a Plan Period, but does not elect to withdraw his funds
pursuant to Section 8 hereof, funds deducted prior to his election to
discontinue will be applied to the purchase of Common Stock on the Exercise Date
(as defined below).
7. Interest. Interest will not be paid on any employee accounts, except to
the extent that the Board or the Committee, in its sole discretion, elects to
credit employee accounts with interest at such per annum rate as it may from
time to time determine.
8. Withdrawal of Funds. An employee may at any time prior to the close of
business on the last business day in a Plan Period and for any reason
permanently draw out the balance accumulated in the employee's account and
thereby withdraw from participation in an Offering. Partial withdrawals are not
permitted. The employee may not begin participation again during the remainder
of the Plan Period. The employee may participate in any subsequent Offering in
accordance with terms and conditions established by the Board or the Committee.
9. Purchase of Shares. On the Offering Commencement Date of each Plan
Period, the Company will grant to each eligible employee who is then a
participant in the Plan an option ("Option") to purchase on the last business
day of such Plan Period (the "Exercise Date"), at the Option Price hereinafter
provided for, the largest number of whole shares of Common Stock of the Company
as does not exceed the number of shares determined by dividing $12,500 by the
closing price (as defined below) on the Offering Commencement Date of such Plan
Period or such other number as may be determined by the Board prior to the
Offering Commencement Date.
The purchase price for each share purchased will be 85% of the closing
price of the Common Stock on (i) the first business day of such Plan Period or
(ii) the Exercise Date, whichever closing price shall be less. Such closing
price shall be (a) the closing price on any national securities exchange on
which the Common Stock is listed, (b) the closing price of the Common Stock on
the Nasdaq National Market or (c) the average of the closing bid and asked
prices in the over-the-counter-market, whichever is applicable, as published in
The Wall Street Journal. If no sales of Common Stock were made on such a day,
the price of the Common Stock for purposes of clauses (a) and (b) above shall be
the reported price for the next preceding day on which sales were made.
Each employee who continues to be a participant in the Plan on the
Exercise Date shall be deemed to have exercised his Option at the Option Price
on such date
3
<PAGE> 4
and shall be deemed to have purchased from the Company the number of full shares
of Common Stock reserved for the purpose of the Plan that his accumulated
payroll deductions on such date will pay for, but not in excess of the maximum
number determined in the manner set forth above.
Any balance remaining in an employee's payroll deduction account at the
end of a Plan Period will be automatically refunded to the employee, except that
any balance which is less than the purchase price of one share of Common Stock
will be carried forward into the employee's payroll deduction account for the
following Offering, unless the employee elects not to participate in the
following Offering under the Plan, in which case the balance in the employee's
account shall be refunded.
10. Issuance of Certificates. Certificates representing shares of Common
Stock purchased under the Plan may be issued only in the name of the employee,
in the name of the employee and another person of legal age as joint tenants
with rights of survivorship, or (in the Company's sole discretion) in the name
of a brokerage firm, bank or other nominee holder designated by the employee.
The Company may, in its sole discretion and in compliance with applicable laws,
authorize the use of book entry registration of shares in lieu of issuing stock
certificates.
11. Rights on Retirement, Death or Termination of Employment. In the event
of a participating employee's termination of employment prior to the last
business day of a Plan Period, no payroll deduction shall be taken from any pay
due and owing to an employee and the balance in the employee's account shall be
paid to the employee or, in the event of the employee's death, (a) to a
beneficiary previously designated in a revocable notice signed by the employee
(with any spousal consent required under state law) or (b) in the absence of
such a designated beneficiary, to the executor or administrator of the
employee's estate or (c) if no such executor or administrator has been appointed
to the knowledge of the Company, to such other person(s) as the Company may, in
its discretion, designate. If, prior to the last business day of the Plan
Period, the Designated Subsidiary by which an employee is employed shall cease
to be a subsidiary of the Company, or if the employee is transferred to a
subsidiary of the Company that is not a Designated Subsidiary, the employee
shall be deemed to have terminated employment for the purposes of this Plan.
12. Optionees Not Stockholders. Neither the granting of an Option to an
employee nor the deductions from his pay shall constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
13. Rights Not Transferable. Rights under this Plan are not transferable
by a participating employee other than by will or the laws of descent and
distribution, and are exercisable during the employee's lifetime only by the
employee.
4
<PAGE> 5
14. Application of Funds. All funds received or held by the Company under
this Plan may be combined with other corporate funds and may be used for any
corporate purpose.
15. Adjustment in Case of Changes Affecting Common Stock. In the event of
a subdivision of outstanding shares of Common Stock, or the payment of a
dividend in Common Stock, the number of shares approved for this Plan, the
number of shares subject to any outstanding Option and the purchase price
thereof shall be adjusted proportionately, and such other adjustment shall be
made as may be deemed equitable by the Board or the Committee. In the event of
any other change affecting the Common Stock, such adjustment shall be made as
may be deemed equitable by the Board or the Committee to give proper effect to
such event.
16. Merger. If the Company shall at any time merge or consolidate with
another corporation and the holders of the capital stock of the Company
immediately prior to such merger or consolidation continue to hold at least 80%
by voting power of the capital stock of the surviving corporation ("Continuity
of Control"), the holder of each Option then outstanding will thereafter be
entitled to receive at the next Exercise Date upon the exercise of such Option
for each share as to which such Option shall be exercised the securities or
property which a holder of one share of the Common Stock was entitled to upon
and at the time of such merger or consolidation, and the Board or the Committee
shall take such steps in connection with such merger or consolidation as the
Board or the Committee shall deem necessary to assure that the provisions of
Section 15 shall thereafter be applicable, as nearly as reasonably may be, in
relation to the said securities or property as to which such holder of such
Option might thereafter be entitled to receive thereunder.
In the event of a merger or consolidation of the Company with or into
another corporation which does not involve Continuity of Control, or of a sale
of all or substantially all of the assets of the Company while unexercised
Options remain outstanding under the Plan, all outstanding Options shall be
cancelled by the Board or the Committee as of the effective date of any such
transaction, provided that notice of such cancellation shall be given to each
holder of an Option, and each holder of an Option shall have the right to
exercise such Option in full based on payroll deductions then credited to his
account as of a date determined by the Board or the Committee, which date shall
not be less than ten (10) days preceding the effective date of such transaction.
17. Amendment of the Plan. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the shareholders of the Company is required by Section 423 of
the Code, such amendment shall not be effected without such approval, and (b) in
no event may any amendment be made which would cause the Plan to fail to comply
with Section 423 of the Code.
5
<PAGE> 6
18. Insufficient Shares. In the event that the total number of shares of
Common Stock specified in elections to be purchased under any Offering plus the
number of shares purchased under previous Offerings under this Plan exceeds the
maximum number of shares issuable under this Plan, the Board or the Committee
will allot the shares then available on a pro rata basis.
19. Termination of the Plan. This Plan may be terminated at any time by
the Board. Upon termination of this Plan all amounts in the accounts of
participating employees shall be promptly refunded.
20. Governmental Regulations. The Company's obligation to sell and deliver
Common Stock under this Plan is subject to listing on a national stock exchange
or quotation on the Nasdaq National Market and the approval of all governmental
authorities required in connection with the authorization, issuance or sale of
such stock.
21. Governing Law. The Plan shall be governed by Delaware law except to
the extent that such law is preempted by federal law.
22. Issuance of Shares. Shares may be issued upon exercise of an Option
from authorized but unissued Common Stock, from shares held in the treasury of
the Company, or from any other proper source.
23. Notification upon Sale of Shares. Each employee agrees, by entering
the Plan, to promptly give the Company notice of any disposition of shares
purchased under the Plan where such disposition occurs within two years after
the date of grant of the Option pursuant to which such shares were purchased or
one year after the date of exercise of the Option.
24. Effective Date and Approval of Shareholders. The Plan shall take
effect on upon the closing of the Company's initial public offering of Common
Stock, subject to approval by the shareholders of the Company as required by
Section 423 of the Code, which approval must occur within twelve months of the
adoption of the Plan by the Board.
Adopted by the Board of Directors
on September 22, 1997
Approved by the stockholders on
_______________, 1997
6
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of May 7, 1996 is entered into by and among
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), and
the list of purchasers set forth on Exhibit A hereto (the "Purchasers").
WHEREAS, certain of the Purchasers are the holders of shares of the
Company's Common Stock, Series A Convertible Preferred Stock and/or Series B
Convertible Preferred Stock; and
WHEREAS, certain of the Purchasers are the holders of warrants to purchase
shares of the Company's Common Stock, Series A Convertible Preferred Stock
and/or Series B Convertible Preferred Stock, and/or promissory notes convertible
into Common Stock of the Company; and
WHEREAS, the Company and certain of the Purchasers have entered into a
Series C Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933, as amended (the "Securities Act");
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share, of
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or
<PAGE> 2
any other form for a similar limited purpose, or any registration statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation).
"Registration Expenses" means the expenses described in Section 5.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of the Shares, (ii) any shares of Common Stock, and any
shares of Common Stock issued or issuable upon the conversion or exercise of any
other securities, acquired by the Purchasers pursuant to the Participation
Agreement of even date herewith among the Company, the Purchasers and Comdisco,
Inc., (iii) any shares of Common Stock issued or issuable upon (A) exercise of
the warrant issued by the Company to The Connecticut Development Authority
("CDA") as of August 1, 1995 or (B) conversion, in accordance with its terms, of
the loan made to the Company by CDA pursuant to the Loan Agreement between the
Company and CDA dated as of August 1, 1995, and (iv) any other shares of Common
Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Registrable Shares shall cease to
be Registrable Shares (x) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act or (y) upon any sale in any manner to a person
or entity which, by virtue of Section 12 of this Agreement, is not entitled to
the rights provided by this Agreement. Wherever reference is made in this
Agreement to a request or consent of holders of a certain percentage of
Registrable Shares, the determination of such percentage shall include shares of
Common Stock issuable upon conversion of the Shares even if such conversion has
not yet been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" shall mean shares of the Company's Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock.
"Stockholders" means the Purchasers and any persons or entities to
whom the rights granted under this Agreement are transferred by any Purchasers,
their successors or assigns pursuant to Section 12 hereof.
2. Required Registrations.
(a) At any time after November 7, 1996 but prior to the closing of
the Company's initial public offering of shares of Common Stock pursuant to an
effective registration statement under the Securities Act at a price of not less
than $3.30 per
2
<PAGE> 3
share (appropriately adjusted to reflect any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) and
resulting in at least $10,000,000 of gross proceeds to the Company (the "Initial
Public Offering"), a Stockholder or Stockholders holding in the aggregate a
majority of the Registrable Shares may request, in writing, that the Company
effect the registration on Form S-1 or Form S-2 (or any successor form) of
Registrable Shares owned by such Stockholder or Stockholders. If the holders
initiating the registration intend to distribute the Registrable Shares by means
of an underwriting, they shall so advise the Company in their request. In the
event such registration is underwritten, the right of other Stockholders to
participate shall be conditioned on such Stockholders' participation in such
underwriting. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Stockholders. Such
Stockholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Stockholders may
request in such notice of election; provided that if the underwriter (if any)
managing the offering determines that, because of marketing factors, all of the
Registrable Shares requested to be registered by all Stockholders may not be
included in the offering, then all Stockholders who have requested registration
shall participate in the registration pro rata based upon the number of
Registrable Shares which they have requested to be so registered. Thereupon, the
Company shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form) of all Registrable
Shares which the Company has been requested to so register.
(b) At any time after the Initial Public Offering, a Stockholder or
Stockholders may request the Company, in writing, to effect the registration on
Form S-1, Form S-2 or Form S-3 (or such successor forms relating to secondary
offerings), of Registrable Shares having an aggregate offering price of at least
$10,000,000 (based on the then current public market price). Upon receipt of any
such request, the Company shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of election;
provided that if the underwriter (if any) managing the offering determines that,
because of marketing factors, all of the Registrable Shares requested to be
registered by all Stockholders may not be included in the offering, then all
Stockholders who have requested registration shall participate in the
registration pro rata based upon the number of Registrable Shares which they
have requested to be so registered. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration of
all Registrable Shares which the Company has been requested to so register.
(c) The Company shall not be required to effect more than one
registration pursuant to paragraph (a) above or more than two registrations
pursuant
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<PAGE> 4
to paragraph (b) above. In addition, the Company shall not be required to effect
any registration (other than on Form S-3 or any successor form relating to
secondary offerings) within six months after the effective date of any other
Registration Statement of the Company.
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 2, the Company is engaged or has fixed plans to engage
within 30 days of the time of the request in a registered public offering as to
which the Stockholders may include Registrable Shares pursuant to Section 3 or
is engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any two-year period.
3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 2) at any time and from time to time, it will,
prior to such filing, give written notice to all Stockholders of its intention
to do so and, upon the written request of a Stockholder or Stockholders given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Stockholder or Stockholders to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided that the Company shall
have the right to postpone or withdraw any registration effected pursuant to
this Section 3 without obligation to any Stockholder.
(b) In connection with any registration under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided that such terms must be consistent with
this Agreement). If in the opinion of the managing underwriter it is appropriate
because of marketing factors to limit the number of Registrable Shares to be
included in the offering, then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein. If the number of Registrable
Shares to be included in the offering in accordance with the foregoing is less
than the total number of shares which the
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<PAGE> 5
holders of Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
4. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder;
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by such selling Stockholders; provided, however, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
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<PAGE> 6
(e) provide a transfer agent and registrar for all Registrable
Shares registered pursuant hereto and a CUSIP number for all such Registrable
Shares, in each case not later than the effective date of such registration; and
(f) use its best efforts to furnish, at the request of any Purchaser
requesting registration of Registrable Shares, on the date that such Registrable
Shares are delivered to the underwriters for sale in connection with a
registration under this Agreement, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the Registration Statement with respect to such securities becomes
effective, (i) an opinion dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Purchasers requesting registration of
Registrable Shares and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Purchasers requesting registration of Registrable Shares.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
5. Allocation of Expenses. The Company will pay all Registration Expenses
of all registrations under this Agreement; provided, however, that if a
registration under Section 2 is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders elect not to have such registration counted as a
registration requested under Section 2, the requesting Stockholders shall pay
the Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section 5, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Company and the fees and expenses
of one counsel selected by the selling Stockholders to represent the selling
Stockholders, to the extent the selling Stockholders are required pursuant to
the terms of any underwriting agreement to
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<PAGE> 7
deliver to the underwriters opinions of counsel, the fees and expenses of
counsel to each selling Stockholder rendering any such opinion (not to exceed
$4,000 in each case), state Blue Sky fees and expenses, and the expense of any
special audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of selling
Stockholders' own counsel (other than as set forth above and other than the
counsel selected to represent all selling Stockholders).
6. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred, as such expenses are incurred, by such seller, underwriter
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or
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<PAGE> 8
controlling person may become subject under the Securities Act, Exchange Act,
state securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such seller furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such Stockholders hereunder shall be limited to
an amount equal to the proceeds to each Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6; and, provided, further, that, to the extent
that any failure of any Indemnified Party to give notice as provided herein
causes any Indemnifying Party to incur costs, damages or expenses, such
Indemnifying Party shall have a claim against such Indemnified Party for such
costs, damages and expenses. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
8
<PAGE> 9
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Stockholder or any such controlling
person in circumstances for which indemnification is provided under this Section
6; then, in each such case, the Company and such Stockholder will contribute to
the aggregate losses, claims, damages or liabilities which they would otherwise
be obligated to indemnify under Section 6(a) or (b) (after contribution from
others) in such proportions so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Shares offered by the Registration Statement bears to the public offering price
of all securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
7. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering. To the
extent that the indemnification provisions of this Agreement addressing the
relative rights and obligations of the Company and the underwriters or the
Stockholders and the underwriters conflict with, or are otherwise modified by,
the indemnification provisions of the underwriting agreement, the provisions of
such underwriting agreement shall control.
8. Information by Holder. Each Stockholder including Registrable Shares in
any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
9
<PAGE> 10
9. "Stand-Off" Agreement. Each Stockholder, if requested by the Company
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by such Stockholder for a
specified period of time (not to exceed 90 days) following the effective date of
such Registration Statement; provided, that:
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all Stockholders holding not less than the number of shares of
Common Stock held by such Stockholder (including shares of Common Stock issuable
upon the conversion of Shares, or other convertible securities, or upon the
exercise of options, warrants or rights) and all officers and directors of the
Company enter into similar agreements.
10. Rule 144 Requirements. After the earliest of (i) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (ii) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
11. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of
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<PAGE> 11
the Company under this Agreement, and for that purpose references hereunder to
"Registrable Shares" shall be deemed to be references to the securities which
the Stockholders would be entitled to receive in exchange for Registrable Shares
under any such merger, consolidation or reorganization; provided, however, that
the provisions of this Section 11 shall not apply in the event of any merger,
consolidation or reorganization in which the Company is not the surviving
corporation if all Stockholders are entitled to receive in exchange for their
Registrable Shares consideration consisting solely of (i) cash, (ii) securities
of the acquiring corporation which may be immediately sold to the public without
registration under the Securities Act, or (iii) securities of the acquiring
corporation which the acquiring corporation has agreed to register within 90
days of completion of the transaction for resale to the public pursuant to the
Securities Act.
12. Transfers of Rights. This Agreement, and the rights and obligations of
each Purchaser hereunder, may be assigned by such Purchaser to any person or
entity to which Shares are transferred by such Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company.
13. Prior Agreement. The Registration Rights Agreement dated as of January
20, 1995, as amended to date, among the Company and certain of the Purchasers
and their affiliates is hereby terminated.
14. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at Two Enterprise Drive, Shelton, Connecticut 06484,
Attention: Stefan R. Bothe, Chairman, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to John K.P. Stone, III, Esq., Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109; or
If to a Purchaser, at his or its address set forth on Exhibit A or at such
other address or addresses as may have been furnished to the Company in writing
by such Purchaser.
Notices provided in accordance with this Section 14(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
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<PAGE> 12
(b) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
(c) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least 80% of the Registrable Shares; provided, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all Registrable Shares in the same fashion. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
Executed as of the date first written above.
COMPANY:
FlexiInternational Software, Inc.
By: /s/ Stefan Bothe
--------------------------------
Title:
--------------------------------
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<PAGE> 13
PURCHASERS:
William Blair Capital Partners V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
------------------------------------
Managing Director
William Blair & Company
By: NOT APPLICABLE
------------------------------------
Title:
Menlo Ventures VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/ Thomas Bredt
------------------------------------
General Partner
Menlo Entrepreneurs Fund VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/ Thomas Bredt
------------------------------------
General Partner
13
<PAGE> 14
Primus Capital Fund III
Limited Partnership
By: Primus Venture Partners III
Limited Partnership,
its General Partner
By: Primus Venture Partners, Inc.
its General Partner
By: /s/ Jonathan E. Dick
------------------------------------
Title: Executive Vice President
Furman Selz SBIC, L.P.
By: Furman Selz SBIC Investments LLC,
its General Partner
By: /s/ James Luikart
------------------------------------
Title: Vice President
/s/ Terrence M. Quinn
------------------------------------------
Terrence M. Quinn
Comdisco, Inc.
By: /s/ Jill C. Hanses
------------------------------------
Title:
CDC Realty, Inc.
By: /s/ Jill C. Hanses
------------------------------------
Title:
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<PAGE> 15
The Connecticut Development Authority
By: /s/ DSR
------------------------------------
Title: Sr. Vice President
and Managing Director
/s/ Christopher McManus
------------------------------------------
Christopher McManus
15
<PAGE> 16
EXHIBIT A
Schedule of Purchasers
Name and Address
William Blair Capital Partners V, L.P.
222 West Adams Street
Chicago, IL 60606
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Primus Capital Fund III
Limited Partnership
Suite 2700
One Cleveland Center
Cleveland, OH 44114
Furman Selz SBIC, L.P.
230 Park Avenue
New York, NY 10169
Terrence M. Quinn
230 Park Avenue
New York, NY 10169
with a copy in each case to:
Steven M. Spurlock, Esq.
Gunderson Dettmer Stough
Villeneuve Franklin
& Hachigan, LLP
600 Hansen Way, Second Floor
Palo Alto, California 94304.
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Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
CDC Realty, Inc.
6111 North River Road
Rosemont, Illinois 60018
The Connecticut Development Authority
845 Brook Street, STE 2
Rocky Hill, CT 06067
Christopher McManus
Offshore Asset Management, Inc.
191 Post Road West
Westport, CT 06880
17
<PAGE> 1
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of February 8, 1994 is entered into by and among
FlexiWare Corporation, a Delaware corporation (the "Company"), and the persons
listed on Exhibit A hereto (the "Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Sale of the Shares.
1.1 Initial Shares. The Company has authorized the issuance and sale
of up to an aggregate of 1,750,000 shares (the "Initial Shares") of its Series A
Convertible Preferred Stock, $.01 par value per share (the "Series A Preferred
Stock"), at a purchase price of $1.16 per share, to Menlo Ventures VI, L.P.
("Menlo VI") and Menlo Entrepreneurs Fund VI, L.P. ("Entrepreneurs VI") (Menlo
VI and Entrepreneurs VI are sometimes collectively referred to herein as the
"Initial Purchasers") in the respective amounts set forth on Exhibit A hereto.
The designation, rights, preferences and other terms and conditions relating to
the Series A Preferred Stock shall be as set forth in the Certificate of
Amendment attached hereto as Exhibit B (the "Certificate of Amendment"). The
Company has, or before the Closing (as defined below) will have, adopted and
filed the Certificate of Amendment with the Secretary of State of the State of
Delaware.
1.2 Closing. The closing of the sale and purchase of the Initial
Shares (the "Closing") shall take place at the offices of Hale and Dorr, 60
State Street, Boston, Massachusetts 02109 at 12:00 p.m. on February 8, 1994, or
at such other time, date and place as are mutually agreeable to the Company and
special counsel to the Initial Purchasers, but in no event later than February
15, 1994. At the Closing, the Company shall deliver to each of the Initial
Purchasers a certificate for the number of Initial Shares being purchased by
such Initial Purchaser, registered in the name of such Initial Purchaser,
against payment to the Company of the purchase price therefor, by wire transfer,
check, or other method acceptable to the Company. The date of the Closing is
hereinafter referred to as the "Closing Date." If at the Closing any of the
conditions specified in Section 5 shall not have been fulfilled, each of the
Initial Purchasers shall, at his or its election, be relieved of all of his or
its obligations under this Agreement without thereby waiving any other rights he
or it may have by reason of such failure or such non-fulfillment.
1.3 Sale of the Secondary Shares. Subject to the occurrence of a
Second Closing (as defined below) on or prior to March 25, 1994, the Company
shall have authorized the issuance and sale of up to an additional 862,069
shares of Series A Preferred Stock (the "Secondary Shares," and, together with
the Initial Shares, the "Shares"), at a purchase price of $1.16 per share, to
one or more additional
<PAGE> 2
Purchasers (the "Secondary Purchasers"), reasonably acceptable to the Initial
Purchasers, who enter into this Agreement by executing one or more counterparts
hereof and whose names shall be set forth on addenda to Exhibit A hereto. Each
such addendum shall be executed by the Company and each such Secondary
Purchaser, and a copy of each such addendum shall be delivered to each Initial
Purchaser and each such addendum shall be deemed a part of this Agreement ab
initio. Each Secondary Purchaser shall also execute the agreements set forth in
Section 5.4 below. Initial Purchasers may also become Secondary Purchasers. Such
purchase and sale of Secondary Shares, if any, shall take place at the Second
Closing.
1.4 The Second Closing. In the event Secondary Purchasers agree to
purchase Secondary Shares from the Company as set forth in Section 1.3 above, a
closing of the sale and purchase of the Secondary Shares (the "Second Closing")
shall take place at the offices of Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109 at such time, date and place as are mutually agreeable to
the Company and special counsel to the Secondary Purchasers, but in no event
later than 45 days after the Closing Date (the "Second Closing Date"). At the
Second Closing, the Company shall deliver to each of the Secondary Purchasers a
certificate for the number of Secondary Shares being purchased by such Secondary
Purchaser, registered in the name of such Secondary Purchaser, against payment
to the Company of the purchase price therefor, by wire transfer, check, or other
method acceptable to the Company. If at the Second Closing any of the conditions
specified in Section 5.8 shall not have been fulfilled, each of the Secondary
Purchasers shall, at his or its election, be relieved of all of his or its
obligations under this Agreement without thereby waiving any other rights he or
it may have by reason of such failure or such non- fulfillment.
1.5 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares for working capital and general corporate purposes.
2. Issuance of a Warrant to the Initial Purchasers. If the Company does
not sell Secondary Shares to Secondary Purchasers on or prior to March 25, 1994,
and in lieu of selling Secondary Shares to any Secondary Purchasers, the Company
shall issue and sell to the Initial Purchasers, and the Initial Purchasers shall
purchase from the Company, for the aggregate consideration of $1.00 (to be paid
pro rata between the Initial Purchasers), warrants (the "Warrants") to purchase
up to an aggregate of 875,000 shares of Series A Preferred Stock at an exercise
price of $1.16 per share in the respective amounts set forth on Exhibit A
hereto. The Warrants shall be substantially in the form attached hereto as
Exhibit C.
3. Representations of the Company. Subject to and except as disclosed by
the Company in Exhibit D hereto, the Company hereby represents and warrants to
each of the Purchasers as follows:
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3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the State of Connecticut and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company. The Company has
furnished to special counsel to the Purchasers true and complete copies of its
Certificate of Incorporation and By-Laws, each as amended to date and presently
in effect.
3.2 Capitalization. The authorized capital stock of the Company on
the date hereof, after filing the Certificate of Amendment with the Secretary of
State of the State of Delaware and after giving effect to a 4900% stock dividend
distributed to holders of Common Stock, but prior to the consummation of the
transactions contemplated by this Agreement, shall consist of 10,000,000 shares
of common stock, $.01 par value per share (the "Common Stock"), of which
5,042,850 shares shall be issued and outstanding, and 2,625,000 shares of
Preferred Stock, $.01 par value per share, of which 2,625,000 shares shall have
been designated as Series A Preferred, none of which shares shall be issued or
outstanding. All of the issued and outstanding shares of Common Stock have been
duly authorized and validly issued and are fully paid and non-assessable. Except
as set forth in Exhibit D hereto or provided in this Agreement, (i) no
subscription, warrant, option, convertible security or other right (contingent
or otherwise) to purchase or acquire any shares of capital stock of the Company
is authorized or outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option, convertible security or
other such right or to issue or distribute to holders of any shares of its
capital stock any evidences of indebtedness or assets of the Company, and (iii)
the Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any shares of its capital stock or any interest therein or to
pay any dividend or make any other distribution in respect thereof. All of the
issued and outstanding shares of capital stock of the Company have been offered,
issued and sold by the Company in compliance with applicable Federal and state
securities laws.
3.3 Subsidiaries, Etc. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.
3.4 Stockholder List and Agreements. Attached as Exhibit E is a true
and complete list of the stockholders of the Company, showing the number of
shares of Common Stock or other securities of the Company held by each
stockholder as of
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the date of this Agreement. Except as provided in this Agreement, there are no
agreements, written or oral, between the Company and any holder of its capital
stock, or, to the best of the Company's knowledge, among any holders of its
capital stock, relating to the acquisition (including without limitation rights
of first refusal or pre-emptive rights), disposition, registration under the
Securities Act of 1933, as amended (the "Securities Act"), or voting of the
capital stock of the Company.
3.5 Issuance of Shares. The issuance, sale and delivery of the
Shares and Warrants, if any, in accordance with this Agreement, and the issuance
and delivery of the shares of Common Stock issuable upon conversion of the
Shares and Warrants, if any, have been, or will be on or prior to the Closing or
the date of issuance of the Warrants, if any (as the case may be), duly
authorized by all necessary corporate action on the part of the Company, and all
such shares have been duly reserved for issuance. The Shares and Warrants, if
any, when so issued, sold and delivered against payment therefor in accordance
with the provisions of this Agreement, and the shares of Common Stock issuable
upon conversion of the Shares and Warrants, if any, when issued upon such
conversion, will be duly and validly issued, fully paid and non-assessable.
3.6 Authority for Agreement. The execution, delivery and performance
by the Company of this Agreement and all other agreements required to be
executed by the Company on or prior to the Closing pursuant to Section 5.4 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws
relating to or affecting the rights of creditors generally, constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Ancillary Agreements and compliance with
their provisions by the Company will not violate any provision of law and will
not conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
3.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to
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and shall be effective on and as of the Closing. Based on the representations
made by each of the Purchasers in Section 4 of this Agreement, the offer and
sale of the Shares to each of the Purchasers will be in compliance with
applicable Federal and state securities laws.
3.8 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it, or which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, assets or condition,
financial or otherwise, of the Company, nor is there any litigation pending, or,
to the best of the Company's knowledge, any basis therefor or threat thereof,
against the Company by reason of the proposed activities of the Company, or
negotiations by the Company with possible investors in the Company. In addition
to the foregoing, to the best of the Company's knowledge after reasonable
inquiry, there are no actions, suits, proceedings or investigations pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers.
3.9 Financial Statements. The Company has furnished to each of the
Purchasers a complete and correct copy of the unaudited balance sheet of the
Company (the "Balance Sheet") as at December 31, 1993 (the "Balance Sheet Date")
and the related statements of operations for the fiscal year ended December 31,
1993, compiled by the Company (collectively, the "Financial Statements"). The
Financial Statements are complete and correct, are in accordance with the books
and records of the Company and present fairly the financial condition and
results of operations of the Company, as at the dates and for the periods
indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.
3.10 Absence of Liabilities. The Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$10,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
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3.11 Taxes. The amount shown on the Balance Sheet as provision for
taxes is sufficient in all material respects for payment of all accrued and
unpaid Federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently effective
extensions with respect to all Federal, state, county, local and foreign tax
returns which are required to be filed by it, such returns are true and correct
and all taxes shown thereon to be due have been timely paid with exceptions not
material to the Company. Federal income tax returns of the Company have not been
audited by the Internal Revenue Service, and no controversy with respect to
taxes of any type is pending or, to the best of the Company's knowledge,
threatened. The Company has elected pursuant to Section 1362(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S
corporation. Such election will terminate on the Closing Date. The Company has
not elected to be treated as a collapsible corporation pursuant to Section
341(f) of the Code, nor has it made any other elections pursuant to the Code
(other than elections that relate solely to methods of accounting, depreciation
or amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets.
3.12 Property and Assets. The Company has good title to all of its
material properties and assets, including all properties and assets reflected in
the Balance Sheet, except those disposed of since the date thereof in the
ordinary course of business, and none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or encumbrance
other than those the material terms of which are described in the Balance Sheet.
3.13 Intellectual Property. Set forth on Exhibit D is a true and
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names, copyright registrations
and licenses presently used by the Company or necessary for the conduct of the
Company's business as conducted and as proposed to be conducted, as well as any
agreement under which the Company has access to any confidential information
used by the Company in its business (the "Intellectual Property Rights"). The
Company owns, or has the right to use under the agreements or upon the terms
described in Exhibit D, all of the Intellectual Property Rights, and has taken
all actions reasonably necessary to protect the Intellectual Property Rights.
The business conducted or proposed by the Company does not and will not cause
the Company to infringe or violate any of the patents, trademarks, service
marks, trade names, copyrights, licenses, trade secrets or other intellectual
property rights of any other person or entity. To the best of the Company's
knowledge after reasonable inquiry, the Company is not aware that any employee
is obligated under any contract (including any license, covenant or commitment
of any nature), or subject to any judgment, decree or order of any court or
administrative agency, that would conflict or interfere with (i) the performance
of such employee's duties as an officer, employee or director of the Company,
(ii) the
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use of such employee's best efforts to promote the interests of the Company or
(iii) the Company's business as conducted or proposed to be conducted. To the
best of the Company's knowledge after reasonable inquiry, no other person or
entity (including without limitation any prior employer of any employee of the
Company) has any right to or interest in any inventions, improvements,
discoveries or other confidential information utilized by the Company in its
business.
3.14 Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
3.15 Material Contracts and Obligations. Exhibit D sets forth a list
of all material agreements or commitments of any nature to which the Company is
a party or by which it is bound, including without limitation (a) each agreement
which requires future expenditures by the Company in excess of $10,000 or which
might result in payments to the Company in excess of $10,000 (b) all employment
and consulting agreements, employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements, and distributor
and sales representative agreements, (c) any agreement with any stockholder,
officer or director of the Company, or any "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity and (d) any agreement relating to the Intellectual Property Rights. The
Company has delivered to special counsel to the Purchasers copies of such of the
foregoing agreements as such counsel has requested. All of such agreements and
contracts are valid, binding and in full force and effect.
3.16 Compliance. The Company has, in all material respects, complied
with all laws, regulations and orders applicable to its present and proposed
business and has all material permits and licenses required thereby. There is no
term or provision of any mortgage, indenture, contract, agreement or instrument
to which the Company is a party or by which it is bound, or, to the best of the
Company's knowledge after reasonable inquiry, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to materially
adversely affect, the business, prospects, assets or condition, financial or
otherwise, of the Company. To the best of the Company's knowledge after
reasonable inquiry, no employee of the Company is in violation of any term of
any contract or covenant (either with the Company or
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with another entity) relating to employment, patents, proprietary information
disclosure, non-competition or non-solicitation.
3.17 Absence of Changes. Since the Balance Sheet Date, there has
been no material adverse change in the condition, financial or otherwise, net
worth or results of operations of the Company, other than changes occurring in
the ordinary course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
3.18 Employees. All employees of the Company have executed and
delivered nondisclosure and assignment of invention agreements, and all of such
agreements are in full force and effect. None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
3.19 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
3.20 Books and Records. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
3.21 Disclosures. The Company has fully provided each Purchaser with
all the information that such Purchaser has requested for deciding whether to
purchase the Shares and the Warrants, if any. Neither this Agreement nor any
Exhibit hereto, nor any report, certificate or instrument furnished to any of
the Purchasers or their special counsel in connection with the transactions
contemplated by this Agreement, when read together, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The
Company knows of no information or fact which has or would have a material
adverse effect on the business, prospects, assets or condition, financial or
otherwise, of the Company which has not been disclosed in Exhibit D.
3.22 U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
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3.23 Related-Party Transactions. No employee, officer, or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
3.24 Permits. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
3.25 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety and to the best of
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.26 Manufacturing and Marketing Rights. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
3.27 Registration Rights. Except as provided in the Registration
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
3.28 Status as Qualified Small Business. On the Closing Date, the
Company will be a "qualified small business" as defined in Section 1202(d) of
the Code, and so long as the Initial Shares are held by an Initial Purchaser (or
a transferee in whose hands the Initial Shares are eligible to qualify as
"qualified small business stock" as defined in Section 1202(c) of the Code), the
Company will:
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(a) use its best efforts to cause the Initial Shares to
qualify as qualified small business stock, provided that nothing herein shall
restrict or prevent the Company's Board of Directors from carrying out its
fiduciary obligations to act in the Company's best interests at all times, and
provided further that the Company's best efforts undertakings hereunder shall
terminate on the seventh anniversary of the Closing Date; and
(b) submit such reports to the Internal Revenue Service and to
the Initial Purchasers as may be required pursuant to Section 1202(d)(1)(C) of
the Code; and
(c) retain, until the applicable statute of limitations
(including any extensions) has expired, copies of all tax returns, supporting
work schedules and other records or information which may be relevant to such
tax returns for all tax periods before and after the Closing and shall not
destroy or otherwise dispose of any such records without first providing the
Initial Purchasers with a reasonable opportunity to review and copy the same.
The Company shall keep the original copies of the records at its facilities in
Connecticut and elsewhere, if applicable, and, at the Initial Purchasers'
expense, shall provide copies of the records to each Initial Purchaser upon such
Initial Purchaser's request. Neither the furnishing of any information pursuant
to this Section 3.28 nor any investigation by the Initial Purchasers of the
Company shall affect the Initial Purchasers' rights to rely on the
representations, warranties, agreements and covenants made by the Company
elsewhere in this Agreement.
4. Representations of the Purchasers. Each of the Purchasers severally
represents and warrants to the Company as follows:
4.1 Accredited Investor. Such Purchaser is an "accredited investor"
within the meaning of Rule 501 under the Securities Act of 1933, as amended.
4.2 Investment. Such Purchaser is acquiring the Shares, and the
shares of Common Stock into which the Shares may be converted, for his or its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, such Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof.
4.3 Authority. Such Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
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4.4 Experience. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which he or it has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company and is able financially to bear the risks thereof. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 3 of this Agreement or the right of the Purchasers to
rely thereon.
5. Conditions to the Obligations of the Purchasers. The obligation of each
of the Initial Purchasers to purchase Initial Shares at the Closing is subject
to the fulfillment, or the waiver by such Initial Purchaser, of each of the
following conditions on or before the Closing:
5.1 Accuracy of Representations and Warranties. Each representation
and warranty contained in Section 3 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
5.2 Performance. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
5.3 Opinion of Counsel. Each Initial Purchaser shall have received
an opinion from Hale and Dorr, counsel for the Company, dated the Closing Date,
addressed to the Initial Purchasers, substantially in the form attached hereto
as Exhibit F.
5.4 Ancillary Agreements.
(a) The Stockholders' Voting Agreement attached hereto as
Exhibit G (the "Stockholders' Voting Agreement") shall have been executed and
delivered by the Company, by each of the Initial Purchasers and by each of the
Founders (as defined therein). All such action shall have been taken as may be
necessary to elect a Board of Directors of the Company, effective upon the
Closing, in accordance with the Stockholders' Voting Agreement.
(b) The Registration Rights Agreement attached hereto as
Exhibit H (the "Registration Rights Agreement") shall have been executed and
delivered by the Company and each of the Initial Purchasers.
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(c) The Right of First Refusal and Co-Sale Agreement attached
hereto as Exhibit I shall have been executed and delivered by each of the
Initial Purchasers and the other parties named therein.
(d) The Participation Agreement attached hereto as Exhibit J
shall have been executed and delivered by the Company and each of the Initial
Purchasers.
5.5 Certificates and Documents. The Company shall have delivered to
special counsel to the Initial Purchasers:
(a) The Certificate of Incorporation of the Company, as amended and in
effect as of the Closing Date (including the Certificate of Amendment),
certified by the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as to the
corporate good standing of the Company issued by the Secretary of State of the
State of Delaware and the Secretary of the State of the State of Connecticut;
(c) By-laws of the Company, certified by its Secretary or Assistant
Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company, authorizing and
approving all matters in connection with this Agreement and the transactions
contemplated hereby, certified by the Secretary or Assistant Secretary of the
Company as of the Closing Date.
5.6 Compliance Certificate. The Company shall have delivered to the
Initial Purchasers a certificate, executed by the Chairman of the Company, dated
the Closing Date, certifying to the fulfillment of the conditions specified in
Sections 5.1, 5.2, 5.4 and 5.5 of this Agreement.
5.7 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Initial Purchasers and their special counsel, and the
Initial Purchasers and their special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
5.8 Conditions Precedent to Second Closing. The obligation of the
Secondary Purchasers to purchase and pay for the Secondary Shares to be
purchased at a Second Closing, if any, is subject to (a) the delivery to each
Secondary Purchaser of a certificate, dated the Second Closing Date, signed by
the Chairman of the Company, to the effect that (i) other than as disclosed in a
schedule, which shall be
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reasonably satisfactory to the Secondary Purchasers, attached to such
certificate or as contemplated by this Agreement, the representations and
warranties of the Company contained herein were true and correct when made and
are true and correct in all material respects on and as of the Second Closing
Date (it being understood that, in the latter case, any reference to the Closing
contained in Section 3 shall be deemed to be a reference to the Second Closing)
and (ii) the Company has performed and complied in all material respects with
all covenants, agreements and conditions contained in this Agreement required to
be performed or complied with by it on or prior to the date of the Second
Closing (it being understood that any reference to the Initial Purchasers or
Closing contained in Section 5 shall be deemed to be a reference to the
Secondary Purchasers and Second Closing, respectively), and (b) the delivery to
each Secondary Purchaser of an opinion, dated the date of the Second Closing
Date, of Hale and Dorr to the same effect as the opinion referred to in Section
5.3 of this Agreement. The Secondary Purchasers may, in their sole discretion,
waive any of the foregoing conditions.
6. Condition to the Obligations of the Company. The obligations of the
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following condition on or before the Closing (or the Second
Closing, as the case may be):
6.1 Accuracy of Representations and Warranties. The representations
and warranties of the Purchasers contained in Section 4 shall be true on and as
of the Closing Date (or the Second Closing Date, as the case may be) with the
same effect as though such representations and warranties had been made on and
as of that date.
7. Covenants of the Company.
7.1 Financial Statements and Other Information.
(a) The Company shall deliver to each Major Purchaser (as
defined in paragraph (c) below):
(i) as soon as available, but in any event within 30 days after
commencement of each new fiscal year, a business plan and projected financial
statements for the upcoming fiscal year, in reasonable detail and broken down on
a monthly basis; and
(ii) within 20 days after the end of each month, an unaudited balance
sheet of the Company as at the end of such month and unaudited statements of
income and of cash flows of the Company for such month and for the current
fiscal year to the end of such month, setting forth in comparative form (x) the
Company's projected financial statements for the corresponding periods for the
current fiscal year and (y)
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the Company's financial statements for the corresponding periods for the prior
fiscal year.
(b) Beginning with the Company's 1994 fiscal year, the Company
shall have an audit performed by a nationally recognized accounting firm.
(c) For purposes of this Agreement, the term "Major Purchaser"
shall mean a Purchaser purchasing not less than 250,000 Shares. For purposes of
determining the number of Shares held by a Purchaser, the foregoing numbers
shall be adjusted for any stock splits, stock dividends, recapitalizations or
similar events. Notwithstanding the foregoing, the Shares shall not include
Shares which have been converted into Common Stock or Shares sold or distributed
to persons other than the original Purchasers (including without limitation
Shares acquired by affiliates, shareholders or partners of Purchasers).
7.2 Key Man Insurance. For a period of five years after the Closing
Date, the Company shall maintain term life insurance upon the lives of Stefan R.
Bothe and James W. Schenck in the amount of $1,000,000 each, with the proceeds
payable to the Company.
7.3 Nondisclosure Agreements. The Company shall require all persons
now or hereafter employed by the Company to maintain or enter into nondisclosure
and assignment of inventions agreements in such form as may be approved by the
Board of Directors of the Company.
7.4 Expenses of Directors. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company and who
was elected as a director solely or in part by the holders of Series A Preferred
Stock for all of his reasonable out-of-pocket expenses incurred (a) in attending
each meeting of the Board of Directors of the Company or any committee thereof
and (b) subject to the prior approval of the Board of Directors of the Company,
when otherwise acting on behalf of the Company.
7.5 Reservation of Common Stock. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
7.6 Director and Officer Liability Insurance. The Company shall use
its best efforts to obtain and keep director and officer liability insurance in
the minimum amount of $1,000,000; provided, however, that such coverage is
available at commercially reasonable rates. Such coverage shall be kept in place
so long as any representative of the Purchasers serves on the Company's Board of
Directors.
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<PAGE> 15
7.7 Termination of Covenants. The covenants of the Company contained
in this Section 7 shall terminate, and be of no further force or effect, upon
the effective date of a registration statement filed by the Company under the
Securities Act covering the Company's first public offering of Common Stock,
resulting in gross proceeds to the Company of at least $10,000,000.
8. Transfer of Shares.
8.1 Restricted Shares. "Restricted Shares" means (i) the Shares,
(ii) the shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by the
Purchasers pursuant to the Right of First Refusal Agreement, and (iv) any other
shares of capital stock of the Company issued in respect of such shares (as a
result of stock splits, stock dividends, reclassifications, recapitalizations,
or similar events); provided, however, that shares of Common Stock which are
Restricted Shares shall cease to be Restricted Shares (i) upon any sale pursuant
to the Registration Rights Agreement, Section 4(1) of the Securities Act or Rule
144 under the Securities Act or (ii) at such time as they become eligible for
sale under Rule 144(k) under the Securities Act.
8.2 Requirements for Transfer.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for (i) a transfer by a Purchaser which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 8 to the same extent as if he were an original
Purchaser hereunder, or (ii) a transfer made in accordance with Rule 144 under
the Securities Act.
8.3 Legend. Each certificate representing Restricted Shares shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, and may not be offered, sold or
otherwise transferred, pledged or hypothecated unless and until such
shares are registered under such Act or an opinion of counsel satisfactory
to the Company is obtained to the effect that such registration is not
required."
15
<PAGE> 16
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
9. Miscellaneous.
9.1 Successors and Assigns. Unless otherwise provided herein, this
Agreement, and the rights and obligations of each Purchaser hereunder, may be
assigned by such Purchaser to any person or entity to which Shares are
transferred by such Purchaser, and such transferee shall be deemed a "Purchaser"
for purposes of this Agreement; provided that the transferee provides written
notice of such assignment to the Company.
9.2 Confidentiality.
(a) All disclosures of technology, ideas, formulas, processes,
inventions and other technical, financial, business and customer information
("Information") made to the Purchasers will be deemed non-confidential unless
specifically designated at the time of disclosure as including Information which
is confidential to the Company. Such confidential Information will contain an
appropriate legend identifying the Information as confidential. If such
disclosure is made other than in writing, it shall be identified at the time of
disclosure as being confidential and shall be confirmed in a writing within 20
days following such disclosure. The writing will specifically recite that which
is confidential in sufficient detail to allow the Purchasers to identify that
Information deemed to be confidential.
(b) Each Purchaser agrees to use the same care and discretion
to avoid disclosure, publication or dissemination of received confidential
Information as that Purchaser employs with respect to similar information of its
own which it does not desire to publish, disclose or disseminate; provided,
however, that a Purchaser may disclose such Information (i) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their services in connection with the Purchaser's investment in the
Company, (ii) to any prospective purchaser of any Shares from such Purchaser as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section, (iii) to any affiliate of such Purchaser or to a
Partner, shareholder or subsidiary of such Purchaser or (iv) in response to a
valid judicial or governmental order or if necessary to establish rights under
this Agreement. Moreover, the obligations of confidentiality contained in this
Section will not apply to any Information that: (i) is already in the possession
of, or is independently developed by, the Purchasers, (ii) is or becomes
publicly available without breach of this Section, (iii) is rightly received
from a third party or (iv) the Company makes available to other parties without
restriction.
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<PAGE> 17
9.3 Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
9.4 Expenses. The Company shall pay the reasonable costs and
expenses of Brobeck, Phleger and Harrison, special counsel to the Purchasers, in
connection with the preparation of this Agreement and the other agreement
contemplated hereby and the closing of the transactions contemplated hereby, up
to a maximum of $10,000. Notwithstanding the foregoing, in the event that the
transactions contemplated by this Agreement do not close for any reason, each
party shall be responsible for its own legal costs incurred.
9.5 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at One Research Drive, Shelton, Connecticut 06484,
Attention: Chairman, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchasers, with a copy to John K. P.
Stone, III, Esq., Hale and Dorr, 60 State Street, Boston, MA 02109;
If to a Purchaser, at his or its address set forth on Exhibit A, or at
such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Steven Spurlock, Esq., Brobeck,
Phleger & Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303.
Notices provided in accordance with this Section 9.5 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
9.6 Brokers. The Company and each Purchaser (i) represents and
warrants to the other parties hereto that he or it has retained no finder or
broker in connection with the transactions contemplated by this Agreement, and
(ii) will indemnify and save the other parties harmless from and against any and
all claims, liabilities or obligations with respect to brokerage or finders'
fees or commissions, or consulting fees in connection with the transactions
contemplated by this Agreement asserted by any person on the basis of any
statement or representation alleged to have been made by such indemnifying
party.
9.7 Entire Agreement. This Agreement and the Ancillary Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings relating to such subject matter.
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<PAGE> 18
9.8 Amendments and Waivers. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least 51% of the shares of Common Stock issued
or issuable upon conversion of the Shares. Any amendment or waiver effected in
accordance with this Section 9.8 shall be binding upon each holder of any Shares
(including shares of Common Stock into which such Shares have been converted),
each future holder of all such securities and the Company. No waivers of or
exceptions to any term, condition or provision of this Agreement, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
9.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
9.10 Section Headings. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
9.11 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
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<PAGE> 19
9.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
EXECUTED as of the date first above written.
COMPANY:
FlexiWare Corporation
By: /s/Stefan Bothe
--------------------------------
Title: CEO
INITIAL PURCHASERS:
Menlo Ventures VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/Thomas Bredt
--------------------------------
General Partner
Menlo Entrepreneurs Fund VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/Thomas Bredt
--------------------------------
General Partner
19
<PAGE> 20
EXHIBIT A
Schedule of Initial Purchasers
<TABLE>
<CAPTION>
Initial
Shares Purchase Warrant
Name and Address Purchased Price Shares
- ---------------- --------- ------- ------
<S> <C> <C> <C>
Menlo Ventures VI, L.P. 1,724,138 $2,000,000.08 861,875
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs
Fund VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025 25,862 $29,999.92 13,125
</TABLE>
20
<PAGE> 1
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of January 20, 1995 is entered into by and among
FlexiInternational Software, Inc., a Delaware Corporation (the "Company"), and
the persons listed on Exhibit A hereto (the "Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Sale of the Shares.
1.1 The Shares. The Company has authorized the issuance and sale of
up to an aggregate of 2,688,000 shares (the "Shares") of its Series B
Convertible Preferred Stock, $.01 par value per share (the "Series B Preferred
Stock"), at a purchase price of $1.50 per share to William Blair & Company
("WBC"), Menlo Ventures VI, L.P., ("Menlo VI"), Menlo Entrepreneurs Fund VI,
L.P. ("Entrepreneurs VI"), and Primus Capital Fund III Limited Partnership
("Primus") (WBC, Menlo VI, Entrepreneurs VI, and Primus are sometimes
collectively referred to herein as the "Purchasers") in the respective amounts
set forth on Exhibit A hereto. The designation, rights, preferences and other
terms and conditions relating to the Series B Preferred Stock shall be as set
forth in the Certificate of Amendment attached hereto as Exhibit B (the
"Certificate of Amendment"). The Company has, or before the Closing (as defined
below) will have, adopted and filed the Certificate of Amendment with the
Secretary of State of the State of Delaware.
1.2 Closing. The closing of the sale and purchase of the Shares (the
"Closing") shall take place at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109 at 12:00 p.m. on January 20, 1995, or at such other
time, date and place as are mutually agreeable to the Company and special
counsel to the Purchasers, but in no event later than February 10, 1995. At the
Closing, the Company shall deliver to each of the Purchasers a certificate for
the number of Shares being purchased by such Purchaser, registered in the name
of such Purchaser, against payment to the Company of the purchase price
therefor, by wire transfer, check, or other method acceptable to the Company,
provided that a portion of the purchase price payable, respectively, by Menlo
VI, Entrepreneurs VI and Primus equal in amount to the outstanding principal and
interest accrued to the date of the Closing under the Convertible Promissory
Notes issued by the Company to them dated November 21, 1994 in the respective
principal amounts of $666,667, $10,000 and $333,333 shall be paid by the
cancellation and surrender of such Notes. The date of the Closing is hereinafter
referred to as the "Closing Date." If at the Closing any of the conditions
specified in Section 4 shall not have been fulfilled, each of the Purchasers
shall, at its election, be relieved of all of its obligations under this
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<PAGE> 2
Agreement without thereby waiving any other rights it may have by reason of such
failure or such non-fulfillment.
1.3 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares for working capital and general corporate purposes.
2. Representations of the Company. Subject to and except as disclosed by
the Company in Exhibit C hereto, the Company hereby represents and warrants to
each of the Purchasers as follows:
2.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the State of Connecticut and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company. The Company has
furnished to special counsel to the Purchasers true and complete copies of its
Certificate of Incorporation and By-Laws, each as amended to date and presently
in effect.
2.2 Capitalization. The authorized capital stock of the Company on
the date hereof, after filing the Certificate of Amendment with the Secretary of
State of the State of Delaware, but prior to the consummation of the
transactions contemplated by this Agreement, shall consist of 15,000,000 shares
of common stock, $.01 par value per share (the "Common Stock"), of which
4,987,500 shares shall be issued and outstanding, and 5,528,517 shares of
Preferred Stock, $.01 par value per share, of which 2,840,517 shares have been
designated as Series A Preferred, of which 2,784,483 shares shall be issued and
outstanding, and of which 2,688,000 shares shall have been designated as Series
B Preferred, none of which shares shall be issued or outstanding. All of the
issued and outstanding shares of Common Stock and all of the issued and
outstanding shares of Series A Preferred Stock have been duly authorized and
validly issued and are fully paid and non-assessable. Except as set forth in
Exhibit C hereto or provided in this Agreement, (i) no subscription, warrant,
option, convertible security or other right (contingent or otherwise) to
purchase or acquire any shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or otherwise) to
issue any subscription, warrant, option, convertible security or other such
right or to issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company, and (iii) the Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof. All of the issued
and outstanding shares of capital stock of the Company
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<PAGE> 3
have been offered, issued and sold by the Company in compliance with applicable
Federal and state securities laws.
2.3 Subsidiaries, Etc. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.
2.4 Stockholder List and Agreements. Attached as Exhibit D is a true
and complete list of the stockholders of the Company, showing the number of
shares of Common Stock or other securities of the Company held by each
stockholder as of the date of this Agreement. Except as provided in this
Agreement, there are no agreements, written or oral, between the Company and any
holder of its capital stock, or, to the best of the Company's knowledge, among
any holders of its capital stock, relating to the acquisition (including without
limitation rights of first refusal or pre-emptive rights), disposition,
registration under the Securities Act of 1933, as amended (the "Securities
Act"), or voting of the capital stock of the Company.
2.5 Issuance of Shares. The issuance, sale and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares have been, or will
be on or prior to the Closing, duly authorized by all necessary corporate action
on the part of the Company, and all such shares have been duly reserved for
issuance. The Shares, when so issued, sold and delivered against payment
therefor in accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of the Shares and Warrants, if any, when
issued upon such conversion, will be duly and validly issued, fully paid and
non-assessable.
2.6 Authority for Agreement. The execution, delivery and performance
by the Company of this Agreement and all other agreements required to be
executed by the Company on or prior to the Closing pursuant to Section 4.4 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws
relating to or affecting the rights of creditors generally, constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Ancillary Agreements and compliance with
their provisions by the Company will not violate any provision of law and will
not conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which
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<PAGE> 4
the Company is a party or by which it or any of its properties is bound, or any
decree, judgment, order, statute, rule or regulation applicable to the Company.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by each of the Purchasers in Section
4 of this Agreement, the offer and sale of the Shares to each of the Purchasers
will be in compliance with applicable Federal and state securities laws.
2.8 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it, or which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, assets or condition,
financial or otherwise, of the Company, nor is there any litigation pending, or,
to the best of the Company's knowledge, any basis therefor or threat thereof,
against the Company by reason of the proposed activities of the Company, or
negotiations by the Company with possible investors in the Company. In addition
to the foregoing, to the best of the Company's knowledge after reasonable
inquiry, there are no actions, suits, proceedings or investigations pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers, or their obligations under any agreements with prior
employers.
2.9 Financial Statements. The Company has furnished to each of the
Purchasers a complete and correct copy of the unaudited balance sheet of the
Company (the "Balance Sheet") as at December 31, 1994 (the "Balance Sheet Date")
and the related statements of operations for the fiscal year ended December 31,
1994, compiled by the Company (collectively, the "Financial Statements"). The
Financial Statements are complete and correct, are in accordance with the books
and records of the Company and present fairly the financial condition and
results of operations of the Company, as at the dates and for the periods
indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are
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<PAGE> 5
subject to normal year-end audit adjustments which in the aggregate will not be
material.
2.10 Absence of Liabilities. The Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$10,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
2.11 Taxes. The amount shown on the Balance Sheet as provision for
taxes is sufficient in all material respects for payment of all accrued and
unpaid Federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently effective
extensions with respect to all Federal, state, county, local and foreign tax
returns which are required to be filed by it, such returns are true and correct
and all taxes shown thereon to be due have been timely paid with exceptions not
material to the Company. Federal income tax returns of the Company have not been
audited by the Internal Revenue Service, and no controversy with respect to
taxes of any type is pending or, to the best of the Company's knowledge,
threatened. The Company has not elected to be treated as a collapsible
corporation pursuant to Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a material
effect on the Company, its financial condition, its business as presently
conducted or proposed to be conducted or any of its properties or material
assets.
2.12 Property and Assets. The Company has good title to all of its
material properties and assets, including all properties and assets reflected in
the Balance Sheet, except those disposed of since the date thereof in the
ordinary course of business, and none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or encumbrance
other than those the material terms of which are described in the Balance Sheet.
2.13 Intellectual Property. Set forth on Exhibit C is a true and
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names, copyright registrations
and licenses presently used by the Company or necessary for the conduct of the
Company's business as conducted and as proposed to be conducted, as well as any
agreement under which the Company has access to any confidential information
used by the Company in its business (the "Listed Intellectual Property Rights").
The Company owns, or has the right to use under the agreements or upon the terms
described in Exhibit C, all of the Listed Intellectual Property Rights and Other
Intellectual Property Rights, and has taken all actions reasonably necessary to
protect the Listed Intellectual Property Rights and Other Intellectual Property
Rights. The business
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<PAGE> 6
conducted or proposed by the Company does not and will not cause the Company to
infringe or violate any of the patents, trademarks, service marks, trade names,
copyrights, licenses, trade secrets or other intellectual property rights of any
other person or entity. To the best of the Company's knowledge after reasonable
inquiry, the Company is not aware that any employee is obligated under any
contract (including any license, covenant or commitment of any nature), or
subject to any judgment, decree or order of any court or administrative agency,
that would conflict or interfere with (i) the performance of such employee's
duties as an officer, employee or director of the Company, (ii) the use of such
employee's best efforts to promote the interests of the Company or (iii) the
Company's business as conducted or proposed to be conducted. To the best of the
Company's knowledge after reasonable inquiry, no other person or entity
(including without limitation any prior employer of any employee of the Company)
has any right to or interest in any Listed Intellectual Property Rights or Other
Intellectual Property Rights utilized by the Company in its business. The term
"Other Intellectual Property Rights" means, to the extent not included in the
term "Listed Intellectual Property Rights," all (i) patent disclosures and
inventions, (ii) trademarks, service marks, trade dress, trade names and
corporate names and registrations and applications for registration thereof,
(iii) copyrights and registrations and applications for registration thereof,
(iv) mask works and registrations and applications for registration thereof, (v)
computer software, data and documentation, (vi) trade secrets and other
confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights, and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
2.14 Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
2.15 Material Contracts and Obligations. Exhibit C sets forth a list
of all material agreements or commitments of any nature to which the Company is
a party or by which it is bound, including without limitation (a) each agreement
which requires future expenditures by the Company in excess of $10,000 or which
might result in payments to the Company in excess of $10,000 (b) all employment
and consulting agreements, employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements, and distributor
and sales representative agreements, (c) any agreement with any stockholder,
officer or director
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<PAGE> 7
of the Company, or any "affiliate" or "associate" of such persons (as such terms
are defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity and (d) any agreement
relating to the Listed Intellectual Property Rights or Other Intellectual
Property Rights. The Company has delivered or made available to special counsel
to the Purchasers copies of such of the foregoing agreements as such counsel has
requested. All of such agreements and contracts are valid, binding and in full
force and effect.
2.16 Compliance. The Company has, in all material respects, complied
with all laws, regulations and orders applicable to its present and proposed
business and has all material permits and licenses required thereby. There is no
term or provision of any mortgage, indenture, contract, agreement or instrument
to which the Company is a party or by which it is bound, or, to the best of the
Company's knowledge after reasonable inquiry, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to materially
adversely affect, the business, prospects, assets or condition, financial or
otherwise, of the Company. To the best of the Company's knowledge after
reasonable inquiry, no employee of the Company is in violation of any term of
any contract or covenant (either with the Company or with another entity)
relating to employment, patents, proprietary information disclosure,
non-competition or non-solicitation.
2.17 Absence of Changes. Since the Balance Sheet Date, there has
been no material adverse change in the condition, financial or otherwise, net
worth or results of operations of the Company, other than changes occurring in
the ordinary course of business which changes have not, individually or in the
aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
2.18 Employees. All employees of the Company have executed and
delivered nondisclosure and assignment of invention agreements, and all of such
agreements are in full force and effect. None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
2.19 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
-7-
<PAGE> 8
2.20 Books and Records. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
2.21 Disclosures. The Company has fully provided or made available
to each Purchaser with all the information that such Purchaser has requested for
deciding whether to purchase the Shares. Neither this Agreement nor any Exhibit
hereto, nor any report, certificate or instrument furnished to any of the
Purchasers or their special counsel in connection with the transactions
contemplated by this Agreement, when read together, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The
Company knows of no information or fact which has or would have a material
adverse effect on the business, prospects, assets or condition, financial or
otherwise, of the Company which has not been disclosed in Exhibit C.
2.22 U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
2.23 Related-Party Transactions. No employee, officer, or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the best of the Company's knowledge, none
of such persons has any direct or indirect ownership interest in any firm or
corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. No member of the immediate family of any
officer or director of the Company is directly or indirectly interested in any
material contract with the Company.
2.24 Permits. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default
-8-
<PAGE> 9
in any material respect under any of such franchises, permits, licenses, or
other similar authority.
2.25 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety and to the best of
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.26 Manufacturing and Marketing Rights. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.27 Registration Rights. Except as provided in the Registration
Rights Agreement, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
2.28 Status as Qualified Small Business. On the Closing Date, the
Company will be a "qualified small business" as defined in Section 1202(d) of
the Code, and so long as the Shares are held by a Purchaser (or a transferee in
whose hands the Shares are eligible to qualify as "qualified small business
stock" as defined in Section 1202(c) of the Code), the Company will:
(a) use its best efforts to cause the Shares to qualify as
qualified small business stock, provided that nothing herein shall restrict or
prevent the Company's Board of Directors from carrying out its fiduciary
obligations to act in the Company's best interests at all times, and provided
further that the Company's best efforts undertakings hereunder shall terminate
on the seventh anniversary of the Closing Date; and
(b) submit such reports to the Internal Revenue Service and to
the Initial Purchasers as may be required pursuant to Section 1202(d)(1)(C) of
the Code; and
(c) retain, until the applicable statute of limitations
(including any extensions) has expired, copies of all tax returns, supporting
work schedules and other records or information which may be relevant to such
tax returns for all tax periods before and after the Closing and shall not
destroy or otherwise dispose of any such records without first providing the
Purchasers with a reasonable opportunity to review and copy the same. The
Company shall keep the original copies of the records at its facilities in
Connecticut and elsewhere, if applicable, and, at the Purchasers' expense, shall
provide copies of the records to each Purchaser
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<PAGE> 10
upon such Purchaser's request. Neither the furnishing of any information
pursuant to this Section 2.28 nor any investigation by the Purchasers of the
Company shall affect the Purchasers' rights to rely on the representations,
warranties, agreements and covenants made by the Company elsewhere in this
Agreement.
2.29 Indemnification of Officers and Directors. The Company's
certificate of incorporation contains provisions for the indemnification of its
officers and directors which, to the Company's best knowledge, provide the
maximum indemnification available under Delaware law.
3. Representations of the Purchasers. Each of the Purchasers severally
represents and warrants to the Company as follows:
3.1 Accredited Investor. Such Purchaser is an "accredited investor"
within the meaning of Rule 501 under the Securities Act of 1933, as amended.
3.2 Investment. Such Purchaser is acquiring the Shares, and the
shares of Common Stock into which the Shares may be converted, for his or its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the same; and, except as contemplated by this Agreement and the
Exhibits hereto, such Purchaser has no present or contemplated agreement,
undertaking, arrangement, obligation, indebtedness or commitment providing for
the disposition thereof. (Notwithstanding the foregoing, William Blair & Company
intends to transfer all of its Shares to William Blair Capital Partners V or to
another investment entity established by William Blair & Company or its
affiliates as soon as practicable after it has been established and funded
(William Blair Capital Partners V or such other entity, the "New Blair Fund"),
but (i) such transfer shall not be a distribution within the meaning of the
Securities Act of 1933, as amended and (ii) the New Blair Fund shall enter into
this Agreement in connection with such transfer; it being understood that from
and after any such transfer, the New Blair Fund shall be deemed to be a
Purchaser hereunder).
3.3 Authority. Such Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
3.4 Experience. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which he or it has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient
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<PAGE> 11
knowledge and experience in investing in companies similar to the Company so as
to be able to evaluate the risks and merits of its investment in the Company and
is able financially to bear the risks thereof. The foregoing, however, does not
limit or modify the representations and warranties of the Company in Section 2
of this Agreement or the right of the Purchasers to rely thereon.
4. Conditions to the Obligations of the Purchasers. The obligation of each
of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
4.1 Accuracy of Representations and Warranties. Each representation
and warranty contained in Section 2 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
4.2 Performance. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
4.3 Opinion of Counsel. Each Purchaser shall have received an
opinion from Hale and Dorr, counsel for the Company, dated the Closing Date,
addressed to the Purchasers, substantially in the form attached hereto as
Exhibit E.
4.4 Ancillary Agreements.
(a) The Stockholders' Voting Agreement attached hereto as Exhibit F
shall have been executed and delivered by the Company, by each of the Purchasers
and by each of the Founders (as defined therein). All such action shall have
been taken as may be necessary to elect a Board of Directors of the Company,
effective upon the Closing, in accordance with the Stockholders' Voting
Agreement.
(b) The Registration Rights Agreement attached hereto as Exhibit G
shall have been executed and delivered by the Company and each of the
Purchasers.
(c) The Right of First Refusal and Co-Sale Agreement attached hereto
as Exhibit H shall have been executed and delivered by each of the Purchasers
and the other parties named therein.
(d) The Participation Agreement attached hereto as Exhibit I shall
have been executed and delivered by the Company and each of the Purchasers.
4.5 Cancellation of Warrants. The warrants to purchase up to an aggregate
of 252,500 shares of the Company's Common Stock granted to Menlo VI,
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<PAGE> 12
Entrepreneurs VI and Primus on November 21, 1994 shall have been terminated
prior to exercise.
4.6 Certificates and Documents. The Company shall have delivered to
special counsel to the Purchasers:
(a) The Certificate of Incorporation of the Company, as
amended and in effect as of the Closing Date (including the Certificate of
Amendment), certified by the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as
to the corporate good standing of the Company issued by the Secretary of State
of the State of Delaware and the Secretary of the State of the State of
Connecticut;
(c) By-laws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement and the
transactions contemplated hereby, certified by the Secretary or Assistant
Secretary of the Company as of the Closing Date.
4.7 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate, executed by the Chairman of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 4.1, 4.2, 4.4, 4.5 and 4.6 of this Agreement.
4.8 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
5. Condition to the Obligations of the Company. The obligations of the
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following condition on or before the Closing:
5.1 Accuracy of Representations and Warranties. The representations
and warranties of the Purchasers contained in Section 3 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
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<PAGE> 13
6. Covenants of the Company.
6.1 Financial Statements and Other Information.
(a) The Company shall deliver to each Major Purchaser (as
defined in paragraph (c) below):
(i) as soon as available, but in any event within 30
days after commencement of each new fiscal year, a business plan and projected
financial statements for the upcoming fiscal year, in reasonable detail and
broken down on a monthly basis; and
(ii) within 20 days after the end of each month, an
unaudited balance sheet of the Company as at the end of such month and unaudited
statements of income and of cash flows of the Company for such month and for the
current fiscal year to the end of such month, setting forth in comparative form
(x) the Company's projected financial statements for the corresponding periods
for the current fiscal year and (y) the Company's financial statements for the
corresponding periods for the prior fiscal year.
(b) Beginning with the Company's 1994 fiscal year, the Company
shall have an audit performed by a nationally recognized accounting firm.
(c) For purposes of this Agreement, the term "Major Purchaser"
shall mean a Purchaser purchasing not less than 250,000 Shares. For purposes of
determining the number of Shares held by a Purchaser, the foregoing number shall
be adjusted for any stock splits, stock dividends, recapitalizations or similar
events. Notwithstanding the foregoing, the Shares shall not include Shares which
have been converted into Common Stock or Shares sold or distributed to persons
other than the Purchasers (including without limitation Shares acquired by
affiliates, shareholders or partners of Purchasers).
6.2 Key Man Insurance. For a period of five years after the Closing
Date, the Company shall maintain term life insurance upon the lives of Stefan R.
Bothe and James W. Schenck in the amount of $1,000,000 each, with the proceeds
payable to the Company.
6.3 Nondisclosure Agreements. The Company shall require all persons
now or hereafter employed by the Company to maintain or enter into nondisclosure
and assignment of inventions agreements in such form as may be approved by the
Board of Directors of the Company.
6.4 Expenses of Directors. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company and
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<PAGE> 14
who is a representative of any Purchaser for all of his or her reasonable
out-of-pocket expenses incurred (a) in attending each meeting of the Board of
Directors of the Company or any committee thereof and (b) subject to the prior
approval of the Chief Executive Officer of the Company, when otherwise acting on
behalf of the Company.
6.5 Reservation of Common Stock. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
6.6 Director and Officer Liability Insurance. The Company shall use
its best efforts to obtain and keep director and officer liability insurance in
the minimum amount of $1,000,000; provided, however, that such coverage becomes
available at commercially reasonable rates. Such coverage shall be kept in place
so long as any representative of the Purchasers serves on the Company's Board of
Directors.
6.7 Indemnification of Officers and Directors. The Company shall
maintain in effect the indemnification provisions currently contained in its
certificate of incorporation for so long as any representative of any Purchaser
serves on its Board of Directors.
6.8 Director Approval for Certain Actions.
(a) Prior approval by the Company's Board of Directors shall
be required for any of the following actions:
(i) investment of the Company's cash and other liquid
assets other than pursuant to an investment policy established
by the Company's Board of Directors;
(ii) acquisition of any interest in any business or
joint venture involving an aggregate consideration exceeding
$300,000 in any one transaction or in any twelve-month period;
(iii) ownership, active management, or operation of any
business other than the business operated by the Company as of
the Closing;
(iv) any transaction with an officer, director,
employee, or any individual related by blood or marriage to
any such person, or with any entity in which any such person
owns a beneficial interest (other than a publicly traded
company in which such person owns less than a two percent
equity interest), except for normal employment and in the
ordinary course of business;
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<PAGE> 15
(v) permanent employment of any person who is related by
blood or marriage to an officer of the Company (excluding the
employment of Stefan R. Bothe and Jennifer V. Cheng);
(vi) establishment of any subsidiary;
(vii) creating, incurring, or assuming any indebtedness
exceeding $300,000 in the aggregate outstanding at any time;
(viii)entering into any lease or other rental agreement
under which the amount of aggregate lease or rental payments
for all such agreements exceeds $300,000 on a consolidated
basis for any twelve-month period; or
(ix) engaging an underwriter for an initial public
offering or a placement agent or financial adviser for a
private placement.
(b) Prior approval by the Company's Board of Directors, acting
by a majority which includes the director then in office designated by William
Blair & Company or the New Blair Fund and at least one of the directors then in
office designated by the other Purchasers pursuant to the terms of the
Stockholders' Voting Agreement, shall be required for any of the following
actions:
(i) redemption, purchase or other acquisition, directly
or indirectly, of any of the Company's equity securities
issued pursuant to options granted pursuant to an incentive
stock option plan of the Company;
(ii) sale, lien or other disposition of more than 10% of
the consolidated assets of the Company, or any sale or other
disposition of any of the Company's proprietary rights other
than pursuant to license agreements to end users,
distributors, value-added resellers, original equipment
manufacturers and the like in the ordinary course of the
Company's business; or
(iii) increasing the number of shares of the Company's
common stock available for option under the Company's 1992
Stock Option Plan to more than 1,516,500 shares.
6.9 Termination of Covenants. The covenants of the Company contained
in this Section 6 shall terminate, and be of no further force or effect, upon
the effective date of a registration statement filed by the Company under the
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<PAGE> 16
Securities Act covering the Company's first public offering of common stock at a
price of not less than $3.00 per share (appropriately adjusted to reflect any
stock dividend, stock split, combination or similar recapitalization affecting
such shares) and resulting in gross proceeds to the Company of at least
$10,000,000.
7. Transfer of Shares.
7.1 Restricted Shares. "Restricted Shares" means (i) the Shares,
(ii) the shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by the
Purchasers pursuant to the Right of First Refusal Agreement, and (iv) any other
shares of capital stock of the Company issued in respect of such shares (as a
result of stock splits, stock dividends, reclassifications, recapitalization, or
similar events); provided, however, that shares of Common Stock which are
Restricted Shares shall cease to be Restricted Shares (i) upon any sale pursuant
to the Registration Rights Agreement, Section 4(1) of the Securities Act or Rule
144 under the Securities Act or (ii) at such time as they become eligible for
sale under Rule 144(k) under the Securities Act.
7.2 Requirements for Transfer.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for (i) a transfer by a Purchaser which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 7 to the same extent as if he were an original
Purchaser hereunder, (ii) a transfer made in accordance with Rule 144 under the
Securities Act, or (iii) a transfer by William Blair & Company to the New Blair
Fund.
7.3 Legend. Each certificate representing Restricted Shares shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated
unless and until such shares are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
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<PAGE> 17
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
8. Miscellaneous.
8.1 Successors and Assigns. Unless otherwise provided herein, this
Agreement, and the rights and obligations of each Purchaser hereunder, may be
assigned by such Purchaser to any person or entity to which Shares are
transferred by such Purchaser, and such transferee shall be deemed a "Purchaser"
for purposes of this Agreement; provided that the transferee provides written
notice of such assignment to the Company.
8.2 Confidentiality.
(a) All disclosures of technology, ideas, formulas, processes,
inventions and other technical, financial, business and customer information
("Information") made to the Purchasers will be deemed non-confidential unless
specifically designated at the time of disclosure as including Information which
is confidential to the Company. Such confidential Information will contain an
appropriate legend identifying the Information as confidential. If such
disclosure is made other than in writing, it shall be identified at the time of
disclosure as being confidential and shall be confirmed in a writing within 20
days following such disclosure. The writing will specifically recite that which
is confidential in sufficient detail to allow the Purchasers to identify that
Information deemed to be confidential.
(b) Each Purchaser agrees to use the same care and discretion
to avoid disclosure, publication or dissemination of received confidential
Information as that Purchaser employs with respect to similar information of its
own which it does not desire to publish, disclose or disseminate; provided,
however, that a Purchaser may disclose such Information (i) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their services in connection with the Purchaser's investment in the
Company, (ii) to any prospective purchaser of any Shares from such Purchaser as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section, (iii) to any affiliate of such Purchaser or to a
Partner, shareholder or subsidiary of such Purchaser or (iv) in response to a
valid judicial or governmental order or if necessary to establish rights under
this Agreement. Moreover, the obligations of confidentiality contained in this
Section will not apply to any Information that: (i) is already in the possession
of, or is independently developed by, the Purchasers, (ii) is or becomes
publicly available without breach of this Section, (iii) is rightly received
from a third party or (iv) the Company makes available to other parties without
restriction.
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<PAGE> 18
8.3 Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
8.4 Expenses. The Company shall pay the reasonable costs and
expenses of Kirkland & Ellis, special counsel to the Purchasers, in connection
with the preparation of this Agreement and the other agreement contemplated
hereby and the closing of the transactions contemplated hereby, up to a maximum
of $11,000.00. Notwithstanding the foregoing, in the event that the transactions
contemplated by this Agreement do not close for any reason, each party shall be
responsible for its own legal costs incurred.
8.5 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at One Research Drive, Shelton, Connecticut 06484,
Attention: Chairman, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchasers, with a copy to John K. P.
Stone, III, Esq., Hale and Dorr, 60 State Street, Boston, MA 02109;
If to a Purchaser, at his or its address set forth on Exhibit A or at such
other address or addresses as may have been furnished to the Company in writing
by such Purchaser, with a copy to Mark B. Tresnowski, Esq., Kirkland & Ellis,
200 East Randolph Drive, Chicago, IL 60601.
Notices provided in accordance with this Section 8.5 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
8.6 Brokers. The Company and each Purchaser (i) represents and
warrants to the other parties hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and (ii) will
indemnify and save the other parties harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finders' fees or
commissions, or consulting fees in connection with the transactions contemplated
by this Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
8.7 Entire Agreement. This Agreement and the Ancillary Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
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<PAGE> 19
8.8 Amendments and Waivers. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least 66% of the shares of Series A
Convertible Preferred Stock and the holders of at least 66% of the shares of
Series B Convertible Preferred Stock, each acting separately as a class. Any
amendment or waiver effected in accordance with this Section 8.8 shall be
binding upon each holder of any Shares (including shares of Common Stock into
which such Shares have been converted), each future holder of all such
securities and the Company. No waivers of or exceptions to any term, condition
or provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
8.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
8.10 Section Headings. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
8.11 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
EXECUTED as of the date first above written.
COMPANY:
FlexiInternational Software, Inc.
By: /s/ Stefan Bothe
-------------------------------
Title:CEO
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<PAGE> 20
PURCHASERS:
William Blair & Company
By: /s/ Ellen Carnahan-Walsh
---------------------------------
its General Partners
By:
--------------------------------
[title]
Menlo Ventures VI, L.P.
By: MV Management VI, L.P., its
General Partner
By: /s/ Thomas H. Bredt
---------------------------------
General Partner
Menlo Entrepreneurs Fund VI, L.P.
By: MV Management VI, L.P., its
General Partner
By: /s/ Thomas H. Bredt
---------------------------
General Partner
Primus Venture Partners III
Limited Partnership
By: Primus Venture Partners, Inc.
its General Partner
By: /s/ Johnathan E. Dick
---------------------------
Title: Executive VP
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<PAGE> 21
EXHIBIT A
Schedule of Purchasers
<TABLE>
<CAPTION>
Name and Address Shares Purchased Purchase Price
- ---------------- ---------------- --------------
<S> <C> <C>
William Blair & Company 1,341,333 $2,102,000.00
222 West Adams Street
Chicago, IL 60606
Menlo Ventures VI, L.P. 888,889 $1,333,333.50
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund IV, L.P. 13,333 $19,999.50
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Primus Capital Fund III Limited 444,445 $666,667.50
Partnership --------- -------------
Suite 2700
One Cleveland Center
Cleveland, OH 44114
2,688,000 $4,032,000.50
========= =============
</TABLE>
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<PAGE> 1
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
This Agreement dated as of May 7, 1996 is entered into by and among
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), and
the persons listed on Exhibit A hereto (the "Purchasers").
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. Sale of the Shares.
1.1 The Shares. The Company has authorized the issuance and sale of
up to an aggregate of 4,884,327 shares (the "Shares") of its Series C
Convertible Preferred Stock, $.01 par value per share (the "Series C Preferred
Stock"), at a purchase price of $1.65 per share to William Blair Capital
Partners V, L.P. ("WBC"), Menlo Ventures VI, L.P., ("Menlo VI"), Menlo
Entrepreneurs Fund VI, L.P. ("Entrepreneurs VI"), Primus Capital Fund III
Limited Partnership ("Primus"), and Furman Selz SBIC, L.P. ("Furman Selz") (WBC,
Menlo VI, Entrepreneurs VI, Primus and Furman Selz are sometimes collectively
referred to herein as the "Purchasers") in the respective amounts set forth on
Exhibit A hereto. The designation, rights, preferences and other terms and
conditions relating to the Series C Preferred Stock shall be as set forth in the
Certificate of Amendment attached hereto as Exhibit B (the "Certificate of
Amendment"). The Company has, or before the Closing (as defined below) will
have, adopted and filed the Certificate of Amendment with the Secretary of State
of the State of Delaware.
1.2 Closing. The closing of the sale and purchase of the Shares (the
"Closing") shall take place at the offices of Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109 at 12:00 p.m. on May 7, 1996, or at such other time,
date and place as are mutually agreeable to the Company and special counsel to
the Purchasers, but in no event later than May 31, 1996. At the Closing, the
Company shall deliver to each of the Purchasers a certificate for the number of
Shares being purchased by such Purchaser, registered in the name of such
Purchaser, against payment to the Company of the purchase price therefor, by
wire transfer, check, or other method acceptable to the Company, provided that a
portion of the purchase price payable, respectively, by WBC, Menlo VI,
Entrepreneurs VI and Primus equal in amount (in each case, rounded to the amount
set forth opposite such party's respective name on Exhibit A hereto) to the
outstanding principal and interest accrued to and including April 30, 1996 under
the Convertible Promissory Notes issued by the Company to them pursuant to the
letter agreement, dated October 25, 1995, among them and the Company (the
"Letter Agreement") in the respective aggregate principal amounts of
$759,235.22, $1,479,052.64, $22,185.55 and $739,526.59 shall be paid by the
cancellation and surrender of such Notes (with any additional interest on such
Notes accrued after April 30, 1996 in the event that the Closing does not occur
until after such date payable by the Company to the respective holders of
<PAGE> 2
such Notes, in cash, on the date of the Closing). The date of the Closing is
hereinafter referred to as the "Closing Date." If at the Closing any of the
conditions specified in Section 4 shall not have been fulfilled, each of the
Purchasers shall, at its election, be relieved of all of its obligations under
this Agreement without thereby waiving any other rights it may have by reason of
such failure or such non-fulfillment.
1.3 Use of Proceeds. The Company will use the proceeds from the sale
of the Shares for working capital and general corporate purposes.
1.4 Cancellation of Certain Warrants. The warrants to purchase up to
an aggregate of 500,000 shares of the Company's Common Stock granted to WBC,
Menlo VI, Entrepreneurs VI and Primus pursuant to the Letter Agreement (the
"Warrants") shall be cancelled and terminated, prior to exercise, as of the
Closing Date.
2. Representations of the Company. Subject to and except as disclosed by
the Company in Exhibit C hereto, the Company hereby represents and warrants to
each of the Purchasers as follows:
2.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it and to enter into and
perform this Agreement and to carry out the transactions contemplated by this
Agreement. The Company is duly qualified to do business as a foreign corporation
and is in good standing in the State of Connecticut and in every other
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operations or financial condition of the Company. The Company has
furnished to special counsel to the Purchasers true and complete copies of its
Certificate of Incorporation and By-Laws, each as amended to date and presently
in effect.
2.2 Capitalization. The authorized capital stock of the Company on
the date hereof, after filing the Certificate of Amendment with the Secretary of
State of the State of Delaware, but prior to the consummation of the
transactions contemplated by this Agreement, shall consist of 25,000,000 shares
of common stock, $.01 par value per share (the "Common Stock"), of which
5,134,350 shares shall be issued and outstanding, and 13,027,874 shares of
Preferred Stock, $.01 par value per share, of which (i) 2,840,517 shares have
been designated as Series A Preferred, of which 2,784,483 shares shall be issued
and outstanding, (ii) 5,000,000 shares shall have been designated as Series B
Preferred, of which 2,813,000 shares shall be issued and outstanding, and (iii)
5,187,357 shares shall have been designated as Series C Preferred, none of which
shares shall be issued or outstanding. All of the issued and outstanding shares
of Common Stock and all of the issued and outstanding shares of
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Series A Preferred Stock and Series B Preferred Stock have been duly authorized
and validly issued and are fully paid and non-assessable. Except as set forth in
Exhibit C hereto or provided in this Agreement, the Company's Certificate of
Incorporation or that certain Series B Preferred Stock Purchase Agreement, dated
as of January 20, 1995, among the Company and certain of the Purchasers, or the
agreements and instruments contemplated thereby and executed in connection
therewith (collectively and as they may have been amended to date, the "Series B
Agreements"), (i) no subscription, warrant, option, convertible security or
other right (contingent or otherwise) to purchase or acquire any shares of
capital stock of the Company is authorized or outstanding, (ii) the Company has
no obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible security or other such right or to issue or distribute to
holders of any shares of its capital stock any evidences of indebtedness or
assets of the Company, and (iii) the Company has no obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of its capital
stock or any interest therein or to pay any dividend or make any other
distribution in respect thereof. All of the issued and outstanding shares of
capital stock of the Company have been offered, issued and sold by the Company
in compliance with applicable Federal and state securities laws.
2.3 Subsidiaries, Etc. The Company has no subsidiaries and does not
own or control, directly or indirectly, any shares of capital stock of any other
corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.
2.4 Stockholder List and Agreements. Attached as Exhibit D is a true
and complete list of the stockholders of the Company, showing the number of
shares of Common Stock or other securities of the Company held by each
stockholder as of the date of this Agreement. Except as provided in this
Agreement or the Series B Agreements, there are no agreements, written or oral,
between the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating to the
acquisition (including without limitation rights of first refusal or pre-emptive
rights), disposition, registration under the Securities Act of 1933, as amended
(the "Securities Act"), or voting of the capital stock of the Company.
2.5 Issuance of Shares. The issuance, sale and delivery of the
Shares in accordance with this Agreement, and the issuance and delivery of the
shares of Common Stock issuable upon conversion of the Shares have been, or will
be on or prior to the Closing, duly authorized by all necessary corporate action
on the part of the Company, and all such shares have been duly reserved for
issuance. The Shares, when so issued, sold and delivered against payment there
for in accordance with the provisions of this Agreement, and the shares of
Common Stock issuable upon conversion of the Shares, when issued upon such
conversion, will be duly and validly issued, fully paid and non-assessable.
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<PAGE> 4
2.6 Authority for Agreement. The execution, delivery and performance
by the Company of this Agreement and all other agreements required to be
executed by the Company on or prior to the Closing pursuant to Section 4.4 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or other laws
relating to or affecting the rights of creditors generally, constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms. The execution of and performance of the transactions
contemplated by this Agreement and the Ancillary Agreements and compliance with
their provisions by the Company will not violate any provision of law and will
not conflict with or result in any breach of any of the terms, conditions or
provisions of, or constitute a default under, or require a consent or waiver
under, its Certificate of Incorporation or By-Laws (each as amended to date) or
any indenture, lease, agreement or other instrument to which the Company is a
party or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.
2.7 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by each of the Purchasers in Section
4 of this Agreement, the offer and sale of the Shares to each of the Purchasers
will be in compliance with applicable Federal and state securities laws.
2.8 Litigation. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company, which
questions the validity of this Agreement or the right of the Company to enter
into it, or which might result, either individually or in the aggregate, in any
material adverse change in the business, prospects, assets or condition,
financial or otherwise, of the Company, nor is there any litigation pending, or,
to the best of the Company's knowledge, any basis therefor or threat thereof,
against the Company by reason of the proposed activities of the Company, or
negotiations by the Company with possible investors in the Company. In addition
to the foregoing, to the best of the Company's knowledge after reasonable
inquiry, there are no actions, suits, proceedings or investigations pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques
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<PAGE> 5
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers.
2.9 Financial Statements. The Company has furnished to each of the
Purchasers a complete and correct copy of the unaudited balance sheet of the
Company (the "Balance Sheet") as at March 31, 1996 (the "Balance Sheet Date")
and the related statements of operations for the fiscal year ended December 31,
1995, compiled by the Company (collectively, the "Financial Statements"). The
Financial Statements are complete and correct, are in accordance with the books
and records of the Company and present fairly the financial condition and
results of operations of the Company, as at the dates and for the periods
indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.
2.10 Absence of Liabilities. The Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$10,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
2.11 Taxes. The amount shown on the Balance Sheet as provision for
taxes is sufficient in all material respects for payment of all accrued and
unpaid Federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently effective
extensions with respect to all Federal, state, county, local and foreign tax
returns which are required to be filed by it, such returns are true and correct
and all taxes shown thereon to be due have been timely paid with exceptions not
material to the Company. Federal income tax returns of the Company have not been
audited by the Internal Revenue Service, and no controversy with respect to
taxes of any type is pending or, to the best of the Company's knowledge,
threatened. The Company has not elected to be treated as a collapsible
corporation pursuant to Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code"), nor has it made any other elections pursuant to the Code
(other than elections that relate solely to methods of accounting, depreciation
or amortization) that would have a material effect on the Company, its financial
condition, its business as presently conducted or proposed to be conducted or
any of its properties or material assets.
2.12 Property and Assets. The Company has good title to all of its
material properties and assets, including all properties and assets reflected in
the
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<PAGE> 6
Balance Sheet, except those disposed of since the date thereof in the ordinary
course of business, and none of such properties or assets is subject to any
mortgage, pledge, lien, security interest, lease, charge or encumbrance other
than those the material terms of which are described in the Balance Sheet.
2.13 Intellectual Property. Set forth on Exhibit C is a true and
complete list of all patents, patent applications, trademarks, service marks,
trademark and service mark applications, trade names, copyright registrations
and licenses presently used by the Company or necessary for the conduct of the
Company's business as conducted and as proposed to be conducted, as well as any
agreement under which the Company has access to any confidential information
used by the Company in its business (the "Listed Intellectual Property Rights").
The Company owns, or has the right to use under the agreements or upon the terms
described in Exhibit C, all of the Listed Intellectual Property Rights and Other
Intellectual Property Rights, and has taken all actions reasonably necessary to
protect the Listed Intellectual Property Rights and Other Intellectual Property
Rights. The business conducted or proposed by the Company does not and will not
cause the Company to infringe or violate any of the patents, trademarks, service
marks, trade names, copyrights, licenses, trade secrets or other intellectual
property rights of any other person or entity. To the best of the Company's
knowledge after reasonable inquiry, the Company is not aware that any employee
is obligated under any contract (including any license, covenant or commitment
of any nature), or subject to any judgment, decree or order of any court or
administrative agency, that would conflict or interfere with (i) the performance
of such employee's duties as an officer, employee or director of the Company,
(ii) the use of such employee's best efforts to promote the interests of the
Company or (iii) the Company's business as conducted or proposed to be
conducted. To the best of the Company's knowledge after reasonable inquiry, no
other person or entity (including without limitation any prior employer of any
employee of the Company) has any right to or interest in any Listed Intellectual
Property Rights or Other Intellectual Property Rights utilized by the Company in
its business. The term "Other Intellectual Property Rights" means, to the extent
not included in the term "Listed Intellectual Property Rights," all (i) patent
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names and corporate names and registrations and applications for registration
thereof, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data and documentation, (vi) trade secrets and
other confidential information (including, without limitation, ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights, and (viii) copies and tangible embodiments thereof
(in whatever form or medium).
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<PAGE> 7
2.14 Insurance. The Company maintains valid policies of workers'
compensation insurance and of insurance with respect to its properties and
business of the kinds and in the amounts not less than is customarily obtained
by corporations of established reputation engaged in the same or similar
business and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other risks.
2.15 Material Contracts and Obligations. Exhibit C sets forth a list
of all material agreements or commitments of any nature to which the Company is
a party or by which it is bound, including without limitation (a) each agreement
which requires future expenditures by the Company in excess of $20,000 or which
might result in payments to the Company in excess of $20,000, (b) all employment
and consulting agreements, employee benefit, bonus, pension, profit-sharing,
stock option, stock purchase and similar plans and arrangements, and distributor
and sales representative agreements, (c) any agreement with any stockholder,
officer or director of the Company, or any "affiliate" or "associate" of such
persons (as such terms are defined in the rules and regulations promulgated
under the Securities Act), including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity and (d) any agreement relating to the Listed Intellectual Property Rights
or Other Intellectual Property Rights. The Company has delivered or made
available to special counsel to the Purchasers copies of such of the foregoing
agreements as such counsel has requested. All of such agreements and contracts
are valid, binding and in full force and effect.
2.16 Compliance. The Company has, in all material respects, complied
with all laws, regulations and orders applicable to its present and proposed
business and has all material permits and licenses required thereby. There is no
term or provision of any mortgage, indenture, contract, agreement or instrument
to which the Company is a party or by which it is bound, or, to the best of the
Company's knowledge after reasonable inquiry, of any provision of any state or
Federal judgment, decree, order, statute, rule or regulation applicable to or
binding upon the Company, which materially adversely affects or, so far as the
Company may now foresee, in the future is reasonably likely to materially
adversely affect, the business, prospects, assets or condition, financial or
otherwise, of the Company. To the best of the Company's knowledge after
reasonable inquiry, no employee of the Company is in violation of any term of
any contract or covenant (either with the Company or with another entity)
relating to employment, patents, proprietary information disclosure,
non-competition or non-solicitation.
2.17 Absence of Changes. Since the Balance Sheet Date, there has
been no material adverse change in the condition, financial or otherwise, net
worth or results of operations of the Company, other than changes occurring in
the ordinary course of business which changes have not, individually or in the
aggregate, had a
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<PAGE> 8
materially adverse effect on the business, prospects, properties or condition,
financial or otherwise, of the Company.
2.18 Employees. All employees of the Company have executed and
delivered nondisclosure and assignment of invention agreements, and all of such
agreements are in full force and effect. None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.
2.19 ERISA. The Company does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
2.20 Books and Records. The minute books of the Company contain
complete and accurate records of all meetings and other corporate actions of its
stockholders and its Board of Directors and committees thereof. The stock ledger
of the Company is complete and reflects all issuances, transfers, repurchases
and cancellations of shares of capital stock of the Company.
2.21 Disclosures. The Company has fully provided or made available
to each Purchaser with all the information that such Purchaser has requested for
deciding whether to purchase the Shares. Neither this Agreement nor any Exhibit
hereto, nor any report, certificate or instrument furnished to any of the
Purchasers or their special counsel in connection with the transactions
contemplated by this Agreement, when read together, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading. The
Company knows of no information or fact which has or would have a material
adverse effect on the business, prospects, assets or condition, financial or
otherwise, of the Company which has not been disclosed in Exhibit C.
2.22 U.S. Real Property Holding Corporation. The Company is not now
and has never been a "United States Real Property Holding Corporation" as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
2.23 Related-Party Transactions. No employee, officer, or, to the
best of the Company's knowledge without further inquiry, director of the Company
or member of any such person's immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the best of the Company's knowledge without further
inquiry, none of such persons has any direct or indirect ownership interest in
any firm or
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corporation with which the Company is affiliated or with which the Company has a
business relationship, or any firm or corporation that competes with the
Company, except that employees, officers, or directors of the Company and
members of their immediate families may own stock in publicly traded companies
that may compete with the Company. To the best of the Company's knowledge
without further inquiry, no member of the immediate family of any officer or
director of the Company is directly or indirectly interested in any material
contract with the Company.
2.24 Permits. The Company has all franchises, permits, licenses, and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects, or financial condition of the Company, and the
Company believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted. The
Company is not in default in any material respect under any of such franchises,
permits, licenses, or other similar authority.
2.25 Environmental and Safety Laws. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety and to the best of
its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
2.26 Manufacturing and Marketing Rights. The Company has not granted
rights to manufacture, produce, assemble, license, market, or sell its products
to any other person and is not bound by any agreement that affects the Company's
exclusive right to develop, manufacture, assemble, distribute, market or sell
its products.
2.27 Registration Rights. Except as provided in the Registration
Rights Agreement or in the Series B Agreements, the Company has not granted or
agreed to grant any registration rights, including piggyback rights, to any
person or entity.
2.28 Status as Qualified Small Business. On the Closing Date, the
Company will be a "qualified small business" as defined in Section 1202(d) of
the Code, and so long as the Shares are held by a Purchaser (or a transferee in
whose hands the Shares are eligible to qualify as "qualified small business
stock" as defined in Section 1202(c) of the Code), the Company will:
(a) use its best efforts to cause the Shares to qualify as
qualified small business stock, provided that nothing herein shall restrict or
prevent the Company's Board of Directors from carrying out its fiduciary
obligations to act in the Company's best interests at all times, and provided
further that the Company's
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best efforts undertakings hereunder shall terminate on the seventh anniversary
of the Closing Date; and
(b) submit such reports to the Internal Revenue Service and to
the Initial Purchasers as may be required pursuant to Section 1202(d)(1)(C) of
the Code; and
(c) retain, until the applicable statute of limitations
(including any extensions) has expired, copies of all tax returns, supporting
work schedules and other records or information which may be relevant to such
tax returns for all tax periods before and after the Closing and shall not
destroy or otherwise dispose of any such records without first providing the
Purchasers with a reasonable opportunity to review and copy the same. The
Company shall keep the original copies of the records at its facilities in
Connecticut and elsewhere, if applicable, and, at the Purchasers' expense, shall
provide copies of the records to each Purchaser upon such Purchaser's request.
Neither the furnishing of any information pursuant to this Section 2.28 nor any
investigation by the Purchasers of the Company shall affect the Purchasers'
rights to rely on the representations, warranties, agreements and covenants made
by the Company elsewhere in this Agreement; and
(d) use its reasonable efforts to cooperate with the
Purchasers in meeting applicable Small Business Investment Corporation
certification and periodic reporting requirements.
2.29 Indemnification of Officers and Directors. The Company's
certificate of incorporation contains provisions for the indemnification of its
officers and directors which, to the Company's best knowledge, provide the
maximum indemnification available under Delaware law.
2.30 No Discrimination. The Company does not in any manner or form
discriminate, foster discrimination or permit discrimination against any person
on the basis of such person belonging to any minority race or believing in any
minority creed or religion.
3. Representations of the Purchasers. Each of the Purchasers severally
represents and warrants to the Company as follows:
3.1 Accredited Investor. Such Purchaser is an "accredited investor"
within the meaning of Rule 501 under the Securities Act of 1933, as amended.
3.2 Investment. Such Purchaser is acquiring the Shares, and the
shares of Common Stock into which the Shares may be converted, for his or its
own account for investment and not with a view to, or for sale in connection
with, any distribution thereof, nor with any present intention of distributing
or selling the
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same; and, except as contemplated by this Agreement and the Exhibits hereto,
such Purchaser has no present or contemplated agreement, undertaking,
arrangement, obligation, indebtedness or commitment providing for the
disposition thereof.
3.3 Authority. Such Purchaser has full power and authority to enter
into and to perform this Agreement in accordance with its terms. Any Purchaser
which is a corporation, partnership or trust represents that it has not been
organized, reorganized or recapitalized specifically for the purpose of
investing in the Company.
3.4 Experience. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which he or it has requested and have answered to such
Purchaser's satisfaction all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in investing in companies
similar to the Company so as to be able to evaluate the risks and merits of its
investment in the Company and is able financially to bear the risks thereof. The
foregoing, however, does not limit or modify the representations and warranties
of the Company in Section 2 of this Agreement or the right of the Purchasers to
rely thereon.
4. Conditions to the Obligations of the Purchasers. The obligation of each
of the Purchasers to purchase Shares at the Closing is subject to the
fulfillment, or the waiver by such Purchaser, of each of the following
conditions on or before the Closing:
4.1 Accuracy of Representations and Warranties. Each representation
and warranty contained in Section 2 shall be true on and as of the Closing Date
with the same effect as though such representation and warranty had been made on
and as of that date.
4.2 Performance. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by the Company prior to or at the Closing.
4.3 Opinion of Counsel. Each Purchaser shall have received an
opinion from Hale and Dorr, counsel for the Company, dated the Closing Date,
addressed to the Purchasers, substantially in the form attached hereto as
Exhibit E.
4.4 Ancillary Agreements.
(a) The Stockholders' Voting Agreement attached hereto as
Exhibit F shall have been executed and delivered by all parties thereto. All
such action shall have been taken as may be necessary to elect a Board of
Directors of the
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Company, effective upon the Closing, in accordance with the Stockholders' Voting
Agreement.
(b) The Registration Rights Agreement attached hereto as
Exhibit G shall have been executed and delivered by all parties thereto.
(c) The Right of First Refusal and Co-Sale Agreement attached
hereto as Exhibit H shall have been executed and delivered by all parties
thereto.
(d) The Participation Agreement attached hereto as Exhibit I
shall have been executed and delivered by all parties thereto.
4.5 Small Business Concern Documents. The Company shall have
executed and delivered to each Purchaser who requests them a Size Status
Declaration on SBA Form 480 and an Assurance to Compliance on SBA Form 652, and
shall have provided to each Purchaser who so requests information necessary for
the preparation of a Portfolio Financing Report on SBA Form 1031.
4.6 Certificates and Documents. The Company shall have delivered
to special counsel to the Purchasers:
(a) The Certificate of Incorporation of the Company, as
amended and in effect as of the Closing Date (including the Certificate of
Amendment), certified by the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as
to the corporate good standing of the Company issued by the Secretary of State
of the State of Delaware and the Secretary of the State of the State of
Connecticut;
(c) By-laws of the Company, certified by its Secretary or
Assistant Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company,
authorizing and approving all matters in connection with this Agreement and the
transactions contemplated hereby, certified by the Secretary or Assistant
Secretary of the Company as of the Closing Date.
4.7 Compliance Certificate. The Company shall have delivered to the
Purchasers a certificate, executed by the Chairman of the Company, dated the
Closing Date, certifying to the fulfillment of the conditions specified in
Sections 4.1, 4.2, 4.4, 4.5 and 4.6 of this Agreement.
4.8 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
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instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Purchasers and their special counsel, and the
Purchasers and their special counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
5. Condition to the Obligations of the Company. The obligations of the
Company under Section 1.2 of this Agreement are subject to fulfillment, or the
waiver, of the following condition on or before the Closing:
5.1 Accuracy of Representations and Warranties. The representations
and warranties of the Purchasers contained in Section 3 shall be true on and as
of the Closing Date with the same effect as though such representations and
warranties had been made on and as of that date.
5.2 Cancellation of Warrants. The Warrants shall have been cancelled
and terminated, prior to exercise, at or prior to the Closing.
6. Covenants of the Company.
6.1 Financial Statements and Other Information.
(a) The Company shall deliver to each Major Purchaser (as
defined in paragraph (c) below):
(i) as soon as available, but in any event within 30 days after
commencement of each new fiscal year, a business plan and projected financial
statements for the upcoming fiscal year, in reasonable detail and broken down on
a monthly basis; and
(ii) within 20 days after the end of each month, an unaudited balance
sheet of the Company as at the end of such month and unaudited statements of
income and of cash flows of the Company for such month and for the current
fiscal year to the end of such month, setting forth in comparative form (x) the
Company's projected financial statements for the corresponding periods for the
current fiscal year and (y) the Company's financial statements for the
corresponding periods for the prior fiscal year.
(b) On an annual basis, the Company shall have an audit
performed by a nationally recognized accounting firm.
(c) For purposes of this Agreement, the term "Major Purchaser"
shall mean a Purchaser holding not less than 250,000 Shares. For purposes of
determining the number of Shares held by a Purchaser, the foregoing number shall
be adjusted for any stock splits, stock dividends, recapitalizations or
13
<PAGE> 14
similar events. Notwithstanding the foregoing, the Shares shall not include
Shares which have been converted into Common Stock or Shares sold or distributed
to persons other than the Purchasers (including without limitation Shares
acquired by affiliates, shareholders or partners of Purchasers).
6.2 Key Man Insurance. For a period of five years after the Closing
Date, the Company shall maintain term life insurance upon the lives of Stefan R.
Bothe and James W. Schenck in the amount of $2,500,000 each, with the proceeds
payable to the Company.
6.3 Nondisclosure Agreements. The Company shall require all persons
now or hereafter employed by the Company to maintain or enter into nondisclosure
and assignment of inventions agreements in such form as may be approved by the
Board of Directors of the Company.
6.4 Expenses of Directors. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company and who
is a representative of any Purchaser for all of his or her reasonable
out-of-pocket expenses (including airfare) incurred (a) in attending each
meeting of the Board of Directors of the Company or any committee thereof and
(b) subject to the prior approval of the Chief Executive Officer of the Company,
when otherwise acting on behalf of the Company.
6.5 Reservation of Common Stock. The Company shall reserve and
maintain a sufficient number of shares of Common Stock for issuance upon
conversion of all of the outstanding Shares.
6.6 Director and Officer Liability Insurance. The Company shall use
its best efforts to obtain and keep director and officer liability insurance in
the minimum amount of $1,000,000; provided, however, that such coverage becomes
available at commercially reasonable rates. Such coverage shall be kept in place
so long as any representative of the Purchasers serves on the Company's Board of
Directors.
6.7 Indemnification of Officers and Directors. The Company shall
maintain in effect the indemnification provisions currently contained in its
certificate of incorporation for so long as any representative of any Purchaser
serves on its Board of Directors.
6.8 [Reserved]
6.9 Termination of Covenants. The covenants of the Company contained
in this Section 6 shall terminate, and be of no further force or effect, upon
the effective date of a registration statement filed by the Company under the
14
<PAGE> 15
Securities Act covering the Company's first public offering of common stock at a
price of not less than $3.30 per share (appropriately adjusted to reflect any
stock dividend, stock split, combination or similar recapitalization affecting
such shares) and resulting in gross proceeds to the Company of at least
$10,000,000.
7. Transfer of Shares.
7.1 Restricted Shares. "Restricted Shares" means (i) the Shares,
(ii) the shares of Common Stock issued or issuable upon conversion of the
Shares, (iii) any shares of capital stock of the Company acquired by the
Purchasers pursuant to the Right of First Refusal and Co-Sale Agreement, and
(iv) any other shares of capital stock of the Company issued in respect of such
shares (as a result of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock which are Restricted Shares shall cease to be Restricted Shares (i) upon
any sale pursuant to the Registration Rights Agreement, Section 4(1) of the
Securities Act or Rule 144 under the Securities Act or (ii) at such time as they
become eligible for sale under Rule 144(k) under the Securities Act.
7.2 Requirements for Transfer.
(a) Restricted Shares shall not be sold or transferred unless
either (i) they first shall have been registered under the Securities Act, or
(ii) the Company first shall have been furnished with an opinion of legal
counsel, reasonably satisfactory to the Company, to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act.
(b) Notwithstanding the foregoing, no registration or opinion
of counsel shall be required for (i) a transfer by a Purchaser which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 7 to the same extent as if he were an original
Purchaser hereunder, or (ii) a transfer made in accordance with Rule 144 under
the Securities Act.
7.3 Legend. Each certificate representing Restricted Shares shall
bear a legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be
offered, sold or otherwise transferred, pledged or hypothecated
unless and until such shares are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
15
<PAGE> 16
The foregoing legend shall be removed from the certificates representing
any Restricted Shares, at the request of the holder thereof, at such time as
they become eligible for resale pursuant to Rule 144(k) under the Securities
Act.
8. Miscellaneous.
8.1 Successors and Assigns. Unless otherwise provided herein, this
Agreement, and the rights and obligations of each Purchaser hereunder, may be
assigned by such Purchaser to any person or entity to which Shares are
transferred by such Purchaser, and such transferee shall be deemed a "Purchaser"
for purposes of this Agreement; provided that the transferee provides written
notice of such assignment to the Company.
8.2 Confidentiality.
(a) All disclosures of technology, ideas, formulas, processes,
inventions and other technical, financial, business and customer information
("Information") made to the Purchasers will be deemed non-confidential unless
specifically designated at the time of disclosure as including Information which
is confidential to the Company. Such confidential Information will contain an
appropriate legend identifying the Information as confidential. If such
disclosure is made other than in writing, it shall be identified at the time of
disclosure as being confidential and shall be confirmed in a writing within 20
days following such disclosure. The writing will specifically recite that which
is confidential in sufficient detail to allow the Purchasers to identify that
Information deemed to be confidential.
(b) Each Purchaser agrees to use the same care and discretion
to avoid disclosure, publication or dissemination of received confidential
Information as that Purchaser employs with respect to similar information of its
own which it does not desire to publish, disclose or disseminate; provided,
however, that a Purchaser may disclose such Information (i) to its attorneys,
accountants, consultants, and other professionals to the extent necessary to
obtain their services in connection with the Purchaser's investment in the
Company, (ii) to any prospective purchaser of any Shares from such Purchaser as
long as such prospective purchaser agrees in writing to be bound by the
provisions of this Section, (iii) to any affiliate of such Purchaser or to a
Partner, shareholder or subsidiary of such Purchaser or (iv) in response to a
valid judicial or governmental order or if necessary to establish rights under
this Agreement. Moreover, the obligations of confidentiality contained in this
Section will not apply to any Information that: (i) is already in the possession
of, or is independently developed by, the Purchasers, (ii) is or becomes
publicly available without breach of this Section, (iii) is rightly received
from a third party or (iv) the Company makes available to other parties without
restriction.
16
<PAGE> 17
8.3 Survival of Representations and Warranties. All agreements,
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the closing of the transactions contemplated
hereby.
8.4 Expenses. The Company shall pay the reasonable costs and
expenses of Gunderson Dettmer Stough Villeneuve Franklin & Hachigan, LLP,
special counsel to the Purchasers, in connection with the preparation of this
Agreement and the other agreements contemplated hereby and the closing of the
transactions contemplated hereby, up to a maximum of $7,500.00. Notwithstanding
the foregoing, in the event that the transactions contemplated by this Agreement
do not close for any reason, each party shall be responsible for its own legal
costs incurred.
8.5 Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at Two Enterprise Drive, Shelton, Connecticut 06484,
Attention: Chairman, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchasers, with a copy to John K. P.
Stone, III, Esq., Hale and Dorr, 60 State Street, Boston, MA 02109;
If to a Purchaser, at his or its address set forth on Exhibit A or at such
other address or addresses as may have been furnished to the Company in writing
by such Purchaser, with a copy to Steven M. Spurlock, Esq., Gunderson Dettmer
Stough Villeneuve Franklin & Hachigan, LLP, 600 Hansen Way, Second Floor, Palo
Alto, California 94304.
Notices provided in accordance with this Section 8.5 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
8.6 Brokers. The Company and each Purchaser (i) represents and
warrants to the other parties hereto that it has retained no finder or broker in
connection with the transactions contemplated by this Agreement, and (ii) will
indemnify and save the other parties harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or finders' fees or
commissions, or consulting fees in connection with the transactions contemplated
by this Agreement asserted by any person on the basis of any statement or
representation alleged to have been made by such indemnifying party.
8.7 Entire Agreement. This Agreement and the Ancillary Agreements
embody the entire agreement and understanding between the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
understandings relating to such subject matter.
17
<PAGE> 18
8.8 Amendments and Waivers. Except as otherwise expressly set forth
in this Agreement, any term of this Agreement may be amended and the observance
of any term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), with the written consent of
the Company and the holders of at least 64% of the shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, and Series C
Convertible Preferred Stock, all acting together as a single class of Preferred
Stock. Any amendment or waiver effected in accordance with this Section 8.8
shall be binding upon each holder of any Shares (including shares of Common
Stock into which such Shares have been converted), each future holder of all
such securities and the Company. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
8.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
8.10 Section Headings. The section headings are for the convenience
of the parties and in no way alter, modify, amend, limit, or restrict the
contractual obligations of the parties.
8.11 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
8.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
[Remainder of this page intentionally left blank]
18
<PAGE> 19
EXECUTED as of the date first above written.
COMPANY:
FlexiInternational Software, Inc.
By: /s/ Stefan Bothe
-------------------------------------
Title:
PURCHASERS:
William Blair Capital Partners V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
-------------------------------------
Managing Director
Menlo Ventures VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/ Thomas Bredt
-------------------------------------
General Partner
Menlo Entrepreneurs Fund VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/ Thomas Bredt
-------------------------------------
General Partner
19
<PAGE> 20
Primus Capital Fund III
Limited Partnership
By: Primus Venture Partners III
Limited Partnership, its General
Partner
By: Primus Venture Partners, Inc., its
General Partner
By: /s/ Jonathan E. Dick
-------------------------------------
Title: Executive Vice President
Furman Selz SBIC, L.P.
By: Furman Selz SBIC Investments LLC, its
General Partner
By: /s/ James Luikart
-------------------------------------
Title: Vice President
/s/ Terrence M. Quinn
------------------------------------------
Terrence M. Quinn
20
<PAGE> 21
EXHIBIT A
Schedule of Purchasers
<TABLE>
<CAPTION>
Shares Purchase
Name and Address Purchased Price
---------------- --------- -----
<S> <C> <C>
William Blair Capital 468,978 $773,813.70
Partners V, L.P.
222 West Adams Street
Chicago, IL 60606
Menlo Ventures VI, L.P. 914,066 $1,508,208.90
300 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs 13,711 $22,623.15
Fund VI, L.P.
300 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Primus Capital Fund III 457,269 $754,493.85
Limited Partnership
Suite 2700
One Cleveland Center
Cleveland, OH 44114
Furman Selz SBIC, L.P. 2,984,848 $4,924,999.20
230 Park Avenue
New York, NY 10169
Terrence M. Quinn 45,455 $75,000.75
230 Park Avenue
New York, NY 10169
4,884,327 $8,059,139.55
========= =============
</TABLE>
21
<PAGE> 1
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. IN
ADDITION TO THE RESTRICTIONS SET FORTH IN SECTION 5 OF THIS WARRANT, THEY MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
FLEXIINTERNATIONAL
SOFTWARE
One Research Drive
Shelton, Connecticut 06484
COMMON STOCK WARRANT
Warrant No. 7 Number of Shares 100,000
(Subject to Adjustment)
Date of Issuance: August 1, 1995
Date of Original Exercise: August 1, 1997
Void after Warrant Expiration Date, August 1, 2002
FlexiInternational Software, Inc., a Delaware corporation (the "Company") for
value received from the Connecticut Development Authority, a body politic and
corporate constituting a public instrumentality of the State of Connecticut (the
"Warrantholder"), certified that the Warrantholder (the "Registered Holder"), is
entitled, subject to the terms set forth below, to purchase from the Company
100,000 fully paid and non-assessable shares of Common Stock, $0.01 par value
per share (the "Common Stock"), of the Company, at a purchase price of Six
dollars ($6.00) per share. The shares purchasable upon exercise of this Warrant,
and the purchase price per share, each as adjusted from time to time pursuant to
the provisions of this Warrant, are hereinafter referred to as the "Warrant
Shares" and the "Purchase Price," respectively.
1. Warrant Term.
Except as otherwise provided herein, the term of this Warrant Agreement and the
right to purchase Common Stock as granted herein shall commence on August 1,
1997 ("Date of Original Exercise") and expire on August 1, 2002 ("Expiration
Date").
<PAGE> 2
2. Exercise; Net Issuance.
(A) This Warrant may be exercised by the Registered Holder, in whole or in
part, at any time or from time to time on or after the Date of Original
Exercise, except as otherwise provided herein, and on or before the
Expiration Date by surrendering this Warrant, with the purchase form
appended hereto as Exhibit I duly executed by such Registered Holder or by
such Registered Holder's duly authorized attorney, at the principal office
of the Company or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United
States, of the Purchase Price payable in respect of the number of Warrant
Shares purchased upon such exercise.
(B) In lieu of exercising this Warrant as provided in Subsection (A),
above, the Registered Holder of this Warrant may elect to receive shares
equal to the value of the Warrant (or the portion thereof being exercised)
by surrender of this Warrant at the principal office of the Company
together with notice of such election, in which event the Company shall
issue to the Registered Holder hereof a number of shares of Common Stock
computed in accordance with the following formula:
X = Y(A-B)/A
Where: X = The number of shares of Common Stock to be
issued to Registered Holder of this Warrant;
Y = The number of shares of Common Stock
requested to be exercised under this Warrant;
A = The Fair Market Value of one share of the
Company's Common Stock; and
B = The Purchase Price (as adjusted to the date of such
calculations).
For purposes of this subsection, the Fair Market Value of Common Stock
shall mean:
(i) if the exercise is in connection with an initial public
offering, and if the Company's Registration Statement relating to
such public offering has been declared effective by the Securities
and Exchange Commission, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and if traded on a securities
exchange or actively traded over-the-counter, the Fair Market Value
shall be
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<PAGE> 3
deemed to be the average of the closing prices over a ten (10) day
period ending three (3) days before the day the current Fair Market
Value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the current Fair Market Value of the Common
Stock shall be the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by its Board of
Directors.
(C) Each exercise of this Warrant shall be deemed to have been effective
immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in
subsection (A) or (B) above. At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon
such exercise as provided in subsection (D) below shall be deemed to have
become the holder or holders of record of the Warrant Shares represented
by such certificates.
(D) As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within thirty (30) days thereafter, the Company,
at its expense, will cause to be issued in the name of, and delivered to,
the Registered Holder, or as such Holder (upon payment by such Holder of
any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full Warrant
Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such
Registered Holder would otherwise be entitled, cash in an amount
determined pursuant to Section 4 hereof; and
(ii) in the case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of Warrant
shares equal (without giving effect to any adjustment therein) to
the number of such shares called for on the face of this Warrant
minus the number of such shares purchased by the Registered Holder
upon such exercise.
3. Adjustments of Purchase Price and Number of Shares
(A) If the Company's revenues as reflected by an audit conducted by a
nationally recognized accounting firm selected by the Company in
accordance with Generally Accepted Accounting Principles ("Audited
Revenues") for any
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<PAGE> 4
fiscal year of the company exceeds nine million dollars ($9,000,000), the
Purchase Price for the period after such fiscal year shall be equal to
nine dollars ($9.00) per share. Notwithstanding the foregoing, if at any
time the Company's audited revenues for any fiscal year of the Company
exceeds twenty-two million dollars ($22,000,000), the Purchase Price for
the period after such fiscal year until the Expiration Date shall be equal
to twelve dollars ($12.00) per share.
(B) If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock
shall be paid in respect of Common Stock, the Purchase Price in effect
immediately prior to such subdivision or at the record date of such
dividend shall simultaneously with the effectiveness of such subdivision
or immediately after the record date of such dividend be proportionately
reduced. If outstanding shares of Common Stock shall be combined into a
smaller number of shares, the Purchase Price in effect immediately prior
to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased. When any adjustment is required
to be made in the Purchase Price, the number of Warrant Shares purchasable
upon the exercise of this Warrant shall be changed to the number
determined by dividing (y) an amount equal to the number of shares
issuable upon the exercise of this Warrant immediately prior to such
adjustment, multiplied by the Purchase Price in effect immediately prior
to such adjustment, by (z) the Purchase Price in effect immediately after
such adjustment.
(C) If there shall occur any capital reorganization or reclassification of
the Company's Common Stock (other than a change in par value or a
subdivision or combination as provided in subsection (B), above), or any
consolidation or merger of the Company with or into another corporation,
or a transfer of all or substantially all of the assets of the Company,
then, as part of any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, lawful provision shall be made so that
the Registered Holder of this Warrant shall have the right thereafter to
receive upon the exercise hereof the kind and amount of shares of stock or
other securities or property which such Registered Holder would have been
entitled to receive if, immediately prior to any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, such
Registered Holder had held the number of share of Common Stock which were
then purchased upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the
Board of Directors of the Company) shall be made in the application of the
provisions set forth herein with respect to the rights and interest
thereafter of the Registered Holder of this Warrant such that the
provisions set forth in this Section (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as
nearly as is
-4-
<PAGE> 5
reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this
Warrant.
(D) When any adjustment is required to be made in the Purchase Price, the
Company shall promptly mail, and in any event within thirty (30) days of
the date of such adjustment, to the Registered Holder, a certificate
setting forth the Purchase Price after such adjustment and setting forth a
brief statement of the facts requiring such adjustment. Such certificate
shall also set forth the kind and amount of stock or other securities or
property into which this Warrant shall be exercisable following the
occurrence of any of the events specified in subsections (A), (B), and
(C), above.
4. Fractional Shares
The Company shall not be required upon the exercise of this Warrant to issue any
fractional shares, but shall make an adjustment therefor in cash on the basis of
the fair market value per share of Common Stock, as determined in good faith by
the Board of Directors of the Company.
5. Requirements for Transfer
(A) This Warrant and the Warrant Shares shall not be sold or transferred
unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first
shall have been furnished with an opinion of legal counsel, reasonably
satisfactory to the Company, to the effect that such sale or transfer is
exempt from the Registration Requirements of the Act.
(B) Notwithstanding the foregoing, no registration or opinion of counsel
shall be required for a transfer made in accordance with Rule 144 under
the Act.
(C) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be offered, sold or otherwise transferred, pledged or hypothecated
unless and until such securities are registered under such Act or an
opinion of counsel satisfactory to the Company is obtained to the
effect that such registration is not required."
-5-
<PAGE> 6
The foregoing legend shall be removed from the certificates
representing any Warrant Shares, at the request of the holder
thereof, at such time as they become eligible for resale pursuant to
Rule 144(k) under the Act.
6. No Impairment
The Company will not, by amendment of its charter or through reorganization,
consolidation, merger, dissolution, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
7. Notices of Record Date, etc.
In case:
(A) the Company shall take a record of the holders of its Common Stock (or
other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for
or purchase any shares of stock of any class or any other securities, or
to receive any other right; or
(B) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the
Company with or into another corporation (other than a consolidation or
merger in which the Company is the surviving entity), or any transfer of
all or substantially all of the assets of the Company; or
(C) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company, or
(D) all or a substantial portion of the Common Stock of the Company is
proposed to be sold,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such
-6-
<PAGE> 7
other stock or securities at the time deliverable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or such
other stock or securities) for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, transfer,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
sixty (60) days prior to the record date or effective date of the event
specified in such notice.
If at any time after the Date of Issuance the Company shall give the Registered
Holder of this Warrant notice of any transaction contemplated by this Section 7,
then the Registered Holder may exercise this Warrant notwithstanding the
provision of this Warrant prohibiting the exercise of this Warrant prior to the
Date of Original Exercise.
8. Reservation of Stock
The Company will at all times reserve and keep available, free from preemptive
and all other preferential rights, solely for issuance and delivery upon the
exercise of this Warrant, such number of authorized but unissued Common Stock
issuable upon the exercise of this Warrant.
9. Covenants as to Common Stock
The Company covenants and agrees that all shares of Common Stock that may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be validly issued, fully paid and nonassessable, and free from all
taxes, liens and charges with respect to the issue thereof. The Company further
covenants and agrees that it will not amend its certificate of incorporation to
eliminate as an authorized class of capital stock that class denominated as
"Common Stock" on the date hereof. The Company further covenants and agrees that
it will pay when due and payable any and all federal and state taxes (other than
a tax measured by the warrant holder's or registered holder's income) which may
be payable in respect of the issue of this Warrant or any Common Stock or
certificates therefor issuable upon the exercise of this Warrant. The Company
further covenants and agrees that the Company has and will at all times have
authorized and reserved, free from preemptive rights which have not been waived,
options, warrants or other contractual claims, rights or reservations, a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
10. Exchange of Warrants
Upon the surrender by the Registered Holder of any Warrant or Warrants, properly
endorsed, to the Company at the principal office of the Company, the Company
will, subject to the provisions of Section 5 hereof, issue and deliver to or
upon the order of such Registered Holder, at the Company's expense, a new
Warrant or Warrants of
-7-
<PAGE> 8
like tenor, in the name of such Registered Holder or as such Registered Holder
(upon payment by such Registered Holder of any applicable transfer taxes) may
direct, calling in the aggregate on the face or faces thereof for the number of
shares of Common Stock called for on the face or faces of the Warrant or
Warrants so surrendered.
11. Replacement of Warrants
Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant and in the case of loss, theft
or destruction) upon delivery of an indemnity agreement (with surety if
reasonably required) in an amount satisfactory to the Company, or (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
issue, in lieu thereof, a new Warrant of like tenor.
12. Transfers, etc.
(A) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the Warrant register by written
notice to the Company requesting such change.
(B) Subject to the provisions of Section 5 hereof, this Warrant and all
rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit
II hereto) at the principal office of the Company.
(C) Until any transfer of this Warrant is made in the Warrant Register,
the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and
when this Warrant is properly assigned in blank, the Company may but shall
not be obligated to treat the bearer hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the contrary.
13. Mailing of Notices, etc.
Any notice or other document required or permitted to be given or delivered to
the Holder shall be delivered at, or sent by certified or registered mail to the
Holder at 845 Brook Street, Rocky Hill, Connecticut 06067, Attention: Mr. Donald
Reed or to such other address as shall have been furnished to the Company in
writing by the Holder. Any notice or other document required or permitted to be
given or delivered to the Company shall be delivered at, or sent by certified or
registered mail to the Company at One Research Drive, Shelton, Connecticut 06848
or to such other address as shall have been furnished in writing to the Holder
by the Company. Any
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<PAGE> 9
notice so addressed and mailed by registered or certified mail shall be deemed
to be given three business days after having been so mailed. Any notice so
addressed and otherwise delivered shall be deemed to be given when actually
received by the addressee.
14. No Rights as Stockholder
Until the exercise of this Warrant, the Registered Holder of this Warrant shall
not have or exercise any rights by virtue hereof as a stockholder of the
Company.
15. Benefits of Other Agreements
The Registered Holder of this Warrant and the record owner of the Warrant Shares
shall be entitled to the benefits of the Registration Rights Agreement, the
Stockholders' Voting Agreement and the Participation Agreement, each dated
January 20, 1995, each as amended, and each by and among the Company, the
Connecticut Development Authority and the other parties thereto. Any of the
rights and obligations under each of the agreements may be assigned by the
Warrant Holder to any person or entity to which all or a portion of the Warrant
or Warrant Shares are transferred.
16. Change or Waiver
Any term of this Warrant may be changed or waived only by an instrument in
writing signed by the party against which enforcement of the change or waiver is
sought.
17. Binding Effect
This Warrant shall be binding upon any corporation or other person as successor
to the Company by merger, consolidation or acquisition of all or substantially
all of the Company's assets.
18. Headings
The headings in this Warrant are for purposes of reference only and shall not
limit or otherwise affect the meaning of any provision of this warrant.
19. Governing Law
This Warrant will be governed by and construed in accordance with the laws of
the State of Delaware.
20. Jurisdiction; Service of Process
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<PAGE> 10
The parties hereby consent to submit themselves to the jurisdiction of the
United States District Court for the District of Connecticut and the Courts of
the State of Connecticut in connection with any disputes which may arise
hereunder. The parties hereby consent to service of process in the State of
Connecticut and designate the Secretary of State of the State of Connecticut as
their agent for such service. Such submission to jurisdiction and consent to
service of process is nonexclusive of any other jurisdiction or manner of
service in which or by which personal jurisdiction over the parties may be
obtained.
FLEXIINTERNATIONAL SOFTWARE, INC.
By : /s/ Stefan R. Bothe
-----------------------------------------
Stefan R. Bothe, Chief Executive Officer
Attest:
----------------------------------------
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<PAGE> 11
Exhibit I
Purchase Form
Dated: _____________________
To: Corporate Secretary
FlexiInternational Software, Inc.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.__) hereby irrevocably elects to purchase ____ shares of the Common Stock
covered by such Warrant. The undersigned herewith makes payment of $ _________,
representing the full purchase price for such shares at the price per share
provided for in such Warrant. Such payment takes the form of certified check or
wire transfer.
The undersigned hereby represents and warrants that the undersigned is acquiring
such shares or any part thereof for its own account for investment purposes
only, and not with a view to, or for sale in connection with, any distribution
of the shares in violation of the Securities Act of 1933, or any rule or
regulation under the Securities Act.
Signature: _____________________________
Address: _____________________________
_____________________________
Name in which shares should be registered:
____________________________
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<PAGE> 12
Exhibit II
Assignment Form
FOR VALUE RECEIVED, _____________________________ hereby sells, assigns, and
transfers all of the rights of the undersigned under the attached Warrant No. __
with respect to the number of shares of Common Stock covered thereby set forth
below, unto
Name of Assignee Address No. Of Shares
__________________ ____________________ ______________________
Date: ____________________ Signature: ___________________________________
Address: ___________________________________
___________________________________
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<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
FLEXIWARE CORPORATION
Dated as of June 28, 1994 (the "Effective Date")
WHEREAS, Flexiware Corporation, a Delaware corporation (the "Company") has
entered into a Master Lease Agreement dated as of June 28, 1994, Equipment
Schedule No. VL-1, and related Schedules (the "Leases") with Comdisco, Inc., a
Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series A Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE SERIES A PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company 43,103 fully paid and non-assessable
shares of the Company's Series A Preferred Stock ("Preferred Stock") at a
purchase price of $1.16 per share (the "Exercise Price"). The number and
purchase price of such shares are subject to adjustment as provided in Section 8
hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
<PAGE> 2
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21)
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<PAGE> 3
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market,
the current fair market value of Common Stock shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith
by its Board of Directors, unless the Company shall become subject to a
merger, acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the fair market value of Common
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
Notwithstanding the foregoing, Warrantholder shall only be allowed to
exercise via a Net Issuance when at least one of the following conditions is
met: 1) the company is a public corporation with its securities traded on a
securities exchange or traded over-the-counter; or 2) the company is subject to
a merger event as defined in Section 8(a); or 3) this Warrant Agreement is due
to expire within three (3) months of the date of the Warrantholder's exercise
thereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933
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<PAGE> 4
Act, as then in effect, or any similar Federal statute then enforced, or any
state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
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<PAGE> 5
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
of equipment leased pursuant to the Leases exceeds $500,000.00, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $500,000.00 by 10%, and (ii) dividing the product
thereof by the Exercise Price per share referenced above.
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<PAGE> 6
(f) Certificate of Incorporation. A true copy of the Company's Certificate
of Incorporation, as amended through the Effective Date, is attached hereto as
Exhibit __ (the "Charter"). The Company shall promptly provide the Warrantholder
with any restatement, amendment, modification or waiver of the Charter. The
Company shall provide Warrantholder with prior written notice of any issuance of
its stock or other equity security to occur after the Effective Date of this
Warrant, which notice shall include (a) the price at which such stock or
security is to be sold, (b) the number of shares to be issued, and (c) such
other information as necessary for Warrantholder to determine if a dilutive
event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription pro rata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; and (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
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<PAGE> 7
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
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<PAGE> 8
(i) The authorized capital of the Company consists of (A) 10,000,000
shares of Common Stock, of which 4,987,500 shares are issued and outstanding,
and (B) 2,840,517 shares of preferred stock, of which 2,784,483 shares are
issued and outstanding and are convertible into shares of Common Stock at a
conversion price of $1.16 per share, which price may be adjusted as provided in
the Certificate of Incorporation Article Fourth.
(ii) The Company has reserved 929,000 shares of Common Stock for
issuance under its Stock Option Plan, of which, 391,500 Non Statutory Stock
Options are outstanding at an average price of $.56 per share, and 241,200
Incentive Stock Options are outstanding at an average price of $1.00 per share.
There are no other options, warrants, conversion privileges or other rights
presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of the Company's capital stock or other securities of the
Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement and in the Registration Rights Agreement dated February 8,
1994, as amended, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Laws of 1953, in reliance upon Section 4.C thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing
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<PAGE> 9
requirements of the Securities and Exchange Commission as set forth in such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with -Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on
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<PAGE> 10
transfer are required. Whenever the restrictions imposed hereunder shall
terminate, as hereinabove provided, the Warrantholder or holder of a share of
Preferred Stock then outstanding as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense to such holder,
one or more new certificates for the Warrant or for such shares of Preferred
Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
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<PAGE> 11
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Delaware.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Leasing Director, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465
and (ii) to the Company at One Research Drive, (and/or if by facsimile, (203)
925-3044 or at such other address as any such party may subsequently designate
by written notice to the other party. A copy of all notices should also be sent
to: John K.P. Stone at Hale & Dorr, 60 State Street, Boston, MA 02109.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the
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<PAGE> 12
invalid, illegal or unenforceable provision shall be replaced by a mutually
acceptable valid, legal and enforceable provision, which comes closest to the
intention of the parties underlying the invalid, illegal or unenforceable
provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: FLEXIWARE CORPORATION
By: /s/ Stefan Bothe
-----------------------------------
Title: CEO
--------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ [illegible]
-----------------------------------
Title: /s/ [illegible]
---------------------------------
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<PAGE> 13
EXHIBIT I
NOTICE OF EXERCISE
To: _______________________
(1) The undersigned Warrantholder hereby elects to purchase ________ shares of
the Preferred Stock of ___________________ pursuant to the terms of the
Warrant Agreement dated the ______ day of _______________________, 19__
(the "Warrant Agreement") between ______________________________________
and the Warrantholder, and tenders herewith payment of the purchase price
for such shares in full, together with all applicable transfer taxes, if
any.
(2) In exercising its rights to purchase the Preferred Stock of
___________________ the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
________________________________
(Name)
________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: ____________________________
Title: _________________________
Date: __________________________
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<PAGE> 14
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _______________________________________, hereby
acknowledge receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase
____ shares of the Preferred Stock of __________________ pursuant to the terms
of the Warrant Agreement, and further acknowledges that ______ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company:
By: ________________________________
Title: _____________________________
Date: ______________________________
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<PAGE> 15
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated ________________________________________________________
Holder's Signature ___________________________________________
Holder's Address _____________________________________________
Signature Guaranteed: __________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement,
without alteration or enlargement or any change whatever.
Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
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<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series B Convertible Preferred Stock of
FLEXIINTERNATIONAL SOFTWARE, INC.
Dated as of July 25, 1995 (the "Effective Date")
WHEREAS, FlexiInternational Software, Inc., a Delaware corporation (the
"Company") has entered into a Receivables Loan and Security Agreement dated as
of July 10, 1995 and related Promissory Notes (the "Loan") with Comdisco, Inc.,
a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loan, the right to purchase shares of its Series B Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loan and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE SERIES B PREFERRED STOCK.
(a) The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 60,000 shares fully paid and
non-assessable shares of the Company's Series B Convertible Preferred Stock
("Preferred Stock") at a purchase price of $1.50 per share (the "Exercise
Price"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is
<PAGE> 2
longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised alter, and not in connection with the
Company's initial public offering, and:
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<PAGE> 3
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Common Stock shall be the
highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for shares of
Common Stock sold by the Company, from authorized but unissued
shares, as determined in good faith by its Board of Directors,
unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the
surviving party, in which case the fair market value of Common Stock
shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to
such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
Notwithstanding the foregoing, Warrantholder shall only be allowed to
exercise via a Net Issuance when at least one of the following conditions is
met: 1) the company is a public corporation with its securities traded on a
securities exchange or traded over-the-counter; or 2) the company is subject to
a merger event as defined in Section 8(a); or 3) this Warrant Agreement is due
to expire within three (3) months of the date of the Warrantholder's exercise
thereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
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<PAGE> 4
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event In any such case, appropriate adjustment (as
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<PAGE> 5
determined in good faith by the Company's Board of Directors) shall be made in
the application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock -purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to agree such number and kind of securities as would have been issuable as
the result of such change with respect to the securities which were subject to
the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If the Company's total drawdown
from Warrantholder pursuant to the Loan exceeds $1,000,000, but is less than or
equal to $1,500,000, Warrantholder shall have the right to purchase from the
Company, at the Exercise Price (adjusted as set forth herein), 30,000 shares of
Preferred Stock. If the Company's total drawdown from Warrantholder pursuant to
the Loan exceeds
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<PAGE> 6
$1,500,000, Warrantholder shall have the right to purchase from the Company, at
the Exercise Price (adjusted as set forth herein) an additional number of
shares, which number shall be determined by (i) multiplying the amount by which
the drawdown exceeds $1,500,000 by 9%, and (ii) dividing the product thereof by
the Exercise Price per share referenced above.
(f) Certificate of Incorporation. A true copy of the Company's Certificate
of Incorporation, as amended through the Effective Date, is attached hereto as
Exhibit ____ (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to occur after the Effective
Date of this Warrant, which notice shall include (a) the price at which such
stock or security is to be sold, (b)the number of shares to be issued, and (c)
such other information as necessary for Warrantholder to determine if a dilutive
event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
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<PAGE> 7
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholders rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof; or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loan and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of; or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loan and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of; giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
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<PAGE> 8
Series A Convertible Preferred Stock, Preferred Stock or any other securities of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable. All outstanding shares of Common Stock, Series A Convertible
Preferred Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of: (A)
15,000,000 shares of Common Stock, of which 5,025,500 shares are
issued and outstanding; and (B) 2,840,517 shares of Series A
Preferred Stock, of which 2,784,483 shares are issued and
outstanding and are convertible into shares of Common Stock at a
conversion price of $1.16 per share, which price may be adjusted as
provided in the Certificate of Incorporation Article Fourth; and (C)
2,980,911 shares of Series B Preferred Stock, of which 2,813,000
shares are issued and outstanding and are convertible into shares of
Common Stock at a conversion price of $1.50 per share, which price
may be adjusted as provided in the Certificate of Incorporation
Article Fourth.
(ii) The Company has reserved 1,424,500 shares of Common Stock for
issuance under its Stock Option Plan, of which, 441,500 Non
Statutory Stock Options are outstanding at prices ranging from
$0.0002 - $1.00 per share, and 768,700 Incentive Stock Options are
outstanding at prices ranging from $1.00 - $1.50 per share. With the
exception of this Agreement and the following Warrant Agreements,
there are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire any
authorized but unissued shares of the Company's capital stock or
other securities of the Company:
- Dated June 28, 1994 for 43,103 shares of the Company's Series
A Convertible Preferred Stock in connection with the Company's
Master Lease Agreement dated as of June 28, 1994, Equipment
Schedule No. VL-1;
- Dated July 12, 1995 for 16,800 shares of the Company's
Preferred Stock in connection with the Company's Master Lease
Agreement dated as of June 28, 1994, Equipment Schedule No.
VL-2 dated as of May 24, 1995; and
(iii) In accordance with the Company's Certificate of Incorporation,
no shareholder of the Company has preemptive rights to purchase new
issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against
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<PAGE> 9
such losses and risks, and in such amounts, as are customary for corporations
engaged in a similar business and similarly situated and as otherwise may be
required pursuant to the terms of any other contract or agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement and in the Registration Rights Agreement dated as of January
20, 1995, as amended, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof; the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof; and (ii) the qualification requirements of the Illinois Corporate
Securities Laws of 1953, in reliance upon Section 4.C thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confining the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholders rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof; and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof; and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
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<PAGE> 10
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933
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<PAGE> 11
Act may be made only in accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof; this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Delaware.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labt,
President, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465) and
(ii) to the Company at One Research Drive, Shelton, Connecticut 06484,
attention: Jennifer V. Cheng, President cc: Brian A. Marks, Ph.D., Vice
President Administration & Legal Affairs (and/or if by facsimile, (203)
925-3044) or at such other address as any such party may subsequently designate
by written notice to the other party. A copy of all notices should also be sent
to: John K.P. Stone at Hale & Dorr, 60 State Street, Boston, MA
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<PAGE> 12
02109.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the crying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g)of Section 9 above. If the purchase
price for the Loan referenced in the preamble of this Warrant Agreement exceeds
$1,000,000, the Company will also provide Warrantholder with an opinion from the
Company's counsel with respect to those same representations, warranties and
covenants. The Company shall also supply such other documents as the
Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
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<PAGE> 13
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan Bothe
-----------------------------------------
Title: Chairman of the Board
--------------------------------------
Warrantholder: COMDISCO, INC.
By: [illegible]
-----------------------------------------
Title: [illegible]
--------------------------------------
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<PAGE> 14
EXHIBIT I
NOTICE OF EXERCISE
To: __________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Preferred Stock of pursuant to the terms of the Warrant Agreement
dated the day of 19__, (the "Warrant Agreement") between
______________________________________ and the Warrantholder, and tenders
herewith payment of the purchase price for such shares in full, together
with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of the
undersigned hereby confirms and acknowledges the investment
representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
______________________________
(Name)
______________________________
(Address)
Warrantholder: COMDISCO, INC.
By: __________________________
Title: _______________________
Date:
-14-
<PAGE> 15
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________________, hereby acknowledge receipt of the
"Notice of Exercise" from Comdisco, Inc., to purchase ____ shares of the
Preferred Stock of pursuant to the terms of the Warrant Agreement, and further
acknowledges that______ shares remain subject to purchase under the terms of the
Warrant Agreement.
Company:
By: _________________________________
Title: ______________________________
Date: _______________________________
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<PAGE> 16
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
Dated: ___________________________________________
Holder's Signature _______________________________
Holder's Address _________________________________
__________________________________________________
Signature Guaranteed: __________________________________________________________
Note: The signature to this Transfer Notice must correspond with the name
as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the
foregoing Warrant Agreement.
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<PAGE> 1
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series B Convertible Preferred Stock of
FLEXIINTERNATIONAL SOFTWARE, INC.
Dated as of July 25, 1995 (the "Effective Date")
WHEREAS, FlexiInternational Software, Inc., a Delaware corporation (the
"Company") has entered into a Master Lease Agreement dated as of June 28, 1994,
Equipment Schedule No. VL-2 dated as of May 23, 1995, and related Schedules (the
"Leases") with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Leases, the right to purchase shares of its Series B Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE SERIES B PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 16,800 fully paid and
non-assessable shares of the Company's Series B Convertible Preferred Stock
("Preferred Stock") at a purchase price of $1.50 per share (the "Exercise
Price"). The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
<PAGE> 2
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
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<PAGE> 3
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market,
the current fair market value of Common Stock shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good faith
by its Board of Directors, unless the Company shall become subject to a
merger, acquisition or other consolidation pursuant to which the Company
is not the surviving party, in which case the fair market value of Common
Stock shall be deemed to be the value received by the holders of the
Company's Preferred Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
Notwithstanding the foregoing, Warrantholder shall only be allowed to
exercise via a Net Issuance when at least one of the following conditions is
met: 1) the company is a public corporation with its securities traded on a
securities exchange or traded over-the-counter; or 2) the company is subject to
a merger event as defined in Section 8(a); or 3) this Warrant Agreement is due
to expire within three (3) months of the date of the Warrantholder's exercise
thereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
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<PAGE> 4
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined
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<PAGE> 5
in good faith by the Company's Board of Directors) shall be made in the
application of the provisions of this Warrant Agreement with respect to the
rights and interest of the Warrantholder after the Merger Event to the end that
the provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
of equipment leased pursuant to the Leases exceeds $280,000.00, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost
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<PAGE> 6
exceeds $280,000.00 by 9%, and (ii) dividing the product thereof by the Exercise
Price per share referenced above.
(f) Certificate of Incorporation. A true copy of the Company's Certificate
of Incorporation, as amended through the Effective Date, is attached hereto as
Exhibit ___ (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to occur after the Effective
Date of this Warrant, which notice shall include (a) the price at which such
stock or security is to be sold, (b) the number of shares to be issued, and (c)
such other information as necessary for Warrantholder to determine if a dilutive
event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder alter giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date
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<PAGE> 7
Warrantholder actually receives a written notice containing all the information
specified above.
9. REPRESENTATIONS WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Series A Convertible Preferred Stock, Preferred Stock or any other securities of
the Company have been duly authorized and validly issued and are fully paid and
nonassessable. All outstanding shares of Common Stock, Series A Convertible
-7-
<PAGE> 8
Preferred Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of: (A)
15,000,000 shares of Common Stock, of which 5,025,500 shares are issued
and outstanding; and (B) 2,840,517 shares of Series A Preferred Stock, of
which 2,784,483 shares are issued and outstanding and are convertible into
shares of Common Stock at a conversion price of $1.16 per share, which
price may be adjusted as provided in the Certificate of Incorporation
Article Fourth; and (C) 2,980,911 shares of Preferred Stock, of which
2,813,000 shares are issued and outstanding and are convertible into
shares of Common Stock at a conversion price of $1.50 per share, which
price may be adjusted as provided in the Certificate of Incorporation
Article Fourth.
(ii) The Company has reserved 1,424,500 shares of Common Stock for
issuance under its Stock Option Plan, of which, 441,500 Non Statutory
Stock Options are outstanding at prices ranging from $0.0002 - $1.00 per
share, and 768,700 Incentive Stock Options are outstanding at prices
ranging from $1.00 - $1.50 per share. With the exception of this Agreement
and the following Warrant Agreements, there are no other options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any authorized but unissued shares of the
Company's capital stock or other securities of the Company:
- Dated June 28, 1994 for 43,103 shares of the Company's Series
A Convertible Preferred Stock in connection with the Company's
Master Lease Agreement dated as of June 28, 1994, Equipment
Schedule No. VL-1;
- Dated July 12, 1995 for 60,000 shares of the Company's
Preferred Stock in connection with the Company's Accounts
Receivable and Security Agreement with Warrantholder; and
(iii) In accordance with the Company's Certificate of Incorporation,
no shareholder of the Company has preemptive rights to purchase new
issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement and in the Registration Rights Agreement dated as of January
20,
-8-
<PAGE> 9
1995, as amended, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the Illinois Corporate
Securities Laws of 1953, in reliance upon Section 4.C thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any party thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof and (ii) that the Company's
reliance on such exemption is predicated on the representations set forth in
this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to
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<PAGE> 10
the Company and its counsel to the effect that (A) appropriate action necessary
for compliance with the 1933 Act has been taken, or (B) an exemption from the
registration requirements of the 1933 Act is available. Notwithstanding the
foregoing, the restrictions imposed upon the transferability of any of its
rights to acquire Preferred Stock or Preferred Stock issuable on the exercise of
such rights do not apply to transfers from the beneficial owner of any of the
aforementioned securities to its nominee or from such nominee to its beneficial
owner, and shall terminate as to any particular share of Preferred Stock when
(1) such security shall have been effectively registered under the 1933 Act and
sold by the holder thereof in accordance with such registration or (2) such
security shall have been sold without registration in compliance with Rule 144
under the 1933 Act, or (3) a letter shall have been issued to the Warrantholder
at its request by the staff of the Securities and Exchange Commission or a
ruling shall have been issued to the Warrantholder at its request by such
Commission stating that no action shall be recommended by such staff or taken by
such Commission, as the case may be, if such security is transferred without
registration under the 1933 Act in accordance with the conditions set forth in
such letter or ruling and such letter or ruling specifies that no subsequent
restrictions on transfer are required. Whenever the restrictions imposed
hereunder shall terminate, as hereinabove provided, the Warrantholder or holder
of a share of Preferred Stock then outstanding as to which such restrictions
have terminated shall be entitled to receive from the Company, without expense
to such holder, one or more new certificates for the Warrant or for such shares
of Preferred Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no
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<PAGE> 11
event shall the number of transfers of the rights and interests in all of the
Warrants exceed three (3) transfers. The transfer shall be recorded on the books
of the Company upon receipt by the Company of a notice of transfer in the form
attached hereto as Exhibit II (the "Transfer Notice"), at its principal offices
and the payment to the Company of all transfer taxes and other governmental
charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Delaware.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
President, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465) and
(ii) to the Company at One Research Drive, Shelton, Connecticut 06484,
attention: Jennifer V. Cheng, President cc: Brian A. Marks, Ph.D., Vice
President Administration & Legal Affairs (and/or if by facsimile, (203)
925-3044) or at such other address as any such party may subsequently designate
by written notice to the other party. A copy of all notices should also be sent
to: John K.P. Stone at Hale & Dorr, 60 State Street, Boston, MA 02109.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any
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<PAGE> 12
such default, and/or an action for specific performance for any default where
Warrantholder will not have an adequate remedy at law and where damages will not
be readily ascertainable. The Company expressly agrees that it shall not oppose
an application by the Warrantholder or any other person entitled to the benefit
of this Agreement requiring specific performance of any or all provisions hereof
or enjoining the Company from continuing to commit any such breach of this
Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan Bothe
------------------------------------
Title: CEO
Warrantholder: COMDISCO, INC.
By: /s/ [illegible]
------------------------------------
Title: /s/ [illegible]
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<PAGE> 14
EXHIBIT I
NOTICE OF EXERCISE
To: ______________________________
(1) The undersigned Warrantholder hereby elects to purchase _______ shares of
the Preferred Stock of ____________, pursuant to the terms of the Warrant
Agreement dated the _____ day of ____________, 19__, (the "Warrant
Agreement") between ___________________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________, the undersigned hereby confirms and acknowledges the
investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
__________________________________
(Name)
__________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: ______________________________
Title: ___________________________
Date: ____________________________
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<PAGE> 15
ACKNOWLEDGMENT OF EXERCISE
The undersigned ____________, hereby acknowledge receipt of the "Notice of
Exercise" from Comdisco, Inc., to purchase ____ shares of the Preferred Stock of
______________, pursuant to the terms of the Warrant Agreement, and further
acknowledges that______ shares remain subject to purchase under the terms of the
Warrant Agreement.
Company:
By: ___________________________________
Title: ________________________________
Date: _________________________________
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<PAGE> 16
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
________________________________________________________________________________
(Please Print)
whose address is _______________________________________________________________
________________________________________________________________________________
Dated: _________________________________________________
Holder's Signature _____________________________________
Holder's Address _______________________________________
_______________________________________
Signature Guaranteed: __________________________________________________________
Note: The signature to this Transfer Notice must correspond with the name
as it appears on the face of the Warrant Agreement, without
alteration or enlargement or any change whatever. Officers of
corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the
foregoing Warrant Agreement.
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<PAGE> 1
MASTER LEASE AGREEMENT
COMDISCO, INC. - LESSOR
MASTER LEASE AGREEMENT dated June 28, 1994 by and between COMDISCO, INC.
("Lessor") and FLEXIWARE CORPORATION ("Lessee").
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms are defined in Section 14.19):
1. PROPERTY LEASED.
Lessor leases to Lessee all of the Equipment described on each Schedule.
In the event of a conflict, the terms of a Schedule prevail over this Master
Lease.
2. TERM.
On the Commencement Date, Lessees will be deemed to accept the Equipment,
will be bound to its rental obligation for each item of Equipment and the term
of a Schedule will begin and continue through the Initial Term and thereafter
until terminated by either party upon prior written notice received during the
Notice Period. No termination may be effective prior to the expiration of the
Initial Term.
3. RENT AND PAYMENT.
Rent is due and payable in advance, in immediately available funds, on the
first day of each Rent Interval to the payee and at the location specified in
Lessor's invoice. Interim Rent is due and payable when invoiced. If any payment
is not made when due, Lessee will pay interest at the Overdue Rate. Upon
Lessee's execution of each Schedule, Lessee will pay Lessor the Advance
specified on the Schedule. The Advance will be credited towards the final Rent
payment if Lessee is not then in default. No interest will be paid on the
Advance.
4. SELECTION; WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the Equipment and
disclaims any reliance upon statements made by the Lessor.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to Lessee that,
so long as Lessee is not in default, Lessor will not disturb Lessee's quiet and
peaceful possession, and unrestricted use of the Equipment. To the extent
permitted by the manufacturer, Lessor assigns to Lessee during the term of the
Schedule any manufacturer's warranties for the Equipment. LESSOR MAKES NO OTHER
WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT
LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR A PARTICULAR
PURPOSE. Lessor is not
<PAGE> 2
responsible for any liability, claim, loss, damage or expense of any kind
(including strict liability in tort) caused by the Equipment except for any
loss, damage caused by the negligent acts of Lessor. In no event is Lessor
responsible for special, incidental or consequential damages.
5. TITLE; RELOCATION OR SUBLEASE; AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to the right
of the Owner, Lessor, any Assignee and any Secured Party. Lessee authorizes
Lessor, as Lessee's agent, to prepare, execute and file in Lessee's name
precautionary Uniform Commercial Code financing statements showing the interest
of the Owner, Lessor, and any Assignee or Secured Party in the Equipment and to
insert serial numbers in Schedules as appropriate. Lessee will, at its expense,
keep the Equipment free and clear from any liens or encumbrances of any kind
(except any caused by Lessor) and will indemnify and hold Lessor, Owner, any
Assignee and Secured Party harmless from and against any loss caused by Lessee's
failure to do so.
5.2 RELOCATION OR SUBLEASE. Upon prior written consent, Lessee may
relocate Equipment to any location within the continental United States provided
(i) the Equipment will not be used by an entity exempt from federal income tax,
(ii) all additional costs (including any administrative fees, additional taxes
and insurance coverage) are reconciled and promptly paid by Lessee.
Lessee may sublease the Equipment upon the reasonable consent of the
Lessor and the Secured Party. Such consent to sublease will be granted if: (i)
Lessee meets the relocation requirements set out above, (ii) the sublease is
expressly subject and subordinate to the terms of the Schedule, (iii) Lessee
assigns, its rights in the sublease to Lessor and the Secured Party as
additional collateral and security, (iv) Lessee's obligation to maintain and
insure the Equipment is not altered, (v) all financing statements required to
continue the Secured Party's prior perfected security interest are filed, and
(vi) the sublease is not to a leasing entity affiliated with the manufacturer of
the Equipment described on the Schedule. Lessor acknowledges Lessee's right to
sublease for a term which extends beyond the expiration of the Initial Term. If
Lessee subleases the Equipment for a terms extending beyond the expiration of
such Initial Term of the applicable Schedule, Lessee will remain obligated upon
the expiration of the Initial Term to return such equipment, or, at Lessor's
sole discretion to (i) return Like Equipment or (ii) negotiate a mutually
acceptable lease extension or purchase. If the parties cannot mutually agree
upon the terms of an extension or purchase, the term of the Schedule will extend
upon the original terms and conditions until terminated pursuant to Section 2.
No relocation or sublease will relieve Lessee from any of its obligations
under this Master Lease and the relevant Schedule.
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<PAGE> 3
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each Schedule have
been fixed by Lessor in order to permit Lessor to sell and/or assign or transfer
its interest or grant a security interest in each Schedule and/or the Equipment
to a Secured Party or Assignee. In that event, the term Lessor will mean the
Assignee and any Secured Party. However, any assignment, sale, or other transfer
by Lessor will not relieve Lessor of its obligations to Lessee and will not
materially change Lessee's duties or materially increase the burdens or risks
imposed on Lessee. The Lessee consents to and will acknowledge such assignments
in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured party will be entitled to exercise all of Lessor's
rights, but will not be obligated to perform any of the
obligations of Lessor. The Secured Party will not disturb
Lessee's quiet and peaceful possession and unrestricted use of
the Equipment so long as Lessee is not in default and the
Secured Party continues to receive all Rent payable under the
Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the
Secured Party, despite any defense or claim which it has
against Lessor. Lessee reserves its right to have recourse
directly against Lessor for any defense or claim;
(c) Subject to and without impairment of Lessee's leasehold rights
in the Equipment, Lessee holds the equipment for the Secured
Party to the extent of the Secured Party's rights in that
Equipment.
6. NET LEASE; TAXES AND FEES.
6.1 NET LEASE. Each Schedule constitutes a net lease. Lessee's obligation
to pay Rent and all other amounts is absolute and unconditional and is not
subject to any abatement, reduction, set-off, defense, counterclaim,
interruption, deferment or recoupment for any reason whatsoever.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for all
taxes, fees or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising
during the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental authority (except only Federal, state and local taxes on the
capital or the net income of Lessor). Lessor will file all personal property tax
returns for the Equipment and pay all property taxes due. Lessee will reimburse
Lessor for property taxes within thirty (30) days of receipt of an invoice.
-3-
<PAGE> 4
7. CARE, USE AND MAINTENANCE; ATTACHMENTS AND RECONFIGURATIONS; AND INSPECTION
BY LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in good
operating order and appearance, protect the Equipment from deterioration, other
than normal wear and tear, and will not use the Equipment for any purpose other
than that for which it was designed. If commercially available, Lessee will
maintain in force a standard maintenance contract with the manufacturer of the
Equipment, or another party acceptable to Lessor, and will provide Lessor with a
complete copy of that contract. If Lessee has the Equipment maintained by a
party other than the manufacturer, Lessee agrees to pay any costs necessary for
the manufacturer to bring the Equipment to then current release, revision and
engineering change levels, and to re-certify the Equipment as eligible for
manufacturer's maintenance at the expiration of the lease term. The lease term
will continue upon the same terms and conditions until recertification has been
obtained.
7.2 ATTACHMENTS AND RECONFIGURATIONS. Upon receiving the prior written
consent of Lessor, Lessee may reconfigure and install Attachments on the
Equipment. In the event of such a Reconfiguration or Attachment, Lessee will,
UPI return of the Equipment, at its expense, restore the Equipment to the
original configuration specified on the Schedule in accordance with the
manufacturer's specifications and in the same operating order, repair and
appearances as when installed (normal wear and tear excluded). If any parts of
the Equipment are removed during a Reconfiguration or Attachment, Lessor may
require Lessee to provide additional security, satisfactory to the Lessor, in
order to ensure performance of Lessee's obligations set forth in this
subsection. Neither Attachments nor parts installed on Equipment in the course
of Reconfiguration will be accessions to the Equipment.
7.3 INSPECTION BY LESSOR. Upon request, Lessee, during reasonable business
hours and subject to Lessee's security requirements, will make the Equipment and
its related log and maintenance records available to Lessor for inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee hereby represents, warrants
and covenants that with respect to the Master Lease and each Schedule executed
hereunder:
(a) The Lessee is a corporation duly organized and validly existing in
good standing under the laws of the jurisdiction of its
incorporation, is duly qualified to do business in each jurisdiction
(including the jurisdiction where the Equipment is, or is to be,
located) where its ownership or lease of property or the conduct of
its business requires such qualification; and has full corporate
power and authority to hold property under the Master Lease and each
Schedule and to enter into and perform its obligations under such
Lease.
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<PAGE> 5
(b) The execution and delivery by the Lessee of the Master Lease and
each Schedule and its performance thereunder have been duly
authorized by all necessary corporate action on the part of the
Lessee, and the Master Lease and each Schedule are not inconsistent
with the Lessee's Certificate of Incorporation or Bylaws, do not
contravene any law or governmental rule, regulation or order
applicable to it, do not and will not contravene any provision of,
or constitute a default under, any indenture, mortgage, contract or
other instrument to which it is a party or by which it is bound, and
the Master Lease and each Schedule constitute legal, valid and
binding agreements of the Lessee, enforceable in accordance with
their terms.
(c) There are no actions, suits, proceedings or patent claims pending
or, to the knowledge of the Lessee, threatened against or affecting
the Lessee in any court or before any governmental commission, board
or authority which, if adversely determined, will have a material
adverse effect on the ability of the Lessee to perform its
obligations under the Master Lease and each Schedule.
(d) The Equipment is personal property and when subjected to use by the
Lessee will not be or become fixtures under applicable law.
(e) The Lessee has no material liabilities or obligations, absolute or
contingent (individually or in the aggregate), except the
liabilities and obligations of the Lessee as set forth in the
Financial Statements and liabilities and obligations which have
occurred in the ordinary course of business, and which have not
been, in any case or in the aggregate, materially adverse to
Lessee's ongoing business.
(f) To the best of the Lessee's knowledge, the Lessee owns, possesses,
has access to, or can become licensed on reasonable terms under all
patents, patent applications, trademarks, trade names, inventions,
franchises, licenses permits, computer software and copyrights
necessary for the operations of its business as now conducted, with
no known infringement of, or conflict with, the rights of others.
(g) All material contracts, agreements and instruments to which the
Lessee is a party are in full force and effect in all material
respects, and are valid, binding and enforceable by the Lessee in
accordance with their respective terms, subject to the effect of
applicable bankruptcy and other similar laws affecting the right of
creditors generally, and rules of law concerning equitable remedies.
-5-
<PAGE> 6
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee hereby assumes the full expense of transportation and in-transit
insurance to Lessee's premises and installation thereat of the Equipment. Upon
termination (by expiration or otherwise) of each Schedule, Lessee shall,
pursuant to Lessor's instructions and at Lessee's full expense (including,
without limitation, expenses of transportation and in-transit insurance), return
the Equipment to Lessor in the same operating order, repair, condition and
appearance as when received, less normal depreciation and wear and tear. Lessee
shall return the Equipment to Lessor at its address set forth herein or at such
other address within the continental United States as directed by Lessor,
provided, however, that Lessee's expense shall be limited to the cost of
returning the equipment to Lessor's address as set forth herein. During the
period subsequent to receipt of a notice under Section 2, Lessor may demonstrate
the Equipment's operation in place and Lessee will supply any of its personnel
as may reasonably be required to assist in the demonstrations.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's interest.
Lessee will keep all Equipment free from any other marking or labeling which
might be interpreted as a claim of ownership.
11. INDEMNITY.
Lessee will indemnify and hold Lessor, any Assignee and any Secured Party
harmless from and against any and all claims, costs, expenses, damages and
liabilities, including reasonable Attorneys' fees, arising out of the ownership
(for strict liability in tort only), selection, possession, leasing, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Master Lease in
amounts and against risks customarily insured against by the Lessee on equipment
owned by it. Any amounts received by Lessor under that insurance will be
credited against Lessee's obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance will name the Lessor and any Secured Party as additional insured
and as loss payee, and
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<PAGE> 7
will provide for at least thirty (30) days prior written notice to the Lessor of
cancellation or expiration, and will insure Lessor's interests regardless of any
breach or violation by Lessee of any representation, warranty or condition
contained in such policies and will be primary without right of contribution
from any insurance effected by Lessor. Upon the execution of any Schedule, the
Lessee will furnish appropriate evidence of such insurance acceptable to Lessor.
Lessee will promptly repair any damaged item of Equipment unless such
Equipment has suffered a Casualty Loss. Within fifteen (15) days of a Casualty
Loss, Lessee will provide written notice of that loss to Lessor and Lessee will,
at Lessor's option, either (a) replace the item of Equipment with like Equipment
and marketable title to the like Equipment will automatically vest in Lessor or
(b) pay the Casualty Value and after that payment and the payment of all other
amounts due and owing, Lessee's obligation to pay further Rent for the item of
Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following Events of
Default constitutes a default under a Schedule:
(a) Lessee's failure to pay Rent or other amounts payable by Lessee when
due if that failure continues for five (5) days after written
notice; or
(b) Lessee's failure to perform any other term or condition of the
Schedule or the material inaccuracy of any representation of
warranty made by the Lessee in the Schedule or in any document or
certificate furnished to the Lessor hereunder if that failure or
inaccuracy continues for ten (10) days after written notice; or
(c) An assignment by Lessee for the benefit of its creditors, the
failure by Lessee to pay its debts when due, the insolvency of
Lessee, the filing by Lessee or the filing against Lessee of any
petition under any bankruptcy or insolvency law or for the
appointment of a trustee or other officer with similar powers, the
adjudication of Lessee as insolvent, the liquidation of Lessee, or
the taking of any action for the purpose of the foregoing; or
(d) The occurrence of an Event of Default under any Schedule or other
agreement between Lessee and Lessor or its Assignee or Secured
Party.
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may:
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<PAGE> 8
(a) enforce Lessee's performance of the provisions of the applicable
Schedule by appropriate court action in law or in equity;
(b) recover from lessee any damages and/or expenses, including Default
Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payment stream of all
Rent due under the defaulted Schedule (discounted at the same rate
of interest at which such defaulted Schedule has discounted with a
Secured Party plus any prepayment fees charged to Lessor by the
Secured Party or, if there is no Secured Party, then discounted at
6%) together with all Rent and other amounts currently due as
liquidated damages and not as a penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to
remove and repossess the Equipment without being liable to Lessee
for damages due to the repossession, except those resulting from
Lessor's, its assignees', agents' or representatives' negligence;
and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, lease or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, lease or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term
less the Default Costs; or
(b) if leased, the present value (discounted at three points over the
prime rate as referenced in the Wall Street Journal at the time of
the
-8-
<PAGE> 9
mitigation) of the rentals for a term not to exceed the Initial
Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Lessee is liable to Lessor for, and Lessor
may recover, the amount by which the proceeds are less than the liquidated
damages and other sums due to Lessor from Lessee.
14. ADDITIONAL PROVISIONS.
14.1 BOARD ATTENDANCE. Lessor or its duly appointed representative will
have the right to attend Lessee's corporate Board of Directors meetings and
Lessee will give Lessor reasonable notice in advance of any special Board of
Directors meeting, which notice will provide an agenda of the subject matter to
be discussed at such board meeting. Lessee will provide Lessor with a certified
copy of the minutes of each Board of Directors meeting within thirty (30) days
following the date of such meeting held during the term of this Lease.
14.2 FINANCIAL STATEMENT. Lessee will provide to Lessor the financial
statements specified in this Section, prepared in accordance with generally
accepted accounting principles, consistently applied (the "Financial
Statements"); provided, however, after the effective date of the initial
registration statement covering a public offering of Lessee's securities, the
term "Financial Statements" will be deemed to refer to only those statements
required by the Securities and Exchange Commission, to be provided no less
frequently than quarterly. Lessee will provide to Lessor (i) as soon as
practicable (within thirty (30) days) after the end of each month, the same
information which Lessee provides to its Board of Directors, but which will
include not less than a monthly income statement, balance sheet and statement of
cash flows, certified by Lessee's Chief Executive or Financial Officer to be
true and correct; and (ii) as soon as practicable (and in any event within
ninety (90) days) after the end of each fiscal year, audited balance sheets as
of the end of such year (consolidated if applicable), and related statements of
income or loss, retained earnings or deficit and changes in the financial
position and capital structure of Lessee for such year, setting forth in
comparative form the corresponding figures for the preceding fiscal year, and
accompanied by an audit report and opinion of the independent certified public
accountants selected by Lessee. Lessee will promptly furnish to Lessor any
additional information (including, but not limited to, tax returns, income
statements, balance sheets, and names of principal creditors) as Lessor
reasonably believes necessary to evaluate Lessee's continuing ability to meet
financial obligations.
14.3 OBLIGATION TO LEASE ADDITIONAL EQUIPMENT. Upon notice to Lessee,
Lessor will not be obligated to lease any Equipment which would have a
Commencement Date after said notice if: (i) Lessee is in default under this
Master Lease or any Schedule; (ii) Lessee is in default under any loan
agreement, the result
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<PAGE> 10
of which would allow the lender or any secured party to demand immediate payment
of the indebtedness; (iii) there is a material adverse change in Lessee's credit
standing; or (iv) Lessor determines (in reasonable good faith) that Lessee will
be unable to perform its obligations under this Master Lease.
14.4 MERGER AND SALE PROVISIONS. Lessee will notify Lessor of any proposed
Merger at least sixty (60) days prior to the closing date. Lessor may, in its
discretion, either (i) consent to the assignment of the Master Lease and all
relevant Schedules to the successor entity, or (ii) terminate the Master Lease
and all relevant Schedules. If Lessor elects to consent to the assignment,
Lessee and its successor will sign the assignment documentation provided by
Lessor. If Lessor elects to terminate the Master Lease and all relevant
Schedules, then Lessee will pay Lessor all amounts then due and owing and a
termination fee equal to the present value (discounted at 6% of the remaining
Rent for the balance of the Initial Term(s) of all Schedules, and will return
the Equipment in accordance with Section 9.
14.5 ENTIRE AGREEMENT. This Master Lease and associated Schedules
supersede all other oral or written agreements or understandings between the
parties concerning the Equipment including, for example, purchase orders. ANY
AMENDMENT OF THIS MASTER LEASE OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A
WRITING SIGNED BY THE PARTY AGAINST WHOM THE AMENDMENT IS SOUGHT TO BE ENFORCED.
14.6 NO. WAIVER. No action taken by Lessor or Lessee will be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Master Lease or a Schedule. The waiver by Lessor or Lessee of
a breach of any provision of this Master Lease or a Schedule will not operate or
be construed as a waiver of any subsequent breach.
14.7 BINDING NATURE. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
14.8 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but
not limited to those arising under Section 6.2, representations and warranties
contained in this Master Lease, any Schedule or in any document delivered in
connection with those agreements are for the benefit of Lessor and any Assignee
or Secured Party and survive the execution, delivery, expiration or termination
of this Master Lease.
14.9 NOTICES. Any notice, request or other communication to either party
by the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by regular
or airmail to Lessor (to the attention of "Lease Administrator") or Lessee, at
the address set out in the Schedule or, one day after it is sent by courier or
on the same day as sent via
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facsimile transmission, provided that the original is sent by personal delivery
or mail by the receiving party.
14.10 APPLICABLE LAW. THIS MASTER LEASE HAS BEEN, AND EACH SCHEDULE WILL
HAVE BEEN MADE, EXECUTED AND DELIVERED IN THE STATE OF ILLINOIS AND WILL BE
GOVERNED AND CONSTRUED FOR ALL PURPOSES IN ACCORDANCE WITH THE LAWS OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO CONFLICT OF LAW PROVISIONS. NO RIGHTS OR
REMEDIES REFERRED TO IN ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE WILL BE
CONFERRED ON LESSEE EXPRESSLY GRANTED IN THIS MASTER LEASE OR A SCHEDULE.
14.11 SEVERABILITY. If any one or more of the provisions of this Master
Lease or any Schedule is for any reason held invalid, illegal or unenforceable,
the remaining provisions of this Master Lease and any such Schedule will be
unimpaired, and the invalid, illegal or unenforceable provision replaced by a
mutually acceptable valid, legal and enforceable provision that is closest to
the original intention of the parties.
14.12 COUNTERPARTS. This Master Lease and any Schedule may be executed in
any number of counterparts, each of which will be deemed an original, but all
such counterparts together constitute one and the same instrument. If Lessor
grants a security interest in all or any part of a Schedule, the Equipment or
sums payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate."
14.13 NONSPECIFIED FEATURES AND LICENSED PRODUCTS. If the Equipment is
supplied from Lessor's inventory and contains any features not specified in the
Schedule, Lessee grants Lessor the right to remove any such features. Any
removal will be performed by the manufacturer or another party acceptable to
Lessee, upon the request of Lessor, at a time convenient to Lessee, provided
that Lessee will not unreasonably delay the removal of such features.
Lessee will obtain no title to Licensed products which will at all times
remain the property of the owner of the Licensed Products. A license from the
owner may be required and it is Lessee's responsibility to obtain any required
license before the use of the Licensed Products. Lessee agrees to treat the
Licensed Products as confidential information of the owner, to observe all
copyright restrictions, and not to reproduce or sell the Licensed Products.
14.14 ADDITIONAL DOCUMENTS. Lessee will, upon execution of this Master
Lease and as may be requested thereafter, provide Lessor with a secretary's
certificate of incumbency and authority and any other documents reasonably
requested by Lessor. Upon the execution of each Schedule with a purchase price
in excess of
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<PAGE> 12
$1,000,000, Lessee will provide Lessor with an opinion from Lessee's counsel in
a form acceptable to Lessor regarding the representations and warranties in
Section 8.
14.15 ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
14.16. LESSOR'S RIGHT TO MATCH. Lessee's rights under Section 5.2 and 7.2
are subject to Lessor's right to match any sublease or upgrade proposed by a
third party. Lessee will provide Lessor with the terms of the third party offer
and Lessor will have three (3) business days to match the offer. Lessee will
obtain such upgrade from or sublease the Equipment to Lessor if Lessor has
timely matched the third party offer.
14.17 LANDLORD/MORTGAGEE WAIVER. Lessee agrees to provide Lessor with a
Landlord/Mortgagee Waiver with respect to the Equipment. Such waiver shall be in
a form satisfactory to Lessor.
14.18 EQUIPMENT PROCUREMENT CHARGES/PROGRESS PAYMENTS. Lessee hereby
agrees that Lessor shall not, by virtue of its entering into this Lease, be
required to remit any payments to any manufacturer or other third party until
Lessee accepts the Equipment subject to this Lease.
14.19 DEFINITIONS.
Advance - means the amount due to Lessor by Lessee upon Lessee's execution of
each Schedule.
Assignee - means an entity to whom Lessor has sold or assigned its rights as
owner and Lessor of Equipment.
Attachment - means any accessory, equipment or device and the installation
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
Casualty Loss - means the irreparable loss or destruction of Equipment.
Casualty Value - means the greater of the aggregate Rent remaining to be paid
for the balance of the lease term or the Fair Market Value of the Equipment
immediately prior to the Casualty Loss. However, if a Casualty Value Table is
attached to the relevant Schedule its terms will control.
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<PAGE> 13
Commencement Certificate - means the Lessor provided certificate which must be
signed by Lessee within ten (10) days of the Commencement Date as requested by
Lessor.
Commencement Date - is defined in each Schedule.
Default Costs- means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
Equipment - means the property described on a Schedule and any replacement for
that property required or permitted by this Master Lease or a Schedule but not
including any Attachment.
Event of Default - means the events described in Subsection 13.1.
Fair Market Value - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user and an
informed and willing seller under no compulsion to sell.
Initial Term - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
Installation Date - means the day on which Equipment is installed and qualified
for a commercially available manufacturer's standard maintenance contract or
warranty coverage, if available.
Interim Rent - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
Licensed Products - means any software or other licensed products attached to
the Equipment.
Like Equipment - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
Like Part - means a substituted part which is lien free and of the same
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
Merger - means any consolidation or merger of the Lessee with or into any other
corporation or entity, any sale or conveyance of all or substantially all of the
assets of
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the Lessee to any other person or entity or any stock acquisition of the Lessee
by any other person or entity.
Notice Period - means the time period described in a Schedule during which
Lessee may give Lessor notice of the termination of the term of that Schedule.
Overdue Rate - means the lesser of five percent (5%) of the payment due or the
maximum rate permitted by the law of the state where the Equipment is located.
Owner - means the owner of Equipment.
Reconfiguration - means any change to Equipment that would upgrade or downgrade
the performance capabilities of the Equipment in any way.
Rent - means the rent, including Interim Rent, Lessee will pay for each item of
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment multiplied by a lease
rate factor plus all other amounts due to Lessor under this Master Lease or a
Schedule.
Rent Interval - means a full calendar month or quarter as indicated on a
Schedule.
Schedule - means an Equipment Schedule which incorporates all of the terms and
conditions of this Master Lease and, for purposes of Section 14.12, its
associated Commencement Certificate(s).
Secured Party - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
IN WITNESS WHEREOF, the parties hereto have executed this Master Lease on
or as of the day and year first above written.
FLEXIWARE CORPORATION COMDISCO, INC.
as Lessee as Lessor
By: /s/ Stefan Bothe By: /s/ [illegible]
---------------------------- -------------------------------
Title: CEO Title: /s/ [illegible]
6/17/94 8/15/94
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<PAGE> 1
RECEIVABLES LOAN AND SECURITY AGREEMENT
THIS RECEIVABLES LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as
of July 10, 1995, is entered into by and between Flexilnternational Software,
Inc., a Delaware corporation, with its chief executive offices and principal
place of business located at One Research Dr., Shelton, CT 06484 Borrower"), and
COMDISCO, INC., a Delaware corporation, with its principal place of business
located at 6111 North River Road, Rosemont, Illinois 60018 ("Lender" or
sometimes, "Comdisco")
RECITALS
A. Borrower has requested Lender to make available to Borrower revolving
loans in the aggregate outstanding principal amount of up to One Million Five
Hundred Thousand DOLLARS ($1,500,000.00).
B. Lender is willing to make the loans on the terms and conditions set
forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, Borrower and Lender hereby agree as follows:
SECTION 1. DEFINITIONS
Unless otherwise defined herein, the following capitalized terms shall
have the following meanings (such meanings being equally applicable to both the
singular and plural forms of the terms defined)
1.1 "Advances" shall mean the funds provided to Borrower by Lender during
the term of this Agreement.
1.2 "Closing Date" shall mean the date the initial Advance hereunder is
made by Lender.
1.3 "Collateral" shall mean and include all of Borrower's right, title and
interest in or to the following types of property, whether now-owned or
hereafter-acquired: (a) all Receivables; (b) all of Borrower's rights and
remedies as an unpaid vendor or lienor against its customers; (c) all amounts
due to Borrower from any Customer, irrespective of whether such amounts have
been specifically assigned to Lender; (d) all other presently owned equipment of
Borrower which is not now subject to a lien or security interest in favor of
another person and equipment (as defined in the UCC) hereafter acquired, the
purchase price for which is not financed,
<PAGE> 2
and (f) all proceeds of the foregoing types of property, including, without
limitation, the proceeds applicable to the insurance referred to in Section 5
hereof.
1.4 "Customer" shall mean and include each account debtor of obligor in
any way obligated on or in connection with any Receivable.
1.5 "Eligible Receivables" shall mean and include such Receivables which
are and at all times continue to be acceptable to Lender, in its sole discretion
exercised in good faith, in all respects for purposes of this Agreement. Without
limiting Lender's discretion to determine which Receivables are from time to
time Eligible Receivables hereunder, in general, a Receivable shall be deemed to
be an Eligible Receivable provided:
(a) the sale of goods, rendition of services, or licensing of Borrower's
products, giving rise to such Receivable has been completed;
(b) no return, rejection or repossession has occurred;
(c) such goods, services, or licensing of Borrower's products have been
finally accepted by the Customer without dispute, offset, defense or
counterclaim;
(d) such Receivable continues to be in full conformity with the
representations and warranties made by Borrower to Lender with respect thereto;
(e) no more than ninety (90) days have elapsed from the invoice date;
(f) Lender is satisfied in good faith with the creditworthiness of the
Customer;
(g) the Customer is not a subsidiary or an affiliate of Borrower;
(h) the Customer is located within the United States of America, or the
Receivable is supported by a letter of credit acceptable to Lender, in its sole
discretion, which letter of credit has been delivered to Lender;
(i) the Customer is located outside the United States, provided that the
Receivable is collectible in U.S. Dollars ($), and provided further that the
Customer's United States subsidiary or affiliate is a party to the contract and
is jointly and severally liable with Customer to the contract giving rise to the
Receivable;
(j) the Receivable is not evidenced by "chattel paper" (as defined in the
UCC) or an "instrument" (as defined in the UCC) of any kind;
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<PAGE> 3
(k) the Receivable does not arise from a retail purchase of goods made
primarily for the Customer's personal, family or household purposes;
(l) the Receivable is for Base Payments (as that term is used in the
Melson Agreement) owing under a Software License and Distribution Agreement,
dated as of December 30, 1994, between Borrower and Melson Technologies, Inc.,
("Melson"), as hereafter amended, supplemented, or modified. At the Closing
Date, Eligible Receivables for purposes of this subparagraph (1) shall equal
$240,000 plus the present value at the Interest rate set forth in Section 2.2,
of $60,000. The Eligible Receivable shall decrease each month by the amount of
the Base Payments collected by Borrower. Other payments, such as Royalty
Payments and Annual Support Fees (those terms are used in the Melson Agreement),
shall be determined by Lender to be Eligible in accordance with the other
subparagraphs of this Subsection 1.5.
1.6 "Formula Amount" shall mean an amount el to the lesser of (i) 75% of
Eligible Receivables or (ii) One Million Five Hundred Thousand DOLLARS
($1,500,000.00), in each case minus such reserves as Lender, in its reasonable
credit judgement, determines should be established from time to time.
1.7 "Loan Documents" shall mean and include this Agreement, the Note, and
any other documents executed in connection with the Agreement or the
transactions contemplated hereby, as the same may from time to time be amended,
modified, supplemented or restated.
1.8 "Material Adverse Effect" means a material adverse effect upon: (i)
the business, operations, properties, assets or conditions (financial or
otherwise) of Borrower; or (ii) the ability of Borrower to perform, or of Lender
to enforce, the Obligations.
1.9 "Net Amount of Eligible Receivables" shall mean and include the gross
amount of Eligible Receivables, minus sales, excise or similar taxes with
respect to such Eligible Receivables, and minus returns, discounts, claims,
credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed with respect to such Eligible Receivables.
1.10 "Note" shall mean the Secured Promissory Note in the form attached as
Exhibit A hereto, as the same may from time to time be amended, modified,
supplemented or restated.
1.11 "Obligations" shall mean all principal, interest, fees, costs, or
other liabilities or obligations for monetary amounts owed by Borrower to
Lender, whether due or to become due, matured or unmatured, liquidated or
unliquidated, contingent or non-contingent, and all covenants and duties
regarding such amounts, of any kind or nature, present or future, arising under
this Agreement, the Note, or any of
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<PAGE> 4
the other Loan Documents, whether or not evidenced by any note, agreement or
other instrument, as the same may from time to time be amended, modified,
supplemented or restated. The Obligations shall not include the Warrant
Agreement or any of the other Agreements between Borrower and lender with
respect to Borrower's $1,000,000 subordinated note, the warrant agreement in
connection therewith for Series B Preferred Stock, or Master Lease Agreement or
the warrant agreement in connection therewith.
1.12 "Payment Due Date" shall mean the first day of each calendar month.
1.13 "Receivables" shall mean and include all amounts owing to Borrower
and rights to payment of Borrower, which arise from Borrower's sale of goods,
provision of services, or license of products to customers including accounts,
instruments, documents, and chattel paper, to the extent they arise from such
accounts, whether secured or unsecured, whether now existing or hereafter
created or arising, and whether or not specifically sold or assigned to Lender
hereunder.
1.14 "UCC" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of Illinois. Unless otherwise defined
herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.
1.15 "Warrant Agreement" shall mean the agreement of even date herewith
pursuant to which Borrower granted Lender the right to purchase that number of
shares of Series B Convertible Preferred Stock of Borrower as more particularly
set forth therein.
SECTION 2. THE LOANS
2.1 Maximum Amount. Subject to the terms and conditions. of this
Agreement, Lender will make Advances to Borrower from time to time, up to a
maximum principal amount at any time outstanding equal to the Formula Amount at
such time.
2.2 Interest. Interest shall be computed based upon the daily amount of
the outstanding Advances during each month, for each day during each month at a
rate (computed on the basis of the actual number of days elapsed over a year of
360 days) equal to the Prime Rate published in the "Money Rates" column of The
Wall Street Journal (the "Prime Rate") on the Closing Date. All such interest
shall be due and payable in advance, on the first day of each month.
Notwithstanding any provision in this Agreement, the Note, or any other Loan
Document, it is not the parties' intent to contract for, charge or receive
interest at a rate that is greater than the maximum rate permissible by law
(which under the laws
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<PAGE> 5
of the State of Illinois shall be deemed to be the laws relating to permissible
rates of interest on commercial loans) (the "Maximum Rate") . In the event that
the amount of interest contracted for, charged or received from Borrower or
otherwise in connection with the Advances or under this Agreement, the Note, or
any other Loan Document exceeds the Maximum Rate, then at Lender's option, such
amount shall either be applied as a credit against any then unpaid amounts of
principal, fees, and costs due hereunder or (if all principal, fees, and costs
have been fully repaid) refunded to Borrower, and the effective rate of interest
will be automatically reduced to the Maximum Rate.
2.3 Calculation of Formula Amount. At least five (5) business days prior
to the Closing Date, Borrower shall provide Lender with Borrower's printout of
its accounts receivable, showing the name and address of the account Debtor, the
amount owed and the number of days each amount has been outstanding (as "A/R
Printout"), showing Borrower's accounts receivables as of the last day of the
month immediately preceding the Closing Date, to be used by Lender to calculate
the Eligible Receivables and the Formula Amount as of the Closing Date.
Thereafter, by the fifteenth (15th) day of each month, Borrower shall provide
Lender with Borrower's Printout showing Borrower's accounts receivables as of
the last day of the immediately preceding month, to be used by Lender to
calculate the Eligible Receivables and the Formula Amount as of the first day of
the following month.
2.4 Making of Advances. On the Closing Date and the first day of each
month following Lender's receipt of an A/R Printout, if requested by Borrower in
writing received by Lender no later than 5:00 p.m. Central Standard Time on such
date and so long as no Event of Default (or event which with the passage of
time, the giving of notice, or both, would become an Event of Default) has
occurred and is then continuing, Lender will make Advances so long as the
aggregate outstanding amount of all Advances would not exceed the Formula Amount
as of such date. Advances may be requested by Borrower and shall be made by
Lender only in increments of $5,000.00 or an integral multiple thereof;
provided, that if the unadvanced portion of the Formula Amount is less than
$5,000.00, Borrower may request and Lender shall make an advance equal to the
highest integral multiple of $5,000.00 that does not exceed such unadvanced
portion of the Formula Amount. Each request by Borrower for an Advance and
Borrower's acceptance of the proceeds of each Advance shall each be deemed to be
a representation and warranty by Borrower that all of the representations and
warranties made by Borrower under this Agreement are true and correct and that
no Event of Default (or event which with the passage of time, the giving of
notice, or both, would become an Event of Default) has occurred and is
continuing as of the date of the requested Advance.
2.5 Adjustment of Outstanding Advances. Lender may adjust the amount of
outstanding Advances on a monthly basis, based upon the current level of
Borrower's Eligible Receivables. If the outstanding amount of the Advances is in
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excess of the Formula Amount at any Payment Due Date, Lender may require
Borrower to repay to Lender the amount of the outstanding Advances in excess of
the Formula Amount, in addition to the payment of interest or any other
Obligations that are due on such Payment Due Date.
2.6 Term. On the date that is twelve (12) months from the Closing Date,
Lender's obligation to make any further Advances hereunder shall terminate, and
Borrower shall pay to Lender the full amount of the outstanding Advances, plus
any accrued interest and other outstanding Obligations hereunder.
2.7 Facility Fee. On the Closing Date, Borrower shall pay to Lender a
facility fee of $22,500.00 (the "Facility Fee") . The Facility Fee shall be
fully earned and nonrefundable on the Closing Date, and shall be paid out of the
initial Advance. All Commitment Fees paid by Borrower to Lender pursuant to the
May 4, 1995 Receivables Financing Proposal shall be credited toward this
Facility Fee.
2.8 Administrative Expenses. (a) Borrower shall reimburse Lender promptly
upon invoice by Lender tb Borrower for all of Lender's reasonable out-of-pocket
expenses consistent with Borrower's travel policy, for transportation, lodging,
meals and all administrative expenses incurred in connection with the audit of
this Agreement, up to a maximum of $2,500 per visit, for payment of Lender or
Lender's representative.
(b) In the event of Borrower's default, the limitation on professional
fees referred to in the previous paragraph shall not apply where incurred in
enforcement of this Agreement.
2.9 Prepayment of Principal. Borrower may prepay the outstanding principal
amount of the Advances, as of any Payment Due Date after the date hereof,
without penalty or premium by paying to Lender such principal amount being
prepaid together with all accrued and unpaid interest with respect to such
principal amount as of the date of such prepayment.
2.10 Performance on Business Days. If any Advance, interest, fee or other
payment under this Agreement, the Note or any of the other Loan Documents is to
be made or is due on a day that is not a business day, then such Advance,
interest, fee or other payment shall be made or due on the first business day
thereafter.
SECTION 3. COLLATERAL AND SECURITY INTEREST
As security for the payment of all Obligations, Borrower hereby assigns to
Lender, and grants to Lender a first priority security interest in, all of
Borrower's right, title, and interest in and to the Collateral.
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<PAGE> 7
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Lender, and agrees with Lender, that:
4.1 Borrower owns all right, title or interest in and to the Collateral
free of all liens, security interests, encumbrances and claims whatsoever,
except for the interest of Lender therein.
4.2 Borrower has the full power and authority to, and does hereby grant
and convey to Lender, a valid first priority security interest in the Collateral
as security for the Obligations. No other lien, security interest, adverse claim
or encumbrance has been created by Borrower, is known by Borrower to exist with
respect to any Collateral, or will be crated by Borrower so long as any
Obligations are outstanding (except as set forth in Subsection 6.4 in favor of
the Connecticut Development Authority).
4.3 Borrower is a corporation duly organized, legally existing and in good
standing under the laws of the State of Delaware, and is duly qualified as a
foreign corporation in all jurisdictions where the property owned or the
business transacted by it make such qualifications necessary.
4.4 Borrower's execution, delivery and performance of the Note, this
Agreement, the financing statements, and all other Loan Documents required to be
delivered or executed in connection herewith have been duly authorized by all
necessary corporate action of Borrower; the individual or individuals executing
the Loan Documents were duly authorized to do so; and the Loan Documents
constitute legal, valid and binding obligations of Borrower, enforceable in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization or other similar laws generally affecting the
enforcement of the rights of creditors.
4.5 All of the equipment which is part of the Collateral is personal
property and as used by Borrower is not and will not become fixtures under
applicable law.
4.6 This Agreement and the other Loan Documents do not and will not
violate any provisions of Borrower's articles or certificate of incorporation,
bylaws or any contract, agreement, law, regulation, order, injunction, judgment,
decree or writ to which Borrower is subject, or result in the creation or
imposition of any lien, security interest or other encumbrance upon the
Collateral, other than those created by this Agreement.
4.7 The execution, delivery and performance of this Agreement and the
other Loan Documents does not require the consent or approval of any other
person or entity, including, without limitation, any regulatory authority or
governmental
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<PAGE> 8
body of the United States or any state thereof or any political subdivision of
the United States or any state thereof.
4.8 No event which has occurred, which has had or could reasonably be
expected to have a Material Adverse Effect has occurred and is continuing.
SECTION 5. INSURANCE
5.1 So long as there are any Obligations outstanding, Borrower shall cause
to be carried and maintained comprehensive general liability insurance against
risks customarily insured against in Borrower's line of business. Such risks
shall include, without limitation, the risks of death, bodily injury and
property damage. So long as there are any Obligations outstanding, Borrower
shall also cause to be carried and maintained insurance upon the portion of the
Collateral which is tangible property and Borrower's business, covering
casualty, hazard and such other property risks customarily insured against in
Borrower's line of business if commercially available. In the event that
insurance is not commercially available, Borrower shall insure the Equipment for
the maximum amount commercially available and indemnify Lender for the
difference between the amount paid by such insurance and the casualty loss.
Borrower shall deliver to Lender lender's loss payable endorsements (Form BFU
438 or equivalent) naming Lender as loss payee or additional insured, as
appropriate with respect to the tangible personal property constituting a
portion of the collateral. All policies evidencing insurance for which lender is
named as a loss payee shall provide for at least thirty (30) days prior written
notice by the underwriter or insurance company to Lender in the event of
cancellation or expiration, and shall be issued by such insurers and in such
amounts as are reasonably acceptable to Lender.
5.2 Borrower hereby indemnifies Lender, its agents and shareholders from
and against any and all claims, costs, expenses, damages and liabilities
(including, without limitation, such claims, costs, expenses, damages and
liabilities based on liability in tort, including without limitation, strict
liability in tort), including reasonable attorneys' fees, arising out of the
Collateral except to the extent such claims, costs, expenses, damages and
liabilities are caused by Lender's gross negligence or willful misconduct.
SECTION 6. COVENANTS OF BORROWER
Borrower covenants and agrees as follows at all times while any of the
Obligations remain outstanding:
6.1 Borrower shall furnish to Lender the financial statements listed
hereinafter, each prepared in accordance with generally accepted accounting
principles consistently applied (the "Financial Statements"):
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(a) as soon as practicable (and in any event within thirty (30) days)
after the end of each month, unaudited interim financial statements as of the
end of such month (prepared on a consolidated and consolidating basis, if
applicable), including balance sheet and related statements of income and cash
flows, accompanied by reports detailing (i) list of contracts signed listing the
licensed products, other products and services, and the associated amounts due
as of the end of such month, (ii) financial statements as prepared for the Board
of Directors, on a departmental basis, derived from the general ledger and (iii)
material contingencies (including the commencement of any material litigation by
or against Borrower provided that the details of such disclosure shall not
abrogate the attorney client privilege), all of which shall be certified by
Borrower's Chief Executive Officer, or President, or Chief Financial Officer to
be true and correct;
(b) as soon as practicable (and in any event within one hundred fifty
(150) days) after the end of each fiscal year, unqualified audited financial
statements as of the end of such year (prepared on a consolidated and
consolidating basis, if applicable), including balance sheet and related
statements of income and cash flows, and setting forth in comparative form the
corresponding figures for the preceding fiscal year, certified by a nationally
recognized firm of independent certified public accountants selected by
Borrower, accompanied by any management report from such accountants;
(c) promptly after the sending or filing thereof, as the case may be,
copies of any proxy statements, financial statements or reports which Borrower
has made available to its shareholders and copies of any regular, periodic and
special reports or registration statements which Borrower files with the
Securities and Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange; and
(d) promptly, any additional information, financial or otherwise as Lender
reasonably believes necessary to evaluate Borrower's continuing ability to meet
its financial obligations.
6.2 Borrower shall permit any authorized representative of Lender and its
attorneys and accountants on reasonable notice to inspect, examine and make
copies and abstracts of the books of account and records of Borrower at such
reasonable times during normal business hours as are mutually convenient to
Borrower and Lender, subject to Borrower's operational and security
requirements. In addition, such representative of Lender and its attorneys and
accountants shall have the right to meet with management and officers of the
Company to discuss such books of account and records at a mutually convenient
time.
6.3 Borrower will from time to time execute, deliver and file, alone or
with Lender, any financing statements, and take all further action that may be
necessary or
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desirable, or that Lender may request, to confirm, perfect, preserve and protect
the security reasonable interests intended to be granted hereby. Borrower hereby
authorizes Lender to execute and deliver on behalf of Borrower and to file such
financing statements, without the signature of Borrower either in Lender's name
or in the name of Borrower as agent and attorney-in-fact for Borrower to the
extent reasonably necessary to perfect the security interests granted in the
Collateral, provided the Lender promptly notifies Borrower in writing of such
filings and delivers copies of such filings to Borrower within a reasonable
time. The parties agree that a carbon, photographic or other reproduction of
this Agreement shall be sufficient as a financing statement and may be filed in
any appropriate office in lieu thereof. If any amount payable under or in
connection with any of the Collateral is or shall become evidenced by any
instrument or chattel paper, such instrument or chattel paper, shall be duly
endorsed in a manner satisfactory to Lender and delivered to Lender promptly
upon Borrower's receipt thereof, if so requested by Lender.
6.4 Borrower shall protect and defend Borrower's title as well as the
interest of Lender against all persons claiming any interest adverse to Borrower
or Lender and shall at all times keep the Collateral free and clear from any
legal process, liens or encumbrances whatsoever (except any placed thereon by
Lender) and shall give Lender immediate written notice thereof. Notwithstanding
the foregoing, Lender acknowledges that Borrower may place a second lien on the
Receivables component of the Collateral subordinate to this Agreement, in favor
of Connecticut Development Authority for a Convertible Loan.
6.5 Borrower shall not, without Lender's prior written consent, grant any
extension of the time of payment of any of the Receivables, compromise, compound
or settle the same for less than the full amount thereof, release, wholly or
partly, any Person liable for the payment thereof, or allow any credit or
discount whatsoever thereon other than extensions, compromises, discussions or
settlements made by borrower in the ordinary course of business of Borrower
consistent with past practices or such other commercially reasonable practices
as determined in good faith by Borrower. In no event shall any such extensions
of time, settlements, or the like convert an otherwise ineligible Receivable
into an Eligible Receivable.
6.6 Borrower shall maintain and protect its properties, assets and
facilities, including without limitation, its equipment and fixtures, in good
order and working repair and condition (taking into consideration ordinary wear
and tear) and from time to time make or cause to be made all necessary and
proper repairs, renewals and replacements thereto and shall competently manage
and care for its property in accordance with prudent industry practices.
6.7 Borrower shall not merge or consolidate with any other entity; nor
acquire all or any substantial part of the property of any other person or
entity
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without Lender's prior written consent, which consent shall not be unreasonably
withheld. Lender shall not withhold its consent to a merger where Borrower is a
surviving entity of a majority interest, provided that in any such case in which
Borrower is not the surviving entity, such entity's financial strength is at
least a Moody Bond rating of BAA or better or annual earnings are in excess of
ten times the remaining loan payments.
6.8 Borrower shall not relocate any item of the Collateral, unless twenty
(20) days prior to such relocation, Borrower shall first have notified Lender in
writing of such proposed relocation and cause to be filed and/or delivered to
Lender all Uniform Commercial Code financing statements, certificates or other
documents or instruments necessary to continue in effect the first priority
perfected security interest of Lender in the Collateral. Any relocation shall be
limited to within the continental United States.
SECTION 7. RIGHTS OF LENDER; COLLECTION OF ACCOUNTS
7.1 Notwithstanding anything contained in this Agreement to the contrary,
Borrower expressly agrees that it shall remain liable with respect to all of the
Collateral to observe and perform all the conditions and obligations to be
observed and performed by it thereunder or with respect thereto, and that it
shall perform all of its duties and obligations thereunder or with respect
thereto, all in accordance with and pursuant to the terms and provisions
applicable thereto, unless contested in good faith. Lender shall not have any
obligation or liability under or with respect to any Collateral by reason of or
arising out of this Agreement or the granting to Lender of a security interest
therein or the receipt by Lender of any payment relating to any Collateral
pursuant hereto, nor shall Lender be required or obligated in any manner to
perform or fulfill any of the obligations of Borrower under or with respect to
any Collateral, or to make any payment, or to make any inquiry as to the nature
or the sufficiency of any payment received by it or the sufficiency of any
performance by any party under or with respect to any Collateral, or to present
or file any claim, or to take any action to collect or enforce any performance
or the payment of any amounts which may have been assigned to it or to which it
may be entitled at any time or times.
7.2 Lender authorizes Borrower to collect its Receivables, provided that
Lender may, upon the occurrence and during the continuation of any Event of
Default, limit or terminate said authority at any time. If required by Lender at
any time during the continuation of any Event of Default, any proceeds, when
first collected by Borrower, received in payment of any such Receivables or in
payment for or on account of any of other Collateral shall be promptly delivered
by Borrower to Lender in precisely the form received (with all necessary
endorsements) and until so turned over shall be deemed to be held in trust by
Borrower for and as Lender's property, on behalf and for the benefit of Lender,
and shall not be commingled with
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Borrower's other funds or properties. Such proceeds, when deposited, shall
continue to be collateral security for all of the Obligations and shall not
constitute payment thereof until applied as hereinafter provided. Upon the
occurrence and during the continuation of any Event of Default, Lender may, in
its sole discretion, apply all or a part of the funds on deposit in any account
maintained by Lender to hold proceeds of Collateral to the payment of any of the
Obligations in accordance with the provisions of Section 11, below, and any part
of such funds which Lender elects not so to apply and deems not required as
collateral security for the Obligations shall be paid over by Lender to
Borrower.
7.3 Lender may upon the occurrence and during the continuation of any
Event of Default, after first notifying Borrower of its intention to do so,
notify Customers of Borrower in a form reasonably satisfactory to Borrower that
the Receivables have been assigned to Lender, and that payments shall be made
directly to Lender. Upon the request of Lender, Borrower is given five (5)
business days to notify such Customers. Lender may, at any time, in Borrower's
name, or in the name of it's accountants, communicate with such Customers to
verify with such parties, to Lender's satisfaction, the existence, amount and
terms of any such Receivables.
SECTION 8. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT
8.1 Subject to Subsection 8.2 below, Borrower hereby irrevocably
constitutes and appoints Lender, and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Borrower and in the
name of Borrower or in its own name, from time to time at Lender's discretion,
for the purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement and, without limiting the generality of the foregoing, hereby
gives Lender the power and right, on behalf of Borrower, without notice to or
assent by Borrower to do the following:
(a) to ask, demand, collect, receive and give acquittances and
receipts for any and all monies due or to become due under any Collateral
and, in the name of Borrower, in its own name or otherwise, to take
possession of, endorse and collect any checks, drafts, note, acceptances
or other instruments for the payment of monies due under any Collateral
and to file any claim or to take or commence any other action or
proceeding in any court of law or equity or otherwise deemed appropriate
by Lender for the purpose of collecting any and all such monies due under
any Collateral whenever payable;
(b) to pay or discharge any liens, including, without limitation,
any tax lien, levied or placed on or threatened against the Collateral, to
effect any repairs or any insurance called for by the terms of this
Agreement and to pay
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all or any part of the premiums there for and the costs thereof, which
actions shall be for the benefit of Lender and not Borrower; and
(c) to (1) direct any person liable for any payment under or in
respect of any of the Collateral to make payment of any and all monies due
or to become due thereunder directly to Lender or as Lender shall direct,
(2) receive payment of any and all monies, claims and other amounts due or
to become due at any time arising out of or in respect of any Collateral,
(3) sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with accounts and
other instruments and documents constituting or relating to the
Collateral, (4) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in respect
of any Collateral, (5) defend any suit, action or proceeding brought
against Borrower with respect to any Collateral, (6) settle, compromise or
adjust any suit, action or proceeding described above and, in connection
therewith, give such discharges or releases as Lender may deem
appropriate, and (7) sell, transfer, pledge, make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though Lender were the absolute owner thereof for all
purposes, and to do, at Lender's option and Borrower's expense, at any
time, or from time to time, all acts and things which Lender may
reasonably deem necessary to protect, preserve or realize upon the
Collateral and Lender's security interest therein in order to effect the
intent of this Agreement, all as fully and effectively as Borrower might
do.
8.2 Lender agrees that, except upon the occurrence and during the
continuation of an Event of Default, it shall not exercise the power of attorney
or any rights granted to Lender pursuant to this Section 8. The power of
attorney granted pursuant to this Section 8 is a power coupled with an interest
and shall be irrevocable until the Obligations are completely and indefeasibly
paid and performed in full and Lender's obligations to make any further Advances
is terminated.
8.3 The powers conferred on Lender hereunder are solely to protect
Lender's interests in the Collateral and shall not impose any duty upon Lender
to exercise any such powers. Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and neither it
nor any of its officers, directors, employees, agents or representatives shall
be responsible to Borrower for any act or failure to act, except for its own
gross negligence or willful misconduct.
8.4 If Borrower fails to perform or comply with any of its agreements
contained herein and Lender, as provided for by the terms of this Agreement,
shall
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perform or comply, or otherwise cause performance or compliance, with such
agreement, the reasonable expenses, including attorneys' fees and costs, of
Lender incurred in connection with such performance or compliance, together with
interest thereon at the Maximum Rate, shall be payable by Borrower to Lender
within three (3) business days of demand and shall constitute Obligations
secured hereby.
SECTION 9. CONDITIONS PRECEDENT TO CLOSING
The obligation of Lender to fund the initial Advance shall be subject to
satisfaction by Borrower or waiver by Lender, in Lender's sole discretion, of
the following conditions:
9.1 Document Delivery. Borrower, on or prior to the Closing Date, shall
have delivered to Lender the following:
(a) executed originals of this Agreement, the Note, the Warrant and
all other Loan Documents;
(b) certified copy of resolutions of Borrower's board of directors
evidencing approval of the borrowing and other transactions evidenced by
the Loan Documents;
(c) certified copies of the Articles or Charter, and the Bylaws, of
Borrower;
(d) certificate of good standing for Borrower from its state of
incorporation and similar certificates from all other jurisdictions in
which it does business and where the failure to be qualified would have a
Material Adverse Effect;
(e) an opinion of counsel in the form attached as Exhibit B hereto;
(f) an incumbency certificate regarding Borrower's officers;
(g) payment of the Facility Fee (Lender acknowledges that prior to
the date hereof Borrower has delivered to Lender a Commitment Fee in the
amount of Two Thousand Five Hundred Dollars ($2,500.00), which amount
shall be applied on the Closing Date towards payment of the Facility Fee);
(h) Borrower's written instructions to Lender regarding the manner
of disbursement of the initial Advance, which must be reasonably
satisfactory to Lender; and
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(i) such other documents as Lender may reasonably request.
(j) Accounts Receivable list of Aging.
(k) Borrower's travel expense reimbursement policy.
9.2 Perfection of Security Interests. Borrower shall have taken or caused
to be taken such actions as Lender shall have reasonably requested in such a
manner so that Lender has a valid and perfected security interest in all of the
Collateral. Such actions shall include, without limitation, the delivery to
Lender of executed financing statements, as to the Collateral granted by
Borrower for all jurisdictions as may be necessary or desirable to perfect the
security interest of Lender in the Collateral.
9.3 Absence of Events of Default. As of the Closing Date, no fact or
condition exists that would (or would, with the passage of time, the giving of
notice, or both) constitute an Event of Default.
SECTION 10. DEFAULT
The occurrence of any one or more of the following events (herein called
"Events of Default") shall constitute a default hereunder and under the Note and
other Loan Documents:
10.1 Borrower defaults in the payment of any principal, interest or other
Obligation involving the payment of money under this Agreement, the Note or any
of the other Loan Documents, arid such default continues for more than five (5)
business days after the due date thereof; or
10.2 Borrower defaults in the performance of any other Obligation of
Borrower hereunder or under the Note or any of the other Loan Documents, and
such default continues for more than ten (10) business days after bender has
given written notice of such default to Borrower; or
10.3 Any representation or warranty made herein by Borrower shall prove to
have been false or misleading in any material respect; or
10.4 Borrower shall make an assignment for the benefit of creditors, or
shall admit in writing its inability to pay its debts as they become due, or
shall file a voluntary petition in bankruptcy, or shall file any petition or
answer seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation pertinent to such circumstances; or Borrower
or its directors or majority shareholders shall take any action initiating the
dissolution or liquidation of Borrower; or
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10.5 Thirty (30) days shall have expired after the commencement of an
action against Borrower seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, without such action being dismissed or all
orders or proceedings thereunder affecting the operations or the business of
Borrower being stayed; or a stay of any such order or proceedings shall
thereafter be set aside and the action setting it aside shall not be timely
appealed; or Borrower shall file any answer admitting or not contesting the
material allegations of a petition filed against Borrower in any such
proceedings; or the court in which such proceedings are pending shall enter a
decree or order granting the relief sought in any such proceedings; or
10.6 Thirty (30) days shall have expired after the appointment without the
consent or acquiescence of Borrower, of any trustee, receiver or liquidator of
Borrower or of all or any substantial part of the properties of Borrower without
such appointment being vacated; or
10.7 The occurrence of an event of default under any other promissory
note, agreement for borrowed money, any lease or other agreement between
Borrower and Lender which has not been cured within any applicable grace period
after written notice of such default; or
10.8 The occurrence of any event of default under any agreement of
Borrower for borrowed money in an amount in excess of $250,000 which occurrence
has resulted in the acceleration of the maturity of such obligation. The entry
of a judgment against Borrower in excess of $500,000 or if not for a monetary
amount the entry of which that would have a Material Adverse Effect, which in
either case has not been bonded or stayed pending appeal within ten (10)
business days.
SECTION 11. REMEDIES
11.1 Upon the occurrence of any one or more Events of Default, Lender, at
its option, may declare the Note and all of the other Obligations to be
accelerated and immediately due and payable (provided, that upon the occurrence
of an Event of Note Default of the type described in Subsections 10.4 or 10.5,
the and all of the other Obligations shall automatically be accelerated and made
due and payable without any further act), whereupon the unpaid principal of and
accrued interest on such Note and all other outstanding Obligations shall become
immediately due and payable, and Lender may exercise all rights and remedies
with respect to the Collateral under the Loan Documents or otherwise available
to it under applicable law, including the right to release, hold or otherwise
dispose of all or any part of the Collateral. Lender may impose upon Borrower,
as additional Obligations hereunder (a) a late fee of 5% of the overdue amount
for the each month (or any portion thereof) such amounts remain unpaid, and (b)
reimbursement for all reasonable costs
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and expenses, including reasonable attorneys' fees and reasonable legal expenses
incurred by Lender in exercising such rights and remedies, including, without
limitation, receiving and collecting Collateral from Customers.
11.2 Upon the happening and during the continuance of any Event of
Default, Lender may then, or at any time thereafter and from time to time,
apply, collect, sell in one or more sales, lease or otherwise dispose of, any or
all of the Collateral, in its then condition or following any commercially
reasonable preparation or processing, in such order as Lender may elect, and any
such sale may be made either at public or private sale at its place of business
or elsewhere. Lender may require Borrower to assemble the Collateral and make it
available to Lender at a place designated by Lender which is reasonably
convenient to Lender and Borrower. The proceeds of any sale, disposition or
other realization upon all or any part of the Collateral shall be distributed by
Lender in the following order of priorities:
(a) First, to Lender in an amount sufficient to pay in full lender's
costs in connection with such sale, custody, preservation, disposition or
other realization;
(b) Second, to Lender in an amount equal to the then unpaid amount
of the Obligations; and
(c) Finally, upon payment in full of all of the Obligations, to
Borrower or its representatives or as a court of competent jurisdiction
may direct.
11.3 Lender shall be deemed to have acted reasonably in the custody and
preservation of any of the Collateral if it complies with the obligations of a
secured party under Section 9-207 of the UCC.
11.4 Additional Warrant Coverage: If for any reason Borrower fails to pay
all principal owed under this Agreement as required, then the Warrant coverage
of Nine Percent (9%) shall automatically be modified and increased, and Borrower
shall grant to Lender additional Warrants as follows. Effective as of the first
day of the thirteenth (13th) month, and including the 13th month, and for each
additional month, or portion thereof, thereafter that the principal is not
repaid, the Borrower shall grant to the Lender an additional number of Warrants
to purchase shares of Series B Preferred Stock, pursuant to the same terms and
conditions as the Warrant Agreement between the parties dated June 30, 1995,
equal to 0.5% for each month, of the greater of $1,000,000 or the unpaid
Principal balance, unless otherwise agreed in writing by Lender at Lender's sole
discretion. At the twenty-fourth (24th) month, the warrant coverage shall
increase to One Percent (1%) per month of the greater of $1,000,000 or the
unpaid Principal balance, and Borrower's obligation to grant
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Warrants to Lender shall accrue and continue at this rate for each corresponding
month until such time as the principal is repaid in full.
SECTION 12. MISCELLANEOUS
12.1 Continuation of Security Interest. This is a continuing Agreement and
the grant of a security interest hereunder shall remain in full force and effect
and all the rights, powers and remedies of Lender hereunder shall continue to
exist until the Obligations are paid in full as the same become due and payable
and until Lender has executed a written termination statement (which Lender
shall execute within a reasonable time after full payment of the Obligations
hereunder), reassigning to Borrower, without recourse, the Collateral and all
rights conveyed hereby and returning possession of the Collateral to Borrower.
The rights, powers and remedies of Lender hereunder shall be in addition to all
rights, powers and remedies given by statute or rule of law and are cumulative.
The exercise of any one or more of the rights, powers and remedies provided
herein shall not be construed as a waiver of any other rights, powers and
remedies of Lender.
12.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
and duration of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
12.3 Notice. Except as otherwise provided herein, all notices and service
of process required, contemplated, or permitted hereunder or with respect to the
subject matter hereof shall be in writing, and shall be deemed to have been
validly served, given or delivered upon the earlier of: (i) the first business
day after transmission by facsimile or hand delivery or deposit with an
overnight express service or overnight mail delivery service; or (ii) the third
calendar day after deposit in the United States mails, with proper first class
postage prepaid, and shall be addressed to the party to be notified as follows:
(a) If to Lender:
COMDISCO, INC.
Legal Department
Attention:
6111 North River Road
Rosemont, IL 60018
Facsimile: 708 518-5088
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<PAGE> 19
With a copy to:
COMDISCO INC./VENTURE GROUP
Attention: James Labe
6111 North River Road
Rosemont, IL 60018
Facsimile:
(b) If to Borrower:
FlexiInternational Software, Inc.
One Research Drive
Shelton, CT 06484
Attention: President Jennifer V. Cheng
With a copy to:
Brian A. Marks, Ph.D.
Hale and Dorr
60 State Street
Boston, MA 02109
Attn: John K.P. Stone
Facsimile:
or to such other address as each party may designate for itself by like notice.
12.4 Entire Agreement; Amendments. This Agreement, the Note, and the other
Loan Documents, and the Warrant Agreement constitute the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof and
thereof, and supersede and replace in their entirety any prior proposals, term
sheets, letters, negotiations or other documents or agreements, whether written
or oral, with respect to the subject matter hereof or thereof (including,
without limitation, Lender's proposal letter dated May 4, 1994) and, all of
which are merged herein and therein. None of the terms of this Agreement, the
Note or any of the other Loan Documents may be amended except by an instrument
executed by each of the parties hereto.
12.5 Headings. The various headings in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provisions hereof.
12.6 No Waiver. The powers conferred upon Lender by this Agreement are
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. No omission, or delay, by Lender at any
time to enforce any right or remedy reserved to it, or to require performance of
any of the terms, covenants or provisions hereof by Borrower at any time
designated, shall be a
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waiver of any such right or remedy to which Lender is entitled, nor shall it in
any way affect the right of Lender to enforce such provisions thereafter.
12.7 Survival. All agreements, representations and warranties contained in
this Agreement, the Note, and the other Loan Documents or in any document
delivered pursuant hereto or thereto shall be for the benefit of Lender and
shall survive the execution and delivery of this Agreement and the expiration or
other termination of this Agreement.
12.8 Successor and Assigns. The provisions of this Agreement and the other
Loan Documents shall inure to the benefit of and be binding on Borrower and its
permitted assigns (if any). Borrower shall not assign its obligations under this
Agreement, the Note or any of the other Loan Documents without Lender's express
written consent or as otherwise permitted by Section 6.9, above, and any such
attempted assignment shall be void and of no effect. Lender may assign,
transfer, or indorse its rights hereunder and under the other Loan Documents to
a Permitted Assignee without prior notice to Borrower, and all of such rights
shall inure to the benefit of Lender's successors and assigns. For purposes of
this Section 12.8 Permitted Assignee shall mean any state or federal chartered
bank with a net worth and/or capital and surplus of at least 500,000,000. In no
event may Permitted Assignee include a person or entity that competes directly
with the business of Borrower.
12.9 Further Indemnification. Borrower agrees to pay, and to save Lender
harmless from, any and all liabilities with respect to, or resulting from any
delay in paying, any and all excise, sales or other similar taxes which may be
payable or determined to be payable with respect to any of the Collateral or in
connection with any of the transactions contemplated by this Agreement.
12.10 GOVERNING LAW. This Agreement and the other Loan Documents have been
negotiated and delivered to Lender in the State of Illinois, and shall not
become effective until accepted by Lender in the State of Illinois. Payment to
Lender by Borrower of the Obligations is due in the State of Illinois. This Loan
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Illinois, excluding conflict of laws principles that
would cause the application of laws of any other jurisdiction.
12.11 CONSENT TO JURISDICTION AND VENUE. All judicial proceedings arising
in or under or related to this Agreement, the Note or any of the other Loan
Documents may be brought in any state or federal court of competent jurisdiction
located in the State of Illinois. By execution and delivery of this Agreement,
each party hereto generally and unconditionally: (a) consents to personal
jurisdiction in Cook County, State of Illinois; (b) waives any objection as to
jurisdiction or venue in Cook County, State of Illinois; (c) agrees not to
assert any defense based on lack of
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jurisdiction or-venue in the aforesaid courts; and (d) irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement, the
Note and the other Loan Documents. Service of process on any party hereto in any
action arising out of or relating to this agreement shall be effective if given
in accordance with the requirements for notice set forth in Subsection 12.3,
above and shall be deemed effective and received as set forth in Subsection
12.3, above. Nothing herein shall affect the right to serve process in any other
manner permitted by law or shall limit the right of either party to bring
proceedings in the courts of any other jurisdiction.
12.12 MUTUAL WAIVER OF JURY TRIAL. Because disputes arising in connection
with complex financial transactions are most quickly and economically resolved
by an experienced and expert person and the parties wish applicable state and
federal laws to apply (rather than arbitration rules), the parties desire that
their disputes be resolved by a judge applying such applicable laws. EACH OF
BORROWER AND LENDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY
OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR
ANY OTHER CLAIM (COLLECTIVELY, "CLAIMS") ASSERTED BY BORROWER AGAINST LENDER OR
ITS ASSIGNEE AND/OR BY LENDER OR ITS ASSIGNEE AGAINST BORROWER. This waiver
extends to all such Claims, including, without limitation, Claims which involve
persons or entities other than Borrower and Lender; Claims which arise out of or
are in any way connected to the relationship between Borrower and Lender; and
any Claims for damages, breach of contract arising out of this Agreement or any
other Loan Document, specific performance, or any equitable or legal relief of
any kind.
12.13 Counterparts. This Agreement and any amendments, waivers, consents
or supplements hereto may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
delivered shall be deemed an original, but all of which counterparts shall
constitute but one and the same instrument.
12.14 Confidentiality and Non-Disclosure. Lender and Borrower hereby
incorporate the terms and conditions of the Confidentiality and Non-Disclosure
Agreement entered into by the parties on June 13, 1994.
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<PAGE> 22
IN WITNESS WHEREOF, Borrower and Lender have duly executed and delivered
this Agreement as of the day and year first above written.
BORROWER FLEXIINTERNATIONAL SOFTWARE, INC.
Signature: /s/ Stefan R. Bothe
----------------------
Print Name: Stefan R. Bothe
-----------------------
Title: CEO
----------------------------
ACCEPTED IN ROSEMONT, ILLINOIS:
LENDER
COMDISCO, INC.
Signature:
------------------------
Print Name:
------------------------
Title:
----------------------------
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<PAGE> 23
EXHIBIT A
SECURED PROMISSORY NOTE
$1,500,000.00 July 10, 1995
FOR VALUE RECEIVED, FlexiInternational, a Delaware corporation
("Borrower"), hereby promises to pay to the order of COMDISCO, INC., a Delaware
corporation ("Lender"), at P.O. Box 91744, Chicago, Illinois 60693, or at such
other place of payment as the holder of this Secured Promissory Note (this
Note") may specify from time to time in writing, in lawful money of the United
States of America, the principal sum of One Million Five Hundred Thousand and
00/100 Dollars ($1,500,000.00), or such lesser principal amount as may be
outstanding from time to time (the "Loan"), together with interest on the unpaid
principal balance of this Note outstanding from time to time at the rate
provided in the Loan Agreement (as defined below).
This Note is the Note referred to in, and is executed and delivered in
connection with, that certain Receivables Loan and Security Agreement of even
date herewith by and between Borrower and Lender (as the same may from time to
time be amended, modified or supplemented in accordance with its terms, the
"Loan Agreement"), and is entitled to the benefit and security of the Loan
Agreement and the other Loan Documents (as defined in the Loan Agreement), to
which reference is made for a statement of all of the terms and conditions
thereof. All terms defined in the Loan Agreement shall have the same definitions
when used herein, unless otherwise defined herein.
The principal amount of this Note shall be payable in the amounts and on
the dates specified in the Loan Agreement. Interest on the outstanding principal
amount shall be paid until such principal amount is paid in full, at such times
and on such dates as are specified in the Loan Agreement.
Upon and after the occurrence of an Event of Default, all unpaid
principal, accrued interest, costs, and other amounts owing hereunder shall, at
the option of Lender, be immediately due and payable in full.
Borrower waives presentment and demand for payment, notice of dishonor,
protest and notice of protest and any other notice as permitted under the UCC or
any applicable law.
This Note has been negotiated and delivered to Lender and is payable in
the State of Illinois, and shall not become effective until accepted by Lender
in the State of Illinois. This Note shall be governed by, and construed and
enforced in
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<PAGE> 24
accordance with, the laws of the State of Illinois, excluding conflict of laws
principles that would cause the application of laws of any other jurisdiction.
BORROWER
FLEXIINTERNATIONAL SOFTWARE, INC.
Signature: /s/ Stefan R. Bothe
----------------------------
Print Name: Stefan R. Bothe
----------------------------
Title: CEO
----------------------------------
ACCEPTED IN ROSEMONT, ILLINOIS
COMDISCO, INC.
Signature: /s/ Jill Hanses
----------------------------
Print Name: Jill Hanses
-----------------------------
Title:
----------------------------------
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<PAGE> 1
FLEXIINTERNATIONAL SOFTWARE, INC.
Two Enterprise Drive
Shelton, CT 06484
April 30, 1997
Fleet National Bank
75 State Street
Boston, MA 02109
Gentlemen:
This letter agreement will set forth certain understandings between
FlexiInternational Software, Inc., a Delaware corporation (the "Borrower") and
Fleet National Bank (the "Bank") with respect to Revolving Loans (hereinafter
defined) to be made by the Bank to the Borrower and with respect to letters of
credit which may hereafter be issued by the Bank for the account of the
Borrower. In consideration of the mutual promises contained herein and in the
other documents referred to below, and for other good and valuable
consideration, receipt and sufficiency of which are hereby acknowledged, the
Borrower and the Bank agree as follows:
I. AMOUNTS AND TERMS
1.1. Reference to Documents. Reference is made to (i) that certain
$2,000,000 face principal amount promissory note (the "Revolving Note") of even
date herewith made by the Borrower and payable to the order of the Bank, and
(ii) that certain Accounts Receivable Security Agreement of even date herewith
from the Borrower to the Bank (the "Security Agreement").
1.2. The Borrowing; Revolving Note. Subject to the terms and conditions
hereinafter set forth, the Bank will make loans ("Revolving Loans") to the
Borrower, in such amounts as the Borrower may request, on any Business Day prior
to the first to occur of (i) the Expiration Date, or (ii) the earlier
termination of the within-described revolving financing arrangements pursuant to
Section 5.2 or Section 6.7; provided, however, that (1) the aggregate principal
amount of Revolving Loans outstanding shall at no time exceed the Maximum
Revolving Amount (hereinafter defined) and (2) the Aggregate Bank Liabilities
(hereinafter defined) shall at no time exceed the Borrowing Base (hereinafter
defined). Within such limits, and subject to the terms and conditions hereof,
the Borrower may obtain Revolving Loans, repay Revolving Loans and obtain
Revolving Loans again on one or more occasions. The Revolving Loans shall be
evidenced by the Revolving Note and interest thereon shall be payable at the
times and at the rate provided for in the Revolving Note. Overdue principal of
the Revolving Loans and, to the extent permitted by law, overdue interest shall
bear interest at a fluctuating rate per annum which at all times shall be equal
to the sum of (i) two (2%) percent per annum plus (ii) the per annum rate
otherwise payable
<PAGE> 2
under the Revolving Note (but in no event in excess of the maximum rate from
time to time permitted by then applicable law), compounded monthly and payable
on written demand. The Borrower hereby irrevocably authorizes the Bank to make
or cause to be made, on a schedule attached to the Revolving Note or on the
books of the Bank, at or following the time of making each Revolving Loan and of
receiving any payment of principal, an appropriate notation reflecting such
transaction and the then aggregate unpaid principal balance of the Revolving
Loans. The amount so noted shall constitute presumptive evidence as to the
amount owed by the Borrower with respect to principal of the Revolving Loans.
Failure of the Bank to make any such notation shall not, however, affect any
obligation of the Borrower or any right of the Bank hereunder or under the
Revolving Note. All payments of interest, principal and any other sum payable
hereunder and/or under the Revolving Note shall be made to the Bank, in
immediately available funds, at its office at 75 State Street, Boston, MA 02109
or to such other address as the Bank may from time to time direct in writing.
All payments received by the Bank after 2:00 p.m. on any day shall be deemed
received as of the next succeeding Business Day. All monies received by the Bank
shall be applied first to fees, charges, costs and expenses payable to the Bank
under this letter agreement, the Revolving Note and/or any of the other Loan
Documents, next to interest then accrued on account of any Revolving Loans or
letter of credit reimbursement obligations and only thereafter to principal of
the Revolving Loans and letter of credit reimbursement obligations. All interest
and fees payable hereunder and/or under the Revolving Note shall be calculated
on the basis of a 365-day year for the actual number of days elapsed.
1.3. Repayment; Renewal. The Borrower shall repay in full all Revolving
Loans and all interest thereon upon the first to occur of: (i) the Expiration
Date or (ii) an acceleration under Section 5.2(a) following an Event of Default.
The Borrower may repay, at any time, without penalty or premium, the whole or
any portion of any Revolving Loan. In addition, if at any time the Borrowing
Base is in an amount which is less than the then outstanding Aggregate Bank
Liabilities, the Borrower will forthwith prepay so much of the Revolving Loans
as may be required (or arrange for the termination of such letters of credit as
may be required) so that the Aggregate Bank Liabilities will not exceed the
Borrowing Base. The Bank may, at its sole discretion, renew the financing
arrangements described in this letter agreement by extending the Expiration Date
in a writing signed by the Bank and accepted by the Borrower. Neither the
inclusion in this letter agreement or elsewhere of covenants relating to periods
of time after the Expiration Date, nor any other provision hereof, nor any
action (except a written extension pursuant to the immediately preceding
sentence), non-action or course of dealing on the part of the Bank will be
deemed an extension of, or agreement on the part of the Bank to extend, the
Expiration Date.
1.4. Advances and Payments. The proceeds of all Revolving Loans shall
be credited by the Bank to a general deposit account maintained by the Borrower
with
-2-
<PAGE> 3
the Bank. The proceeds of each Revolving Loan will be used by the Borrower
solely for working capital purposes.
The Bank may charge any general deposit account of the Borrower (other
than any payroll account, fiduciary account or other account as to which the
Bank is prohibited by applicable law or regulations from exercising any right of
set-off) at the Bank with the amount of all payments of interest, principal and
other sums due, from time to time, under this letter agreement and/or the
Revolving Note and/or with respect to any letter of credit; and will thereafter
notify the Borrower of the amount so charged. The failure of the Bank so to
charge any account or to give any such notice shall not affect the obligation of
the Borrower to pay interest, principal or other sums as provided herein or in
the Revolving Note or with respect to any letter of credit.
Whenever any payment to be made to the Bank hereunder or under the
Revolving Note or with respect to any letter of credit shall be stated to be due
on a day which is not a Business Day, such payment may be made on the next
succeeding Business Day, and interest payable on each such date shall include
the amount thereof which shall accrue during the period of such extension of
time. All payments by the Borrower hereunder and/or in respect of the Revolving
Note and/or with respect to any letter of credit shall be made net of any
impositions or taxes and without deduction, set-off or counterclaim,
notwithstanding any claim which the Borrower may now or at any time hereafter
have against the Bank.
1.5. Letters of Credit. At the Borrower's request, the Bank may, from
time to time, in its sole discretion issue one or more letters of credit for the
account of the Borrower; provided that at the time of such issuance and after
giving effect thereto the Aggregate Bank Liabilities will in no event exceed the
lesser of (i) $2,000,000 or (ii) the then effective Borrowing Base. Any such
letter of credit will be issued for such fee and upon such terms and conditions
as may be agreed to by the Bank and the Borrower at the time of issuance. The
Borrower hereby authorizes the Bank, without further request from the Borrower,
to cause the Borrower's liability to the Bank for reimbursement of funds drawn
under any such letter of credit to be repaid from the proceeds of a Revolving
Loan to be made hereunder. The Borrower hereby irrevocably requests that such
Revolving Loans be made.
1.6. Conditions to Advance. Prior to the making of the initial
Revolving Loan or the issuance of any letter of credit hereunder, the Borrower
shall deliver to the Bank duly executed copies of this letter agreement, the
Security Agreement, the Revolving Note and the documents and other items listed
on the Closing Agenda delivered herewith by the Bank to the Borrower, all of
which, as well as all legal matters incident to the transactions contemplated
hereby, shall be satisfactory in form and substance to the Bank and its counsel.
-3-
<PAGE> 4
Without limiting the foregoing, any Revolving Loan or letter of credit
issuance (including the initial Revolving Loan or letter of credit issuance) is
subject to the further conditions precedent that on the date on which such
Revolving Loan is made or such letter of credit is issued (and after giving
effect thereto):
(a) All statements, representations and warranties of the Borrower made
in this letter agreement shall continue to be correct in all material respects
as of the date of such Revolving Loan or the date of issuance of such letter of
credit, as the case may be.
(b) All covenants and agreements of the Borrower contained herein
and/or in any of the other Loan Documents shall have been complied with in all
material respects on and as of the date of such Revolving Loan or the date of
issuance of such letter of credit, as the case may be.
(c) No event which constitutes, or which with notice or lapse of time
or both could constitute, an Event of Default shall have occurred and be
continuing.
Each request by the Borrower for any Revolving Loan or for the issuance
of any letter of credit, and each acceptance by the Borrower of the proceeds of
any Revolving Loan or delivery of a letter of credit, will be deemed a
representation and warranty by the Borrower that at the date of such Revolving
Loan or the date of issuance of such letter of credit, as the case may be, and
after giving effect thereto all of the conditions set forth in the foregoing
clauses (a)-(c) of this Section 1.6 will be satisfied. Each request for a
Revolving Loan or letter of credit issuance will be accompanied by a borrowing
base certificate on a form satisfactory to the Bank, executed by the chief
financial officer of the Borrower, unless such a certificate shall have been
previously furnished setting forth the Borrowing Base as at a date not more than
30 days prior to the date of the requested borrowing or the requested letter of
credit issuance, as the case may be.
II. REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties. In order to induce the Bank to
enter into this letter agreement and to make Revolving Loans hereunder and/or
issue letters of credit hereunder, the Borrower warrants and represents to the
Bank as follows:
(a) The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of Delaware. The Borrower has full corporate
power to own its property and conduct its business as now conducted, to grant
the security interests contemplated by the Security Agreement and to enter into
and perform this letter agreement and the other Loan Documents. The Borrower is
duly qualified to do business and is in good standing in Connecticut and is also
duly qualified to do
-4-
<PAGE> 5
business in and is in good standing in each other jurisdiction in which the
Borrower maintains any facility, sales office, warehouse or other location, and
in each other jurisdiction where the failure so to qualify could (singly or in
the aggregate with all other such failures) have a material adverse effect on
the financial condition, business or prospects of the Borrower, all such
jurisdictions being listed on item 2.1(a) of the attached Disclosure Schedule.
At the date hereof, the Borrower has no Subsidiaries, except as shown on said
item 2.1(a) of the attached Disclosure Schedule. The Borrower is not a member of
any partnership or joint venture.
(b) At the date of this letter agreement, all of the outstanding
capital stock of the Borrower is owned, of record and beneficially, as set forth
on item 2.1(b) of the attached Disclosure Schedule.
(c) The execution, delivery and performance by the Borrower of this
letter agreement and each of the other Loan Documents have been duly authorized
by all necessary corporate and other action and do not and will not:
(i) violate any provision of, or require any filings (other
than filings under the Uniform Commercial Code), registration, consent
(other than such consent of the Connecticut Development Authority as
has been previously obtained) or approval under, any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to the Borrower;
(ii) violate any provision of the charter or by-laws of the
Borrower, or result in a breach of or constitute a default or require
any waiver or consent under any indenture or loan or credit agreement
or any other material agreement, lease or instrument to which the
Borrower is a party or by which the Borrower or any of its properties
may be bound or affected or require any other consent (other than such
consent of the Connecticut Development Authority as has been previously
obtained) of any Person; or
(iii) result in, or require, the creation or imposition of any
lien, security interest or other encumbrance (other than in favor of
the Bank), upon or with respect to any of the properties now owned or
hereafter acquired by the Borrower.
(d) This letter agreement and each of the other Loan Documents has been
duly executed and delivered by the Borrower and each is a legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its respective terms.
(e) Except as described on item 2.1(e) of the attached Disclosure
Schedule, there are no actions, suits, proceedings or investigations pending or,
to the
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<PAGE> 6
knowledge of the Borrower, threatened by or against the Borrower or any
Subsidiary of the Borrower before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, which
could hinder or prevent the consummation of the transactions contemplated hereby
or call into question the validity of this letter agreement or any of the other
Loan Documents or any action taken or to be taken in connection with the
transactions contemplated hereby or thereby or which in any single case or in
the aggregate might result in any material adverse change in the business,
prospects, condition, affairs or operations of the Borrower or any Subsidiary.
Notwithstanding the foregoing, nothing contained in this SubSection 2.1(e) will
be deemed to require disclosure of any civil action or administrative proceeding
which seeks monetary damages only, such monetary damages being less than
$100,000.
(f) The Borrower is not in violation of any term of its charter or
by-laws as now in effect. Neither the Borrower nor any Subsidiary of the
Borrower is in material violation of any term of any mortgage, indenture or
judgment, decree or order, or any other instrument, contract or agreement to
which it is a party or by which any of its property is bound.
(g) The Borrower has filed (and has caused each of its Subsidiaries to
file) all federal, state and local tax returns, reports and estimates required
to be filed by the Borrower and/or by any such Subsidiary. All such filed
returns, reports and estimates are proper and accurate and the Borrower or the
relevant Subsidiary has paid all taxes, assessments, impositions, fees and other
governmental charges required to be paid in respect of the periods covered by
such returns, reports or estimates. No deficiencies for any tax, assessment or
governmental charge have been asserted or assessed, and the Borrower knows of no
material tax liability or basis therefor.
(h) The Borrower is in compliance (and each Subsidiary of the Borrower
is in compliance) with all requirements of law, federal, state and local, and
all requirements of all governmental bodies or agencies having jurisdiction over
it, the conduct of its business, the use of its properties and assets, and all
premises occupied by it, failure to comply with any of which could (singly or in
the aggregate with all other such failures) have a material adverse effect upon
the assets, business, financial condition or prospects of the Borrower or any
such Subsidiary. Without limiting the foregoing, the Borrower has all the
franchises, licenses, leases, permits, certificates and authorizations needed
for the conduct of its business and the use of its properties and all premises
occupied by it, as now conducted, owned and used.
(i) The audited financial statements of the Borrower as at December 31,
1995 and the management-generated statements of the Borrower as at December 31,
1996, each heretofore delivered to the Bank, are complete and accurate and
fairly present the financial condition of the Borrower as at the respective
dates thereof and
-6-
<PAGE> 7
for the periods covered thereby, except that the management-generated statements
do not have footnotes and thus do not present the information which would
normally be contained in footnotes to financial statements. The Borrower has no
liability, contingent or otherwise, not disclosed in the aforesaid financial
statements or in any notes thereto that could materially affect the financial
condition of the Borrower. Since December 31, 1996, there has been no material
adverse development in the business, condition or prospects of the Borrower, and
the Borrower has not entered into any transaction other than in the ordinary
course.
(j) The principal place of business and chief executive offices of the
Borrower are located at Two Enterprise Drive, Shelton, Connecticut 06484 (the
"Premises"). All of the books and records of the Borrower are located at said
address. Except as described on item 2.1(j) of the attached Disclosure Schedule,
no assets of the Borrower are located at any other address. Said item 2.1(j) of
the attached Disclosure Schedule sets forth the names and addresses of all
record owners of the Premises.
(k) The Borrower owns or has a valid right to use all of the patents,
licenses, copyrights, trademarks, trade names and franchises now being used to
conduct its business. The conduct of the Borrower's business as now operated
does not conflict with valid patents, licenses, copyrights, trademarks, trade
names or franchises of others in any manner that could materially adversely
affect the business, prospects, assets or condition, financial or otherwise, of
the Borrower.
(l) None of the executive officers or key employees of the Borrower is
subject to any agreement in favor of anyone other than the Borrower which limits
or restricts that person's right to engage in the type of business activity
conducted or proposed to be conducted by the Borrower or which grants to anyone
other than the Borrower any rights in any inventions or other ideas susceptible
to legal protection developed or conceived by any such officer or key employee;
provided that the foregoing provisions of this SubSection 2.1(l) will not be
deemed to apply to -any agreement unless enforcement of same would have a
material adverse effect on the Borrower's business.
(m) The Borrower is not a party to any contract or agreement which now
has or, as far as can be foreseen by the Borrower at the date hereof, may have a
material adverse effect on the financial condition, business, prospects or
properties of the Borrower even if the Borrower were to perform its obligations
under such contract or agreement.
III. AFFIRMATIVE COVENANTS AND REPORTING REQUIREMENTS
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing
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<PAGE> 8
arrangements contemplated hereby are in effect or any Revolving Loan or any of
the other Obligations shall be outstanding or any letter of credit issued
hereunder shall be outstanding:
3.1. Legal Existence; Qualification; Compliance. The Borrower will
maintain (and will cause each Subsidiary of the Borrower to maintain) its
corporate existence and good standing in the jurisdiction of its incorporation.
The Borrower will remain qualified to do business and in good standing in
Connecticut. The Borrower will also qualify to do business and will remain
qualified and in good standing (and the Borrower will cause each Subsidiary of
the Borrower to qualify and remain qualified and in good standing) in each other
jurisdiction where the Borrower or such Subsidiary, as the case may be,
maintains any facility, sales office, warehouse or other location and in each
other jurisdiction in which the failure so to qualify could (singly or in the
aggregate with all other such failures) have a material adverse effect on the
financial condition, business or prospects of the Borrower or any such
Subsidiary. The Borrower will comply (and will cause each Subsidiary of the
Borrower to comply) with its charter documents and by-laws. The Borrower will
comply with (and will cause each Subsidiary of the Borrower to comply with) all
applicable laws, rules and regulations (including, without limitation, ERISA and
those relating to environmental protection) other than (i) laws, rules or
regulations the validity or applicability of which the Borrower or such
Subsidiary shall be contesting in good faith by proceedings which serve as a
matter of law to stay the enforcement thereof and (ii) those laws, rules and
regulations the failure to comply with any of which could not (singly or in the
aggregate) have a material adverse effect on the financial condition, business
or prospects of the Borrower or any such Subsidiary.
3.2. Maintenance of Property; Insurance. The Borrower will maintain and
preserve (and will cause each Subsidiary of the Borrower to maintain and
preserve) all of its fixed assets in good working order and condition, making
all necessary repairs thereto and replacements thereof. The Borrower will
maintain, with financially sound and reputable insurers, insurance with respect
to its property and business against such liabilities, casualties and
contingencies and of such types and in such amounts as shall be reasonably
satisfactory to the Bank from time to time and in any event all such insurance
as may from time to time be customary for companies conducting a business
similar to that of the Borrower in similar locales.
3.3. Payment of Taxes and Charges. The Borrower will pay and discharge
(and will cause each Subsidiary of the Borrower to pay and discharge) all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or property, including, without limitation, taxes, assessments, charges
or levies relating to real and personal property, franchises, income,
unemployment, old age benefits, withholding, or sales or use, prior to the date
on which penalties would attach thereto, and all lawful claims (whether for any
of the foregoing or otherwise) which, if unpaid, might give rise to a lien upon
any property of the Borrower or any
-8-
<PAGE> 9
such Subsidiary, except any of the foregoing which is being contested in good
faith and by appropriate proceedings which serve as a matter of law to stay the
enforcement thereof and for which the Borrower has established and is
maintaining adequate reserves. The Borrower will pay, and will cause each of its
Subsidiaries to pay, in a timely manner, all material lease obligations, all
material trade debt, material purchase money obligations, material equipment
lease obligations and all of its other material Indebtedness; provided that
nothing contained in this sentence will be deemed to require the Borrower or any
such Subsidiary to pay any such lease obligations, trade debt, purchase money
obligations, equipment lease obligations or other Indebtedness so long as the
Borrower is disputing in good faith its obligation to pay same under
circumstances in which no material property or interest of the Borrower is
jeopardized by such non-payment and in which the Borrower has established and is
maintaining adequate reserves. For the purpose of the immediately preceding
sentence, Indebtedness and other obligations will not be considered "material"
unless any such Indebtedness or obligations (together with all related
Indebtedness and obligations) exceed $ 100,000 in amount or unless the failure
to pay same could cause the Borrower or any Subsidiary to incur a loss in excess
of $ 100,000. The Borrower will perform and fulfill all material covenants and
agreements under any material leases of real estate, material agreements
relating to purchase money debt, material equipment leases and other material
contracts; provided that nothing contained in this sentence will be deemed to
require the Borrower to perform or fulfill any such covenants or agreements so
long as the Borrower is disputing in good faith its obligation to perform or
fulfill same under circumstances in which no material property or interest of
the Borrower is jeopardized by such nonperformance or nonfulfillment and in
which the Borrower has established and is maintaining adequate reserves. For the
purpose of the immediately preceding sentence, no lease, agreement or other
contract will be considered "material" unless the failure to perform same could
cause the Borrower or any Subsidiary to incur a loss in excess of $100,000. The
Borrower will maintain in full force and effect, and comply with the terms and
conditions of, all permits, permissions and licenses necessary or desirable for
its business.
3.4. Accounts. The Borrower will maintain its principal depository and
operating accounts with the Bank.
3.5. Conduct of Business. The Borrower will conduct, in the ordinary
course, the business in which it is presently engaged. The Borrower will not,
without the prior written consent of the Bank, directly or indirectly (itself or
through any Subsidiary) enter into any other lines of business, businesses or
ventures, outside the field of software publishing and related businesses.
-9-
<PAGE> 10
3.6. Reporting Requirements. The Borrower will furnish to the Bank:
(i) Within 120 days after the end of each fiscal year of the
Borrower, a copy of the annual audit report for such fiscal year for
the Borrower, including therein consolidated and consolidating balance
sheets of the Borrower and Subsidiaries as at the end of such fiscal
year and related consolidated and consolidating statements of income,
stockholders' equity and cash flow for the fiscal year then ended. The
annual consolidated financial statements shall be certified by
independent public accountants selected by the Borrower and reasonably
acceptable to the Bank, such certification to be in such form as is
generally recognized as "unqualified".
(ii) Within 45 days after the end of each fiscal quarter of
the Borrower, consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries and related consolidated and
consolidating statements of income and stockholders' equity and cash
flow, unaudited but complete and accurate and prepared in accordance
with generally accepted accounting principles consistently applied
fairly presenting the financial condition of the Borrower as at the
dates thereof and for the periods covered thereby (except that such
quarterly statements need not contain footnotes) and certified as
accurate (subject to normal year-end audit adjustments, which shall not
be material) by the chief financial officer of the Borrower, such
balance sheets to be as at the end of such fiscal quarter and such
statements of income and stockholders' equity and cash flow to be for
such fiscal quarter and for the year to date, in each case together
with a comparison to budget.
(iii) At the time of delivery of each annual or quarterly
statement of the Borrower, a certificate executed by the chief
financial officer of the Borrower stating that he or she has reviewed
this letter agreement and the other Loan Documents and has no knowledge
of any default by the Borrower in the performance or observance of any
of the provisions of this letter agreement or of any of the other Loan
Documents or, if he or she has such knowledge, specifying each such
default and the nature thereof. Each financial statement given as at
the end of any fiscal quarter of the Borrower will also set forth the
calculations necessary to evidence compliance with Sections 3.7-3.9.
(iv) Monthly, within 15 days after the end of each month, (A)
an aging report in form satisfactory to the Bank covering all
Receivables of the Borrower outstanding as at the end of such month,
and (B) a certificate of the chief financial officer of the Borrower
setting forth the Borrowing Base as at the end of such month, all in
form reasonably satisfactory to the Bank.
(v) Promptly after receipt, a copy of all audits or reports
submitted to the Borrower by independent public accountants in
connection with any
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<PAGE> 11
annual, special or interim audits of the books of the Borrower and any
"management letter" from the Borrower's accountants to the management
of the Borrower.
(vi) As soon as possible and in any event within five days
after the Borrower knows of (or reasonably should have known of) the
occurrence of any Event of Default or any event which, with the giving
of notice or passage of time or both, would constitute an Event of
Default, the statement of the Borrower setting forth details of each
such Event of Default or event and the action which the Borrower
proposes to take with respect thereto; provided that, in describing
said action which the Borrower proposes to take, the Borrower will not
be required to disclose any confidential information if such disclosure
would destroy an attorney-client privilege otherwise applicable to such
information.
(vii) Promptly after the Borrower knows of (or reasonably
should have known of) the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, to which the Borrower or any Subsidiary of the Borrower is a
party; provided, however, that nothing contained in this clause (vii)
will be deemed to require notice of any civil action or administrative
proceeding which seeks monetary damages only, such monetary damages
being less than $ 100,000.
(viii) Promptly upon filing any registration statement or
listing application (or any supplement or amendment to any registration
statement or listing application) with the Securities and Exchange
Commission ("SEC") or any successor agency or with any stock exchange
or with the National Association of Securities Dealers quotations
system, a copy of same.
(ix) If the Borrower becomes a publicly-traded company, a copy
of each periodic or current report filed with the SEC or any successor
agency and each annual report, proxy statement and other communication
sent to shareholders or other securityholders generally, such copy to
be provided to the Bank promptly upon such filing with the SEC or such
communication with shareholders or securityholders, as the case may be.
(x) Promptly after the Borrower has knowledge thereof, written
notice of any development or circumstance which may reasonably be
expected to have a material adverse effect on the Borrower or its
business, properties, assets, Subsidiaries or condition, financial or
otherwise.
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<PAGE> 12
(xi) Promptly upon request, such other information respecting
the financial condition, operations or Receivables of the Borrower or
any Subsidiary as the Bank may from time to time reasonably request.
3.7. Net Worth. The Borrower will maintain as at the end of each fiscal
quarter (commencing with its results as at March 31, 1997) a consolidated
Tangible Net Worth of not less than the then-effective Tangible Net Worth
Requirement. As used herein, the Tangible Net Worth Requirement will be deemed
to be $3,000,000 as at March 31, 1997, $1,500,000 as at June 30, 1997 and
$1,000,000 as at September 30, 1997. Effective as at December 31, 1997, the
Tangible Net Worth Requirement will be deemed to be the sum of (i) $1,000,000,
plus (ii) 75% of the net proceeds of any equity securities sold by the Borrower
during the period April 1 - December 31, 1997, plus (iii) 75% of the quarterly
consolidated Net Income achieved by the Borrower for each of the two fiscal
quarters ended September 30, 1997 and December 31, 1997 (but without giving
effect to any Net Income which is less than zero for any such fiscal quarter).
As at March 31, 1998 and as at the last day of each fiscal quarter thereafter
(March 31, 1998 and each such subsequent fiscal quarter-end being hereinafter
referred to as a "Determination Date"), the Tangible Net Worth Requirement will
be deemed to become an amount equal to the sum of: (i) that Tangible Net Worth
Requirement which had been in effect at the last day of the immediately
preceding fiscal quarter, plus (ii) 75% of the net proceeds of any equity
securities sold by the Borrower during the fiscal quarter ending at such
Determination Date, plus (iii) 75% of the consolidated Net Income of the
Borrower and Subsidiaries during the fiscal quarter ending at such Determination
Date (but without giving effect to any Net Income which is less than zero for
any fiscal quarter).
3.8. Profitability. The Borrower will not incur a quarterly Adjusted
Net Loss in excess of $500,000 for its fiscal quarter ending September 30, 1997.
The Borrower will achieve quarterly Adjusted Net Income of at least $500,000 for
its fiscal quarter ending December 31, 1997 and for each fiscal quarter
thereafter. The Borrower will not incur an annual Adjusted Net Loss in excess of
$ 1,000,000 for its fiscal year ending December 31, or for any fiscal year
thereafter.
3.9. Liquidity. The Borrower will maintain as at the end of each fiscal
quarter of Borrower (commencing with March 31, 1997) a Quick Ratio which shall
be not less than the then-effective Required Minimum Quick Ratio. As used
herein, "Quick Ratio" means the ratio of (x) Net Quick Assets of the Borrower
and Subsidiaries to (y) consolidated Current Liabilities of the Borrower and
Subsidiaries. The "Required Minimum Quick Ratio" will at all times be 1.75 to 1;
provided that (A) if the Borrower delivers to the Bank pursuant to clause (ii)
of Section 3.6 quarterly financial statements showing that the Borrower has
achieved for any fiscal quarter ending after the date of this letter agreement
consolidated quarterly Adjusted Net Income From Operations of not less than $
1.00, then the Required Minimum Quick Ratio to be in effect as at each
subsequent fiscal quarter-end will be deemed reduced
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<PAGE> 13
to 1.5 to 1, and (B) if the Borrower delivers to the Bank pursuant to clause
(ii) of Section 3.6 quarterly financial statements showing that the Borrower has
achieved for any two consecutive fiscal quarters ending after the date of this
letter agreement consolidated quarterly Adjusted Net Income From Operations of
not less than $ 1,000,000, then the Required Minimum Quick Ratio to be in effect
as at each subsequent fiscal quarter-end will be deemed further reduced to 1.25
to 1.
3.10. Books and Records. The Borrower will maintain (and will cause
each of its Subsidiaries to maintain) complete and accurate books, records and
accounts which will at all times accurately and fairly reflect all of its
transactions in accordance with generally accepted accounting principles
consistently applied. The Borrower will, at any reasonable time and from time to
time upon reasonable notice and during normal business hours (and at any time
and without any necessity for notice following the occurrence of an Event of
Default), permit the Bank, and any agents or representatives thereof, to examine
and make copies of and take abstracts from the records and books of account of,
and visit the properties of the Borrower and any of its Subsidiaries, and to
discuss its affairs, finances and accounts with its officers, directors and/or
independent accountants, all of whom are hereby authorized and directed to
cooperate with the Bank in carrying out the intent of this Section 3.10. Unless
an Event of Default has occurred and is continuing, the Bank will make
reasonable efforts to minimize any interference with the Borrower's operations
which could result from an inspection contemplated by the immediately preceding
sentence and to comply with reasonable security requirements which may be
established by the Borrower. Each financial statement of the Borrower hereafter
delivered pursuant to this letter agreement will be complete and accurate and
will fairly present the financial condition of the Borrower as at the date
thereof and for the periods covered thereby.
3.11. Landlord's Waiver. Prior to the Bank making the first Revolving
Loan, the Borrower will obtain, and will thereafter maintain in effect at all
time, waivers from the owners of all premises in which records relating to any
material amount of Collateral are located, such waivers to be in form and
substance satisfactory to the Bank.
IV. NEGATIVE COVENANTS
Without limitation of any covenants and agreements contained in the
Security Agreement or elsewhere, the Borrower agrees that so long as the
financing arrangements contemplated hereby are in effect or any Revolving Loan
or any of the other Obligations shall be outstanding or any letter of credit
issued hereunder shall be outstanding:
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<PAGE> 14
4.1. Indebtedness. The Borrower will not create, incur, assume or
suffer to exist any Indebtedness (nor allow any of its Subsidiaries to create,
incur, assume or suffer to exist any Indebtedness), except for:
(i) Indebtedness owed to the Bank, including, without
limitation, the Indebtedness represented by the Revolving Note and any
Indebtedness in respect of letters of credit issued by the Bank;
(ii) Indebtedness of the Borrower or any Subsidiary for taxes,
assessments and governmental charges or levies not yet due and payable;
(iii) unsecured current liabilities of the Borrower or any
Subsidiary (other than for money borrowed or for purchase money
Indebtedness with respect to fixed assets) incurred upon customary
terms in the ordinary course of business;
(iv) purchase money Indebtedness (including, without
limitation, Indebtedness in respect of capitalized equipment leases)
owed to equipment vendors and/or lessors for equipment purchased or
leased by the Borrower for use in the Borrower's business; provided
that the total of (x) the Indebtedness permitted under this clause
(iv), plus (y) presently-existing equipment financing permitted under
clause (vi) of this Section 4.1, plus (z) the principal component of
any lease permitted by the last sentence of Section 4.8 below will not
exceed $ 1,500,000 in the aggregate outstanding at any one time;
(v) up to $750,000 in Indebtedness owed to the Connecticut
Development Authority; provided that same is fully subordinated to the
Borrower's obligations to the Bank by instruments satisfactory in form
and substance to the Bank;
(vi) other Indebtedness existing at the date hereof, but only
to the extent set forth on item 4.1 of the attached Disclosure
Schedule; and
(vii) any guaranties or other contingent liabilities expressly
permitted pursuant to Section 4.3.
4.2. Liens. The Borrower will not create, incur, assume or suffer to
exist (nor allow any of its Subsidiaries to create, incur, assume or suffer to
exist) any mortgage, deed of trust, pledge, lien, security interest, or other
charge or encumbrance (including the lien or retained security title of a
conditional vendor) of any nature (collectively, "Liens"), upon or with respect
to any of its property or assets, now owned or hereafter acquired, except that
the foregoing restrictions shall not apply to:
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<PAGE> 15
(i) Liens for taxes, assessments or governmental charges or
levies on property of the Borrower or any of its Subsidiaries if the
same shall not at the time be delinquent or thereafter can be paid
without interest or penalty;
(ii) Liens imposed by law, such as carriers', warehousemen's
and mechanics' liens and other similar Liens arising in the ordinary
course of business for sums not yet due or which are being contested in
good faith and by appropriate proceedings which serve as a matter of
law to stay the enforcement thereof and as to which adequate reserves
have been made;
(iii) pledges or deposits under workmen s compensation laws,
unemployment insurance, social security, retirement benefits or similar
legislation;
(iv) Liens in favor of the Bank;
(v) Liens in favor of equipment vendors and/or lessors
securing purchase money Indebtedness to the extent permitted by clause
(iv) of Section 4.1 and any sale-leaseback financing specifically
permitted by the last sentence of Section 4.8; provided that no such
Lien will extend to any property of the Borrower other than the
specific items of equipment financed;
(vi) existing Liens in favor of the Connecticut Development
Authority securing the Indebtedness described in clause (v) of
Section 4.1; provided that such Liens are fully subordinated to the
Security Agreement by instruments satisfactory in form and substance to
the Bank; or
(vii) other Liens existing at the date hereof, but only to the
extent and with the relative priorities set forth on item 4.2 of the
attached Disclosure Schedule.
Without limitation of the foregoing, the Borrower will not enter into
any agreement with any Person other than the Bank which would have the effect of
prohibiting the Borrower from granting liens on any of its assets.
4.3. Guaranties. The Borrower will not, without the prior written
consent of the Bank, assume, guarantee, endorse or otherwise become directly or
contingently liable (including, without limitation, liable by way of agreement,
contingent or otherwise, to purchase, to provide funds for payment, to supply
funds to or otherwise invest in any debtor or otherwise to assure any creditor
against loss) (and will not permit any of its Subsidiaries so to assume,
guaranty or become directly or contingently liable) in connection with any
indebtedness of any other Person, except (i) guaranties by endorsement for
deposit or collection in the ordinary course of business, (ii) guaranties
existing at the date hereof and described on item 4.3 of the
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<PAGE> 16
attached Disclosure Schedule, and (iii) guaranties of loans to foreign nationals
in connection with travel to the United States to become employees of the
Borrower and guaranties of other loans which may be incurred by employees of the
Borrower in connection with relocation expenses; provided that the sum of (1)
the principal amount guarantied as described in this clause (iii), plus (2) the
principal amount of all loans and advances made by the Borrower or any
Subsidiary as described in Section 4.5 below will not exceed $250,000 in the
aggregate outstanding at any one time.
4.4. Dividends. The Borrower will not, without the prior written
consent of the Bank, make any distributions to its shareholders, pay any
dividends (other than dividends payable solely in capital stock of the Borrower)
or redeem, purchase or otherwise acquire, directly or indirectly any of its
capital stock; provided that so long as no Default or Event of Default then
exists or would result therefrom, the Borrower may expend up to $500,000 in the
aggregate per fiscal year to repurchase stock of the Borrower from employees who
are leaving the Borrower's employ. For the purpose of the immediately preceding
sentence, compliance with each of Sections 3.7 and 3.9 will be measured
both as at the most recent fiscal quarter-end and as at the date of each such
repurchase, whether or not same is a fiscal quarter-end.
4.5. Loans and Advances. The Borrower will not make (and will not
permit any Subsidiary to make) any loans or advances to any Person, including,
without limitation, the Borrower's directors, officers and employees; provided
that the Borrower may make advances to directors, officers or employees with
respect to expenses incurred by them in the ordinary course of their duties and
advances against salary, loans to foreign nationals in connection with travel to
the United States to become employees of the Borrower and other loans to
employees in connection with relocation expenses, so long as the sum of (1) the
principal amount of all loans and advances made pursuant to this Section 4.5
plus (2) the principal amount of all loans guarantied as described in clause
(iii) of Section 4.3 will not exceed, in the aggregate, $250,000 outstanding at
any one time.
4.6. Investments. The Borrower will not, without the Bank's prior
written consent, invest in, hold or purchase (other than the repurchase of the
Borrower's stock to the extent expressly permitted by Section 4.4 above) any
stock or securities of any Person (nor will the Borrower permit any of its
Subsidiaries to invest in, purchase or hold any such stock or securities) except
(i) readily marketable direct obligations of, or obligations guarantied by, the
United States of America or any agency thereof, (ii) other investment grade debt
securities, (iii) mutual funds, the assets of which are primarily invested in
items of the kind described in the foregoing clauses (i) and (ii) of this
Section 4.6, (iv) deposits with or certificates of deposit issued by the Bank
and any other obligations of the Bank or the Bank's parent, (v) deposits in any
other bank organized in the United States having capital in excess of $
100,000,000, (vi) deposits in foreign banks to the extent required for the
business of any foreign Subsidiaries, and (vii) investments in any Subsidiaries
now existing or hereafter created by the
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<PAGE> 17
Borrower pursuant to Section 4.7 below; provided that in any event the Tangible
Net Worth of the Borrower alone (exclusive of its investment in Subsidiaries and
any debt owed by any Subsidiary to the Borrower) will not be less than 90% of
the consolidated Tangible Net Worth of the Borrower and Subsidiaries.
4.7. Subsidiaries; Acquisitions. The Borrower will not form or acquire
any Subsidiary or make any other acquisition of the stock of any other Person or
of all or substantially all of the assets of any other Person, unless, in each
case, the Borrower gives prior written notice thereof to the Bank and, in each
case, after giving effect to such transaction the Borrower is in compliance with
each of Section 3.7, Section 3.8 and Section 3.9 and with clause (vii) of
Section 4.6, compliance with Sections 3.7, 3.8 and 3.9 being determined
for this purpose both as at the most recent quarter-end and on a pro forma basis
as at the date of the proposed transaction, whether or not a fiscal quarter-end.
The Borrower will not become a partner in any partnership.
4.8. Merger. The Borrower will not, without the prior written consent
of the Bank, merge or consolidate with any Person, or sell, lease, transfer or
otherwise dispose of (subject to the next sentence) any material portion of its
assets (whether in one or more transactions), other than sale of inventory in
the ordinary course. Notwithstanding the immediately preceding sentence, the
Borrower may engage in sale-and-leaseback transactions involving the sale and
leasing back of existing equipment; provided that the sum of (x) the principal
component of any such lease, plus (y) the purchase money Indebtedness permitted
by clause (iv) of Section 4.1, plus (2) presently-existing equipment financing
permitted under clause (vi) of Section 4.1 will not exceed $ 1,500,000 in the
aggregate outstanding at any one time.
4.9. Affiliate Transactions. The Borrower will not, without prior
written consent of the Bank, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any affiliate of the Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would be
obtained in a comparable arms'-length transaction with any Person not an
affiliate; provided that nothing in this Section 4.9 shall be deemed to prohibit
the payment of salary or other similar payments to any officer or director of
the Borrower at a level consistent with the salary and other payments being paid
at the date of this letter agreement and heretofore disclosed in writing to the
Bank, nor to prevent the hiring of additional officers at a salary level
consistent with industry practice, nor to prevent reasonable periodic increases
in salary. For the purposes of this letter agreement, "affiliate" means any
Person which, directly or indirectly, controls or is controlled by or is under
common control with the Borrower; any officer or director or former officer or
director of the Borrower; any Person owning of record or beneficially, directly
or indirectly, 5% or more of any class of capital stock of the Borrower or 5% or
more of any class of capital stock or other equity interest having voting power
(under ordinary
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<PAGE> 18
circumstances) of any of the other Persons described above; and any member of
the immediate family of any of the foregoing. "Control" means possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of any Person, whether through ownership of voting
equity, by contract or otherwise. Nothing contained in this Section 4.9 will be
deemed to prevent the Borrower from granting stock options to officers and
employees nor from issuing stock upon the exercise of such options.
4.10. Change of Address, etc. The Borrower will not change its name or
legal structure, nor will the Borrower move its chief executive offices or
principal place of business from the address described in the first sentence of
Section 2.1(j) above, nor will the Borrower remove any books or records from
such address, nor will the Borrower keep any Collateral at any location other
than the Premises without, in each instance, giving the Bank at least 30 days'
prior written notice and providing all such financing statements, certificates
and other documentation as the Bank may reasonably request in order to maintain
the perfection and priority of the security interests granted or intended to be
granted pursuant to the Security Agreement. The Borrower will not change its
fiscal year or methods of financial reporting unless, in each instance, prior
written notice of such change is given to the Bank and prior to such change the
Borrower enters into amendments to this letter agreement in form and substance
satisfactory to the Bank in order to preserve unimpaired the rights of the Bank
and the obligations of the Borrower hereunder.
4.11. Hazardous Waste. Except as provided below, the Borrower will not
dispose of or suffer or permit to exist any hazardous material or oil on any
site or vessel owned, occupied or operated by the Borrower or any Subsidiary of
the Borrower, nor shall the Borrower store (or permit any Subsidiary to store)
on any site or vessel owned, occupied or operated by the Borrower or any such
Subsidiary, or transport or arrange the transport of, any hazardous material or
oil (the terms "hazardous material", "oil", "site" and "vessel", respectively,
being used herein with the meanings given those terms in Mass. Gen. Laws, Ch. 21
E or any comparable terms in any comparable statute in effect in any other
relevant jurisdiction). The Borrower shall provide the Bank with written notice
of (i) the intended storage or transport of any hazardous material or oil by the
Borrower or any Subsidiary of the Borrower, (ii) any known release or known
threat of release of any hazardous material or oil at or from any site or vessel
owned, occupied or operated by the Borrower or any Subsidiary of the Borrower,
and (iii) any incurrence of any expense or loss by any government or
governmental authority in connection with the assessment, containment or removal
of any hazardous material or oil for which expense or loss the Borrower or any
Subsidiary of the Borrower may be liable. Notwithstanding the foregoing, the
Borrower and its Subsidiaries may use, store and transport, and need not notify
the Bank of the use, storage or transportation of, (x) oil in reasonable
quantities, as fuel for heating of their respective facilities or for vehicles
or machinery used in the ordinary course of their respective businesses and (y)
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<PAGE> 19
hazardous materials that are solvents, cleaning agents or other materials used
in the ordinary course of the respective business operations of the Borrower and
its Subsidiaries, in reasonable quantities, as long as in any case the Borrower
or the Subsidiary concerned (as the case may be) has obtained and maintains in
effect any necessary governmental permits, licenses and approvals, complies with
all requirements of applicable federal, state and local law relating to such
use, storage or transportation, follows the protective and safety procedures
that a prudent businessperson conducting a business the same as or similar to
that of the Borrower or such Subsidiary (as the case may be) would follow, and
disposes of such materials (not consumed in the ordinary course) only through
licensed providers of hazardous waste removal services.
4.12. No Margin Stock. No proceeds of any Revolving Loan shall be used
directly or indirectly to purchase or carry any margin security.
V. DEFAULT AND REMEDIES
5.1. Events of Default. The occurrence of any one of the following
events shall constitute an Event of Default hereunder:
(a) The Borrower shall fail to make any payment of principal of or
interest on the Revolving Note on or before the date when due; or the Borrower
shall fail to pay when due any amount owed to the Bank in respect of any letter
of credit now or hereafter issued by the Bank; or
(b) Any representation or warranty of the Borrower contained herein
shall at any time prove to have been incorrect in any material respect when made
or any representation or warranty made by the Borrower in connection with any
Revolving Loan or letter of credit shall at any time prove to have been
incorrect in any material respect when made; or
(c) The Borrower shall default in the performance or observance of any
agreement or obligation under any of Sections 3.1, 3.3, 3.6, 3.7, 3.8 or
3.9 or Article IV; or
(d) The Borrower shall default in the performance of any other term,
covenant or agreement contained in this letter agreement and such default shall
continue unremedied for 30 days after written notice thereof shall have been
given to the Borrower; or
(e) Any default on the part of the Borrower or any Subsidiary of the
Borrower shall exist, and shall remain unwaived or uncured beyond the expiration
of any applicable notice and/or grace period, under any other contract,
agreement or undertaking now existing or hereafter entered into with or for the
benefit of the Bank (or any affiliate of the Bank); or
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<PAGE> 20
(f) Any default shall exist and remain unwaived or uncured with respect
to any other Indebtedness of the Borrower or any Subsidiary of the Borrower in
respect of borrowed money in excess of $ 100,000 in aggregate principal amount
or with respect to any instrument evidencing, guaranteeing, securing or
otherwise relating to any such Indebtedness, or any such Indebtedness in respect
of borrowed money in excess of $ 100,000 in aggregate principal amount shall not
have been paid when due, whether by acceleration or otherwise, or any event or
circumstance shall occur which permits, or with the lapse of time or the giving
of notice or both would permit, the acceleration of the maturity of any such
Indebtedness in respect of borrowed money by the holder or holders thereof; or
(g) The Borrower shall be dissolved, or the Borrower or any Subsidiary
of the Borrower shall become insolvent or bankrupt or shall cease paying its
debts generally as they mature or shall make an assignment for the benefit of
creditors, or a trustee, receiver or liquidator shall be appointed for the
Borrower or any Subsidiary of the Borrower or for a substantial part of the
property of the Borrower or any such Subsidiary, or bankruptcy, reorganization,
arrangement, insolvency or similar proceedings shall be instituted by or against
the Borrower or any such Subsidiary under the laws of any jurisdiction (except
for an involuntary proceeding filed against the Borrower or any Subsidiary of
the Borrower which is dismissed within 60 days following the institution
thereof); or
(h) Any attachment, execution or similar process shall be issued or
levied against any of the property of the Borrower or any Subsidiary and such
attachment, execution or similar process shall not be paid, stayed, released,
vacated or fully bonded within 30 days after its issue or levy; or
(i) Any final uninsured judgment in excess of $100,000 shall be entered
against the Borrower or any Subsidiary of the Borrower by any court of competent
jurisdiction and shall remain unpaid for 30 days after such entry, unless same
is bonded off or effectively stayed within such 30-day period and remains stayed
thereafter until reversed, vacated or paid; or
(j) The Borrower or any Subsidiary of the Borrower shall fail to meet
its minimum funding requirements under ERISA with respect to any employee
benefit plan (or other class of benefit which the PBGC has elected to insure) or
any such plan shall be the subject of termination proceedings (whether voluntary
or involuntary) and there shall result from such termination proceedings a
liability of the Borrower or any Subsidiary of the Borrower to the PBGC which in
the reasonable opinion of the Bank may have a material adverse effect upon the
financial condition of the Borrower or any such Subsidiary; or
(k) The Security Agreement or any other Loan Document shall for any
reason (other than due to payment in full of all amounts secured or evidenced
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<PAGE> 21
thereby or due to discharge in writing by the Bank) not remain in full force and
effect; or
(l) The security interests and liens of the Bank in and on any of the
Collateral shall for any reason (other than due to payment in full of all
amounts secured thereby or due to written release by the Bank) not be fully
perfected liens and security interests; or
(m) At any time, 50% or more of the outstanding shares of any class of
equity securities of the Borrower shall be owned by any Person or by any "group"
(as defined in the Securities Exchange Act of 1934, as amended, and the
regulations thereunder), other than by one or more of the Persons listed on item
5.1(m) of the attached Disclosure Schedule.
5.2. Rights and Remedies on Default. Upon the occurrence of any Event
of Default, in addition to any other rights and remedies available to the Bank
hereunder or otherwise, the Bank may exercise any one or more of the following
rights and remedies (all of which shall be cumulative):
(a) Declare the entire unpaid principal amount of the Revolving Note
then outstanding, all interest accrued and unpaid thereon and all other amounts
payable under this letter agreement, and all other Indebtedness of the Borrower
to the Bank, to be forthwith due and payable, whereupon the same shall become
forthwith due and payable, without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower.
(b) Terminate the revolving financing arrangements provided for by this
letter agreement.
(c) Exercise all rights and remedies hereunder, under the Revolving
Note, under the Security Agreement and under each and any other agreement with
the Bank; and exercise all other rights and remedies which the Bank may have
under applicable law.
5.3. Set-off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, the Bank is
hereby authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, all
of which are hereby expressly waived, to set off and to appropriate and apply
any and all deposits (other than payroll accounts, fiduciary accounts or other
accounts as to which the Bank is prohibited by applicable law or regulation from
exercising its right of set-off) and any other Indebtedness at any time held or
owing by the Bank or any affiliate thereof to or for the credit or -the account
of the Borrower against and on account of the
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<PAGE> 22
obligations and liabilities of the Borrower to the Bank under this letter
agreement or otherwise, irrespective of whether or not the Bank shall have made
any demand hereunder and although said obligations, liabilities or claims, or
any of them, may then be contingent or unmatured and without regard for the
availability or adequacy of other collateral. As further security for the
Obligations, the Borrower also grants to the Bank a security interest with
respect to all its deposits (other than payroll accounts, fiduciary accounts or
other accounts as to which the Bank is prohibited by applicable law or
regulation from taking a security interest) and all securities or other property
in the possession of the Bank or any affiliate of the Bank from time to time,
and, upon the occurrence and during the continuance of any Event of Default, the
Bank may exercise with respect to such deposits, securities or other property in
the possession of the Bank or any affiliate of the Bank all rights and remedies
of a secured party under the Uniform Commercial Code.
5.4. Letters of Credit. Without limitation of any other right or remedy
of the Bank, (i) if an Event of Default shall have occurred and the Bank shall
have accelerated the Revolving Loans or (ii) if this letter agreement and/or the
revolving financing arrangements described herein shall have expired or shall
have been earlier terminated by either the Bank or the Borrower for any reason,
the Borrower will forthwith deposit with the Bank in cash a sum equal to the
total of all then undrawn amounts of all outstanding letters of credit issued by
the Bank for the account of the Borrower.
VI. MISCELLANEOUS
6.1. Costs and Expenses. The Borrower agrees to pay on demand all costs
and expenses (including, without limitation, reasonable legal fees) of the Bank
in connection with the preparation, execution and delivery of this letter
agreement, the Security Agreement, the Revolving Note and all other instruments
and documents to be delivered in connection with any Revolving Loan or any
letter of credit issued hereunder and any amendments or modifications of any of
the foregoing, as well as the costs and expenses (including, without limitation,
the reasonable fees and expenses of legal counsel) incurred by the Bank in
connection with preserving, enforcing or exercising, upon default, any rights or
remedies under this letter agreement, the Security Agreement, the Revolving Note
and all other instruments and documents delivered or to be delivered hereunder
or in connection herewith, all whether or not legal action is instituted or
whether or not the transaction closes, or any loan is made or letter of credit
issued. In addition, the Borrower shall be obligated to pay any and all stamp
and other taxes payable or determined to be payable in connection with the
execution and delivery of this letter agreement, the Security Agreement, the
Revolving Note and all other instruments and documents to be delivered in
connection with any Obligation. Any fees, expenses or other charges which the
Bank is entitled to receive from the Borrower under this Section shall bear
interest from the date of any demand therefor until the date when paid at a rate
per
-22-
<PAGE> 23
annum equal to the per annum rate otherwise payable under the Revolving Note
(but in no event in excess of the maximum rate permitted by then applicable
law).
6.2. Capital Adequacy. If the Bank shall have determined that the
adoption or phase-in after the date hereof of any applicable law, rule or
regulation regarding capital requirements for banks or bank holding companies,
or any change therein after the date hereof, or any change in the interpretation
or administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such entity regarding
capital adequacy (whether or not having the force of law) has or would have the
effect of reducing the return on the Bank's capital with respect to the
Revolving Loans, the within-described revolving loan facility and/or letters of
credit issued for the account of the Borrower to a level below that which the
Bank could have achieved (taking into consideration the Bank's policies with
respect to capital adequacy immediately before such adoption, phase-in, change
or compliance and assuming that the Bank's capital was then fully utilized) but
for such adoption, phase-in, change or compliance by any amount deemed by the
Bank to be material: (i) the Bank shall promptly after its determination of such
occurrence give notice thereof to the Borrower; and (ii) the Borrower shall pay
forthwith to the Bank as an additional fee such amount as the Bank certifies to
be the amount that will compensate it for such reduction with respect to the
Revolving Loans, the within-described revolving loan facility and/or such
letters of credit.
A certificate of the Bank claiming compensation under this Section
shall be conclusive in the absence of manifest error. Such certificate shall set
forth the nature of the occurrence giving rise to such compensation, the
additional amount or amounts to be paid to it hereunder and the method by which
such amounts were determined. In determining such amounts, the Bank may use any
reasonable averaging and attribution methods. No failure on the part of the Bank
to demand compensation on any one occasion shall constitute a waiver of its
right to demand such compensation on any other occasion and no failure on the
part of the Bank to deliver any certificate in a timely manner shall in any way
reduce any obligation of the Borrower to the Bank under this Section.
6.3. Facility Fees. With respect to the within arrangements for
Revolving Loans, the Borrower will pay to the Bank, on the last day of each
calendar quarter (commencing with March 31, 1997) and on the Expiration Date or
date of earlier termination of the within-described revolving loan facility, a
non-refundable quarterly facility fee, payable in arrears, equal to $2,500 for
each calendar quarter (appropriately pro-rated for any partial calendar
quarter). In addition, if the within-described revolving financing arrangements
are terminated by the Borrower for any reason or by the Bank as the result of
the Borrower's default, the Borrower shall forthwith upon such termination pay
to the Bank a sum equal to all of the fees which would have become due pursuant
to the immediately preceding sentence from
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<PAGE> 24
the date of such termination through the Expiration Date. The fees described in
this Section are in addition to any balances and fees required by the Bank or
any of its affiliates in connection with any other services now or hereafter
made available to the Borrower.
6.4. Other Agreements. The provisions of this letter agreement are not
in derogation or limitation of any obligations, liabilities or duties of the
Borrower under any of the other Loan Documents or any other agreement with or
for the benefit of the Bank. No inconsistency in default provisions between this
letter agreement and any of the other Loan Documents or any such other agreement
will be deemed to create any additional grace period or otherwise derogate from
the express terms of each such default provision. No covenant, agreement or
obligation of the Borrower contained herein, nor any right or remedy of the Bank
contained herein, shall in any respect be limited by or be deemed in limitation
of any inconsistent or additional provisions contained in any of the other Loan
Documents or any such other agreement.
6.5. Governing Law. This letter agreement and the Revolving Note shall
be governed by, and construed and enforced in accordance with, the laws of The
Commonwealth of Massachusetts.
6.6. Addresses for Notices, etc. All notices, requests, demands and
other communications provided for hereunder shall be in writing and shall be
mailed or delivered to the applicable party at the address indicated below:
If to the Borrower:
FlexiInternational Software, Inc.
Two Enterprise Drive
Shelton, CT 06484
Attention: Richard Horner, Chief Financial Officer
If to the Bank:
Fleet National Bank
High Technology Group
75 State Street
Boston, MA 02109
Attention: Thomas W. Davies, Vice President
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed delivered on the earlier of (i) the date received
or (ii) the date of delivery,
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<PAGE> 25
refusal or non-delivery indicated on the return receipt if deposited in the
United States mails, sent postage prepaid, certified or registered mail, return
receipt requested, addressed as aforesaid.
6.7. Binding Effect; Assignment; Termination. This letter agreement
shall be binding upon the Borrower, its successors and assigns and shall inure
to the benefit of the Borrower and the Bank and their respective permitted
successors and assigns. The Borrower may not assign this letter agreement or any
rights hereunder without the express written consent of the Bank. The Bank may,
in accordance with applicable law, from time to time assign or grant
participation in this letter agreement, the Revolving Loans, the Revolving Note
and/or the letters of credit issued hereunder. The Borrower may terminate this
letter agreement and the financing arrangements made herein by giving written
notice of such termination to the Bank together with payment of the sum
described in the second sentence of Section 6.3; provided that no such
termination will release or waive any of the Bank's rights or remedies or any of
the Borrowers obligations under this letter agreement or any of the other Loan
Documents unless and until the Borrower has paid in full the Revolving Loans and
all interest thereon and all fees and charges payable in connection therewith
and all letters of credit issued hereunder have been terminated.
6.8. Consent to Jurisdiction. The Borrower irrevocably submits to the
non-exclusive jurisdiction of any Massachusetts court or any federal court
sitting within The Commonwealth of Massachusetts over any suit, action or
proceeding arising out of or relating to this letter agreement and/or the
Revolving Note. The Borrower irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to the laying of venue
of any such suit, action or proceeding brought in such a court and any claim
that any such suit, action or proceeding has been brought in an inconvenient
forum. The Borrower agrees that final judgment in any such suit, action or
proceeding brought in such a court shall be enforced in any court of proper
jurisdiction by a suit upon such judgment, provided that service of process in
such action, suit or proceeding shall have been effected upon the Borrower in
one of the manners specified in the following paragraph of this Section 6.8 or
as otherwise permitted by law.
The Borrower hereby consents to process being served in any suit,
action or proceeding of the nature referred to in the preceding paragraph of
this Section 6.8 either (i) by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested, to it at its address set forth
in Section 6.6 (as such address may be changed from time to time pursuant to
said Section 6.6) or (ii) by serving a copy thereof upon it at its address set
forth in Section 6.6 (as such address may be changed from time to time pursuant
to said Section 6.6).
6.9. Severability. In the event that any provision of this letter
agreement or the application thereof to any Person, property or circumstances
shall be held to any
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<PAGE> 26
extent to be invalid or unenforceable, the remainder of this letter agreement,
and the application of such provision to Persons, properties or circumstances
other than those as to which it has been held invalid and unenforceable, shall
not be affected thereby, and each provision of this letter agreement shall be
valid and enforced to the fullest extent permitted by law.
VII. DEFINED TERMS
7.1. Definitions. In addition to terms defined elsewhere in this letter
agreement, as used in this letter agreement, the following terms have the
following respective meanings:
"Adjusted Net Income" - For any fiscal period, the result: of the
consolidated Net Income (or consolidated Net Loss, as the case may be, expressed
as a negative number) of the Borrower and Subsidiaries for such period plus the
total increase (or minus the total decrease, if applicable) during such fiscal
period in the amount representing the Borrower's Capitalized Software
Development Costs. If the amount determined in accordance with the immediately
preceding sentence for any fiscal period is less than zero, such amount will be
referred to as the Borrower's "Adjusted Net Loss" for such fiscal period.
"Adjusted Net Income From Operations" - For any fiscal period, the
Adjusted Net Income of the Borrower, but exclusive of interest income,
extraordinary gains and any other items of non-operating income.
"Aggregate Bank Liabilities" - At any time, the sum of (i) the
principal amount of all Revolving Loans then outstanding, plus (ii) all then
undrawn amounts of letters of credit issued by the Bank for the account of the
Borrower, plus (iii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Borrowing Base" - As determined at any date, 80% of the aggregate
principal amount of the Qualified Receivables of the Borrower then outstanding.
"Business Day" - Any day which is not a Saturday, nor a Sunday nor a
public holiday under the laws of the United States of America or The
Commonwealth of Massachusetts applicable to a national bank.
"Capitalized Software Development Costs" - As at any date, the
Borrower's capitalized software development costs as shown on the Borrower's
balance sheet as at such date, such balance sheet to be prepared and presented
in accordance with generally accepted accounting principles and in a manner
consistent with the Borrower's balance sheet as at December 31, 1995 heretofore
furnished to the Bank.
-26-
<PAGE> 27
"Collateral" - All property which is described as "Collateral" in the
Security Agreement.
"Current Liabilities" - All amounts properly shown as "current
liabilities" on a consolidated balance sheet of the Borrower prepared in
accordance with generally accepted accounting principles and in a manner
consistent with the Borrower's balance sheet as at December 31, 1995 heretofore
furnished to the Bank, and including, without limitation, all capitalized lease
payments and fixed prepayments of, and sinking fund payments with respect to,
Indebtedness required to be made within one year from the date of determination.
Further, and without limitation of the foregoing, "Current Liabilities" will in
any event be deemed to include the Revolving Loans. Notwithstanding the
foregoing, "Current Liabilities" will not be deemed to include any liabilities
which constitute Deferred Revenue.
"Default" - Any event or circumstance which, with the passage of time
or the giving of notice or both, could become an Event of Default.
"Deferred Revenue" - Any liabilities of the Borrower which represent
sums actually received or contracted to be received by the Borrower under
software maintenance contracts or licenses or with respect to consulting
services and which, in accordance with generally accepted accounting principles
consistently applied, are properly shown as "deferred revenue" on the Borrower's
balance sheet.
"ERISA" - The Employee Retirement Income Security Act of 1974, as
amended.
"Expiration Date" - June 1, 1998, unless extended by the Bank, which
extension may be given or withheld by the Bank in its sole discretion.
"Indebtedness" - All obligations of a Person, whether current or
long-term, senior or subordinated, which in accordance with generally accepted
accounting principles would be included as liabilities upon such Person's
balance sheet at the date as of which Indebtedness, is to be determined, and
shall also include guaranties, endorsements (other than for collection in the
ordinary course of business) or other arrangements whereby responsibility is
assumed for the obligations of others, whether by agreement to purchase or
otherwise acquire the obligations of others, including any agreement, contingent
or otherwise, to furnish funds through the purchase of goods, supplies or
services for the purpose of payment of the obligations of others.
"Loan Documents" - Each of this letter agreement, the Revolving Note,
the Security Agreement, and each other instrument, document or agreement
evidencing, securing, guaranteeing or relating in any way to any of the
Revolving Loans or any of the letters of credit issued hereunder, all whether
now existing or hereafter arising or entered into.
-27-
<PAGE> 28
"Maximum Revolving Amount" - At any date as of which same is to be
determined, the amount by which (x) $2,000,000 exceeds (y) the sum of (i) all
then undrawn amounts of letters of credit issued by the Bank for the account of
the Borrower plus (ii) all amounts then drawn on any such letter of credit which
at said date shall not have been reimbursed to the Bank by the Borrower.
"Net Income" (or "Net Loss") - The book net income (or book net loss,
as the case may be) of a Person for any period, after all taxes actually paid or
accrued and all expenses and other charges determined in accordance with
generally accepted accounting principles consistently applied.
"Net Quick Assets" - Such current assets of the Borrower as consist of
cash, cash-equivalents and Receivables (less an allowance for bad debt
consistent with the Borrower's prior experience).
"Obligations" - All Indebtedness, covenants, agreements, liabilities
and obligations, now existing or hereafter arising, made by the Borrower with or
for the benefit of the Bank or owed by the Borrower to the Bank in any capacity.
"PBGC" - The Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" - An individual, corporation, company, partnership, joint
venture, trust or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Qualified Receivables" - Only those Receivables of the Borrower which
arise out of bona fide sales made or services rendered (including, without
limitation, software license fees and expense reimbursement payable by
customers) to customers of the Borrower (which customers are located in the
United States and are unrelated to the Borrower) in the ordinary course of the
Borrower's business and which remain unpaid no more than 90 days past the
respective invoice dates of such Receivables, the payment of which is not in
dispute. For the purpose of the immediately preceding sentence, a foreign
customer will be deemed "located in the United States" if its corporate parent
is located in the United States and if such corporate parent guaranties the
Receivable in question by a guaranty in form and substance satisfactory to the
Bank. The Bank will also include in Qualified Receivables a Receivable which
meets all of the criteria set forth in the first and last sentences of this
definition other than the location of the customer, if such Receivable is
secured by a letter of credit issued by a financial institution satisfactory to
the Bank, such letter of credit to be in form and substance satisfactory to the
Bank. Unless the Bank in its sole discretion otherwise determines with respect
to any Receivable, a Receivable which would otherwise be a Qualified Receivable
shall be deemed not to be a Qualified Receivable (i) if the Bank does not have a
fully perfected first priority security interest in such Receivable; (ii) if
such Receivable is not free and clear of all
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<PAGE> 29
adverse interests in favor of any Person other than the Bank; (iii) if such
Receivable is subject to any deduction, off-set, contra account, counterclaim or
condition; provided, however, that if the relevant deduction, offset, contra
account, counterclaim or condition relates to less than 25% of the principal
amount of such Receivable, then only the amount subject to such deduction,
off-set, contra account, counterclaim or condition will be deemed excluded from
Qualified Receivables by this clause (iii) and the balance of such Receivable
will not be deemed so excluded by this clause (iii); (iv) if a field examination
made by the Bank fails to confirm that such Receivable exists and satisfies all
of the criteria set forth herein to be a Qualified Receivable; (v) if such
Receivable is not properly invoiced at the date of sale; (vi) if the customer or
account debtor has disputed liability or made any claim with respect to the
Receivable or the merchandise covered thereby; provided, however, that if such
dispute relates to less than 25% of the principal amount of such Receivable,
then only the amount so disputed will be deemed excluded from Qualified
Receivables by this clause (vi) and the balance of such Receivable will not be
deemed so excluded by this clause (vi); (vii) if the customer or account debtor
has filed a petition for bankruptcy or any other application for relief under
the Bankruptcy Code or has effected an assignment for the benefit of creditors,
or if any petition or any other application for relief under the Bankruptcy Code
has been filed against said customer or account debtor, or if the customer or
account debtor has suspended business, become insolvent, ceased to pay its debts
as they become due, or had or suffered a receiver or trustee to be appointed for
any of its assets or affairs; (viii) if such Receivable is owed by the United
States government or any agency or department thereof (unless assigned to the
Bank under the Federal Assignment of Claims Act); or (ix) if the Bank reasonably
believes that collection of such Receivable is insecure or that it may not be
paid by reason of financial inability to pay or otherwise.
"Receivables" - All of the Borrower's present and future accounts,
accounts receivable and notes, drafts, acceptances and other instruments
representing or evidencing a right to payment for goods sold or for services
rendered.
"Subsidiary" - Any corporation or other entity of which the Borrower
and/or any of its Subsidiaries, directly or indirectly, owns, or has the right
to control or direct the voting of, fifty (50%) percent or more of the
outstanding capital stock or other ownership interest having general voting
power (under ordinary circumstances).
"Tangible Net Worth" - An amount equal to the total assets of any
Person (excluding (i) the total intangible assets of such Person and (ii) any
assets representing amounts due from any officer or employee of such Person or
from any Subsidiary of such Person) minus the total liabilities of such Person.
Total intangible assets shall be deemed to include, but shall not be limited to,
the excess of cost over book value of acquired businesses accounted for by the
purchase method, formulae, trademarks, trade names, patents, patent rights and
deferred expenses (including, but
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<PAGE> 30
not limited to, unamortized debt discount and expense, organizational expense,
capitalized software costs and experimental and development expenses).
Any defined term used in the plural preceded by the definite article
shall be taken to encompass all members of the relevant class. Any defined term
used in the singular preceded by "any" shall be taken to indicate any number of
the members of the relevant class.
This letter agreement is executed, as an instrument under seal, as of
the day and year first above written.
Very truly yours,
FLEXIINTERNATIONAL SOFTWARE, INC.
By /s/ Stefan Bothe
------------------------------
Name: Stefan Bothe
Title: CEO
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Thomas W. Davies
--------------------------------
Its Senior Vice President
By: /s/ [illegible]
--------------------------------
Its VP
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<PAGE> 31
DISCLOSURE SCHEDULE
Item 2.1(a) Jurisdictions in which Borrower is qualified;
Subsidiaries
Item 2.1(b) Stock ownership
Item 2.1(e) Litigation
Item 2.1(j) Location of Collateral; record owners of Premises
Item 4.1 Existing Indebtedness
Item 4.2 Existing Liens
Item 4.3 Existing Guaranties
Item 5.1(m) Permitted 50% stockholders
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<PAGE> 32
SCHEDULE 2.1(a)
JURISDICTIONS QUALIFIED; SUBSIDIARIES
The Company is duly qualified to do business as a foreign corporation
and is in good standing in the State of Connecticut, New Jersey and
Massachusetts and in every other jurisdiction in which the failure to so qualify
would have a material or adverse effect on the operations or financial condition
of the Company.
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<PAGE> 33
SCHEDULE 2.1(b)
LIST OF STOCKHOLDERS
<TABLE>
<CAPTION>
Number of Number of
Shares of Shares of
Number of Series A Series B
Common Preferred Preferred
Name Shares Stock Stock Series C
---- ------ ----- ----- --------
<S> <C> <C> <C> <C>
Bothe, Stefan, R. 1,455,000 --- --- ---
Cheng, Jennifer, V. 1,020,000 --- --- ---
Schenck, James, W. 1,566,666 --- --- ---
Kettaneh, Tarek 226,500* --- --- ---
Menlo Ventures VI, L.P. 32,868 1,724,138 88,889 914,066
Menlo Entrepreneurs Fund 493 25,862 13,333 13,711
VI, L.P.
Primus Capital Fund III 16,434 862,069 444,445 457,269
Limited Partnership
McManus, Christopher 150,000 172,414 --- ---
Tien, Mary 316,500 --- --- ---
Reisenberg, Lloyd, H. 4,500 --- --- ---
von Moeller, Andreas 37,500 --- --- ---
Seiffert, Frank 37,500 --- --- ---
Mitchell, Morgan 76,667 --- --- ---
Ongaro, Ronald M. 20,000 --- --- ---
Pavlov, John E. 5,000 --- --- ---
Homestead, Ltd. 30,000 --- --- ---
Shireman, Gregory 1,000 --- --- ---
Pazdziorny, Chester 500 --- --- ---
Wilkerson, Thomas 20,000 --- --- ---
Green-Hileman, Barbara 150 --- --- ---
</TABLE>
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<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
Morgan, Peter A. 30,000 --- --- ---
Kleinrock, Elliott 200 --- --- ---
Sawyer, Ken R. 20,000 --- --- ---
Comdisco, Inc. --- --- 125,000 ---
Furman Selz SBIC, L.P. --- --- --- 2,984,848
Amerindo Technology 200,000 --- --- ---
Growth Fund II, Inc.
Litton Master Trust 500,000 --- --- ---
Board of Pension 300,000 --- --- ---
Commissioners of City of Los
Angeles
Hambrecht & Quist Flexi 1,000,000 --- --- ---
Investors, L.P.
Leyerle, John F. and Patricia J. 220,000 --- --- ---
Eberle
Hedges, James 10,000 --- --- ---
Barlett, James W. 100,000 --- --- ---
Lau, P.H. 166,670 --- --- ---
Quinn, Terence, M. --- --- --- 45,455
Dockery, Michael A. 10,000 --- --- ---
Murner, Robert 1,000 --- --- ---
Audibert, Linda L. 180 --- --- ---
Landy, Marc 12,500 --- --- ---
Inglese, Victor 1,500 --- --- ---
JAFCO JS-2 Investment 28,520 --- --- ---
Enterprise Partnership
JAFCO R-2 Investment 24,813 --- --- ---
Enterprise Partnership
Japan Associated Finance Co., 13,334 --- --- ---
Ltd.
</TABLE>
-34-
<PAGE> 35
<TABLE>
<S> <C> <C> <C> <C>
U.S. Information Technology 266,666 --- --- ---
Investment Enterprise
Partnership
William Blair Capital Partners 16,872 --- 1,341,333 468,978
V, L.P.
</TABLE>
*The Company is currently of the view that Mr. Kettaneh is the holder only of
193,000 shares of Common Stock. Discussions between the Company and Mr.
Kettaneh concerning this issue are ongoing.
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<PAGE> 36
SCHEDULE 2.1(e)
LITIGATION
None.
-36-
<PAGE> 37
SCHEDULE 2.1(j)
LOCATION OF COLLATERAL; RECORD OWNER OF PREMISES
Collateral Location:
Two Enterprise Drive
Shelton, CT 06484
Record Owner:
Robert D. Scinto, Inc.
One Corporate Drive
Suite 100
Shelton, CT 06484
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<PAGE> 38
SCHEDULE 4.1
EXISTING INDEBTEDNESS
Connecticut Development Authority (second priority) security interest
in Collateral (as such term is defined in the Security Agreement, made as of the
1st day of August, 1995, by and between Flexilnternational Software, Inc. and
the Connecticut Development Authority) to secure the payment of a loan in the
amount of $750,000.
Agreement dated June 9, 1995 by and between Comdisco, Inc. and
Flexilnternational Software, Inc. for the purchase of certain equipment in the
amount of $112,859.83, which equipment was leased back to the company pursuant
to Equipment Schedule VL-2 dated as of May 23, 1995 to the Master Lease
Agreement dated as of June 28, 1994 between the parties.
Indebtedness to Leasing Technologies, Inc. of up to $1,000,000 for
equipment purchases.
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<PAGE> 39
SCHEDULE 4.2
EXISTING LIENS
1. In favor of Comdisco, Inc. for equipment.
2. In favor of Sanwa Leasing Corporation for equipment.
3. In favor of AT&T Capital Leasing for equipment.
4. In favor of Leasing Technologies, Inc. for equipment.
5. In favor of Connecticut Development Authority for accounts
(subordinated to lien in favor of Fleet National Bank).
6. In favor of IBM Credit Corporation for equipment.
-39-
<PAGE> 40
SCHEDULE 4.3
EXISTING GUARANTIES
None.
-40-
<PAGE> 41
SCHEDULE 5.1(a)
PERMITTED 50% STOCKHOLDERS
1. Stefan R. Bothe
2. Jennifer V. Cheng
3. James W. Schenck
4. Menlo Ventures VI, L.P.
5. Primus Capital Fund III Limited Partnership
6. William Blair Capital Partners V, L.P.
7. Furman Selz SBIC, L.P.
8. Hambrecht & Quist
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<PAGE> 1
ACCOUNTS RECEIVABLE SECURITY AGREEMENT
April 30, 1997
To secure the due payment and performance of all of the liabilities and
obligations hereunder of the undersigned, herein called "Borrower," to Fleet
National Bank, herein called "Bank," and all other liabilities and obligations
of Borrower to Bank of every name and nature whatsoever, direct or indirect,
absolute or contingent, now existing or hereafter arising or acquired,
including, without limitation, the due payment and performance of all
liabilities and obligations under any and all notes, all hereinafter called
"Obligations," the Borrower hereby grants to Bank a continuing security interest
in all accounts, contracts, contract rights, notes, bills, drafts, acceptances,
general intangibles, chooses in action, and all other debts, obligations and
liabilities, in whatever form, owing to Borrower from any person, firm or
corporation or any other legal entity, whether now existing or hereafter
arising, now or hereafter received by or belonging or owing to Borrower for
goods sold by it or for services rendered by it or however otherwise same may
have been established or created, all guarantees and securities therefor, all
right, title and interest of Borrower in the merchandise or services which gave
rise thereto including the rights of reclamation and stoppage in transit, all
rights of an unpaid seller of merchandise or services (all hereinafter called
"Collateral"), which term shall also include the other property described as
"Collateral" on the attached Rider and in the proceeds thereof, including,
without limitation, all proceeds of credit, fire or other insurance, and any tax
refunds.
If Borrower shall fail to pay, when due, any of the Obligations or shall
fail to observe or perform any of the provisions of this Agreement or any other
agreement now or hereafter entered into between Bank and Borrower, Borrower
shall be in default hereunder. In the event of such default, all Obligations of
Borrower to Bank shall, at the option of the Bank, and without notice to or
demand upon Borrower become and be immediately due and payable and thereupon
Bank may exercise, with respect to the Collateral, any and all rights and
remedies of a secured party available under the Uniform Commercial Code and all
other applicable law.
If in the event liquidation of the Collateral after default and
acceleration of the Obligations, the proceeds thereof are insufficient to pay
all amounts to which Bank is legally entitled, Borrower will be liable for the
deficiency, together with interest thereon and the reasonable fees of any
attorney employed by Bank to collect such deficiency.
Bank shall have the right to enforce any remedies hereunder alternatively,
successively or concurrently. A waiver of any default of Borrower shall not be a
waiver of any subsequent, similar or other default. No delay in the exercise of
any of Bank's rights or remedies hereunder shall constitute a waiver of such
right or remedy or of any other right or remedy.
<PAGE> 2
This Agreement shall not be construed to be in limitation of or in
substitution for any other grant of security interest from Borrower to Bank made
prior to or contemporaneously herewith, and no other such grant of a security
interest made prior to or contemporaneously herewith, and no other grant of a
security interest made subsequent to or contemporaneously herewith shall be
construed to be in limitation of or in substitution for this Agreement unless
expressly and specifically provided therein.
This Agreement shall take effect as a sealed instrument, shall be
construed according to the laws of the Commonwealth of Massachusetts, shall be
binding upon the heirs, executors, administrators, successors and assigns of
Borrower and shall inure to the benefit of the successors and assigns of Bank.
Witnessed by: FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan Bothe
- ------------------- -------------------------------
Address: Two Enterprise Drive
--------------------------
Shelton, CT 06404
----------------------------------
FLEET NATIONAL BANK
By: /s/ Thomas W. Davies
-----------------------
The Rider attached hereto is incorporated herein and made a part hereof.
<PAGE> 3
Rider to Accounts Receivable Security Agreement
dated April 30, 1997 (the "Security Agreement")
from FlexiInternational Software, Inc. (the "Borrower")
to Fleet National Bank (the "Bank")
The Borrower and the Bank agree as follows with respect to the foregoing
Security Agreement:
1. The "Obligations" described in and secured by the Security Agreement
include, without limitation, all of the obligations of the Borrower under the
letter agreement of even date herewith (the "Letter Agreement") between the Bank
and the Borrower, under the Revolving Note (as defined in the Letter Agreement)
and/or with respect to any letter of credit which may be issued by the Bank for
the account of the Borrower.
2. The "Collateral" subject to the Security Agreement includes (in
addition to and without limitation of the Collateral described on the face of
the Security Agreement) all of the Borrower's files, books and records
(including, without limitation, all electronically recorded data), all whether
now owned or existing or hereafter acquired, created or arising. The Borrower
hereby grants to the Bank a security interest in all such Collateral in order to
secure the full and prompt payment and performance of all of the Obligations.
3. In addition to any other rights and remedies provided for in the
foregoing Security Agreement, upon the occurrence and during the continuance of
any monetary default with respect to any of the Obligations, the Bank may, at
any time, notify account debtors that the Collateral has been assigned to the
Bank and that payments by such account debtors shall be made directly to the
Bank. Upon the occurrence and during the continuance of any such monetary
default, the Bank may collect the Borrower's accounts receivable, or any of
same, directly from account debtors and may charge the collection costs and
expenses to the Borrower.
<PAGE> 1
PROMISSORY NOTE
$2,000,000.00 Boston, Massachusetts
April 30, 1997
FOR VALUE RECEIVED, the undersigned FlexiInternational Software, Inc., a
Delaware corporation (the "Borrower") hereby promises to pay to the order of
FLEET NATIONAL BANK (the "Bank") the principal amount of Two Million and 00/100
($2,000,000.00) Dollars or such portion thereof as may be advanced by the Bank
pursuant to Section 1.2 of that certain letter agreement of even date herewith
between the Bank and the Borrower (the "Letter Agreement") and remains
outstanding from time to time hereunder ("Principal"), with interest, at the
rate hereinafter set forth, on the daily balance of all unpaid Principal, from
the date hereof until payment in full of all Principal and interest hereunder.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty-five
(365) days for the actual number of days elapsed) which shall at all times be
equal to the sum of (i) one-half of one (0.5%) percent plus (ii) the Prime Rate
as in effect from time to time (but in no event in excess of the maximum rate
permitted by then applicable law). A change in the aforesaid rate of interest
shall become effective on the same day on which any change in the Prime Rate is
effective. Overdue Principal and, to the extent permitted by law, overdue
interest shall bear interest at a fluctuating rate per annum which at all times
shall be equal to the sum of (i) two (2%) percent per annum plus (ii) the per
annum rate otherwise payable under this note (but in no event in excess of the
maximum rate permitted by then applicable law), compounded monthly and payable
on demand. As used herein, "Prime Rate" means that rate of interest per annum
announced by the Bank from time to time as its prime rate, it being understood
that such rate is merely a reference rate, not necessarily the lowest, which
serves as the basis upon which effective rates of interest are calculated for
obligations making reference thereto. If the entire amount of any required
Principal and/or interest is not paid within ten (10) days after the same is
due, the Borrower shall pay to the Bank a late fee equal to five percent (5%) of
the required payment.
All outstanding Principal and all interest accrued thereon shall be due
and payable in full on the first to occur of: (i) an acceleration under Section
5.2 of the Letter Agreement or (ii) June 1, 1998. The Borrower may at any time
and from time to time prepay all or any portion of said Principal, without
premium or penalty. Under certain circumstances set forth in the Letter
Agreement, prepayments of Principal may be required.
<PAGE> 2
Payments of both Principal and interest shall be made, in immediately
available funds, at the office of the Bank located at 75 State Street, Boston,
Massachusetts 02109, or at such other address as the Bank may from time to time
designate.
The undersigned Borrower irrevocably authorizes the Bank to make or cause
to be made, on a schedule attached to this note or on the books of the Bank, at
or following the time of making any Revolving Loan (as defined in the Letter
Agreement) and of receiving any payment of Principal, an appropriate notation
reflecting such transaction and the then aggregate unpaid balance of Principal.
Failure of the Bank to make any such notation shall not, however, affect any
obligation of the Borrower hereunder or under the Letter Agreement. The unpaid
Principal amount of this note, as recorded by the Bank from time to time on such
schedule or on such books, shall constitute presumptive evidence of the
aggregate unpaid principal amount of the Revolving Loans.
The Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is the Revolving Note referred to in the Letter Agreement. This
note is secured by, and is entitled to the benefit of, the Security Agreement
(as defined in the Letter Agreement). This note is subject to prepayment as set
forth in the Letter Agreement. The maturity of this note may be accelerated upon
the occurrence of an Event of Default, as provided in the Letter Agreement.
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE SEAL FLEXIINTERNATIONAL SOFTWARE, INC.
ATTEST:
By /s/ Stefan Bothe
- ------------------------- ---------------------------
Secretary Name: Stefan Bothe
Title: CEO
-2-
<PAGE> 1
SUBORDINATION AGREEMENT
This Subordination Agreement is made as of the 30th day of April, 1997 by
and between the Connecticut Development Authority (the "Subordinated Creditor")
and Fleet National Bank (the Bank").
WHEREAS, the Bank wishes to enter into certain financing arrangements with
FlexiInternational Software, Inc., a Delaware corporation (the "Borrower"),
pursuant to which the Bank may make loans to the Borrower and may make other
extensions of credit to the Borrower as described in that certain letter
agreement dated April 30, 1997 (as same may be from time to time amended, the
"Loan Agreement") between the Bank and the Borrower; and
WHEREAS, the Subordinated Creditor is the holder of a $750,000 original
principal amount Convertible Promissory Note dated August 1, 1995 (the
"Subordinated Note") issued by the Borrower and payable to the Subordinated
Creditor as provided in that certain Loan Agreement (the "Subordinated Loan
Agreement") dated as of August 1, 1995 between the Borrower and the Subordinated
Creditor and secured by that certain Security Agreement dated of August 1, 1995
(the "Subordinated Security Agreement") from the Borrower to the Subordinated
Creditor (all of the obligations and indebtedness represented and/or secured by
said Subordinated Note, said Subordinated Loan Agreement and/or said
Subordinated Security Agreement, as same may be from time to time amended,
supplemented or extended, including, without limitation, all principal,
interest, fees and charges, being hereinafter referred to as the "Subordinated
Debt"); and
WHEREAS, the Bank requires that the Subordinated Creditor enter into this
Subordination Agreement as a condition precedent to the Bank's loans to the
Borrower;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby act and
agree as follows:
1. The Subordinated Creditor agrees that the payment of all of the
Subordinated Debt is expressly subordinated, in the manner hereinafter set
forth, in right of payment to. the prior payment and satisfaction in full of the
Senior Debt. As used herein, "Senior Debt" means (i) the principal, interest,
fees and other sums payable from time to time to the Bank under the Loan
Agreement and/or under the Revolving Note (as defined in the Loan Agreement),
each as same may be from time to time amended, including, without limitation,
obligations of the Borrower to the Bank in respect of letters of credit which
may be issued by the Bank for the account of the Borrower, and (ii) any and all
other indebtedness or liabilities of the Borrower to the Bank resulting from any
other or additional credit hereafter extended by the Bank to or for the benefit
of the Borrower. Interest, fees and charges constituting Senior Debt will be
calculated as provided for in the notes and other instruments governing same and
without regard to
<PAGE> 2
whether or not same are allowable in any bankruptcy or insolvency proceeding
involving the Borrower.
2. (a) So long as all or any part of the Senior Debt shall be unpaid or
any facility for loans or other extensions of credit by the Bank to or for the
benefit of the Borrower shall remain in effect, no payment of or with respect to
any Subordinated Debt shall be made at any time by the Borrower or received by
the Subordinated Creditor without the prior written consent of the Bank, except
as expressly provided below in this Section 2. If the Subordinated Creditor
receives any payment to which the Subordinated Creditor shall not be entitled
under this Section 2, the Subordinated Creditor will hold any such payment in
trust for the benefit of the Bank and, upon demand, will forthwith remit same to
the Bank.
(b) Notwithstanding the provisions of Subsection 2(a) of this
Subordination Agreement, at any time when neither a Payment Default Standstill
Period nor a Financial Covenant Default Standstill Period is in effect, the
Borrower may pay, and the Subordinated Creditor may receive and retain for its
own account, (i) current payments of interest on the Subordinated Note at the
non-default rate provided for therein, and (ii) regular monthly principal
amortization installment payments as provided in the Subordinated Note, but not
any prepayment thereof nor any payment upon acceleration without prior written
consent of the Bank to each such prepayment or payment.
(c) As used in this Section 2, a "Payment Default Standstill Period" will
be deemed to be in effect during any period commencing with the date on which
the Borrower fails to pay any principal of and/or interest then due on any
Revolving Loan (as defined in the Loan Agreement) (such failure to pay being
hereinafter referred to as a "Payment Default") and ending only upon payment in
full of the Senior Debt in cash.
(d) As used in this Section 2, a "Financial Covenant Default Standstill
Period" will be deemed to be in effect:
(i) during any period commencing with the giving of any Financial
Covenant Default Notice by the Bank to the Subordinated Creditor and
ending on the 180th day thereafter (subject to extension as hereinafter
provided), unless (A) the Bank shall have accelerated any of the Senior
Debt prior to such 180th day (in which case a Payment Default will be
deemed to have resulted from such acceleration and a Payment Default
Standstill Period will be deemed to have occurred, commencing on the date
of such Payment Default) or (B) judicial proceedings regarding enforcement
of rights of the Bank shall have been commenced prior to such 180th day
and/or other proceedings (judicial or non-judicial) relating to
realization on collateral shall have been commenced prior to such 180th
day; or
-2-
<PAGE> 3
(ii) during any period commencing with the commencement of any
judicial proceeding and/or other proceedings (judicial or non-judicial) as
described in clause (i) above and ending only upon payment in full of the
Senior Debt in cash.
If at any time during a Financial Covenant Default Standstill Period existing
pursuant to clause (i) above, the Bank shall be restrained, prohibited or
ordered by a court of competent jurisdiction or governmental agency asserting
jurisdiction (or prohibited or prevented by any relevant law, rule or statute)
from accelerating the Senior Debt or any of same or from commencing the judicial
or non-judicial proceedings described in clause (i) above, the Financial
Covenant Default Standstill Period shall be extended until the later of: (A) the
date upon which it would have otherwise expired pursuant to the terms of clauses
(i) and (ii) above, or (B) the 30th day following the last day on which the Bank
is so restrained, prohibited, ordered or prevented. As used herein, a "Financial
Covenant Default Notice" is a written notice given by the Bank to the
Subordinated Creditor, at its address set forth below, stating that an Event of
Default (as defined in the Loan Agreement) has occurred under any of Sections
3.7, 3.8 and/or 3.9 of the Loan Agreement and is then continuing or would result
from any proposed payment in respect of Subordinated Debt, with compliance with
each of Sections 3.7 and 3.9 of the Loan Agreement being determined for this
purpose both as at the Borrower's most recent fiscal quarter-end and on a pro
forma basis at the date of each such proposed payment, even if not a fiscal
quarter-end.
(e) Nothing contained herein will be deemed to prevent the Subordinated
Creditor from converting the Subordinated Note into Common Stock of the Borrower
in accordance with the terms of the Subordinated Note.
3. The Subordinated Creditor agrees to execute and deliver all such
Uniform Commercial Code subordination statements as the Bank may reasonably
request in order to evidence the subordination contained herein. The
Subordinated Creditor agrees not to commence foreclosure proceedings against any
collateral for the Subordinated Debt unless the Bank has already commenced
foreclosure proceedings against the same collateral or (if earlier) that date on
which no Payment Default Standstill Period nor any Financial Covenant Default
Standstill Period then remains in effect and in any event after the Subordinated
Creditor has given the Bank not less than 60 days' prior written notice of its
intent so to proceed in any event, the Subordinated Creditor will turn over to
the Bank all proceeds of any foreclosure against collateral for the Subordinated
Debt, such proceeds to be applied against the Senior Debt until same shall have
been paid in full.
4. In the event of an acceleration of any Senior Debt or the failure to
pay any Senior Debt at maturity, or in the event of any foreclosure by the Bank
with respect to any Collateral (as defined in the Loan Agreement), or in the
event of a distribution of the assets, dissolution, winding-up, liquidation or
reorganization of the Borrower
-3-
<PAGE> 4
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise):
(a) The Senior Debt shall be paid and satisfied in full in cash
before the Subordinated Creditor is entitled to receive any payment on account
of Subordinated Debt, and any payment or distribution to which any holder of
Subordinated Debt would otherwise be entitled on account of its Subordinated
Debt, but for the subordination provisions of this Agreement, shall be paid
directly to the Bank.
(b) In the event that any such payment on account of Subordinated
Debt or distribution of assets of the Borrower shall be received by the
Subordinated Creditor in violation of the subordination provisions of this
Agreement, such payment or distribution shall be held by the Subordinated
Creditor in trust for the benefit of the Bank and, upon demand, shall be paid
over forthwith to the Bank.
5. The Subordinated Creditor irrevocably authorizes and directs the Bank
and its successors and assigns and any trustee in bankruptcy, receiver or
assignee for the benefit of creditors of the Borrower, whether in voluntary or
involuntary liquidation, dissolution or reorganization, to take such action in
the name of the Subordinated Creditor as the Bank may deem to be necessary or
appropriate to effectuate the subordination provided for in this Agreement and
to file all such claims and proofs of claim as the Bank may deem necessary or
appropriate to collect on the Subordinated Debt or any of same; and the
Subordinated Creditor hereby irrevocably appoints the Bank and its successors
and assigns, acting severally, or any such trustee, receiver or assignee, as the
attorney- or attorneys-in-fact of the Subordinated Creditor for such purpose,
with full powers of substitution and resubstitution. The Subordinated Creditor
further appoints the Bank as its attorney-in-fact for the purpose of voting with
respect to any plan proposed in any reorganization, arrangement or composition
proceedings for the Borrower or any Guarantor. The powers of attorney granted
herein are powers coupled with an interest and are, therefore, irrevocable.
6. The terms of this Agreement, the subordination effected hereby and the
rights of the holder or holders of Senior Debt shall not be affected by: (i) any
amendment of or addition or supplement to the Loan Agreement, the Revolving Note
or any other instrument or agreement relating to the Senior Debt or securing or
guaranteeing any of the Senior Debt, (ii) any exercise or non-exercise of any
right, power or remedy under or in respect of the Senior Debt or any instrument
or agreement relating thereto, or securing or guaranteeing any of same, or (iii)
any waiver, consent, release, indulgence, extension, renewal, modification,
delay or other action, inaction or omission in respect of any Senior Debt or any
instrument or agreement relating thereto, or securing or guaranteeing any of
same, all whether or not the holders of the Subordinated Debt shall have had
notice or knowledge of any of the foregoing.
-4-
<PAGE> 5
7. As long as any of the Senior Debt shall be outstanding or any agreement
by the Bank as to the advance of funds or other extension of credit to the
Borrower shall be in effect:
(a) No note or instrument evidencing any Subordinated Debt shall be
amended, terminated or otherwise affected without the prior written consent of
the Bank.
(b) The Subordinated Creditor will neither demand nor receive any
payment of any of the Subordinated Debt, under the Subordinated Note or
otherwise, except payments expressly permitted under Section 2 above.
(c) The Subordinated Creditor will neither demand nor accept any
collateral for any of the Subordinated Debt unless the Bank has and maintains a
fully perfected first priority security interest in all such collateral. The
Bank consents to the grant of collateral contained in the Subordinated Security
Agreement provided that the Bank has a fully perfected security interest in all
such collateral prior in right to the interest of the Subordinated Creditor.
8. Unless and until the Senior Debt has been indefeasibly paid in full in
cash and no commitment exists on the part of the Bank to make any loan or
provide any extension of credit to or for the benefit of the Borrower, the
Subordinated Creditor shall not be entitled to any right of subrogation,
contribution or similar right, regardless of any payment made hereunder.
9. This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
10. The Subordinated Note and each other promissory note now or hereafter
evidencing any of the Subordinated Debt shall be marked with the following
legend:
"Payment of this note is subject to the terms and conditions of a
Subordination Agreement dated April 30, 1997 between the payee and Fleet
National Bank. A copy of said Subordination Agreement may be obtained,
upon written request of any holder of this note, from Fleet National Bank,
75 State Street, Boston, MA 02109."
11. Nothing contained in this Agreement or otherwise (including, without
limitation, any right of subrogation, contribution or similar rights now or
hereafter held by the Subordinated Creditor) will in any event be deemed to
constitute any holder of Senior Debt the agent of the Subordinated Creditor for
any purpose nor to create any fiduciary relationship between any such holder of
Senior Debt and the Subordinated Creditor. The Subordinated Creditor
acknowledges and agrees that, notwithstanding any subrogation, contribution or
similar rights or any other right which the Subordinated
-5-
<PAGE> 6
Creditor may now or hereafter have, due to payment of the Senior Debt or
otherwise, no release, action or inaction with respect to any collateral for
Senior Debt; nor any amendment to the Loan Agreement, the Revolving Note or any
instrument or agreement relating to, securing or guaranteeing any of the Senior
Debt; nor any exercise or non-exercise of any right, power or remedy under or in
respect of any of the Senior Debt or any instrument or agreement relating to,
securing or guaranteeing any of the Senior Debt; nor any waiver, consent,
release, indulgence, extension, renewal, modification, delay or other action,
inaction or omission (intentional or unintentional) in respect of any of the
Senior Debt or any collateral therefor or any instrument or agreement relating
to, securing or guaranteeing any of the Senior Debt will in any event give rise
to any claim against any holder of Senior Debt or any officer, director,
employee or agent of such holder, and the Bank shall be free, in its sole
discretion, to do or refrain from doing any of the foregoing, even if the result
would be to reduce or eliminate the value of any subrogation, contribution or
similar rights.
12. This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
-6-
<PAGE> 7
Executed, as an instrument under seal, as of the day and year first above
written.
SUBORDINATED CREDITOR;
CONNECTICUT DEVELOPMENT
AUTHORITY
By: /s/ Karin Lawrence
----------------------------
Name: Karin Lawrence
Title: Vice President - Investment
Finance
Address: 845 Brook Street
Rock Hill, CT 06067
Accepted:
FLEET NATIONAL BANK
By: /s/ Thomas W. Davies
---------------------
Name: Thomas W. Davies
Title: Senior Vice President
Acknowledged and agreed to:
FlexiInternational Software, Inc.
By: /s/ Jennifer V. Cheng
------------------------
Name: Jennifer V. Cheng
Title: President
-7-
<PAGE> 1
STANDARD SUBLEASE AGREEMENT
(SYMANTEC CORPORATION)
This Sublease Agreement (the "Sublease" or "Agreement") is dated and to be
effective as of February 7, 1996, by and between SYMANTEC CORPORATION, a
Delaware corporation ("Sublessor"), and FlexiInternational Software, Inc., a
Delaware corporation ("Sublessee"), with reference to the following recitals:
R E C I T A L S
WHEREAS, Sublessor previously entered into a Lease Agreement dated June 6, 1994
(the "Lease") by and between Sublessor as the Tenant thereunder, and Robert D.
Scinto, as the Landlord thereunder ("Landlord"), pursuant to which Landlord
leased to Sublessor, and Sublessor leased from Landlord, certain premises
located at 2 ENTERPRISE DRIVE in the City of SHELTON, State of CONNECTICUT,
consisting of approximately 21,338 square feet of general office space, as such
space is more particularly described in the Lease (the "Premises"), such Lease
being attached hereto as Exhibit A and incorporated herein by this reference,
with a floor plan as more particularly set forth on Exhibit B, attached hereto
and incorporated herein by this reference; and
WHEREAS, Sublessee desires to sublease the Premise from Sublessor, and Sublessor
(subject to Landlords consent) is willing to sublease the same to Sublessee, on
the terms and conditions set forth herein;
A G R E E M E N T
NOW, THEREFORE, on the basis of the foregoing recitals, and in consideration of
the covenants, conditions, and other agreements contained herein, and for other
valuable consideration, the receipt and sufficiency of which is hereby mutually
acknowledged, the parties hereto agree as follows:
1. AGREEMENT TO SUBLEASE PREMISES/TERM.
a. Sublessor hereby subleases the Premises to Sublessee at the rental and
upon all the terms and conditions set forth herein, and Sublessee hereby hires
the same from Sublessor, and agrees to pay such rental and perform such terms
and conditions. The term of this Sublease shall commence no later than thirty
(30) days after approval of this Sublease by Landlord (the "Commencement Date")
and, irrespective of the actual commencement date or any delay in the same,
expire on June 30, 1998 (such period hereinafter referred to as the "Term"),
unless sooner terminated pursuant to any term hereof. Notwithstanding the
foregoing, Sublessee shall be permitted to move furniture into the Premises
prior to the Commencement Date without triggering the Commencement Date,
provided, however, that as a condition thereto, Sublessee hereby agrees to
indemnify, protect, defend and hold Sublessor harmless from and against any and
all costs, claims, liability, or damages
<PAGE> 2
caused by any act or omission of Sublessor which result from the same. Provided
that Sublessee executes and Early Entry Agreement in the form reasonably
required by Sublessor, Sublessee shall be permitted, subject to such Early Entry
Agreement, to enter the Premises to move in and construct its buildout within
the same prior to the Commencement Date,
b. Notwithstanding said Commencement Date, if for any reason Sublessor
cannot deliver possession of the Premises to Sublessee on said date, Sublessor
shall not be subject to any liability therefore, nor shall such failure affect
the validity of this Sublease or the obligations of Sublessee hereunder or
extend the term hereof, but in such case Sublessee shall not be obligated to pay
rent until possession of the Premises is tendered to Sublessee, provided,
however, that if Sublessor shall not have delivered possession of the Premises
within sixty days from said Commencement Date, Sublessee may, at Sublessee's
option, by notice in writing to Sublessor within ten (10) days thereafter,
cancel this Sublease, in which event the parties shall be discharged from all
obligations herein. If Sublessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all the terms and
provisions hereof, and shall not advance the termination date and Sublessee
shall pay rent for such period at the initial monthly rates set forth in Section
2 below.
2. RENT. Sublessee hereby agrees to pay to Landlord equal monthly payments in
the amount of SIXTEEN THOUSAND, FOUR HUNDRED AND FORTY-EIGHT DOLLARS AND 04/100
($16,448.04), in advance, on the first day of each and every month during the
Term (such amount to be prorated on a per diem basis for any partial month),
provided, however, that all of such payments shall be made directly to Sublessor
unless otherwise notified by the Landlord in writing. No adjustment to Rent
shall be made if the estimate of the square feet of the Premises set forth above
is inaccurate in any respect. Except as otherwise expressly provided for herein
with regard to Sublessee's obligation to pay for monthly electrical costs,
Sublessee shall not be obligated to pay any other recurring Rent or Additional
Rent required under the Lease, provided, however, that Sublessee shall be liable
for, and shall pay to Sublessor at the time and in the manner required under the
Lease, any costs or expenses billed to Sublessor by Landlord which were caused
or specially ordered or incurred by Sublessee (e.g., payments for damage to the
Building, excess or after hours utility charges), whether or not classified as
Additional Rent, including, without limitation, those costs that arise as a
result of Sublessee's breach or default. Sublessee also agrees to pay the cost
of any telephone service provided to the Premises and other services not
available through the Landlord, directly to the party supplying such service.
Sublessee agrees to directly contract for and pay the same when due. Rent shall
be payable in lawful money of the United States to Sublessor at the address
stated herein, or to such other persons or at such other places as Sublessor may
designate in writing.
-2-
<PAGE> 3
FREE RENT/SPECIAL RENT PROVISIONS: Notwithstanding any other term or
provision herein, Rent for the first 31 days of the Term shall be abated for the
duration of the Term and, provided that Sublessee timely performs all of its
obligations set forth herein and in the Lease and is not otherwise in default
hereunder or thereunder at the expiration of the Term, shall not be obligated to
pay the same. Upon the event of any material default of Sublessee hereunder or
under the Lease not cured within any applicable cure period, and without
limiting any other right or remedy of Sublessor hereunder, Sublessee shall
become immediately obligated to pay the same.
In addition to the Rent required under this Sublease, Sublessee hereby
agrees to pay to Sublessor the amount due for all electrical charges for the
Premises as assessed by the Landlord under the Lease. Until further notice, such
amount shall be $2222.71 per month. This foregoing sentence shall not apply to
the electrical charges for the first month, which shall be abated for such month
to the extent the cost therefor is no more that the average electrical cost
previously paid by Sublessor.
3. ADVANCE RENT/SECURITY DEPOSIT. Upon the execution of this Sublease by
Sublessee, Sublessee shall deposit with Sublessor, the amount of $16,448.04 to
be held by Sublessor as a security deposit (the "Security Deposit"), which will
be applied or returned as more particularly set forth below. On or before the
Commencement Date, Sublessee shall deposit with Sublessor the amount of
$16,448.04 which shall be held by Sublessor and applied to the second month's
rent. in addition to the foregoing, six months from the Commencement Date, upon
30 days prior written notice from Sublessor, Sublessee shall deposit with
Sublessor the amount of $16,448.04 which shall be held by Sublessor and applied
to the last month's rent, provided, however, that in the event of a material
default hereunder which is not cured within any applicable time period,
Sublessor shall be permitted to apply such amount to the same matters which are
covered by the Security Deposit.
4. USE.
a. The Premises shall be used and occupied only for office use and for no
other purposes.
b. Without limitation the application of any other or similar term or
provision in the Lease, Sublessee agrees that it has thoroughly inspected the
Premises and agrees that the Premises shall be delivered to Sublessee vacant and
in "as is" condition, subject to applicable zoning, municipal, county and state
laws, ordinances, and regulations governing and regulating the use of the
Premises, and Sublessee accepts this Sublease subject thereto and all other
matters disclosed thereby and by any exhibits attached hereto. Sublessee hereby
acknowledges and agrees that neither Sublessor nor any agent thereof or broker
therefor, prior to or in connection with Sublessee entering into this Sublease,
made any promise, representation or warranty
-3-
<PAGE> 4
about the physical condition of the Premises, the building which the Premises is
a part of (the "Building"), the land on which it is built, or the suitability of
the Premises for the conduct of Sublessee's business, and that Sublessee did not
rely on anything said by Sublessor, Sublessor's agent or any broker of Sublessor
in connection with the same. Sublessee agrees that Sublessor shall have no
obligation to construct any improvements or do any other work in the Premises
other than is expressly set forth herein.
NOTWITHSTANDING THE FOREGOING, Sublessor hereby agrees (1) to clean and
shampoo the carpeting at its own cost and expense prior to the Commencement
Date, and (2) to provide a person to assist Sublessee for up to but no more than
two hours on-site in identifying voice cable or wiring in the Premises (also at
no expense to Sublessee).
c. Without limitation the application of any other or similar term or
provision in the Lease, Sublessee shall, at Sublessee's expense, comply with all
applicable statutes, ordinances, rules, regulations, orders, restrictions of
record, and requirements in effect during the Term or any part of the Term
hereof regulating the use by Sublessee of the Premises. Sublessee shall not use
or permit the use of the Premises in any manner that will tend to create waste
or a nuisance or which shall tend to disturb such any other tenants in the
building where the Premises are contained.
5. INCORPORATION AND ASSUMPTION OF LEASE.
a. The terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the Lease except for those provisions of the Lease which are directly
contradicted by this Sublease, in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the Lease the word "Landlord" is used, it shall be
deemed to mean Sublessor, and wherever in the Lease the word "Tenant" is used,
it shall be deemed to mean Sublessee herein. Sublessee covenants and agrees (i)
that this Sublease is subordinate to and subject to the terms and provisions of
the Lease, (ii) to perform and comply with (and Sublessee hereby expressly
assumes) for the benefit of Sublessor and Master Lessor, all of the obligations
of the Tenant therein (the "Assumed Obligations"), except as expressly
contradicted herein, and (iii) to not otherwise act or fail to act in a way
which would constitute a breach or default of the Lease. Sublessee agrees to the
extent the Lease grants a right to the Landlord (e.g., the right to consent to
assignments, the right to enter the Premises for purposes of inspection, etc.),
such right shall belong to both Landlord and Sublessor separately, and both
parties shall have the right to exercise the same in each and every instance
under the terms set forth in the Lease, unless such terms are otherwise modified
hereunder, in which event, the modified terms shall apply to Sublessor and the
Lease terms shall apply to
-4-
<PAGE> 5
Landlord. Sublessee hereby acknowledges receipt of a copy off the Lease and
complete review prior to execution of this Agreement. Sublessee hereby agrees to
indemnify, protect, defend and hold Sublessor harmless of and from any and all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform the
Assumed Obligations. Notwithstanding the foregoing, (a) Sublessor and Sublessee
hereby expressly agree that Sections 4.01, 4.02, 6.01 and the last sentence of
Section 7.03 are not incorporated into this Sublease and Sublessee shall not be
obligated to perform the same, and (b) Sublessor hereby agrees to promptly
provide to Sublessee and notice of default Sublessor receives from Landlord in
connection with the Lease.
b. Provided it is at no cost to Sublessor, Sublessor hereby agrees to use
reasonable efforts to cooperate with Sublessee to enforce for the benefit of
Sublessee in accordance with the provisions of the Lease, the obligations of
Landlord under the Lease, with the intent that the benefit of such covenants
(unless excluded or modified hereunder) shall extend to the Premises and be
enjoyed by Sublessee during the Term; provided, however, that Sublessor shall
have no duty to perform any obligations of the Landlord and shall not be liable
to Sublessee for any default, failure, or delay of Landlord in the performance
of any of Landlord's obligations under the Lease.
6. LIMITATIONS OF INCORPORATION. Notwithstanding the foregoing incorporation of
the Lease, in no event shall Sublessee be entitled to receive the benefit of or
exercise any right or option granted to Sublessor as Tenant under the Lease
which would in any way expand or materially affect the obligations of Sublessor
as the actual Tenant or Sublessee as the effective Tenant under the Lease,
including, without limitation, any right to purchase the Premises, any right to
expand the size of the Premises, any right to renew, extend, limit, shorten or
cancel the term of the Lease, any right of first refusal to rent additional
premises, any right to any rental abatements and/or tenant improvement
allowances, or any similar or other right or provision.
7. INSURANCE. Sublessee agrees to take out and keep in force during the Term
such insurance in respect of the Premises as would be obtained by a prudent
tenant of such office premises in the Building and as such, Sublessee shall, at
a minimum, comply with the obligations of Sublessor as Tenant under the Lease
and shall be subject to the same obligations and limitations of liability with
respect to damage, loss or injury as are set out in the Lease. In addition to
any obligations regarding insurance in the Lease, Sublessee shall cause Landlord
and Sublessor to appear as named insureds on any insurance taken out and kept in
force by Sublessee in respect of the Premises and, in this regard, Sublessee
shall provide to Sublessor prior to commencement of the Lease Term, certificates
of insurance evidencing the interests of Sublessor, as such interest may appear.
Such insurance shall contain a clause which states that the insurer will not
cancel or change the insurance without first giving Sublessor fifteen days prior
written notice.
-5-
<PAGE> 6
8. COMPLIANCE WITH LAWS. In addition to any similar obligations in the Lease,
with respect to Sublessee's use of the Premises, Sublessee shall at all times,
at its own cost and expense, comply with all laws, ordinances, regulations and
standards, including without limitation, those relating to the use, analysis,
production, storage, sale, disposal or transportation of any hazardous materials
("Hazardous Substance Laws"), including oil or petroleum products or their
derivatives, solvents, PCB's, explosive substances, asbestos, radioactive
materials or waste, and any other toxic, ignitable, reactive, corrosive,
contaminating or pollution materials ("hazardous substances") which are now or
in the future subject to any governmental regulation.
9. INDEMNIFICATIONS. Without limiting any indemnity or similar obligation set
forth in the Lease as it applies to Sublessee, and to the extent any of the
following are caused by any action or inaction of Sublessee, or Sublessee is
otherwise responsible therefore, Sublessee agrees to indemnify, protect, defend
with counsel reasonably acceptable to Sublessor, and hold Sublessor free and
harmless from any and all liabilities, damages, claims, penalties, fines,
settlements, causes of action, costs or expenses, including reasonable
attorneys' fees, resulting from or attributable to: (a) the presence, disposal,
reliance or threatened release of any hazardous substance that is on, from or
affecting the Premises; (b) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or relating to the hazardous
substance; (c) any lawsuits or administrative order relating to the hazardous
substance; or any violation of any laws applicable to the hazardous substance;
(d) any breach by Sublessee of this Agreement or the Lease; and (e) any matter
for which Sublessor is obligated to indemnify, protect, defend or hold Landlord
harmless under the Lease, and (f) any liability of Sublessor to Landlord for any
actions, damages, destruction, losses, costs of repair, or other expenses due
pursuant to or in connection with the Lease (except those amounts which
Sublessee is expressly not obligated to pay hereunder). No indemnity herein is
intended to limit any other indemnity which may apply to the parties hereto by
application of the Lease to the same.
Without limiting any of the obligations of Sublessor, and to the extent any of
the following are caused by any action or inaction of Sublessor, Sublessor
agrees to indemnify, protect, defend with counsel reasonably acceptable to
Sublessee, and hold Sublessee free and harmless from any and all liabilities,
damages, claims, penalties, fines, settlements, causes of action, costs or
expenses, including reasonable attorneys' fees, resulting from or attributable
to: (a) the presence, disposal, reliance or threatened release of any hazardous
substance that is on, from or affecting the Premises; (b) any personal injury
(including wrongful death) or property damage (real or personal) arising out of
or relating to the hazardous substance; (c) any lawsuits or administrative order
relating to the hazardous substance; or any violation of any laws applicable to
the hazardous substance; and (d) any breach by Sublessor of this Agreement.
-6-
<PAGE> 7
10. DEFAULT, SUBLESSOR'S REMEDIES ON DEFAULT AND TERMINATION OF SUBLEASE. The
provisions of Article 13 are hereby incorporated into this Sublease, the
appropriate changes of reference being deemed to have been made with the intent
that such provisions shall govern the relationship between Sublessor and
Sublessee in respect of such matters.
11. CONDITION UPON EXPIRATION. Upon the expiration of the Term hereof, Sublessee
shall remove all of Sublessee's property and return the Premises to base
building standard, broom clean, reasonable wear and tear excepted, provided,
however, that Sublessee shall not be responsible for any changes made by
Sublessor or required to remove any Sublessor or Sublessee improvements which
the Landlord approves and delivers written notice to Sublessor that such
improvements need not be removed upon Lease termination. Without limiting
Sublessee's obligations set forth in the foregoing sentence, and notwithstanding
any other term or provision hereof, Sublessee agrees to provide Sublessor
reasonable access to the Premises for the last thirty (30) days of the Lease
term, and otherwise to reasonably cooperate with Sublessor during such thirty
(30) days (providing it is at no cost to Sublessee), in restoring the Premises
to the manner required by Landlord under the Lease. Sublessor agrees to use its
reasonable good faith efforts to minimize the interference with Sublessee's
operations during said period.
12. SECURITY DEPOSIT. Sublessor and Sublessee hereby agree that the Security
Deposit is security for Sublessee's faithful performance of Sublessee's
obligations under this Sublease. If Sublessee fails to pay rent or other charges
due hereunder, or otherwise defaults with respect to any provisions of this
Sublease, Sublessor may use, apply or retain all or any portion of said Security
Deposit, as applicable, for the payment of any Rent or other charge in default
or for the payment of any other sum to which Sublessor may become obligated by
reason of Sublessee's default, or to compensate Sublessor for any loss or damage
which Sublessor may suffer thereby. If Sublessor so uses or applies all or any
portion of said Security Deposit, Sublessee shall within ten (10) days after
written demand therefore deposit cash with Sublessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Sublessee's
failure to do so shall be a material breach of this Sublease. Sublessor shall
not be required to keep said deposit separate from its general accounts. If
Sublessee performs all of Sublessee's obligations hereunder, said deposit, or so
much thereof as had not theretofore been applied by Sublessor, shall be
returned, without payment of interest or other increment for its use to
Sublessee (or at Sublessor's option, to the last assignee, if any, of
Sublessee's interest hereunder) at the expiration of the term hereof, and after
Sublessee has vacated the Premises. No trust relationship is created herein
between Sublessor and Sublessee with respect to said Security Deposit.
13. NO WAIVER OF LEASE PROVISIONS/TERMINATION. Only a written agreement between
Sublessee an Sublessor can waive any violation of this Sublease. Any
-7-
<PAGE> 8
agreement to end this Sublease and also to end the rights and obligations of
Sublessee and Sublessor must be in writing and signed by Sublessee and
Sublessor. Even if Sublessee gives keys to the Premises and they are accepted by
any employee, or agent, of Sublessor, this Sublease is not ended.
14. FINANCIAL AND BACKGROUND INFORMATION. Sublessee hereby represents and
warrants to Sublessor that all of the financial and other information provided
to Sublessor by Sublessee or its broker or agent in connection with this
transaction is true and correct in all material respects as of the date provided
and as of the date this Agreement is executed.
15. NOTICES. The provisions of the Lease shall apply with regard to notices to
be given hereunder. The address of the parties for the purpose of giving any
such notice shall be:
Sublessor: with a copy to:
Symantec Corporation Symantec Corporation
10201 Torre Avenue 10201 Torre Avenue
Cupertino, California 95014-2132 Cupertino, California 95014-2132
Attn. Accounts Payable Attn. General Counsel
Phone (408) 446-7100
Fax: (408) 252-5101
Sublessee (prior to Commencement Date): Sublessee (after to Commencement Date):
FlexiInternational Software, Inc. FlexiInternational Software, Inc.
One Research Drive 2 Enterprise Drive
Shelton, CT 06484 Shelton, CT 06484
Attn: Controller and General Counsel Attn: Controller with a copy to the
General Counsel
16. MISCELLANEOUS.
a. This Agreement shall be construed in accordance with and all disputes
hereunder shall be governed by the internal laws of the state where the Premises
are located. In the event of any controversy or dispute arising out of this
Agreement, the prevailing party or parties shall be entitled to recover from the
non-prevailing party or parties, reasonable expenses, including, without
limitation, attorneys' fees and costs actually incurred. As used herein, the
"prevailing party" shall mean that party which obtains substantially the relief
being sought. Should any provision of this Agreement be declared or determined
by any court to be illegal or invalid, the validity of the remaining parts,
terms or provisions shall not be affected thereby and such illegal or
-8-
<PAGE> 9
invalid part, term or provision shall be deemed not to be a part of this
Agreement. This Agreement may only be amended by a writing signed by both
parties hereto.
b. This Agreement sets forth the entire agreement between the parties
hereto, and fully supersedes any and all prior agreements or understandings
between the parties hereto pertaining to the subject matter hereof, including,
without limitation, any terms and provisions contained in that any offer letter,
letter of intent, or similar type document executed or delivered in connection
with this transaction. Except as expressly set forth herein, Sublessor and
Sublessee hereby agree that there are no other agreements, representations,
warranties or conditions between Sublessor and Sublessee relating to the
Premises or the subject matter of this Agreement (express, implied, collateral
or otherwise). As used herein, Sublessee shall mean all of Sublessee's
directors, officers, partners, agents, employees, invitees and visitors. Unless
otherwise indicated, capitalized terms used herein shall have the same meaning
as set forth in the Lease. Time is of the essence of this Sublease.
c. Each party to this Agreement hereby represents and warrants that it has
the legal power, right and authority to enter into this Agreement and to
consummate this transaction. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered will be deemed to be an
original and all of which, taken together, will be deemed to be one and the same
Agreement. This Agreement shall be binding upon the heirs, administrators,
executors, successors and assigns of the parties hereto. Provisions regarding
assignment of this Sublease shall be controlled by the Lease. Each of the
parties hereto, without further consideration, agrees to execute and deliver
such other documents and take such other action as may be necessary to
consummate more effectively the subject matter hereof. Heading and captions set
forth herein are for purposes of reference only, and shall not be used to
interpret, explain or limit any terms and provisions hereof.
d. Each of the parties hereto agree to indemnify, protect, defend and hold
the other harmless from any claim or demand for broker fees and/or commissions
from any broker they hired or engaged. In connection with the foregoing,
Sublessor agrees to pay and be responsible for any fees or commission due to The
Seeley Company and/or Steve Cramer, as well as any fees or commission due to CB
Commercial and/or Christopher O'Hara. Colonial Real Estate.
17. LANDLORD CONSENT. In the event that the Lease requires that Sublessor obtain
the consent of the Landlord prior to any subletting by Sublessor then this
Sublease shall not be effective unless Landlord consents to the same within the
time period set forth in the Lease.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
SYMANTEC CORPORATION, FLEXIINTERNATIONAL SOFTWARE, INC.,
a Delaware corporation a Delaware corporation
By: /s/ Derek Witte By: /s/ Jennifer Cheng
--------------------------- -----------------------------------
Name: Derek Witte Name: Jennifer Cheng
Title:VP Title:President
Date: 2/7/96 Date: 2/8/96
Landlord hereby consents to the foregoing Sublease on the terms and conditions
set forth therein, provided, however, that Landlord's consent: does not
constitute Landlord as a party to the Sublease; does not obligate Landlord in
any manner to fulfill any obligation under the Sublease (Landlord's obligations
to remain as by and through the Lease and not the Sublease); does not restrict
Landlord's right to enter into a modification of the Lease, without the
permission of Sublessee; and does not constitute and modification in any way of
any provision of the Lease. Further, notwithstanding anything to the contrary
contained in the Sublease, the Sublease shall be subject and subordinate to the
Lease. Landlord hereby acknowledges that, to the best of Landlord's knowledge,
no default presently exists in the obligations of Tenant under the Lease and
that the Lease is in full force and effect.
Landlord
/s/ Robert D. Scinto
---------------------------------
Robert D. Scinto
Date: 2/16/96
-10-
<PAGE> 1
EXHIBIT 11
FLEXIINTERNATIONAL SOFTWARE, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C>
Nine Months
Year Ended Ended
December 31, 1996 September 30, 1997
----------------- -----------------
Net Loss $(7,447) $(4,640)
======= =======
Weighted average number of common shares 3,891 5,857
Preferred stock 6,640 7,861
Common stock equivalents--cheap stock 257 257
------- -------
Shares used in computing unaudited
pro forma net loss per share 10,788 13,975
======= =======
Unaudited pro forma net loss per share $ (0.69) $ (0.33)
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 15, 1997,
relating to the financial statements of FlexiInternational Software, Inc., which
appears in such Prospectus. We also consent to the application of such report to
the Financial Statement Schedule for the three years ended December 31, 1996 and
the nine months ended September 30, 1997 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data".
PRICE WATERHOUSE LLP
Stamford, CT
October 20, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,273
<SECURITIES> 0
<RECEIVABLES> 3,466
<ALLOWANCES> 405
<INVENTORY> 0
<CURRENT-ASSETS> 6,951
<PP&E> 1,552
<DEPRECIATION> 905
<TOTAL-ASSETS> 7,833
<CURRENT-LIABILITIES> 5,471
<BONDS> 0
15,509
0
<COMMON> 48
<OTHER-SE> 5,694
<TOTAL-LIABILITY-AND-EQUITY> 7,833
<SALES> 5,205
<TOTAL-REVENUES> 8,347
<CGS> 311
<TOTAL-COSTS> 2,492
<OTHER-EXPENSES> 13,164
<LOSS-PROVISION> 665
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> (7,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,447)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,257
<SECURITIES> 0
<RECEIVABLES> 5,534
<ALLOWANCES> 674
<INVENTORY> 0
<CURRENT-ASSETS> 8,950
<PP&E> 2,391
<DEPRECIATION> 1,246
<TOTAL-ASSETS> 10,232
<CURRENT-LIABILITIES> 7,280
<BONDS> 0
15,509
0
<COMMON> 62
<OTHER-SE> 11,415
<TOTAL-LIABILITY-AND-EQUITY> 10,232
<SALES> 7,362
<TOTAL-REVENUES> 12,460
<CGS> 619
<TOTAL-COSTS> 4,118
<OTHER-EXPENSES> 12,977
<LOSS-PROVISION> 275
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> (4,640)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,640)
<EPS-PRIMARY> (.33)
<EPS-DILUTED> (.33)
</TABLE>
