<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1997
REGISTRATION NO. 333-38403
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FLEXIINTERNATIONAL SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
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>
------------------------
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)
------------------------
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)
------------------------
COPIES TO:
<TABLE>
<S> <C>
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
</TABLE>
------------------------
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. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
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
DECEMBER 3, 1997
3,000,000 SHARES
FLEXI LOGO
COMMON STOCK
---------------
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."
---------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------
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.
<TABLE>
<CAPTION>
==========================================================================================
PROCEEDS TO
PRICE TO PROCEEDS TO SELLING
PUBLIC UNDERWRITING COMPANY(1) STOCKHOLDERS
DISCOUNTS AND
COMMISSIONS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............. $ $ $ $
- ------------------------------------------------------------------------------------------
Total (2)............. $ $ $ $
==========================================================================================
</TABLE>
(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."
---------------
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.
---------------
BT ALEX. BROWN
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE> 3
[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"; "FlexiActiveX
Controls"; and "FlexiDesigner".
The third layer is labelled "FlexiObject Architecture."
The fourth layer is labelled on one side "COBRA-Compliant Transaction
Monitor/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
SQL(R)," "Oracle(R)," "Sybase(R)," and "DB2(R)."
THE FLEXIOBJECT
ARCHITECTURE
The FlexiFinancial applications are
built upon an open, object-oriented,
component-enabled architecture
supported on a wide range of hardware
platforms, operating systems, relational
database management systems
and distributed object messaging
standards. This approach combines
the adaptable functionality required
for the sophisticated financial
accounting user with the scalable
deployment options demanded by
today's IT management.
Distributed computing
capabilities utilizing
Microsoft Transaction Server
and CORBA-compliant
transaction monitors
are currently under
development for general
availability during the
second half of 1998.
---------------
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
<PAGE> 4
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 (collectively, 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 effected on November 6, 1997 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
Flexi 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 the Flexi 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 international distributors. The Company
currently has relationships with FIPs in the healthcare, real
3
<PAGE> 5
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 and Skandinaviska
Enskilda Banken.
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 released its first products in 1993, and most of the Company's
revenues to date have been attributable to the licensing of its Flexi family of
financial accounting software products and the provision of related consulting,
training and software installation services. See "Risk Factors."
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
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
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>
- ---------------
(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 168,773 shares of Common Stock issuable upon the exercise of
outstanding warrants as of September 30, 1997 at a weighted average exercise
price of $4.58 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)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
----- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
-------- ------------ -----------------
<S> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 7
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. As of September 30, 1997, management of the
Company evaluated the positive and negative evidence impacting the realizability
of its deferred tax assets, which consist principally of net operating loss
carryforwards. Management has considered the history of losses and concluded
that, as of September 30, 1997, it is more likely than not that the Company will
not generate sufficient taxable income prior to the expiration of the net
operating losses in 2011. Accordingly, the Company has recorded a full valuation
allowance for its deferred tax assets at September 30, 1997.
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
6
<PAGE> 8
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.
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.
7
<PAGE> 9
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 could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company maintains
key person insurance policies on Stefan R. Bothe and James W. Schenck. 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.
8
<PAGE> 10
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. 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
9
<PAGE> 11
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 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
10
<PAGE> 12
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 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
11
<PAGE> 13
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 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, Officers and Principal
Stockholders. Upon completion of this offering, the Company's officers and
directors and certain principal stockholders of the Company will beneficially
own approximately 62.8% 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. The Company's management will have broad discretion over the
use and investment of such net proceeds, and, 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.
Benefits of the Offering to Current Stockholders. After this offering, it
is expected that a public market will exist for the Common Stock. At an assumed
public offering price of $11.00 per share, there will be a substantial increase
in the market value of the Common Stock held by the Company's current
stockholders over their original purchase price. Following the closing of this
offering, such stockholders will hold an aggregate of 13,287,139 shares of
Common Stock (12,844,639 shares if the Underwriters' over-allotment option is
exercised in full). The difference between the price paid by the Company's
current stockholders for such shares and the value of such shares upon the
closing of this offering, assuming an initial offering price of
12
<PAGE> 14
$11.00 per share, will constitute an aggregate unrealized gain of approximately
$119,920,393 to such stockholders (approximately $115,462,387 if the
Underwriters' over-allotment option is exercised in full). In addition, the
Selling Stockholders are selling an aggregate of 750,000 shares of Common Stock
in this offering (1,200,000 shares if the Underwriters' over-allotment option is
exercised in full), resulting in an aggregate gain to the Selling Stockholders
of approximately $7,520,136 (approximately $12,042,642 if the Underwriters'
over-allotment option is exercised in full). See "Dilution," "Management" and
"Principal and Selling Stockholders."
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 334,625 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 1,165,630 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
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 11,648,134 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 12,448,759 shares of Common Stock
(including 688,125 shares of Common Stock that may be acquired pursuant to the
exercise of options 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."
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<PAGE> 15
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."
14
<PAGE> 16
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.
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<PAGE> 17
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 168,773 shares of Common Stock issuable upon the exercise of
outstanding warrants as of September 30, 1997 at a weighted average exercise
price of $4.58 per share. See "Management -- Executive Compensation" and
Note 7 of Notes to the Company's Financial Statements.
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<PAGE> 18
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).
17
<PAGE> 19
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).............. 225 162 (4,045) (10,521) (13,823) (12,728)
</TABLE>
- ---------------
(1) See Note 2 of Notes to the Company's Financial Statements.
18
<PAGE> 20
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.
Historically, the Company's revenues have been derived from domestic sales
and export sales, with the export sales component increasing from 0% of total
revenues for 1994 to 21.6% of total revenues for the nine months ended September
30, 1997. Such export sales have been derived primarily from customers based in
Europe and South America, and the Company intends to focus its resources to
further develop sales and support channels in these geographic regions. The
Company's export sales generally have the same cost structure as its domestic
sales. To date, the Company's export sales have been 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 foreign markets. 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, the introduction of non-tariff barriers and higher duty rates
and fiscal and monetary policies that adversely affect non-native firms. See
"Risk Factors -- Risks Associated with International Operations."
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.
19
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 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 the addition of new
customers as well as new product sales to existing customers and growth in
export 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
20
<PAGE> 22
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 (approximately $277,000 in facility-related expenses), increased
staffing in the direct sales force and sales and marketing organizations
(approximately $564,000 in compensation expenses, $140,000 in recruiting
expenses and $279,000 in travel-related expenses) and an increase in commissions
expense ($434,000) 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,
21
<PAGE> 23
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 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 an increase of approximately $400,000 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 ($492,000) attributable to non-qualified stock options
22
<PAGE> 24
granted in the second quarter of 1996, an increase in the provision for doubtful
accounts due to continued growth in the customer base ($190,000) and an increase
in employment recruiting fees ($122,000) related to an increase in staffing.
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.
23
<PAGE> 25
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 during the quarter ended September 30,
1997, and there can be no assurance that the Company will remain profitable on a
quarterly basis. The Company's software license revenues during the quarter
ended September 30, 1997 were significantly higher than software license
revenues from previous quarters due primarily to a significant number of
software installations during the quarter and, to a lesser extent, to the
recognition of approximately $750,000 of revenues from technology licenses with
two new FIPs. Service and maintenance revenues during the quarter primarily
reflected a significant demand for services from new customers. Cost of software
license revenues remained relatively low due to increased sales of proprietary
products relative to third-party products as well as the minimal costs
associated with the FIP technology licenses. Cost of service and maintenance
revenues reflected greater utilization of in-house support staff and less
reliance on third-party consultants.
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."
24
<PAGE> 26
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 1,561 1,753 1,992
Product development............ 918 1,546 1,561 1,708 2,152 1,914 1,906
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>
25
<PAGE> 27
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 61.3 58.9 28.7
Product development........... 94.6 95.7 61.2 53.2 84.5 64.3 27.5
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 64.8
Operating income (loss)......... (188.1) (158.6) (57.2) (45.6) (111.3) (82.7) 9.5
Interest expense (income),
net............................. 9.2 0.5 0.5 0.8 0.5 (1.1) 0.3
------ ------ ----- ----- ------ ----- -----
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> 28
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 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.
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
27
<PAGE> 29
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 otherwise available on a
comprehensive basis in legacy client/server systems. The performance and
28
<PAGE> 30
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
29
<PAGE> 31
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, AIX, Solaris,
HPUX and OS/390), 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> 32
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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<PAGE> 33
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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<PAGE> 34
During the fourth quarter of 1997, the Company introduced, on a limited
basis, its distributed computing capability incorporating a
platform-independent, Java-based presentation layer and utilizing Microsoft
Transaction Server. Beginning in the second half of 1998, the Company plans to
release for general availability extended distributed computing capabilities
utilizing both Microsoft Transaction Server and multiple Common Object Request
Broker Architecture (CORBA)-compliant network transaction monitors such as 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, product representatives with extensive knowledge of
the Company's product offerings and support staff. 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 to increase its sales organization by at least 50% by the
end 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, each of which has accounted for at least $10,000 of
revenues since January 1, 1997:
<TABLE>
<S> <C>
BANKING HEALTHCARE
Citibank, N.A. Enterprise Systems (subsidiary of HBOC)
Banco Popular del Ecuador Loma Linda University Medical Center
Canada Trust
Skandinaviska Enskilda Banken TECHNOLOGY
Excite, Inc.
INSURANCE Compaq Capital Corporation
Blue Cross/Blue Shield of South Carolina DataWorks Corporation
Cologne Life Reinsurance SQRiBE Technologies
Mutual of America
NAC Re USA/UK OTHERS
Transport Insurance American Media Group
American Red Cross
OTHER FINANCIAL SERVICES Central Maine Power
AON Capital Packard-Hughes Interconnect
Babcock & Brown Sikorsky Aircraft
Freddie Mac The Spokesman Review
PEMCO Financial Services
Textainer
TMG Financial Products
Wheels, Inc.
</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 the FlexiLedger application using an IBM RS/6000
platform and DB2/6000 relational database. During the
34
<PAGE> 36
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 50
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, gap 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, customers generally purchase
an implementation consulting package, consisting of classroom and on-site
training, project planning
35
<PAGE> 37
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
36
<PAGE> 38
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.
37
<PAGE> 39
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.
38
<PAGE> 40
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).......... 49 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.
39
<PAGE> 41
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.
40
<PAGE> 42
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> 43
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> 44
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 option grants will be made under the 1992
Plan after the closing of this offering.
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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<PAGE> 45
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> 46
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> 47
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 partnership 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> 48
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 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 Monroe 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 62.8%
</TABLE>
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<PAGE> 49
<TABLE>
<CAPTION>
SHARES BENEFICIALLY 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>
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 63,871 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 53,250, 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 1,137,773 (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> 50
(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 partnership affiliated with
Hambrecht & Quist LLC, one of the managing underwriters of this offering.
Investment and dispositive control of these shares is exercised by H&Q
Flexi Investment Management, LLC, the investment general partner of H&Q
Flexi Investors, L.P. The members of H&Q Flexi Investment Management, LLC
are William R. Hambrecht, Robert Hambrecht and Rupen Dolasia, three
employees of Hambrecht & Quist California, the parent corporation of
Hambrecht & Quist LLC.
(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 an option held by Mr. Landry on September 30,
1997 which was exercised on November 4, 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.
49
<PAGE> 51
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 168,773 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
50
<PAGE> 52
$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 December 1996, in connection with the negotiation of an extension of the
Receivables Loan, the Company issued to Comdisco a warrant to purchase 3,846
shares of Common Stock exercisable at $2.20 per share. This warrant expires in
December 2006.
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
51
<PAGE> 53
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.
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 334,625
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 1,165,630 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
11,648,134 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 12,448,759 shares of Common Stock (including 688,125 shares of
Common Stock that may be acquired pursuant to the exercise of options 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
52
<PAGE> 54
beneficially owned his or her restricted securities (as that term is defined in
Rule 144) for at least one year 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.
53
<PAGE> 55
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.
54
<PAGE> 56
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.
55
<PAGE> 57
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 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.
56
<PAGE> 58
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> 59
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FlexiInternational Software, Inc.
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, except as to the
stock split described in Note 7
which is as of November 6, 1997
F-2
<PAGE> 60
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> 61
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> 62
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> 63
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> 64
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.
Export sales
Export 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 export 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> 65
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> 66
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 13,975,000
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> 67
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> 68
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> 69
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, which was accounted for as
an exchange of equity at approximately fair value. 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
F-12
<PAGE> 70
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
share of Series B 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 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.
On November 6, 1997, the Company effected 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> 71
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 5,129 shares of Series C preferred stock for $1.65
per share. This warrant expires in December 2006.
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.
All warrants issued by the Company were accounted for in accordance with
APB Opinion No. 14.
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 option grants will be made under this plan after the closing of this
offering.
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> 72
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>
EXERCISE PRICE
PER SHARE
NUMBER OF -------------------------
OPTIONS
--------- (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) $0.65
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> 73
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> 74
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, 76,800
shares of Series B convertible preferred stock and 5,129 shares of Series C
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> 75
[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 "FlexiActiviteX Controls Integrated with Third-Party
Productivity Tools."]
[Superimposed on the three sections of the circle are 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 FlexiFinancial
applications provide 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
productivity tools such as Microsoft Office(R).]
<PAGE> 76
- ------------------------------------------------------
- ------------------------------------------------------
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................... 15
Dividend Policy................... 15
Capitalization.................... 16
Dilution.......................... 17
Selected Financial Data........... 18
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 19
Business.......................... 27
Management........................ 39
Certain Transactions.............. 45
Principal and Selling
Stockholders.................... 47
Description of Capital Stock...... 50
Shares Eligible for Future Sale... 52
Underwriting...................... 54
Legal Matters..................... 55
Experts........................... 55
Additional Information............ 56
Index to Financial Statements..... F-1
</TABLE>
---------------
UNTIL , 1998 (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> 77
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> 78
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
16,800 shares of Series B Convertible Preferred Stock (convertible into 12,600
shares of Common Stock) at an exercise price of $1.50 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 $1.50
exercise price. As of September 30, 1997, no additional shares were issuable
under this warrant.
II-2
<PAGE> 79
5. On July 25, 1995, the Registrant issued a ten-year warrant to purchase
an aggregate of 60,000 shares of Series B Convertible Preferred Stock
(convertible into 45,000 shares of Common Stock) at an exercise price of $1.50
per share to Comdisco, Inc. in connection with the execution of an accounts
receivable and security agreement. This warrant is exercisable for an additional
30,000 shares of Series B Convertible Preferred Stock, 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 $1.50
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 10, 1996, the Registrant issued a ten-year warrant to
purchase 5,129 shares of Series C Convertible Preferred Stock (convertible into
3,846 shares of Common Stock) at an exercise price of $1.65 per share to
Comdisco, Inc. in connection with the negotiation of an extension of the
accounts receivable and security agreement.
12. 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.
13. 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> 80
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
*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 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, including forms of incentive and nonstatutory stock
option agreements.
10.3 1997 Director Stock Option Plan, including form of option agreement.
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.
10.20 Warrant Agreement dated December 10, 1996 issued to Comdisco, Inc.
*10.21 Stockholders' Voting Agreement dated May 7, 1996 among the Registrant and the
Stockholders (as defined therein).
</TABLE>
II-4
<PAGE> 81
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
*10.22 Participation Agreement dated May 7, 1996 among the Registrant and the
Purchasers (as defined therein).
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.
27 Financial Data Schedule.
</TABLE>
- ---------------
Except as noted, all exhibits have been previously filed.
* Filed herewith.
(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> 82
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Shelton,
Connecticut, on this 3rd day of December, 1997.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ STEFAN R. BOTHE
----------------------------------
STEFAN R. BOTHE, CHAIRMAN OF THE
BOARD
AND CHIEF EXECUTIVE OFFICER
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement on Form S-1 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 (Principal
STEFAN R. BOTHE Executive Officer) December 3, 1997
*
- ---------------------------------- Vice President, Finance (Principal
RICHARD P. HORNER Financial and Accounting Officer) December 3, 1997
*
- ----------------------------------
THOMAS H. BREDT Director December 3, 1997
*
- ----------------------------------
ELLEN CARNAHAN Director December 3, 1997
*
- ----------------------------------
JENNIFER V. CHENG Director December 3, 1997
*
- ----------------------------------
JONATHAN E. DICK Director December 3, 1997
- ----------------------------------
TAREK KETTANEH Director
- ----------------------------------
JOHN B. LANDRY Director
- ----------------------------------
JAMES L. LUIKART Director
*
- ----------------------------------
JAMES W. SCHENCK Director December 3, 1997
*
- ----------------------------------
A. DAVID TORY Director December 3, 1997
*By /s/ STEFAN R. BOTHE
- ----------------------------------
STEFAN R. BOTHE
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE> 83
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 $1,630
</TABLE>
S-1
<PAGE> 1
Up to 3,450,000 Shares
FLEXIINTERNATIONAL SOFTWARE, INC.
Common Stock
($.01 Par Value)
UNDERWRITING AGREEMENT
December [ ], 1997
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
FlexiInternational Software, Inc., a Delaware corporation (the "Company"),
and certain stockholders of the Company (the "Selling Stockholders") propose to
sell to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an aggregate
of 3,000,000 shares (the "Firm Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock"), of which 2,250,000 shares will be sold by
the Company and 750,000 shares will be sold by the Selling Stockholders. The
respective amounts of the Firm Shares to be so purchased by the several
Underwriters are set forth opposite their names in Schedule I hereto, and the
respective amounts to be sold by the Selling Stockholders are set forth opposite
their names in Schedule II hereto. The Company and the Selling Stockholders are
sometimes referred to herein collectively as the "Sellers." The Selling
Stockholders also propose to sell at the Underwriters' option an aggregate of up
to 450,000 additional shares of the Company's Common Stock (the "Option Shares")
as set forth below.
As the Representatives, you have advised the Company and the Selling
Stockholders (a) that you are authorized to enter into this Agreement on behalf
of the several Underwriters, and (b) that the several Underwriters are willing,
acting severally and not jointly, to purchase the numbers
<PAGE> 2
of Firm Shares set forth opposite their respective names in Schedule I, plus
their pro rata portion of the Option Shares if you elect to exercise the
over-allotment option in whole or in part for the accounts of the several
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the "Shares."
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) The Company represents and warrants to each of the Underwriters as
follows:
(i) A registration statement on Form S-1 (File No. 333-38403) with
respect to the Shares has been carefully prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the Rules and Regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder and has been filed with the
Commission. Copies of such registration statement, including any amendments
thereto, the preliminary prospectuses (meeting the requirements of the Rules and
Regulations) contained therein and the exhibits, financial statements and
schedules, as finally amended and revised, have heretofore been delivered by the
Company to you. Such registration statement, together with any registration
statement filed by the Company pursuant to Rule 462 (b) of the Act, herein
referred to as the "Registration Statement," which shall be deemed to include
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, has become effective under the Act and no
post-effective amendment to the Registration Statement has been filed as of the
date of this Agreement. "Prospectus" means (a) the form of prospectus first
filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary
prospectus included in the Registration Statement filed prior to the time it
becomes effective or filed pursuant to Rule 424(a) under the Act that is
delivered by the Company to the Underwriters for delivery to purchasers of the
Shares, together with the term sheet or abbreviated term sheet filed with the
Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus
included in the Registration Statement prior to the time it becomes effective is
herein referred to as a "Preliminary Prospectus."
(ii) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. The Company does not have
any direct or indirect subsidiaries. The Company is duly qualified to transact
business in all jurisdictions in which the conduct of its business requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the earnings, business, management, properties,
assets, operations, financial condition or business prospects of the Company (a
"Material Adverse Effect").
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<PAGE> 3
(iii) The outstanding shares of Common Stock of the Company, including
all shares to be sold by the Selling Stockholders, have been duly authorized and
validly issued and are fully paid and non-assessable; the portion of the Shares
to be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights exist pursuant to the Company's
charter, by-laws or any other agreement or instrument to which the Company or,
to the Company's best knowledge, any other person, is a party with respect to
any of the Shares to be issued and sold by the Company. Neither the filing of
the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of any shares
of Common Stock.
(iv) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the description
thereof contained in the Registration Statement. The form of certificates for
the Shares conforms to the corporate law of the jurisdiction of the Company's
incorporation.
(v) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain, all
statements which are required to be stated therein by, and will conform to, the
requirements of the Act and the Rules and Regulations. The Registration
Statement and any amendment thereto do not contain, and will not contain, any
untrue statement of a material fact and do not omit, and will not omit, to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. The Prospectus and any amendments and
supplements thereto do not contain, and will not contain, any untrue statement
of material fact; and do not omit, and will not omit, to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
provided, however, that the Company makes no representations or warranties as to
information contained in or omitted from the Registration Statement or the
Prospectus, or any such amendment or supplement, in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
any Underwriter through the Representatives, specifically for use in the
preparation thereof.
(vi) The financial statements of the Company, together with related
notes and schedules as set forth in the Registration Statement, present fairly,
in all material respects, the financial position and the results of operations
and cash flows of the Company, at the indicated dates and for the indicated
periods. Such financial statements and related schedules have been prepared in
accordance with generally accepted principles of accounting, consistently
applied throughout the periods involved, except as disclosed herein, and all
adjustments necessary for a fair presentation of results for such periods have
been made. The summary financial and statistical data included in the
Registration Statement present fairly, in all material respects, the information
shown therein and such data have been compiled on a basis consistent with the
financial statements presented therein and the books and records of the Company.
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<PAGE> 4
(vii) Price Waterhouse LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and the
Rules and Regulations.
(viii) There is no action, suit, claim or proceeding pending or, to
the knowledge of the Company, threatened against the Company before any court or
administrative agency or otherwise which if determined adversely to the Company
might result in any Material Adverse Effect or prevent the consummation of the
transactions contemplated hereby, except as set forth in the Registration
Statement.
(ix) The Company has good and valid title to all of the properties and
assets reflected in the financial statements (or as described in the
Registration Statement) hereinabove described, subject to no lien, mortgage,
pledge, charge or encumbrance of any kind except those reflected in such
financial statements (or as described in the Registration Statement) or which
secure obligations not material in amount. The Company occupies its leased
properties under valid and binding leases conforming in all material respects to
the description thereof set forth in the Registration Statement, with such
exceptions as are not significant in light of the intended use of the property
by the Company.
(x) The Company has filed all Federal, state, local and foreign income
tax returns which have been required to be filed and has paid all taxes
indicated by said returns and all assessments received by them or any of them to
the extent that such taxes have become due, except for assessments contested in
good faith for which adequate reserves have been provided to the extent required
by generally accepted accounting principles. All tax liabilities have been
adequately provided for in the financial statements of the Company.
(xi) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the earnings, business, management,
properties, assets, operations, financial condition or business prospects of the
Company, whether or not occurring in the ordinary course of business, and there
has not been any material transaction entered into or any material transaction
that is probable of being entered into by the Company, other than transactions
in the ordinary course of business and changes and transactions described in the
Registration Statement, as it may be amended or supplemented. The Company has no
material contingent obligations which are not disclosed in the Company's
financial statements which are included in the Registration Statement.
(xii) The Company is not or, with the giving of notice or lapse of time or
both, will not be, in violation of or in default under its charter or by-laws or
under any agreement, lease, contract, indenture or other instrument or
obligation to which it is a party or by which it, or any of its properties, is
bound and which default has or would have a Material Adverse Effect. The
execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of
4
<PAGE> 5
trust or other agreement or instrument to which the Company is a party, or of
the certificate of incorporation or by-laws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by the
Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the Commission,
the National Association of Securities Dealers, Inc. (the "NASD") or the Nasdaq
National Market or such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or blue
sky laws) has been obtained or made and is in full force and effect.
(xiv) The Company owns and possesses all material licenses,
certificates and permits from governmental authorities which are material to the
conduct of its business or are currently employed by the Company in the conduct
of its business; and the Company has not infringed or received any notice of any
infringement or conflict with, and does not know of any infringement or conflict
with asserted rights of others with respect to, any patents, patent rights,
trade names, trademarks or copyrights, which infringement is or could reasonably
be expected to be material to the business of the Company. The Company knows of
no material infringement by others of patents, patent rights, trade names,
trademarks or copyrights owned by or licensed to the Company.
(xvi) Neither the Company, nor to the Company's best knowledge, any of
its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of the shares of Common Stock to facilitate the sale or resale of the
Shares.
(xvi) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940, as amended (the "1940 Act"),
and the rules and regulations of the Commission thereunder.
(xvii) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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<PAGE> 6
(xviii) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of their respective properties and as is customary for companies
engaged in similar industries.
(xxi) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any liability; the Company has not incurred and does not expect to
incur liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal
Revenue Code of 1986, as amended, including the regulations and published
interpretations thereunder (the "Code"); and each "pension plan" for which the
Company would have any liability that is intended to be qualified under Section
401(a) of the Code is so qualified in all material respects and nothing has
occurred, whether by action or by failure to act, which would cause the loss of
such qualification.
(b) Each of the Selling Stockholders severally represents and warrants
as follows:
(i) Such Selling Stockholder now has and at the Closing Date and the
Option Closing Date, as the case may be (as such dates are hereinafter defined),
will have good and valid title to the Shares to be sold by such Selling
Stockholder, free and clear of any liens, encumbrances, equities and claims, and
full right, power and authority to effect the sale and delivery of such Shares;
and upon the delivery of, against payment for, such Shares pursuant to this
Agreement, the Underwriters will acquire good and valid title thereto, free and
clear of any liens, encumbrances, equities and claims, assuming that they are
BONA FIDE purchasers within the meaning of the Uniform Commercial Code.
(ii) Such Selling Stockholder has full right, power and authority to
execute and deliver this Agreement, the Power of Attorney and the Custodian
Agreement referred to below and to perform its obligations under such
Agreements. The execution and delivery of this Agreement and the consummation by
such Selling Stockholder of the transactions herein contemplated and the
fulfillment by such Selling Stockholder of the terms hereof will not require any
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body (except as may be required
under the Act, state securities laws or Blue Sky laws) and will not result in a
breach of any of the terms and provisions of, or constitute a default under,
organizational documents of such Selling Stockholder, if not an individual, or
any indenture, mortgage, deed of trust or other agreement or instrument to which
such Selling Stockholder is a party, or of any order, rule or regulation
applicable to such Selling Stockholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has constituted, or
which might reasonably be expected to cause or result in the stabilization or
manipulation of the price of the Common Stock of the Company
6
<PAGE> 7
and, other than as permitted by the Act, the Selling Stockholder will not
distribute any prospectus or other offering material in connection with the
offering of the Shares.
(iv) Without having undertaken to determine independently the accuracy
or completeness of either the representations and warranties of the Company
contained herein or the information contained in the Registration Statement,
such Selling Stockholder has no reason to believe that the representations and
warranties of the Company contained in this Section 1 are not true and correct,
is familiar with the Registration Statement and has no actual knowledge of any
material fact, condition or information not disclosed in the Registration
Statement which has adversely affected in any material respect or may adversely
affect in any material respect the business of the Company. The information
pertaining to such Selling Stockholder under the caption "Principal and Selling
Stockholders" in the Prospectus is complete and accurate in all material
respects.
2. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Sellers
agree to sell to the Underwriters and each Underwriter agrees, severally and not
jointly, to purchase, at a price of $_____ per share, the number of Firm Shares
set forth opposite the name of each Underwriter in Schedule I hereof, subject to
adjustments in accordance with Section 9 hereof. The number of Firm Shares to be
purchased by each Underwriter from each Seller shall be as nearly as practicable
in the same proportion to the total number of Firm Shares being sold by each
Seller as the number of Firm Shares being purchased by each Underwriter bears to
the total number of Firm Shares to be sold hereunder. The obligations of the
Company and of each of the Selling Stockholders shall be several and not joint.
(b) Certificates in negotiable form for the total number of the Shares
to be sold hereunder by the Selling Stockholders have been placed in custody
with the Company as custodian (the "Custodian") pursuant to the Custodian
Agreement executed by each Selling Stockholder for delivery of all Shares to be
sold hereunder by the Selling Stockholders. Each of the Selling Stockholders
specifically agrees that the Shares represented by the certificates held in
custody for the Selling Stockholders under the Custodian Agreement are subject
to the interests of the Underwriters hereunder, that the arrangements made by
the Selling Stockholders for such custody are to that extent irrevocable, and
that the obligations of the Selling Stockholders hereunder shall not be
terminable by any act or deed of the Selling Stockholders (or by any other
person, firm or corporation including the Company, the Custodian or the
Underwriters) or by operation of law (including the death of an individual
Selling Stockholder or the dissolution of a corporate Selling Stockholder) or by
the occurrence of any other event or events, except as set forth in the
Custodian Agreement. If any such event should occur prior to the delivery to the
Underwriters of the Firm Shares or the Option Shares hereunder, certificates for
the Firm Shares or the Options Shares, as the case may be, shall be delivered by
the Custodian in accordance with the terms and conditions of this Agreement as
if such event has not occurred. The Custodian is authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares held by it against
delivery of such Shares.
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<PAGE> 8
(c) Payment for the Firm Shares to be sold hereunder is to be made by
wire transfer of Federal (same day) funds to an account of the Company for the
Shares to be sold by it and to an account of the Company, "as Custodian," for
the Shares to be sold by the Selling Stockholders, in each case against delivery
of certificates therefor to the Representatives for the several accounts of the
Underwriters. Such payment and delivery are to be made at the offices of BT
Alex. Brown Incorporated, One South Street, Baltimore, Maryland, at 10:00 a.m.,
Baltimore time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as the
"Closing Date." (As used herein, "business day" means a day on which the New
York Stock Exchange is open for trading and on which banks in New York are open
for business and not permitted by law or executive order to be closed.) The
certificates for the Firm Shares will be delivered in such denominations and in
such registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(d) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Selling Stockholders listed on Schedule III hereto hereby grant an option to the
several Underwriters to purchase the Option Shares at the price per share as set
forth in the first paragraph of this Section 2. The maximum number of Option
Shares to be sold by each Selling Stockholder is set forth opposite its or his
respective name on Schedule III hereto. The option granted hereby may be
exercised in whole or in part by giving written notice (i) at any time before
the Closing Date and (ii) only once thereafter within 30 days after the date of
this Agreement, by you, as Representatives of the several Underwriters, to the
Company, as Custodian, setting forth the number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations in
which the Option Shares are to be registered and the time and date at which such
certificates are to be delivered. If the option granted hereby is exercised in
part, the respective number of Option Shares to be sold by each of the Selling
Stockholders listed in Schedule III hereto shall be determined on a pro rata
basis in accordance with the percentages set forth opposite their names on
Schedule III hereto, adjusted by you in such manner as to avoid fractional
shares. The time and date at which certificates for Option Shares are to be
delivered shall be determined by the Representatives but shall not be earlier
than three nor later than 10 full business days after the exercise of such
option, nor in any event prior to the Closing Date (such time and date being
herein referred to as the "Option Closing Date"). If the date of exercise of the
option is three or more days before the Closing Date, the notice of exercise
shall set the Closing Date as the Option Closing Date. The number of Option
Shares to be purchased by each Underwriter shall be in the same proportion to
the total number of Option Shares being purchased as the number of Firm Shares
being purchased by such Underwriter bears to the total number of Firm Shares,
adjusted by you in such manner as to avoid fractional shares. The option with
respect to the Option Shares granted hereunder may be exercised only to cover
over-allotments in the sale of the Firm Shares by the Underwriters. You, as
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice of such cancellation to the
Company. To the extent, if any, that the option is exercised, payment for the
Option Shares shall be made on the Option Closing Date by wire transfer of
Federal (same day) funds to an account of the Company as "Custodian" for the
Option
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<PAGE> 9
Shares to be sold by the Selling Stockholders against delivery of certificates
therefor at the offices of BT Alex. Brown Incorporated, One South Street,
Baltimore, Maryland.
(e) If on the Closing Date or Option Closing Date, as the case may be,
any Selling Stockholder fails to sell the Firm Shares or Option Shares which
such Selling Stockholder has agreed to sell on such date as set forth in
SCHEDULES II AND III hereto, the Company agrees that it will sell or arrange for
the sale of that number of shares of Common Stock to the Underwriters which
represents Firm Shares or Option Shares which such Selling Stockholder has
failed to so sell, as set forth in SCHEDULES II AND III hereto, or such lesser
number as may be requested by the Representatives.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable to
do so. The Firm Shares are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.
It is further understood that you will act as the Representatives for
the Underwriters in the offering and sale of the Shares in accordance with a
Master Agreement Among Underwriters entered into by you and the several other
Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDERS.
(a) The Company covenants and agrees with the several Underwriters
that:
(i) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form
approved by the Representatives containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A of
the Rules and Regulations, (B) not file any amendment to the Registration
Statement or supplement to the Prospectus of which the Representatives shall not
previously have been advised and furnished with a copy or to which the
Representatives shall have reasonably objected in writing or which is not in
compliance with the Rules and Regulations and (C) file on a timely basis all
reports and any definitive proxy or information statements required to be filed
by the Company with the Commission subsequent to the date of the Prospectus and
prior to the termination of the offering of the Shares by the Underwriters.
(ii) The Company will advise the Representatives promptly (A) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (B) of receipt of any comments from the Commission, (C) of any
request of the Commission for
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<PAGE> 10
amendment of the Registration Statement or for supplement to the Prospectus or
for any additional information, and (D) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.
(iii) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver to, or
upon the order of, the Representatives during the period when delivery of a
Prospectus is required under the Act, as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representatives may
reasonably request. The Company will deliver to the Representatives at or before
the Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver to
the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the Representatives
may reasonably request.
(v) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder, so as to
permit the completion of the distribution of the Shares as contemplated in this
Agreement and the Prospectus. If during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, any event shall
occur as a result of which, in the judgment of the Company or in the reasonable
opinion of the Underwriters, it becomes necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading, or, if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with the law.
(vi) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later than
15 months after the effective date of the
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<PAGE> 11
Registration Statement, an earning statement (which need not be audited) in
reasonable detail, covering a period of at least 12 consecutive months beginning
after the effective date of the Registration Statement, which earning statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise you in writing when such statement has
been so made available.
(vii) The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of all
other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the requirements
of such exchange or with the Commission pursuant to the Act or the Exchange Act.
The Company will deliver to the Representatives similar reports with respect to
significant subsidiaries, as that term is defined in the Rules and Regulations,
which are not consolidated in the Company's financial statements.
(viii) No offering, sale, short sale or other disposition of any
shares of Common Stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of Common Stock or derivative of Common
Stock (or agreement for such) will be made for a period of 180 days after the
effective date of the Registration Statement, directly or indirectly, by the
Company otherwise than hereunder or with the prior written consent of BT Alex.
Brown Incorporated, except that the Company may, without such consent, (A) issue
shares upon the exercise of options issued pursuant to its 1992 Stock Option
Plan, 1997 Stock Incentive Plan, 1997 Director Stock Option Plan and 1997
Employee Stock Purchase Plan, (B) issue shares in respect of the acquisition by
the Company of the assets or capital stock of another person or entity so long
as the shares so issued by the Company may not be resold for a period of 180
days after the effective date of the Registration Statement and (C) grant
options and offer to sell shares of Common Stock to its employees, consultants
and directors pursuant to the plans listed in clause (A), provided that any
shares so issued by the Company to any person party to a Lock-up Agreement (as
defined below) shall not be resold for a period of 180 days after the effective
date of the Registration Statement.
(ix) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(x) The Company has caused each officer and director and specific
stockholders of the Company to furnish to you, on or prior to the date of this
Agreement, a letter or letters, in form and substance satisfactory to the
Underwriters (together, the "Lock-up Agreement"), pursuant to which each such
person shall agree, subject to the terms and conditions of the Lock-up
Agreement, not to, directly or indirectly, offer, sell, pledge, contract to sell
(including any short sale), grant any option to purchase or otherwise dispose of
any Shares (including without limitation shares of Common Stock which may be
deemed to be beneficially owned by such Selling Stockholder in accordance with
the rules and regulations of the Commission and shares of Common Stock which may
be issued upon exercise of a stock option or warrant) or enter into any Hedging
Transaction (as defined in the Lockup Agreement) relating to the Common Stock
for a period of 180 days after the
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<PAGE> 12
effective date of the Registration Statement, except with the prior written
consent of BT Alex. Brown Incorporated or as otherwise provided in the Lock-up
Agreement.
(xi) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the Act.
(xii) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the 1940 Act.
(xiii) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for the
Common Stock.
(xiv) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably be
expected to constitute, the stabilization or manipulation of the price of any
securities of the Company.
(b) Each of the Selling Stockholders covenants and agrees with the
several Underwriters that:
(i) No offering, sale, pledge, short sale or other disposition of
any shares of Common Stock of the Company or other capital stock of the Company
or other securities convertible, exchangeable or exercisable for Common Stock or
derivative of Common Stock owned by the Selling Stockholder will be made for a
period of 180 days after the effective date of the Registration Statement,
directly or indirectly, by such Selling Stockholder, subject to the terms and
conditions of the Lock-up Agreements, otherwise than with the prior written
consent of BT Alex. Brown Incorporated or as otherwise provided in the Lock-up
Agreement.
(ii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal Responsibility
Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with
respect to the transactions herein contemplated, each of the Selling
Stockholders shall deliver to you prior to or at the Closing Date a properly
completed and executed United States Treasury Department Form W-8 or W-9 (or
other applicable form or statement specified by Treasury Department regulations
in lieu thereof).
(iii) Such Selling Stockholder will not take, directly or
indirectly, any action designed to cause or result in, or that has constituted
or might reasonably be expected to constitute, the stabilization or manipulation
of the price of any securities of the Company .
5. COSTS AND EXPENSES.
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The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Sellers under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company and the
Selling Stockholders; the cost of printing and delivering to, or as requested
by, the Underwriters copies of the Registration Statement, Preliminary
Prospectus, the Prospectus, this Agreement, the Underwriters' Selling
Memorandum, the Underwriters' Invitation Letter, the Listing Application, the
Blue Sky Survey and any supplements or amendments thereto; the filing fees of
the Commission; the filing fees and expenses incident to securing any required
review by the NASD of the terms of the sale of the Shares; the listing fee of
the Nasdaq National Market; and the expenses, including the reasonable fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Shares under State securities or Blue Sky laws. To the
extent, if at all, that any of the Selling Stockholders engage special legal
counsel to represent them in connection with this offering, the fees and
expenses of such counsel shall be borne by such Selling Stockholder. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Sellers pro rata. The Company agrees to pay all costs and
expenses of the Underwriters, including the fees and disbursements of counsel
for the Underwriters, incident to the offer and sale of directed shares of the
Common Stock by the Underwriters to employees and persons having business
relationships with the Company. The Sellers shall not, however, be required to
pay for any of the Underwriters expenses (other than those related to
qualification under state securities or Blue Sky laws) except that, if this
Agreement shall not be consummated because the conditions in Section 6 hereof
are not satisfied, or because this Agreement is terminated by the
Representatives pursuant to Section 11 hereof, or by reason of any failure,
refusal or inability on the part of the Company or the Selling Stockholders to
perform any undertaking or satisfy any condition of this Agreement or to comply
with any of the terms hereof on their part to be performed, unless such failure
to satisfy said condition or to comply with said terms be due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for reasonable out-of-pocket expenses, including fees and
disbursements of counsel, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of performing
their obligations hereunder; but the Company and the Selling Stockholders shall
not in any event be liable to any of the several Underwriters for damages on
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option Closing
Date are subject to the accuracy, as of the Closing Date or the Option Closing
Date, as the case may be, of the representations and warranties of the Company
and the Selling Stockholders contained herein, and to the performance by the
Company and the Selling Stockholders of their covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to
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be included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the knowledge of the
Company or the Selling Stockholders, shall be contemplated by the Commission and
no injunction, restraining order, or order of any nature by a Federal or state
court of competent jurisdiction shall have been issued as of the Closing Date
which would prevent the issuance of the Shares.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Hale and Dorr LLP,
counsel for the Company and the Selling Stockholders, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters (and
stating that it may be relied upon by counsel to the Underwriters) to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties and
conduct its business as such properties and business are described in the
Registration Statement; and the Company is duly qualified to transact business
in each of the jurisdictions listed in Schedule IV hereto.
(ii) The Company has authorized and outstanding capital stock as
of record as set forth under the caption "Capitalization" in the Prospectus
(except for issuances subsequent to September 30, 1997 pursuant to the exercise
of warrants and employee stock options described in the Prospectus); the
authorized shares of the Company's Common Stock have been duly authorized; the
outstanding shares of the Company's Common Stock as of record, including the
Shares to be sold by the Selling Stockholders, have been duly authorized and
validly issued and are fully paid and non-assessable; all of the Shares conform
or, when issued, delivered and paid for in accordance with the terms of this
Agreement, will conform in all material respects to the description thereof
contained in the Prospectus; the certificates evidencing the Shares, assuming
they are in the form filed with the Commission, are in due and proper form under
Delaware law, and, when duly countersigned by the Company's transfer agent and
registrar and delivered to you or upon your order against payment of the agreed
consideration therefore in accordance with the provisions of this Agreement, the
Shares to be sold by the Company pursuant to this Agreement will be duly
authorized and validly issued, fully paid and non-assessable; and no preemptive
rights of stockholders exist with respect to any of the Shares or the issue or
sale thereof (A) in the Company's charter or by-laws, as such documents will be
in effect immediately after the offering contemplated hereby, or (B), to the
knowledge of such counsel, in any other document or instrument.
(iii) Except as described in or contemplated by the Prospectus,
to the knowledge of such counsel, there are no outstanding securities of the
Company convertible or exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and there are no
outstanding or authorized options, warrants or rights of any character
obligating the Company to issue any shares of its capital stock or any
securities convertible or
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exchangeable into or evidencing the right to purchase or subscribe for any
shares of such stock; and except as described in the Prospectus, to the
knowledge of such counsel, no holder of any securities of the Company or any
other person has the right, contractual or otherwise, which has not been
satisfied or effectively waived, to cause the Company to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the Shares or the
right to have any Shares or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
Registration Statement, to require registration under the Act of any shares of
Common Stock or other securities of the Company.
(iv) The Registration Statement has become effective under the
Act and, to the best of the knowledge of such counsel, no stop order proceedings
with respect thereto have been instituted or are pending or threatened under the
Act.
(v) The Registration Statement, the Prospectus and each amendment
or supplement thereto comply as to form in all material respects with the
requirements of the Act and the applicable rules and regulations thereunder
(except that such counsel need express no opinion as to the financial
statements, including the notes and schedules thereto, or any other financial,
statistical or accounting information, or information relating to the
Underwriters, or the method of distribution of the Shares by the Underwriters
included therein).
(vi) The statements under the captions "Description of Capital
Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute matters of law or legal conclusions, have been reviewed by
such counsel, are correct in all material respects and fairly summarize in all
material respects the information called for with respect to such documents and
matters.
(vii) Such counsel does not know of any contracts or documents
required by the Act or the Rules and Regulations to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are no so filed or described as required, and such contracts
and documents as are summarized in the Registration Statement or the Prospectus
are fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or governmental
proceedings pending or threatened against the Company required to be described
in the Prospectus which are not described as required.
(ix) The execution and delivery of this Agreement by the Company
and the consummation by the Company of the transactions herein contemplated do
not and will not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, the charter or by-laws of the
Company, as currently in effect, or any agreement or instrument to which the
Company is a party and which is listed as an exhibit to the Registration
Statement.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
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<PAGE> 16
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions herein contemplated (other than as may be required by the NASD or
the Nasdaq National Market or as required by state securities and Blue Sky laws
as to which such counsel need express no opinion) except such as have been
obtained or made.
(xii) The Company is not, and will not become, as a result of the
consummation of the transactions contemplated by this Agreement, and application
of the net proceeds therefrom as described in the Prospectus, required to
register as an investment company under the 1940 Act.
(xiii) Each of this Agreement and the related Custodian Agreement
and Power of Attorney has been duly authorized, executed and delivered by or on
behalf of each of the Selling Stockholders.
(xiv) To the best knowledge of such counsel, each Selling
Stockholder has the legal right, power and authority, and any approval required
by law (other than as required by state securities and Blue Sky laws as to which
such counsel need express no opinion), to sell, assign, transfer and deliver the
portion of the Shares to be sold by such Selling Stockholder.
(xv) The Custodian Agreement and the Power of Attorney executed
and delivered by each Selling Stockholder who is a natural person and, to the
best knowledge of such counsel, by each Selling Stockholder who is not a natural
person, is valid and binding.
(xvi) Upon the Underwriters' obtaining control of the Shares to
be sold by the Selling Stockholders and assuming the Underwriters purchased such
Shares for value and without notice of adverse claim to such Shares within the
meaning of Section 8-102 of the Uniform Commercial Code as in effect in the
Commonwealth of Massachusetts, the Underwriters will have acquired all rights of
the Selling Stockholders in such Shares free of any adverse claim, any lien in
favor of the Company and any restrictions on transfer imposed by the Company.
In rendering such opinion Hale and Dorr LLP may rely as to all matters
governed other than by the state law of the Commonwealth of Massachusetts, the
Delaware General Corporation Law statute or Federal laws on local counsel in
such jurisdictions and as to the matters set forth in subparagraphs (xiii),
(xiv), (xv) and (xvi) on opinions of other counsel reasonably satisfactory to
the Underwriters representing the respective Selling Stockholders or, in the
case of Selling Stockholders that are natural persons, on representations made
by such Selling Stockholders (including without limitation the representations
of the Selling Stockholders in this Agreement and their respective Custodian
Agreements and Powers of Attorney). In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein
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<PAGE> 17
pursuant to Rule 430A under the Act), contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements, in the light of
the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, including the notes and
schedules thereto, or any other financial, statistical or accounting
information, or information relating to the Underwriters or the method of
distribution of the Shares by the Underwriters, included therein). With respect
to such statement, Hale and Dorr LLP may state that their belief is based upon
the procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received from Goodwin, Procter &
Hoar LLP, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, substantially to the effect specified
in subparagraphs (ii), (iii), (iv), (ix) and (x) of Paragraph (b) of this
Section 6, and that the Company is a duly incorporated and validly existing
corporation under the laws of the State of Delaware. In rendering such opinion,
Goodwin, Procter & Hoar LLP may rely as to all matters governed other than by
the state law of the Commonwealth of Massachusetts, the Delaware General
Corporation Law statute or Federal laws on the opinion of counsel referred to in
Paragraph (b) of this Section 6. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel which leads them to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, including the notes and
schedules thereto, or any other financial, statistical or accounting
information, or information relating to the Underwriters or the method of
distribution of the Shares by the Underwriters, included therein). With respect
to such statement, Goodwin, Procter & Hoar LLP may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(d) The Representatives shall have received at or prior to the Closing
Date from Goodwin, Procter & Hoar LLP a memorandum or summary, in form and
substance satisfactory to the Representatives, with respect to the qualification
for offering and sale by the Underwriters of the Shares under the state
securities or Blue Sky laws of such jurisdictions as the Representatives may
reasonably have designated to the Company.
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(e) The Representatives shall have received, on the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to the Representatives, of Price Waterhouse LLP
confirming that they are independent public accountants within the meaning of
the Act and the applicable published Rules and Regulations thereunder and
stating that in their opinion the financial statements and schedules examined by
them and included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Act and the related
published Rules and Regulations; and containing such other statements and
information as is ordinarily included in accountants' "comfort letters" to
Underwriters with respect to the financial statements and certain financial and
statistical information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and the Vice President, Finance of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be:
(i) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for such purpose have been taken or are, to his
knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the Option
Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Act have been made;
(iv) He has carefully examined the Registration Statement and the
Prospectus and, in his opinion, as of the effective date of the Registration
Statement, the statements contained in the Registration Statement were true and
correct, and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading, and since the effective date of the
Registration Statement, no event has occurred which should have been set forth
in a supplement to or an amendment of the Prospectus which has not been so set
forth in such supplement or amendment; and
(v) Since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any material
adverse change or any development involving a prospective material adverse
change in or affecting the condition, financial or otherwise, of the Company and
its Subsidiaries taken as a whole or the earnings, business, management,
properties, assets, operations, financial condition or business prospects of the
Company, whether or not arising in the ordinary course of business.
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(g) The Company and the Selling Stockholders shall have furnished to
the Representatives such further certificates and documents confirming the
representations and warranties, covenants and conditions contained herein and
related matters as the Representatives may reasonably have requested.
(h) The Firm Shares and Option Shares, if any, have been approved for
designation upon notice of issuance on the Nasdaq National Market.
(i) The Lockup Agreements described in Section 4 (a) (x) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Goodwin, Procter &
Hoar LLP, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing or
by telegram at or prior to the Closing Date or the Option Closing Date, as the
case may be.
In such event, the Selling Stockholders, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company and the Selling Stockholders listed on Schedule V
hereto (the "Management Selling Stockholders"), jointly and severally, agree to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; and will reimburse
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each Underwriter and each such controlling person upon demand for any legal or
other expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not such
Underwriter or controlling person is a party to any action or proceeding;
provided, however, that the Company and the Management Selling Stockholders 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 an untrue statement or alleged
untrue statement, or omission or alleged omission made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or through the Representatives specifically for use
in the preparation thereof and provided further that the Management Selling
Stockholders shall not be liable to any Underwriter under this Section 8(a) with
respect to any Preliminary Prospectus to the extent that any such loss, claim,
damage or liability of such Underwriter results solely from an untrue statement
of a material fact contained in, or the omission of a material fact from, such
Preliminary Prospectus, which untrue statement or omission was corrected in the
Prospectus, if such Underwriter sold Shares to the person alleging such loss,
claim, damage or liability without sending or giving, at or prior to the written
conformation of such sale, a copy of the Prospectus if the Company has
previously furnished copies thereof to such Underwriter. In no event, however,
shall the liability of any Management Selling Stockholder for indemnification
under this Section 8(a) exceed the proceeds received by such Management Selling
Stockholder from the Underwriters in the offering contemplated by this
Agreement. This indemnity agreement will be in addition to any liability which
the Company or the Management Selling Stockholders may otherwise have.
(b) Each of the Selling Stockholders not listed on Schedule V hereto
(the "Non-Management Selling Stockholders"), severally and not jointly, agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities to which such Underwriter or any such controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in the light of the circumstances under which they were made;
provided, however, that a Non-Management Selling Stockholder shall be liable
only to the extent that such untrue statement or alleged untrue statement or
such omission or alleged omission has been made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information furnished to
the Company by such Non-Management Selling Stockholder specifically for use in
preparation thereof; and will reimburse each Underwriter and each such
controlling person upon demand for any legal or other expenses reasonably
incurred by such Underwriter and each such controlling person in connection with
investigating or defending any such loss, claim, damage or liability, action or
proceeding or in responding to a subpoena or governmental inquiry related to the
offering of the Shares, whether or not such Underwriter or
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<PAGE> 21
controlling person is a party to any such action or proceeding; provided,
however, that the Non-Management Selling Stockholders 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 an untrue statement or alleged untrue statement, or
omission or alleged omission, made in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof; and provided further that the Non-Management Selling
Stockholders shall not be liable to any Underwriter under this Section 8(b) with
respect to any Preliminary Prospectus to the extent that any such loss, claim,
damage or liability of such Underwriter results solely from an untrue statement
of a material fact contained in, or the omission of a material fact from, such
Preliminary Prospectus, which untrue statement or omission was corrected in the
Prospectus, if such Underwriter sold Shares to the person alleging such loss,
claims, damage or liability without sending or giving, at or prior to the
written confirmation of such sale, a copy of the Prospectus if the Company has
previously furnished copies thereof to such Underwriter. Notwithstanding the
foregoing, the aggregate liability of any Non-Management Selling Stockholder
pursuant to the provisions of this Section 8(b) shall be limited to an amount
equal to the proceeds received by such Non-Management Selling Stockholder from
the Underwriters in the offering contemplated hereby. This indemnity agreement
will be in addition to any liability which the Non-Management Selling
Stockholders may otherwise have.
(c) Each Underwriter severally and not jointly will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, the Selling Stockholders, and each person, if
any, who controls the Company or the Selling Stockholders within the meaning of
the Act, against any losses, claims, damages or liabilities to which the Company
or any such director, officer, Selling Stockholder or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) arise out
of or are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; and will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(d) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom
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such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a), (b) or (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 8(a), (b) or (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention of
such counsel, (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the indemnified party
and representation of both parties by the same counsel would be inappropriate
due to actual or potential differing interests between them or (iii) the
indemnifying party shall have failed to assume the defense and employ counsel
acceptable to the indemnified party within a reasonable period of time after
notice of commencement of the action. It is understood that the indemnifying
party shall not, in connection with any proceeding or related proceedings in the
same jurisdiction, be liable for the reasonable fees and expenses of more than
one separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) or Section (b) and by the Company and the Selling Stockholders in
the case of parties indemnified pursuant to Section 8(c). The indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final judgment
for the plaintiff, the indemnifying party agrees to indemnify the indemnified
party from and against any loss or liability by reason of such settlement or
judgment. In addition, the indemnifying party will not, without the prior
written consent of the indemnified party, settle or compromise or consent to the
entry of any judgment in any pending or threatened claim, action or proceeding
of which indemnification may be sought hereunder (whether or not any indemnified
party is an actual or potential party to such claim, action or proceeding)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action
or proceeding.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a), (b) or (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
22
<PAGE> 23
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Stockholders
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this Section
8(e) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 8(e). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 8(e) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (e), (i) no Underwriter shall
be required to contribute any amount in excess of the underwriting discounts and
commissions applicable to the Shares purchased by such Underwriter, (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation, and (iii) no Selling Stockholder
shall be required to contribute any amount in excess of the proceeds received by
such Selling Stockholder from the Underwriters in the offering. The
Underwriters' obligations in this Section 8(e) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
23
<PAGE> 24
(g) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or a Selling
Stockholder), you, as Representatives of the Underwriters, shall use your
reasonable efforts to procure within 36 hours thereafter one or more of the
other Underwriters, or any others, to purchase from the Company and the Selling
Stockholders such amounts as may be agreed upon and upon the terms set forth
herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 36
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (a) if the aggregate number of shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (b) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company and the
Selling Stockholders or you as the Representatives of the Underwriters will have
the right, by written notice given within the next 36-hour period to the parties
to this Agreement, to terminate this Agreement without liability on the part of
the non-defaulting Underwriters or of the Company or of the Selling Stockholders
except to the extent provided in Section 8 hereof. In the event of a default by
any Underwriter or Underwriters, as set forth in this Section 9, the Closing
Date or Option Closing Date, as the case may be, may be postponed for such
period, not exceeding seven days, as you, as Representatives, may determine in
order that the required changes in the Registration Statement or in the
Prospectus or in any other documents or arrangements may be effected. The term
"Underwriter" includes any person substituted for a defaulting Underwriter. Any
action taken under this Section 9 shall not relieve any defaulting Underwriter
from liability in respect of any default of such Underwriter under this
Agreement.
24
<PAGE> 25
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to BT Alex. Brown
Incorporated, One South Street, Baltimore, Maryland 21202, Attention: Equity
Syndicate; with a copy to BT Alex. Brown Incorporated, One South Street,
Baltimore, Maryland 21202. Attention: General Counsel; if to the Company or the
Selling Stockholders, to
FlexiInternational Software, Inc.
Two Enterprise Drive
Shelton, Connecticut 06484
Attention: Chairman of the Board
11. TERMINATION.
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m.
eastern time on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting the
condition, financial or otherwise, of the Company or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the ordinary
course of business, (ii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, escalation, declaration, emergency, calamity, crisis or change
on the financial markets of the United States would, in your reasonable
judgment, make it impracticable to market the Shares or to enforce contracts for
the sale of the Shares, or (iii) suspension of trading in securities generally
on the New York Stock Exchange or the American Stock Exchange or limitation on
prices (other than limitations on hours or numbers of days of trading) for
securities on either such exchange, (iv) the enactment, publication, decree or
other promulgation of any statute, regulation, rule or order of any court or
other governmental authority which in your opinion materially and adversely
affects or may materially and adversely affect the business or operations of the
Company, (v) declaration of a banking moratorium by United States or New York
State authorities, (vi) any downgrading in the rating of the Company's debt
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Exchange Act); (vii) the
suspension of trading of the Common Stock by the Commission on the Nasdaq
National Market or (viii) the taking of any action by any governmental body or
agency in respect of its monetary or fiscal affairs which in
25
<PAGE> 26
your reasonable opinion has a material adverse effect on the securities markets
in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and the Selling Stockholders and their respective
successors, executors, administrators, heirs and assigns, and the officers,
directors and controlling persons referred to herein, and no other person will
have any right or obligation hereunder. No purchaser of any of the Shares from
any Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company, the Selling Stockholders and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the last paragraph on the
front cover page of the Prospectus (insofar as such information relates to the
Underwriters), the legend required by Item 502(d) of Regulation S-K under the
Act and the information under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
This 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.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Maryland.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Stockholders, the
Company and the several Underwriters in accordance with its terms.
26
<PAGE> 27
Any person executing and delivering this Agreement as Attorney-in-Fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
Very truly yours,
FLEXIINTERNATIONAL SOFTWARE, INC.
By
-----------------------------------------
Name:
Title:
Selling Stockholders listed on Schedule II
By
-----------------------------------------
Name:
Attorney-in-Fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
HAMBRECHT & QUIST LLC
WESSELS, ARNOLD & HENDERSON, L.L.C.
As Representatives of the several
Underwriters listed on Schedule I
By: BT ALEX. BROWN INCORPORATED
By:
-------------------------------
Name:
Title:
27
<PAGE> 28
SCHEDULE I
<TABLE>
SCHEDULE OF UNDERWRITERS
<CAPTION>
Number of Firm Shares
Underwriter to be Purchased
----------- ---------------------
<S> <C>
BT Alex. Brown Incorporated
Hambrecht & Quist LLC
Wessels, Arnold & Henderson, L.L.C.
Total 3,000,000
</TABLE>
I-1
<PAGE> 29
SCHEDULE II
<TABLE>
SCHEDULE OF SELLING STOCKHOLDERS
<CAPTION>
Number of Firm Shares
Selling Stockholder to be Sold
------------------- ---------------------
<S> <C>
Furman Selz SBIC, L.P. 223,864
William Blair Capital Partners V, L.P. 137,039
Primus Capital Fund III Limited Partnership 133,516
Christopher McManus 73,331
Tarek Kettaneh 182,250
Total 750,000
</TABLE>
II-1
<PAGE> 30
SCHEDULE III
<TABLE>
SCHEDULE OF OPTION SHARES
<CAPTION>
Maximum Number Percentage of
of Option Shares Total Number of
Name of Seller to be Sold Option Shares
-------------- ---------------- ---------------
<S> <C> <C>
Furman Selz SBIC, L.P. 107,092 23.8%
Stefan R. Bothe 75,000 16.7%
William Blair Capital Partners V, L.P. 65,557 14.6%
Primus Capital Fund III Limited Partnership 63,871 14.2%
Christopher McManus 55,980 12.4%
Christiane LaFeld 37,500 8.3%
James W. Schenck 37,500 8.3%
Vincent Montali 7,500 1.7%
------- ----
Total 450,000 100%
======= ====
</TABLE>
III-1
<PAGE> 31
SCHEDULE IV
LIST OF JURISDICTIONS
California
Connecticut
Florida
Georgia
Illinois
Massachusetts
New Jersey
Texas
Washington
IV-1
<PAGE> 32
SCHEDULE V
MANAGEMENT SELLING STOCKHOLDERS
Stefan R. Bothe
James W. Schenck
V-1
<PAGE> 1
Exhibit 5
HALE AND DORR LLP
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 * FAX 617-526-5000
December 3, 1997
FlexiInternational Software, Inc.
Two Enterprise Drive
Shelton, CT 06484
Re: Registration Statement On Form S-1
----------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with a Registration
Statement on Form S-1 (File No. 333-38403) (as amended, the "Registration
Statement") filed with the Securities and Exchange Commission (the "Commission")
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of an aggregate of 3,450,000 shares of Common Stock, $.01 par value
per share (the "Shares"), of FlexiInternational Software, Inc., a Delaware
corporation (the "Company"), consisting of (i) 2,250,000 Shares to be issued and
sold by the Company, (ii) 750,000 Shares to be sold by certain stockholders of
the Company (the "Selling Stockholders"), and (iii) up to 450,000 Shares to be
sold by the Selling Stockholders upon the exercise of an over-allotment option.
The Shares are to be sold by the Company and the Selling Stockholders
pursuant to an underwriting agreement (the "Underwriting Agreement") to be
entered into by and among the Company and BT Alex. Brown Incorporated, Hambrecht
& Quist LLC and Wessels, Arnold & Henderson, L.L.C., as representatives of the
several underwriters named in the Underwriting Agreement.
We are acting as counsel for the Company in connection with the sale by
the Company and the Selling Stockholders of the Shares. We have examined signed
copies of the Registration Statement as filed with the Commission. We have also
examined and relied upon the Underwriting Agreement, minutes of meetings of the
stockholders and the Board of Directors of the Company as provided to us by the
Company, stock record books of the Company as provided to us by the Company, the
Certificate of Incorporation and By-Laws of the Company, each as restated and/or
amended to date, and such other documents as we have deemed necessary for
purposes of rendering the opinions hereinafter set forth.
In our examination of the foregoing documents, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as
<PAGE> 2
FlexiInternational Software, Inc.
December , 1997
Page 2
copies, the authenticity of the originals of such latter documents and the legal
competence of all signatories to such documents.
We assume that the appropriate action will be taken, prior to the offer
and sale of the Shares in accordance with the Underwriting Agreement, to
register and qualify the Shares for sale under all applicable state securities
or "blue sky" laws.
We express no opinion herein as to the laws of any state or
jurisdiction other than the state laws of the Commonwealth of Massachusetts, the
General Corporation Law statute of the State of Delaware and the federal laws of
the United States of America.
Based upon and subject to the foregoing, we are of the opinion that (i)
the Shares to be issued and sold by the Company have been duly authorized for
issuance and, when such Shares are issued and paid for in accordance with the
terms and conditions of the Underwriting Agreement, such Shares will be validly
issued, fully paid and nonassessable and (ii) the Shares to be sold by the
Selling Stockholders have been duly authorized and are validly issued, fully
paid and nonassessable.
It is understood that this opinion is to be used only in connection
with the offer and sale of the Shares while the Registration Statement is in
effect.
Please note that we are opining only as to the matters expressly set
forth herein, and no opinion should be inferred as to any other matters.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement in accordance with the requirements of
Item 605(b)(5) of Regulation S-K under the Securities Act and to the use of our
name therein and in the related Prospectus under the caption "Legal Matters." In
giving such consent, we do not hereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations of the Commission.
Very truly yours,
/s/ Hale and Dorr LLP
HALE AND DORR LLP
<PAGE> 1
Exhibit 10.21
STOCKHOLDERS' VOTING AGREEMENT
Agreement made this 7th day of May, 1996, by and among FlexiInternational
Software, Inc., a Delaware corporation (the "Company"), 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"), Furman Selz SBIC, L.P. ("Furman Selz") and
Terrence M. Quinn (individually, a "Purchaser" and collectively, the
"Purchasers"), Stefan R. Bothe, Jennifer V. Cheng and James W. Schenck
(individually, a "Founder" and collectively, the "Founders"), Christopher
McManus ("McManus"), Comdisco, Inc. ("Comdisco"), CDC Realty, Inc. ("Realty")
and The Connecticut Development Authority ("CDA"). The Purchasers, the Founders,
McManus, Realty, Comdisco, Realty and CDA are sometimes referred to in this
Agreement collectively as the "Stockholders."
RECITALS:
1. The Founders, certain Purchasers and McManus own certain outstanding
shares of the Common Stock of the Company; Menlo VI, Entrepreneurs VI, Primus
and McManus own certain outstanding shares of Series A Convertible Preferred
Stock of the Company; and WBC, Menlo VI, Entrepreneurs VI, Primus and Comdisco
own certain outstanding shares of Series B Convertible Preferred Stock of the
Company;
2. Realty and Comdisco own certain warrants to purchase Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock of the
Company, the Founders and certain Purchasers own certain options and warrants to
purchase Common Stock of the Company, and CDA owns certain warrants to purchase
Common Stock of the Company and is the holder of a promissory note convertible
into Common Stock of the Company;
3. The Purchasers are purchasing, concurrently herewith, certain shares of
capital stock of the Company pursuant to the Series C Preferred Stock Purchase
Agreement of even date herewith (the "Purchase Agreement"); and
4. The Purchasers and Founders wish to provide for their representation on
the Board of Directors of the Company in the manner set forth below.
In consideration of the mutual covenants contained herein and the
consummation of the sale and purchase of shares of capital stock of the Company
pursuant to the Purchase Agreement, and for other valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE> 2
1. VOTING OF SHARES.
(a) In any and all elections of directors of the Company (whether at a
meeting or by written consent in lieu of a meeting), each Stockholder shall vote
or cause to be voted all Shares (as defined in Section 2 below) owned by such
Stockholder, or over which such Stockholder has voting control, and otherwise
use such Stockholder's respective best efforts, so as to fix the number of
directors of the Company at nine (9) and to elect (i) one (1) member designated
by Menlo VI, (ii) one (1) member designated by Primus, (iii) one (1) member
designated by WBC, (iv) one (1) member designated by Furman Selz, (v) three (3)
members designated by the Founders (by action of the holders of a majority of
the Shares held by all Founders) and (vi) two (2) members agreed to by a
majority of the directors designated by the Founders and by a majority of the
directors designated by Menlo VI, Primus, WBC and Furman Selz, respectively. The
director initially designated by Menlo VI is Thomas H. Bredt, the director
initially designated by Primus is Jonathan E. Dick, the director initially
designated by WBC is Ellen Carnahan and the director initially designated by
Furman Selz is James Luikart. The directors initially designated by the Founders
are Stefan R. Bothe, Jennifer V. Cheng and James W. Schenck. The directors
agreed to by a majority of the directors designated by the Founders and a
majority of the directors designated by Menlo VI, Primus, WBC and Furman Selz,
respectively, are, subject to such agreement, Tarek Kettaneh and John Landry.
(b) The Company shall provide the Stockholders with 30 days' prior
written notice of any intended mailing of a notice to stockholders for a meeting
at which directors are to be elected. Menlo VI, Primus, WBC, Furman Selz and the
Founders shall give written notice to all other parties to this Agreement, no
later than 20 days prior to such mailing, of the persons designated by Menlo VI,
Primus, WBC, Furman Selz and the Founders as nominees for election as directors.
The Company agrees to nominate and recommend for election as directors only the
individuals designated, or to be designated, pursuant to Section 1(a). If Menlo
VI, Primus, WBC, Furman Selz or the Founders shall fail to give notice to the
Company as provided above, or if no nominee is agreed upon pursuant to Section
1(a)(vi), it shall be deemed that the designees of Menlo VI, Primus, WBC, Furman
Selz or the Founders, or the designees jointly designated pursuant to Section
1(a)(vi), as the case may be, then serving as directors shall be their
respective designees for reelection.
(c) Neither the Purchasers nor the Founders shall vote to remove any
director designated pursuant to Section 1(a) except for bad faith or willful
misconduct; provided, however, that any Purchaser or Founder that has the right
under Section 1(a) to designate a director, shall have the right to remove such
director for any reason and replace such director (or leave the directorship
vacant with the reservation of the right of such Purchaser or Founder to fill
such vacancy in the future) and upon receiving notice of a request to do so,
each Stockholder shall take all actions necessary to remove such director and
elect his or her replacement.
2
<PAGE> 3
(d) Any Purchaser which is a holder of any shares of Series A, Series
B or Series C Preferred Stock (the "Preferred Stock") shall, with respect to any
matter requiring a vote of the Preferred Stock (voting together as a single
class of Preferred Stock) under Article FOURTH (B)(3)(b) of the Company's
Certificate of Incorporation, vote all the shares of Preferred Stock held by
such Purchaser in the manner directed by mutual agreement of three (3) of the
following: WBC, Menlo VI, Primus and Furman Selz; provided, however, that in the
event that three (3) of the foregoing Purchasers cannot agree with respect to
any matter requiring a vote of Preferred Stock under such Article FOURTH
(B)(3)(b), all Purchasers shall abstain from voting with respect to such matter.
2. SHARES. "Shares" shall mean and include any and all shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C
Convertible Preferred Stock, Common Stock and/or shares of capital stock of the
Company, by whatever name called, which carry voting rights (including voting
rights which arise by reason of default) and shall include any shares now owned
or subsequently acquired by a Stockholder, however acquired, including without
limitation stock splits and stock dividends.
3. TERMINATION. This Agreement shall terminate in its entirety on the
earliest of (a) the tenth anniversary of the date of this Agreement, or (b) 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, at a price of not less than $3.30 per share (appropriately
adjusted to reflect any stock dividend, stock split, combination or other
recapitalization affecting such shares) and resulting in at least $10,000,000 of
gross proceeds to the Company.
4. NO REVOCATION. The voting agreements contained herein are coupled with
an interest and may not be revoked, except by written consent of all of the
Stockholders.
5. INDEMNIFICATION. In the event that any director elected pursuant to
Section 1 of this Agreement shall be made or threatened to be made a party to
any action, suit or proceeding with respect to which he may be entitled to
indemnification by the Company pursuant to its Certificate of Incorporation or
By-Laws, or otherwise, he shall be entitled to be represented in such action,
suit or proceeding by counsel of his choice and the reasonable expenses of such
representation shall be reimbursed by the Company to the extent provided in or
authorized by said Certificate of Incorporation or By-laws. Each of the
Stockholders agrees not to take any action to amend any provisions of the
Certificate of Incorporation or the By-Laws of the Company relating to
indemnification of directors, as presently in effect, without the prior written
consent of all of the Stockholders.
3
<PAGE> 4
6. RESTRICTIVE LEGEND. All certificates representing Shares owned or
hereafter acquired by the Stockholders or any transferee of the Stockholders
bound by this Agreement shall have affixed thereto a legend substantially in the
following form:
"The shares of stock represented by this certificate are subject to
certain voting agreements as set forth in a Stockholders' Voting
Agreement by and among the registered owner of this certificate, the
Company and certain other stockholders of the Company, a copy of which
is available for inspection at the offices of the Secretary of the
Company."
7. TRANSFERS OF RIGHTS. Any transferee to whom Shares are transferred by
a Purchaser, whether voluntarily or by operation of law, shall be bound by the
voting obligations imposed upon the transferor under this Agreement, and shall
be entitled to the rights granted to the transferor under this Agreement, to the
same extent as if such transferee were a Purchaser hereunder.
8. GENERAL.
(a) SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
(b) SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company and the Stockholders hereunder and to such other
injunctive or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
(d) 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;
4
<PAGE> 5
If to the Purchasers, at the address shown on Exhibit A attached hereto, 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.
If to the Founders, at Two Enterprise Drive, Shelton, Connecticut 06484, or
at such other address or addresses as may have been furnished to the Company in
writing by such Founders.
If to McManus, at Offshore Asset Management, Inc., 191 Post Road West,
Westport, CT 06880, or at such other address as may have been furnished to the
Company in writing by McManus.
If to Comdisco, at 6111 North River Road, Rosemont, Illinois 60018, or at
such other address or addresses as may have been furnished to the Company in
writing by Comdisco.
If to Realty, at 6111 North River Road, Rosemont, Illinois 60018, or at
such other address or addresses as may have been furnished to the Company in
writing by Realty.
If to CDA, at 845 Brook Street, STE 2, Rocky Hill, Connecticut 06067, or at
such other address or addresses as may have been furnished to the Company in
writing by CDA.
Notices provided in accordance with this Section 8 shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(e) COMPLETE AGREEMENT; AMENDMENTS. This Agreement constitutes the
full and complete agreement of the parties hereto with respect to the subject
matter hereof, and the Stockholders' Voting Agreement dated as of January 20,
1995, as amended to date, among the Company, the Founders, McManus, Comdisco,
CDA and certain of the Purchasers and their affiliates, is hereby terminated. No
amendment, modification or termination of any provision of this Agreement shall
be valid unless in writing and signed by the Company, the holders of a majority
of the voting power of the Shares then held by all the Founders and the holders
of 80% of the voting power of the Shares then held by all the
5
<PAGE> 6
Purchasers; provided, however that no amendment that affects a Stockholder's
right to designate a director hereunder shall be effective without the consent
of such Stockholder.
(f) PRONOUNS. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute one Agreement binding on all the
parties hereto.
(h) CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above written.
COMPANY:
FlexiInternational Software, Inc.
By:/s/ Stefan R. Bothe
--------------------------------
Title:
-------------------------
FOUNDERS:
/s/ Stefan R. Bothe
-----------------------------------
Stefan R. Bothe
/s/ Jennifer V. Cheng
-----------------------------------
Jennifer V. Cheng
/s/ James W. Schenck
-----------------------------------
James W. Schenck
6
<PAGE> 7
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 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 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
7
<PAGE> 8
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
/s/ Christopher McManus
-----------------------------------
Christopher McManus
Comdisco, Inc.
By:/s/ Jill C. Hanses
--------------------------------
Title:
CDC Realty, Inc.
By:/s/ Jill C. Hanses
--------------------------------
Title:
The Connecticut Development Authority
By:/s/ [not eligible]
--------------------------------
Title: Senior Vice President and
Managing Director
8
<PAGE> 9
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
9
<PAGE> 1
Exhibit 10.22
PARTICIPATION 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").
As used in this Agreement, the term "Shares" shall include all shares of
capital stock of the Company held by the Purchasers, whether now owned or
hereafter acquired. For purposes of calculating a Purchaser's ownership of
shares, all shares of Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock (collectively,
"Preferred Stock") of the Company shall be deemed to have been converted into
shares of Common Stock.
In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:
1. RIGHT OF FIRST REFUSAL.
(a) The Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, (i)
any shares of its common stock, $.01 par value per share ("the Common Stock"),
(ii) any other equity securities of the Company, including, without limitation,
shares of Preferred Stock, (iii) any option, warrant or other right to subscribe
for, purchase or otherwise acquire any equity securities of the Company, or (iv)
any debt securities convertible into capital stock of the Company (collectively,
the "Offered Securities"), unless in each such case the Company shall have first
complied with this Agreement. The Company shall deliver to each Purchaser a
written notice of any proposed or intended issuance, sale or exchange of Offered
Securities (the "Offer"), which Offer shall (i) identify and describe the
Offered Securities, (ii) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (iii) identify the persons or
entities to which or with which the Offered Securities are to be offered,
issued, sold or exchanged and (iv) offer to issue and sell to or exchange with
such Purchaser (A) such portion of the Offered Securities as the aggregate
number of Shares then held by such Purchaser bears to the total number of Shares
then held by to all Purchasers (the "Basic Amount"), and (B) any additional
portion of the Offered Securities as such Purchaser shall indicate it will
purchase or acquire should the other Purchasers subscribe for less than their
Basic Amounts (the "Undersubscription Amount"). Each Purchaser shall have the
right, for a period of 30 days following delivery of the Offer, to purchase or
acquire, at a price and upon the other terms specified in the Offer, the number
or amount of Offered Securities described above. The Offer by its term shall
remain open and irrevocable for such 30-day period.
(b) To accept an Offer, in whole or in part, a Purchaser must deliver
a written notice to the Company prior to the end of the 30-day period of the
Offer,
<PAGE> 2
setting forth the portion of the Purchaser's Basic Amount that such Purchaser
elects to purchase and, if such Purchaser shall elect to purchase all of its
Basic Amount, the Undersubscription Amount (if any) that such Purchaser elects
to purchase (the "Notice of Acceptance"). If the Basic Amounts subscribed for by
all Purchasers are less than the total Offered Securities, then each Purchaser
who has set forth Undersubscription Amounts in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, all
Undersubscription Amounts it has subscribed for; PROVIDED, HOWEVER, that should
the Undersubscription Amounts subscribed for exceed the difference between the
Offered Securities and the Basic Amounts subscribed for (the "Available
Undersubscription Amount"), each Purchaser who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Purchaser bears to the total Undersubscription Amounts subscribed
for by all Purchasers, subject to rounding by the Board of Directors to the
extent it reasonably deems necessary.
(c) In the event that Notices of Acceptance are not given by the
Purchasers in respect of all the Offered Securities, the Company shall have 90
days from the expiration of the period set forth in Section 1(a) above to issue,
sell or exchange all or any part of such Offered Securities as to which a Notice
of Acceptance has not been given by the Purchasers (the "Refused Securities"),
but only to the offerees or purchasers described in the Offer and only upon
terms and conditions (including, without limitation, unit prices and interest
rates) which are not more favorable, in the aggregate, to the acquiring person
or persons or less favorable to the Company than those set forth in the Offer.
(d) In the event the Company shall propose to sell less than all the
Refused Securities (any such sale to be in the manner and on the terms specified
in Section 1(c) above), then each Purchaser may, at its sole option and in its
sole discretion, reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less than the number
or amount of the Offered Securities that the Purchaser elected to purchase
pursuant to Section 1(b) above multiplied by a fraction, (i) the numerator of
which shall be the number or amount of Offered Securities the Company actually
proposes to issue, sell or exchange (including Offered Securities to be issued
or sold to Purchasers pursuant to Section 1(b) above prior to such reduction)
and (ii) the denominator of which shall be the amount of all Offered Securities.
In the event that any Purchaser so elects to reduce the number or amount of
Offered Securities specified in its Notice of Acceptance, the Company may not
issue, sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Purchasers in accordance with Section 1(a) above.
(e) Upon the closing of the issuance, sale or exchange of all or less
than all the Refused Securities, the Purchasers shall acquire from the Company,
and
2
<PAGE> 3
the Company shall issue to the Purchasers, the number or amount of Offered
Securities specified in the Notices of Acceptance, as reduced pursuant to
Section 1(d) above if the Purchasers have so elected, upon the terms and
conditions specified in the Offer. The purchase by the Purchasers of any Offered
Securities is subject in all cases to the preparation, execution and delivery by
the Company and the Purchasers of a purchase agreement relating to such Offered
Securities reasonably satisfactory in form and substance to the Purchasers and
their respective counsel.
(f) Any Offered Securities not acquired by the Purchasers or other
persons in accordance with Section 1(c) above may not be issued, sold or
exchanged until they are again offered to the Purchasers under the procedures
specified in this Agreement.
(g) The rights of the Purchasers under this Agreement shall not apply
to:
(1) Common Stock issued as a stock dividend to holders of
Common Stock or upon any subdivision or combination of shares of
Common Stock,
(2) the issuance of any shares of Common Stock upon
conversion of outstanding shares of convertible Preferred Stock,
(3) up to 1,816,500 shares of Common Stock, or options
exercisable therefor, including options outstanding on the date
of this Agreement (such number to be proportionately adjusted in
the event of any stock splits, stock dividends, recapitalizations
or similar events occurring on or after the date of this
Agreement) issuable to officers, directors, consultants and
employees of the Company and any subsidiary pursuant to any plan,
agreement or arrangement approved by a vote of not less than a
majority of the Board of Directors of the Company,
(4) securities issued solely in consideration for the
acquisition (whether by merger or otherwise) by the Company or
any of its subsidiaries of all or substantially all of the stock
or assets of any other entity, or
(5) shares of Common Stock sold by the Company in an
underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), resulting in at least $10,000,000
of gross proceeds to the Company.
2. TERMINATION OF AGREEMENT. This Agreement shall terminate upon the
earliest of the following events:
(1) The written agreement of all of the Purchasers to terminate this
Agreement;
3
<PAGE> 4
(2) The sale of all or substantially all of the assets or business of
the Company, by merger, sale of assets or otherwise; or
(3) 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 share (appropriately
adjusted to reflect any stock dividend, stock split, combination or other
recapitalization affecting such shares) and resulting in at least $10,000,000 of
gross proceeds to the Company.
3. TRANSFER 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.
4. GENERAL.
(a) SEVERABILITY. The provisions of this Agreement are severable, so
that the invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other term or provision of this
Agreement, which shall remain in full force and effect.
(b) SPECIFIC PERFORMANCE. In addition to any and all other remedies
that may be available at law in the event of any breach of this Agreement, each
Purchaser shall be entitled to specific performance of the agreements and
obligations of the Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent jurisdiction.
(c) GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware.
(d) 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, Massachusetts 02109;
or
If to a Purchaser, at such address or addresses set forth after the
respective Purchaser on EXHIBIT A hereto, or at such address as may have been
furnished to the Company in writing by such Purchaser.
4
<PAGE> 5
Notices provided in accordance with this Section 4(d) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
(e) COMPLETE AGREEMENT; AMENDMENTS. This Agreement constitutes the
full and complete agreement of the parties hereto with respect to the subject
matter hereof, and the Participation 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. No amendment, modification or termination of
any provision of this Agreement shall be valid unless in writing and signed by
the Company and the holders of 80% of the voting power of the Shares then held
by the Purchasers (giving effect to the conversion into Common Stock of all
securities convertible thereinto).
(f) PRONOUNS. Whenever the content may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall constitute one Agreement binding on all the
parties hereto.
(h) CAPTIONS. Captions of sections have been added only for
convenience and shall not be deemed to be a part of this Agreement.
EXECUTED as of the date first above written.
COMPANY:
FlexiInternational Software, Inc.
By:/s/ Stefan R. 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
5
<PAGE> 6
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 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
6
<PAGE> 7
Comdisco, Inc.
By:/s/ Jill C. Hanses
----------------------------------
Its: Assistant Vice President
CDC Realty, Inc.
By:/s/ Jill C. Hanses
----------------------------------
Its: Assistant Vice President
The Connecticut Development Authority
By:/s/ [not eligible]
----------------------------------
Title: Senior Vice President and
Managing Director
/s/ Christopher McManus
-------------------------------------
Christopher McManus
7
<PAGE> 8
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
12 Old Redding Road
Weston, CT 06883
in each case with a copy to:
Steven M. Spurlock, Esq.
Gunderson Dettmer Stough
Villeneuve Franklin
& Hachigan, LLP
600 Hansen Way, Second Floor
Palo Alto, California 94304.
8
<PAGE> 9
Christopher McManus
Offshore Asset Management, Inc.
191 Post Road West
Westport, CT 06880
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
9
<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, except
as to the stock split described in Note 7 which is as of November 6, 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
December 2, 1997
