<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 12, 1997
REGISTRATION NO. 333-38403
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
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
NOVEMBER 12, 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)."
[Caption:] 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.
---------------
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 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.
Potential Fluctuations in Quarterly Performance; Seasonality. The
Company's revenues and operating results have varied substantially from quarter
to quarter. The Company's quarterly operating results may continue to fluctuate
due to a number of factors, including the timing, size and nature of the
Company's licensing transactions; the market acceptance of new services,
products or product enhancements by the Company or its competitors; product and
price competition; the relative proportions of revenues derived from license
fees, services and third-party channels; changes in the Company's operating
expenses; personnel changes; the timing of the introduction, and the performance
of, the Company's Flexi Industry Partners; foreign currency exchange rates; and
fluctuations in economic and financial market conditions.
The timing, size and nature of individual licensing transactions are
important factors in the Company's quarterly results of operations. Many such
transactions involve large dollar amounts, and the sales cycles for these
transactions are often lengthy and unpredictable. In addition, the sales cycles
associated with these transactions are subject to a number of uncertainties,
including customers' budgetary constraints, the timing of customers' budget
cycles and customers' internal approval processes. There can be no assurance
that the Company will be successful in closing such large transactions on a
timely basis or at all. Software license revenues under the Company's license
agreements are recognized upon delivery and installation of the product and when
all significant contractual obligations have been satisfied. Delays in the
installation of the Company's software, including potential delays associated
with contractual enhancements to the Company's software products, could
materially adversely affect the Company's quarterly results of operations. In
addition, as the Company derives a significant proportion of total revenues from
license revenues, the Company may realize a disproportionate amount of its
revenues and income in the last month of each quarter and, as a result, the
magnitude of quarterly fluctuations may not become evident until late in, or at
the end of, a given quarter. Accordingly, delays in product delivery and
installation or in the closing of sales near the end of a quarter could cause
quarterly revenues and, to a greater degree, results of operations to fall
substantially short of anticipated levels. In addition, a limited number of the
Company's client services are performed on a fixed-price basis and, therefore,
the Company bears the risk of cost overruns and inflation. The Company's results
of operations may be adversely affected by inaccurate estimates of completion
costs for such services.
6
<PAGE> 8
The Company's expense levels are based, in significant part, on its
expectations as to future revenues and are largely fixed in the short term. As a
result, the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected shortfall in revenues. Accordingly, any
significant shortfall of revenues in relation to the Company's expectations
would have an immediate and material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company plans to
increase operating expenses to expand its research and development, client
services, sales and marketing and administrative organizations. The timing of
such expansion and the rate at which new personnel become productive could cause
material fluctuations in quarterly and annual results of operations.
The Company has experienced, and may experience in the future, significant
seasonality in its business, and the Company's financial condition or results of
operations may be affected by such trends in the future. Revenues have
historically increased at higher rates in the fourth quarter of the year and at
lower rates in the next succeeding quarter, which the Company believes is due to
the Company's quota-based compensation arrangements, typical of those used in
software companies, and year-end budgetary pressures on the Company's customers.
The Company believes that this seasonal trend may continue for the foreseeable
future.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance. There can be no assurance that future revenues and results
of operations will not vary substantially. It is also possible that in some
future quarter the Company's results of operations will be below the
expectations of public market analysts and investors. In either case, the price
of the Company's Common Stock could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management of Growth. The Company is currently experiencing a period of
rapid growth that could place a significant strain on its management and other
resources. The Company's business has grown significantly in size and complexity
over the past three years. Total revenues increased from $853,000 in 1994 to
$8.3 million in 1996 and to $12.5 million for the nine months ended September
30, 1997. In addition, the number of employees increased from 16 in 1994 to 138
as of September 30, 1997, and the Company expects to hire additional personnel
during 1997 and 1998. The growth in the size and complexity of the Company's
business as well as its customer base has placed and is expected to continue to
place a significant strain on the Company's management and operations. Certain
members of the Company's senior management team have been with the Company for
less than a year, and the Company's senior management has had limited experience
in managing publicly traded companies. In addition, more than half of the
Company's sales and marketing professionals have been with the Company for less
than a year. The Company anticipates that continued growth, if any, will require
it to recruit and hire a substantial number of new research and development,
consulting, sales and marketing and administrative personnel. There can be no
assurance that the Company will be successful in hiring or retaining such
personnel. The Company's ability to compete effectively and to manage future
growth, if any, will depend on its ability to continue to implement and improve
operational, financial and management information systems on a timely basis and
to expand, train, motivate and manage its work force. There can be no assurance
that the Company's personnel, systems, procedures and controls will be adequate
to support the Company's operations. In addition, one element of the Company's
business strategy is to seek acquisitions of businesses, products and
technologies that are complementary to those of the Company. There can be no
assurance that the Company will be able to identify and acquire such businesses
on reasonable terms, integrate fully any such acquired businesses with the
Company's existing operations, operate any such businesses profitably or
otherwise implement its growth strategy. If the Company's management is unable
to manage growth effectively, the quality of the Company's products and its
business, financial condition and results of operations could be materially
adversely affected.
Dependence on Key Personnel. The Company's performance depends
substantially on the performance of its executive officers and key employees,
including the Company's sales force and software professionals, particularly
project managers, software engineers and other senior technical personnel. The
Company is dependent on its ability to attract, retain and motivate high-quality
personnel, especially its management, sales staff and highly skilled development
team. The Company does not have employment contracts with any of its key
personnel. The loss of the services of any of the Company's executive officers
or other key employees
7
<PAGE> 9
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Employees" and
"Management."
Lengthy Sales Cycle. The Company's software is often used for
business-critical purposes, and its implementation involves significant capital
commitments by customers. Potential customers generally commit significant
resources to an evaluation of available software and require the Company to
expend substantial time, effort and money educating potential customers about
the value of the Company's solutions. Sales of the Company's software products
require an extensive education and marketing effort throughout a customer's
organization because decisions to license such software generally involve the
evaluation of the software by a significant number of customer personnel in
various functional and geographic areas, each having specific and often
conflicting requirements. A variety of factors, including factors over which the
Company has little or no control, may cause potential customers to favor a
competing vendor or to delay or forego a purchase. As a result of these or other
factors, the sales cycle for the Company's products is long, typically ranging
between three and nine months. Due to the length of the sales cycle for its
software products, including delays in implementing the Company's software
across several functional and geographic areas of an organization, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
delay or failure to complete one or more large license transactions could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Product Concentration. To date, substantially all of the Company's
revenues have been attributable to the licensing of its FlexiFinancials,
FlexiInfoSuite and FlexiTools financial accounting products and the provision of
consulting, training and software installation services in connection therewith.
The Company currently expects that the licensing of its financial accounting
software, and the provision of related services, will account for a substantial
portion of its revenues for the foreseeable future. As a result, factors
adversely affecting the pricing of or demand for such products and services,
such as competition or technological change, could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company's future financial performance will depend, in significant part, on
the continued market acceptance of the Company's existing products and the
successful development, introduction and customer acceptance of new and enhanced
versions of its software products and services. There can be no assurance that
the Company will be successful in developing and marketing its financial
accounting products. See "Business -- Research and Development."
Rapid Technological Change and Evolving Market. The market for the
Company's products and services is characterized by rapidly changing technology,
evolving industry standards and new product introductions and enhancements that
may render existing products obsolete or less competitive. As a result, the
Company's position in the financial applications software market could erode
rapidly due to unforeseen changes in the features and functionality of competing
products, as well as the pricing models for such products. The Company's future
success will depend in part upon the widespread adoption of object-oriented,
component-based standards and the development of the Internet as a viable
commercial marketplace, as well as the Company's ability to enhance its existing
products and services and to develop and introduce new products and services to
meet changing customer requirements. The process of developing products and
services such as those offered by the Company is extremely complex and is
expected to become increasingly complex and expensive in the future with the
introduction of new platforms and technologies. In addition, the Company has on
occasion experienced delays in the scheduled release of software products or the
porting of such products to specific platforms or configurations. There can be
no assurance that the financial services and other industries will adopt
object-oriented, component-based standards, that the Company will successfully
complete the development of new products in a timely fashion or that the
Company's current or future products will satisfy the needs of potential
customers.
Concentration of Customers. Historically, a limited number of customers
have accounted for a significant percentage of the Company's revenues in each
year. During the years ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997, five customers, one customer, one customer and
two customers, respectively, each represented 10% or more of the Company's total
revenues (or an aggregate of 68.8%, 12.1%, 12.3% and 35.4% of total revenues,
respectively). Although the Company's largest customers have varied from period
to period, the Company anticipates that its results of operations in any given
period will continue to depend to a significant extent upon revenues from a
small number of customers.
8
<PAGE> 10
For instance, during the nine months ended September 30, 1997, Citibank, N.A.
and Skandinaviska Enskilda Banken represented 23.9% and 11.5% of the Company's
total revenues, respectively. The failure of the Company to enter into a
sufficient number of large licensing agreements during a particular period could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
Competition. The market for the Company's products and services is
intensely competitive and is characterized by rapid change in technology and
user needs and the frequent introduction of new products. The Company's
principal competitors include PeopleSoft, Inc., SAP AG, Oracle Corporation, GEAC
Computer Corporation Limited, SQL Financials International, Inc. and Lawson
Software. The Company also faces competition from providers of industry-specific
applications as well as indirect competition from in-house, custom-developed
financial management applications. A number of the Company's competitors are
more established, benefit from greater name recognition and have substantially
greater financial, technical and marketing resources than the Company and its
FIPs and distributors. Moreover, other than the need for financial and technical
expertise, there are no significant proprietary or other technological barriers
to entry in the financial accounting software market. There can be no assurance
that the Company's products and services or the solutions offered by the
Company's FIPs will compete effectively with those of their respective
competitors. The Company's FIPs may also develop or offer products and services
that compete with the Company's products and services. There can be no assurance
that the Company's FIPs will not give higher priority to the sales of these or
other competitive products and services. The Company also expects that
competition will increase as a result of software industry consolidation.
Increased competition may result in price reductions, reduced gross margins and
loss of market share, any of which could materially adversely affect the
Company's business, financial condition and results of operations. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, financial condition
and results of operations. See "Business -- Competition."
Year 2000 Compliance. Many currently installed computer systems and
software products are coded to accept only two-digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four-digit entries to distinguish 21st century dates from 20th century dates. As
a result, computer systems and/or software used by many companies may need to be
upgraded to comply with such "year 2000" requirements. Significant uncertainty
exists in the software industry concerning the potential effects associated with
such compliance. Although the Company currently offers software products that
are designed to be year 2000 compliant, there can be no assurance that the
Company's software products contain all necessary date code changes. In
addition, the Company has warranted, and may in the future warrant, to certain
customers that its products will be year 2000 compliant, and the failure of such
products to be year 2000 compliant could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company believes that the purchasing patterns of customers and
potential customers may be affected by year 2000 issues in a variety of ways.
Many companies are expending significant resources to correct or patch their
current software systems for year 2000 compliance. These expenditures may result
in reduced funds available to purchase software products such as those offered
by the Company. Many potential customers may also choose to defer purchasing
year 2000 compliant products until they believe it is absolutely necessary, thus
resulting in potentially stalled market sales within the industry. Conversely,
year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products. Additionally, year 2000 issues could cause a
significant number of companies, including current Company customers, to
reevaluate their current financial accounting system needs, and, as a result,
consider switching to other systems or suppliers. Any of the foregoing could
result in a material adverse effect on the Company's business, financial
condition or results of operations.
Potential for Product Liability. The Company's license agreements with its
customers typically contain provisions designed to limit the Company's exposure
to potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in the Company's license agreements
may not be
9
<PAGE> 11
effective under the laws of certain jurisdictions. The sale and support of
products by the Company and its FIPs may entail the risk of such claims, and
there can be no assurance that the Company will not be subject to such claims in
the future. The Company attempts to limit contractually its liability for
damages arising from negligent acts, errors, mistakes or omissions in rendering
its products and services. Despite this precaution, there can be no assurance
that the limitations of liability set forth in its contracts would be
enforceable or would otherwise protect the Company from liability for damages.
The Company maintains general liability insurance coverage, including coverage
for errors or omissions. However, there can be no assurance that such coverage
will continue to be available on acceptable terms, or will be available in
sufficient amounts to cover one or more large claims, or that the insurer will
not disclaim coverage as to any future claim. The successful assertion of one or
more large claims against the Company that exceed available insurance coverage
or changes in the Company's insurance policies, including premium increases or
the imposition of large deductible or co-insurance requirements, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, litigation with respect to liability claims,
regardless of its outcome, could result in substantial cost to the Company and
divert management's attention from the Company's operations. Any product
liability claim or litigation against the Company could, therefore, have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company has included security features in its products that are
intended to protect the privacy and integrity of customer data. Despite the
existence of these security features, the Company's software products may be
vulnerable to break-ins and similar disruptive problems. Such computer break-ins
and other disruptions may jeopardize the security of information stored in and
transmitted through the computer systems of the Company's customers, which may
result in loss of or delay in market acceptance of the Company's products.
Addressing these evolving security issues may require significant expenditures
of capital and resources by the Company, which may have a material adverse
effect on the Company's business, financial condition or results of operations.
Software Errors or Bugs. The Company's software products are highly
complex and sophisticated and could from time to time contain design defects or
software errors that could be difficult to detect and correct. Although the
Company has not experienced material adverse effects resulting from any software
errors, bugs or viruses, there can be no assurance that, despite testing by the
Company and its customers, errors will not be found in new or existing products,
which errors could result in a delay in or inability to achieve market
acceptance and thus could have a material adverse impact upon the Company's
business, financial condition and results of operations.
Limited Protection of Proprietary Rights. The Company's success is heavily
dependent upon its proprietary technology. The Company relies on a combination
of copyright, trademark and trade secret laws and license agreements to
establish and protect its rights in its software products and other proprietary
technology. The Company currently has one registered copyright and four
registered trademarks. In addition, the Company currently requires its employees
and consultants to enter into nondisclosure agreements to limit use of, access
to and distribution of its proprietary information. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate to prevent misappropriation. The laws of some
foreign countries may not protect the Company's proprietary rights as fully or
in the same manner as do the laws of the United States. Also, despite the steps
taken by the Company to protect its proprietary rights, it may be possible for
unauthorized third parties to copy aspects of the Company's products, reverse
engineer such products, develop similar technology independently or obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of the Company's products is difficult and, while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem, particularly in international
markets and as a result of the growing use of the Internet. Furthermore, there
can be no assurance that others will not develop technologies similar or
superior to the Company's technology or design around the proprietary rights of
the Company.
The Company typically licenses its products to end users under the
Company's standard license agreements, although each license is individually
negotiated and may contain variations. In order to facilitate the customization
required by certain of the Company's customers, the Company licenses its
software
10
<PAGE> 12
products in object code (machine-readable) and allows limited access to its
source code (human-readable) format. Although this practice facilitates
customization, making software available in source code also makes it easier for
third parties to copy or modify the Company's software for non-permitted or
unlicensed purposes.
In the future, the Company may receive notice of claims of infringement of
other parties' proprietary rights. Although the Company does not believe that
its products infringe the proprietary rights of third parties, there can be no
assurance that infringement or invalidity claims (or claims for indemnification
resulting from infringement claims) will not be asserted or prosecuted against
the Company or that any such assertions or prosecutions will not materially
adversely affect the Company's business, financial condition or results of
operations. Regardless of the validity or the successful assertion of such
claims, defending against such claims could result in significant costs and
diversion of Company resources with respect to the defense thereof, which could
have a material adverse effect on the Company's business, financial condition or
results of operations. In addition, the assertion of such infringement claims
could result in injunctions preventing the Company from distributing certain
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. If any claims or actions are
asserted against the Company, the Company may seek to obtain a license to such
intellectual property rights. There can be no assurance, however, that such a
license would be available on reasonable terms or at all.
Dependence on Third-Party Technology. The Company's proprietary software
is currently designed, and may in the future be designed, to work on or in
conjunction with certain third-party hardware and/or software products. If any
of these current or future third-party vendors were to discontinue making their
products available to the Company or to licensees of the Company's software or
to increase materially the cost for the Company or its licensees to acquire,
license or purchase the third-party vendors' products, or if a material problem
were to arise in connection with the ability of the Company to design its
software to properly use or operate with any third-party hardware and/or
software products, the Company may be required to identify additional sources
for such products. In such an event, interruptions in the availability or
functioning of the Company's software and delays in the introduction of new
products and services may occur until equivalent technology is obtained. There
can be no assurance that an alternative source of suitable technology would be
available or that the Company would be able to develop an alternative product in
sufficient time or at a reasonable cost. The failure of the Company to obtain or
develop alternative technologies or products on a timely basis and at a
reasonable cost could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Associated with Third-Party Channels. The Company addresses certain
vertical and geographic markets through its FIPs and its distributor. The
Company relies on its third-party channels to provide sales and marketing
presence and name recognition, as well as the resources necessary to offer
industry-specific financial accounting solutions. Although the Company expects
to dedicate significant resources to develop its FIPs, there can be no assurance
that the Company will be able to attract and retain qualified firms in its
targeted vertical markets. The failure of the Company to maintain its current
third-party channels or find other third-party channels, the Company's inability
to adequately support such channels, the development of competitive products and
services by the Company's third-party channels or the entry by such firms into
alliances with competitors of the Company would substantially limit the
Company's ability to provide its products and services and, accordingly, have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company has attempted to seek FIPs and
distributors in distinct vertical markets and distributors in distinct
geographic markets, and to manage them in a manner to avoid potential channel
conflicts, there can be no assurance that channel conflicts may not develop. Any
such conflicts may adversely affect the Company's relationship with third-party
channels or adversely affect its ability to develop new channels.
Risks Associated with International Operations. The Company's
international sales represented approximately 15.2% and 21.6% of total revenues
during 1996 and the nine months ended September 30, 1997, respectively. The
Company has an office in London and a distributor in Hong Kong and intends to
expand its international sales activity as part of its business strategy. In
order to expand international sales in subsequent periods, the Company must
establish additional foreign operations, hire additional personnel and establish
relationships with additional FIPs and distributors. This will require
significant management attention and
11
<PAGE> 13
financial resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, there can
be no assurance that the Company will be able to maintain or increase
international market demand for the Company's products and services. The
Company's international sales are all denominated in U.S. dollars. An increase
in the value of the U.S. dollar relative to foreign currencies could make the
Company's products more expensive and, therefore, potentially less competitive
in those markets. Currently, the Company does not employ currency hedging
strategies to reduce this risk. In addition, the Company's international
business may be subject to a variety of risks, including difficulties in
collecting international accounts receivable or obtaining U.S. export licenses,
potentially longer payment cycles, increased costs associated with maintaining
international marketing efforts, the introduction of non-tariff barriers and
higher duty rates and difficulties in enforcement of contractual obligations and
intellectual property rights. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international sales
and, consequently, on the Company's business, financial condition or results of
operations.
Significant Influence by Directors, 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. Accordingly, investors in this offering will rely upon the
judgment of the Company's management with respect to the use of proceeds, with
only limited information concerning management's specific intentions. See "Use
of Proceeds."
No Public Market. Prior to this offering, there has been no public market
for the Common Stock, and there can be no assurance that an active trading
market will develop or be sustained after this offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price will be determined by negotiations among the
Company and the Representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. Investors should be aware that market prices for securities of
software companies such as the Company are highly volatile.
Dividends. No cash dividends have been paid on the Common Stock to date
and the Company does not anticipate paying cash dividends in the foreseeable
future. In addition, under the terms of the Company's credit agreement there are
certain restrictions on the Company's ability to declare and pay dividends. See
"Dividend Policy."
Dilution. Purchasers of shares of Common Stock in this offering will
suffer an immediate and substantial dilution in the net tangible book value of
the Common Stock from the initial public offering price. See "Dilution."
Shares Eligible for Future Sale; Registration Rights. Sales of substantial
amounts of shares of Common Stock in the public market following this offering
could adversely affect the market price of the Common Stock. Upon completion of
this offering, the Company will have outstanding 16,274,764 shares of Common
Stock. On the date of this Prospectus, in addition to the 3,000,000 shares
offered hereby, approximately 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
12
<PAGE> 14
Securities Act beginning 90 days after the date of this Prospectus. Upon
expiration of the Lock-up Agreements 180 days after the date of this Prospectus,
approximately 11,648,134 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."
Antitakeover Provisions. The Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") requires that any
action required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders and may not
be effected by any consent in writing, and requires advance notice by a
stockholder of a proposal or director nomination which such stockholder desires
to present at any annual or special meeting of stockholders. Special meetings of
stockholders may be called only by the Chairman of the Board or the President of
the Company or by the Board of Directors. The Restated Certificate of
Incorporation provides for a classified Board of Directors, and members of the
Board of Directors may be removed only for cause upon the affirmative vote of
holders of at least two-thirds of the shares of capital stock of the Company
entitled to vote. In addition, shares of the Company's Preferred Stock may be
issued in the future without further stockholder approval and upon such terms
and conditions, and having such rights, privileges and preferences, as the Board
of Directors may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of any holders of
Preferred Stock that may be issued in the future. The Company has no present
plans to issue any shares of Preferred Stock. These provisions, and other
provisions of the Restated Certificate of Incorporation, the Company's By-laws
and certain provisions of the Delaware corporation law, may have the effect of
deterring hostile takeovers or delaying or preventing acquisition proposals or
changes in control or management of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over then
current market prices. In addition, these provisions may limit the ability of
stockholders to approve transactions that they may deem to be in their best
interests. See "Description of Capital Stock -- Delaware Law and Certain Charter
and By-law Provisions."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered by the Company hereby are estimated to be $22,267,500 after deducting
the estimated underwriting discounts and commissions and offering expenses
payable by the Company and assuming an initial public offering price of $11.00
per share. The Company will not receive any of the net proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
The principal purposes of this offering are to increase the Company's
equity capital, to create a public market for the Company's Common Stock, to
facilitate future access by the Company to public equity markets, to provide
liquidity to existing stockholders, to provide increased visibility and
credibility in a marketplace where many of its current and potential competitors
are or will be publicly held companies, and to enhance the ability of the
Company to use its Common Stock as consideration for acquisitions and as a means
of attracting and retaining key employees.
The Company expects to use the net proceeds from this offering for working
capital and other general corporate purposes. The Company has not as yet
identified specific uses for such proceeds and will have discretion over their
use and investment. Pending use of the net proceeds, the Company intends to
invest the net proceeds from this offering in short-term, investment grade,
interest-bearing instruments. See "Risk Factors -- Broad Discretion as to Use of
Proceeds."
The Company intends to seek acquisitions of businesses, products and
technologies that are complementary to those of the Company, and a portion of
the net proceeds may also be used for such acquisitions. While the Company
engages from time to time in discussions with respect to potential acquisitions,
the Company has no plans, commitments or agreements with respect to any such
acquisitions as of the date of this Prospectus, and there can be no assurances
that any acquisitions will be made.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support its
growth strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion. Under the terms of the Company's
credit agreement there are certain restrictions on the Company's ability to
declare and pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 4 of Notes to the Company's Financial Statements.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997 (i) on an actual basis, (ii) on a pro forma basis giving
effect to the conversion, upon the closing of this offering, of all outstanding
shares of the Company's Convertible Preferred Stock into an aggregate of
7,861,350 shares of Common Stock and the filing of the Company's Restated
Certificate of Incorporation to increase the number of authorized shares of
Common Stock, eliminate the terms of the Company's existing series of
Convertible Preferred Stock and create a class of authorized but undesignated
Preferred Stock and (iii) on a pro forma basis, as adjusted to reflect the
issuance and sale of the shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $11.00 per share, after deducting
the estimated underwriting discounts and commissions and offering expenses. The
capitalization information set forth in the table below is qualified by the
Company's Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term portion of capital lease obligations(1)............. $ 171 $ 171 $ 171
Mandatorily redeemable convertible preferred stock:
Series A convertible preferred stock, $.01 par value;
2,840,517 shares authorized; 2,784,483 shares issued and
outstanding (actual); no shares authorized, issued or
outstanding (pro forma and pro forma as adjusted)........ 3,230 -- --
Series B convertible preferred stock, $.01 par value;
5,000,000 shares authorized; 2,813,000 shares issued and
outstanding (actual); no shares authorized, issued or
outstanding (pro forma and pro forma as adjusted)........ 4,220 -- --
Series C convertible preferred stock, $.01 par value;
5,187,357 shares authorized; 4,884,327 shares issued and
outstanding (actual); no shares authorized, issued or
outstanding (pro forma and pro forma as adjusted)........ 8,059 -- --
Stockholders' equity:
Preferred stock, $.01 par value; no shares authorized,
issued or outstanding (actual); 5,000,000 shares
authorized, no shares issued or outstanding (pro forma
and pro forma as adjusted)............................... -- -- --
Common stock, $.01 par value; 18,750,000 shares authorized;
6,163,414 shares issued and outstanding (actual);
50,000,000 shares authorized (pro forma and pro forma as
adjusted); 14,024,764 shares issued and outstanding (pro
forma); 16,274,764 shares issued and outstanding (pro
forma as adjusted)(2).................................... 62 140 163
Additional paid-in-capital.................................. 11,415 26,846 49,091
Accumulated deficit......................................... (24,205) (24,205) (24,205)
------ -------- --------
Total stockholders' equity (deficit)................... (12,728) 2,781 25,049
------ -------- --------
Total capitalization................................ $ 2,952 $ 2,952 $ 25,220
====== ======== ========
</TABLE>
- ---------------
(1) See Note 5 of Notes to the Company's Financial Statements.
(2) Excludes an aggregate of 1,034,594 shares subject to options outstanding as
of September 30, 1997 at a weighted average exercise price of $2.28 per
share. Also excludes an aggregate of 2,325,000 shares of Common Stock
reserved under the Company's 1997 Stock Incentive Plan, 1997 Director Stock
Option Plan and 1997 Employee Stock Purchase Plan, none of which shares were
subject to outstanding options as of September 30, 1997. Also excludes an
aggregate of 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> 17
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1997 was $2,773,000, or $0.20 per share of Common Stock. Pro forma net tangible
book value per share is determined by dividing the Company's tangible net worth
(tangible assets less liabilities) by the number of shares of Common Stock
outstanding, after giving effect to the mandatory conversion of the Company's
Convertible Preferred Stock upon the completion of this offering. After giving
effect to the sale of the shares of Common Stock offered by the Company hereby
at an assumed initial public offering price of $11.00 per share and after
deducting the estimated underwriting discounts and commissions and offering
expenses, the pro forma net tangible book value of the Company as of September
30, 1997 would have been $1.54 per share. This represents an immediate increase
in such pro forma net tangible book value of $1.34 per share to existing
stockholders and an immediate dilution of $9.46 per share to new investors
purchasing shares in this offering. If the initial public offering price is
higher or lower, the dilution to the new investors will be greater or less,
respectively. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 11.00
Pro forma net tangible book value per share as of September 30,
1997........................................................... $ 0.20
Increase per share attributable to this offering.................. 1.34
------
Pro forma net tangible book value per share after this offering..... 1.54
-------
Dilution per share to new investors................................. $ 9.46
=======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1997, the total number of shares of Common Stock purchased from the Company, the
total consideration paid and the average consideration paid per share by the
existing stockholders and by the new investors based (for new investors) upon an
assumed initial public offering price of $11.00 per share (before deducting the
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)...... 14,024,764 86.2% $26,986,000 52.2% $ 1.92
New investors................. 2,250,000 13.8 24,750,000 47.8 $ 11.00
---------- ----- ----------- -----
Total............... 16,274,764 100.0% $51,736,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Excludes 12,375 shares of Common Stock issued after September 30, 1997
pursuant to the exercise of an outstanding option held by a Selling
Stockholder. Sales by the Selling Stockholders in this offering will reduce
the number of shares held by existing stockholders to 13,287,139, or
approximately 81.6% of the total number of shares of Common Stock
outstanding after this offering (or 12,844,639 shares and approximately
78.9% if the Underwriters' over-allotment option is exercised in full), and
will increase the number of shares held by new investors to 3,000,000, or
approximately 18.4% of the total number of shares of Common Stock
outstanding after this offering (or 3,450,000 shares and approximately 21.2%
if the Underwriters' over-allotment option is exercised in full).
16
<PAGE> 18
SELECTED FINANCIAL DATA
The selected financial data set forth below for the three years ended
December 31, 1996 and the nine months ended September 30, 1997, and as of
December 31, 1995 and 1996 and September 30, 1997, are derived from the
Company's Financial Statements, which appear elsewhere in this Prospectus and
which have been audited by Price Waterhouse LLP, independent accountants. The
selected financial data set forth below as of December 31, 1994 are derived from
the Company's audited financial statements, which are not included in this
Prospectus. The selected financial data as of and for the years ended December
31, 1992 and 1993 are derived from the Company's unaudited financial statements,
which are not included in this Prospectus. The selected financial data for the
nine months ended September 30, 1996 are derived from the Company's unaudited
financial statements which appear elsewhere in this Prospectus. In the opinion
of management, the unaudited financial statements have been prepared on a basis
consistent with the Financial Statements which appear elsewhere in this
Prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the financial position and
results of operations for these unaudited periods. The operating results for the
nine months ended September 30, 1997 are not necessarily indicative of the
results to be expected for the full year ending December 31, 1997. The data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
Financial Statements, including the Notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
----- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license..................... $ -- $ 141 $ 562 $ 3,166 $ 5,205 $ 3,092 $ 7,362
Service and maintenance.............. 25 14 291 1,517 3,142 2,044 5,098
----- ------- ------- ------- ------- ------- -------
Total revenues................ 25 155 853 4,683 8,347 5,136 12,460
Cost of revenues:
Software license..................... -- -- 4 88 311 170 619
Service and maintenance.............. 8 49 324 1,708 2,181 1,583 3,499
----- ------- ------- ------- ------- ------- -------
Total cost of revenues........ 8 49 328 1,796 2,492 1,753 4,118
Operating expenses:
Sales and marketing.................. 51 309 1,927 4,350 4,978 3,405 5,306
Product development.................. 210 587 2,019 3,660 5,733 4,025 5,972
General and administrative........... 102 395 679 1,316 2,453 1,798 1,699
----- ------- ------- ------- ------- ------- -------
Total operating expenses...... 363 1,291 4,625 9,326 13,164 9,228 12,977
Operating loss......................... (346) (1,185) (4,100) (6,439) (7,309) (5,845) (4,635)
Interest income........................ 4 3 41 58 59 50 98
Interest expense....................... -- -- (28) (106) (197) (161) (103)
----- ------- ------- ------- ------- ------- -------
Loss before provision for income
taxes................................ (342) (1,182) (4,087) (6,487) (7,447) (5,956) (4,640)
Provision for income taxes............. -- -- -- -- -- -- --
----- ------- ------- ------- ------- ------- -------
Net loss............................... $(342) $(1,182) $(4,087) $(6,487) $(7,447) $(5,956) $(4,640)
===== ======= ======= ======= ======= ======= =======
Pro forma net loss per share (1)....... $ (0.69) $ (0.33)
Weighted average shares used to compute
pro forma net loss per share(1)...... 10,788 13,975
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -------------
1992 1993 1994 1995 1996 1997
---- ----- ------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $123 $ 189 $ 870 $ 15 $ 3,273 $ 3,257
Working capital (deficit)................... 169 (195) (1,138) (2,917) 1,480 1,670
Total assets................................ 280 326 2,456 2,826 7,833 10,232
Redeemable convertible preferred stock...... -- -- 3,230 7,450 15,509 15,509
Stockholders' equity (deficit).............. 225 162 (4,045) (10,521) (13,823) (12,728)
</TABLE>
- ---------------
(1) See Note 2 of Notes to the Company's Financial Statements.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, develops, markets and supports the Flexi family of
financial and accounting software applications and related tools. The Company
began operations in 1991 and released its first FlexiFinancials application
product for general availability during the fourth quarter of 1993.
The Company's revenues are derived from two sources: software license
revenues and service and maintenance revenues. Software license revenues have
grown as additional applications have been released for general availability and
the installed base of customers has increased. Service and maintenance revenues
have grown due to the increase in the Company's installed base of customers and
the growth in the Company's consulting services practice.
Software license revenues include (i) revenues from noncancellable software
license agreements entered into between the Company and its customers with
respect to the Company's products, (ii) royalties due to the Company from third
parties that distribute the Company's products and, to a lesser extent, (iii)
third-party products distributed by the Company. All of the Company's products
can operate on a fully integrated basis, or be licensed separately by a user to
meet that user's specific requirements. Software license revenues under the
Company's license agreements are recognized upon delivery and installation of
the product and when all significant contractual obligations have been
satisfied. Software license revenues under the Company's FIP agreements are
recognized upon execution of an agreement between the end user and the FIP, as
such revenues are reported to the Company. Service revenues include consulting,
implementation and training, and are recognized as services are performed and
delivered. Maintenance revenues for maintaining, supporting and providing
periodic upgrading are recognized ratably over the service period, generally one
year. The Company maintains reserves for potential losses and such losses to
date have been within management's expectations. See Note 2 of Notes to the
Company's Financial Statements.
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed, the Company has evaluated the establishment of technological
feasibility of its various products during the development phase. The time
period during which costs could be capitalized from the point of reaching
technological feasibility until the time of general product release is very
short, and, consequently, the amounts that could be capitalized are not material
to the Company's financial position or results of operations. Therefore, the
Company charges all product development expenses to operations in the period
incurred.
18
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license.................... 65.9% 67.6% 62.4% 60.2% 59.1%
Service and maintenance............. 34.1 32.4 37.6 39.8 40.9
------ ------ ----- ------ -----
Total revenues.............. 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software license.................... 0.5 1.9 3.7 3.3 5.0
Service and maintenance............. 38.0 36.5 26.1 30.8 28.1
------ ------ ----- ------ -----
Total cost of revenues...... 38.5 38.4 29.8 34.1 33.1
Operating expenses:
Sales and marketing................. 225.9 92.9 59.6 66.3 42.6
Product development................. 236.7 78.1 68.7 78.4 47.9
General and administrative.......... 79.6 28.1 29.4 35.0 13.6
------ ------ ----- ------ -----
Total operating expenses.... 542.2 199.1 157.7 179.7 104.1
Operating loss........................ (480.7) (137.5) (87.5) (113.8) (37.2)
Interest income....................... 4.8 1.2 0.7 1.0 0.8
Interest expense...................... (3.3) (2.3) (2.4) (3.1) (0.8)
------ ------ ----- ------ -----
Loss before provision for income
taxes............................... (479.2) (138.6) (89.2) (115.9) (37.2)
Provision for income taxes............ -- -- -- -- --
------ ------ ----- ------ -----
Net loss.............................. (479.2)% (138.6)% (89.2)% (115.9)% (37.2)%
====== ====== ===== ====== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Revenues. Total revenues, consisting of software license revenues and
service and maintenance revenues, increased 142.6%, from $5.1 million for the
nine months ended September 30, 1996 to $12.5 million for the nine months ended
September 30, 1997.
Software license revenues increased 138.1%, from $3.1 million for the nine
months ended September 30, 1996 to $7.4 million for the nine months ended
September 30, 1997. The growth was due primarily to increased market acceptance
of the Company's software products and growth in international sales, primarily
in Europe. Service and maintenance revenues increased 149.4%, from $2.0 million
for the nine months ended September 30, 1996 to $5.1 million for the nine months
ended September 30, 1997. The increase was primarily attributable to the growth
of the installed base of customers and the increasing complexity of user
requirements, which resulted in an increase in consulting service revenues.
Cost of Revenues. The Company's cost of revenues consists of cost of
software license revenues and cost of service and maintenance revenues. Cost of
software license revenues consists primarily of the cost of third-party software
products distributed by the Company and the cost of product media, manuals and
shipping. Cost of service and maintenance revenues consists of costs to provide
consulting, implementation and training to licensees of the Company's products
and the cost of providing software maintenance to customers, technical support
services and periodic upgrades of software.
Cost of software license revenues increased 264.1%, from $170,000 for the
nine months ended September 30, 1996 to $619,000 for the nine months ended
September 30, 1997. Cost of software license revenues as a percentage of
software license revenues increased from 5.5% for the nine months ended
September 30, 1996 to 8.4% for the nine months ended September 30, 1997. The
increase in cost of revenues
19
<PAGE> 21
in dollar amount and as a percentage of software license revenues was primarily
due to an increase in third-party software products distributed by the Company,
as well as costs associated with increased sales volume.
Cost of service and maintenance revenues increased 121.0%, from $1.6
million for the nine months ended September 30, 1996 to $3.5 million for the
nine months ended September 30, 1997. The increase in the dollar amount of such
costs resulted primarily from the addition of service consultants and customer
support personnel to provide services to a larger customer base. Cost of service
and maintenance revenues as a percentage of service and maintenance revenues
decreased from 77.4% for the nine months ended September 30, 1996 to 68.6% for
the nine months ended September 30, 1997. The decrease as a percentage of
service and maintenance revenues was due to an increasing revenue base.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions, travel and promotional expenses, and facility and
communication costs for direct sales offices. Sales and marketing expenses
increased 55.8%, from $3.4 million for the nine months ended September 30, 1996
to $5.3 million for the nine months ended September 30, 1997. The increase in
dollar amount was primarily attributable to an increase in the number of sales
offices, increased staffing in the direct sales force and an increase in
commissions expense due to increased software license fees. Sales and marketing
expenses as a percentage of total revenues decreased from 66.3% for the nine
months ended September 30, 1996 to 42.6% for the nine months ended September 30,
1997 due to an increasing revenue base. The Company is in the process of
expanding its distribution channels, both domestically and internationally and,
accordingly, sales and marketing expenses are expected to increase in dollar
amount in the future.
Product Development. Product development expenses include software
development costs and consist primarily of engineering personnel costs. The
Company has made significant investments in product development in the past
several years to bring its suite of component-based, object-oriented financial
accounting products to market.
Product development expenses increased 48.4%, from $4.0 million for the
nine months ended September 30, 1996 to $6.0 million for the nine months ended
September 30, 1997. The increase in product development expenses was due
primarily to the continued hiring of software specialists, principally in the
quality assurance, product engineering and distributed computing development
areas, as well as normal salary increases. Product development expenses as a
percentage of total revenues decreased from 78.4% for the nine months ended
September 30, 1996 to 47.9% for the nine months ended September 30, 1997 due to
an increasing revenue base. The Company anticipates that product development
expenses will increase in dollar amount in future periods as the Company
continues to enhance the functionality of its core financial accounting and
reporting and workflow applications and as it continues development work on the
next releases of its suite of application modules.
General and Administrative. General and administrative expenses consist
primarily of salaries of executive, administrative and financial personnel, as
well as provisions for doubtful accounts and outside professional fees. General
and administrative expenses decreased 5.5%, from $1.8 million for the nine
months ended September 30, 1996 to $1.7 million for the nine months ended
September 30, 1997. General and administrative expenses as a percentage of total
revenues decreased from 35.0% for the nine months ended September 30, 1996 to
13.6% for the nine months ended September 30, 1997. The decrease in general and
administrative expenses in dollar amount and as a percentage of total revenues
was primarily due to a nonrecurring charge of $492,000 in executive compensation
in the second quarter of 1996 attributable to stock options granted at less than
market value. The Company expects general and administrative expenses to
increase in dollar amount in future periods due to the Company's growth as well
as the additional expense of being a public company.
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the nine months ended September 30, 1996 or
September 30, 1997 due to the operating losses incurred in the respective
periods. The Company has reported only tax losses to date and consequently has
approximately $16.0 million of net operating loss carryforwards, which expire at
various times through the year 2011, available to offset future taxable income.
The utilization of such net operating losses is subject to limitations as a
result of an ownership change. The annual limitation and the timing of attaining
profitability may result in
20
<PAGE> 22
the expiration of net operating loss carryforwards before utilization. The
Company's deferred tax assets at September 30, 1997 were $7.3 million,
consisting primarily of net operating loss carryforwards. The Company's benefit
of deferred tax assets has been fully reserved as of September 30, 1997 as the
realization of deferred taxes is dependent on future events and earnings, if
any, the timing and extent of which are uncertain.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. Total revenues increased 78.2%, from $4.7 million for the year
ended December 31, 1995 to $8.3 million for the year ended December 31, 1996.
The increase was attributable to growth in all aspects of the Company's revenues
as outlined below.
Software license revenues increased 64.4%, from $3.2 million for the year
ended December 31, 1995 to $5.2 million for the year ended December 31, 1996.
This growth was due to the availability of the Company's new products and an
increase in new customers.
Service and maintenance revenues increased 107.1%, from $1.5 million for
the year ended December 31, 1995 to $3.1 million for the year ended December 31,
1996. The increase in service and maintenance revenues was primarily
attributable to increases in consulting services and training revenues and an
increase in the installed base of customers.
Cost of Revenues. Cost of software license revenues increased 253.4%, from
$88,000 for the year ended December 31, 1995 to $311,000 for the year ended
December 31, 1996. Cost of software license revenues as a percentage of software
license revenues increased from 2.8% for the year ended December 31, 1995 to
6.0% for the year ended December 31, 1996. The increase in dollar amount and as
a percentage of revenues was primarily due to an increase in third-party
products distributed by the Company, as well as costs associated with increased
sales volume.
Cost of service and maintenance revenues increased 27.7%, from $1.7 million
for the year ended December 31, 1995 to $2.2 million for the year ended December
31, 1996. The increase in dollar amount of such costs resulted primarily from
increased staffing in the consulting and support organizations in response to
increased demand for consulting services and continued growth in the customer
base. Cost of service and maintenance revenues as a percentage of service and
maintenance revenues decreased from 112.6% for the year ended December 31, 1995
to 69.4% for the year ended December 31, 1996 due to an increasing revenue base.
Sales and Marketing. Sales and marketing expenses increased 14.4%, from
$4.4 million for the year ended December 31, 1995 to $5.0 million for the year
ended December 31, 1996. The increase in dollar amount of such expenses was
primarily attributable to increased staffing in the direct sales force and an
increase in commission expense due to increased software license fees. Sales and
marketing expenses as a percentage of total revenues decreased from 92.9% for
the year ended December 31, 1995 to 59.6% for the year ended December 31, 1996,
due to an increasing revenue base.
Product Development. Product development expenses increased 56.6%, from
$3.7 million for the year ended December 31, 1995 to $5.7 million for the year
ended December 31, 1996. The increase was primarily attributable to the
additional engineers retained for development of new product modules as well as
enhancements to existing products. Product development expenses as a percentage
of total revenues were 78.2% for the year ended December 31, 1995 and 68.7% for
the year ended December 31, 1996. The decrease as a percentage of total revenues
was due to an increasing revenue base.
General and Administrative. General and administrative expenses increased
86.4%, from $1.3 million for the year ended December 31, 1995 to $2.5 million
for the year ended December 31, 1996. General and administrative expenses as a
percentage of total revenues increased from 28.1% for the year ended December
31, 1995 to 29.4% for the year ended December 31, 1996. The increases in dollar
amount and as a percentage of revenues resulted primarily from additional costs
associated with the Company's growth, including an increase in executive
compensation attributable to non-qualified stock options granted in the second
quarter of 1996, an increase in the provision for doubtful accounts due to
continued growth in the customer base and an increase in employment recruiting
fees related to an increase in staffing.
21
<PAGE> 23
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the years ended December 31, 1995 or December
31, 1996 due to the operating losses incurred in the respective periods and the
availability of net operating loss carryforwards.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Revenues. Total revenues increased 449.0%, from $853,000 for the year
ended December 31, 1994 to $4.7 million for the year ended December 31, 1995.
Software license revenues increased 463.4%, from $562,000 for the year ended
December 31, 1994 to $3.2 million for the year ended December 31, 1995 as a
result of the introduction of new applications and increased sales efforts.
Service and maintenance revenues increased 421.3%, from $291,000 for the year
ended December 31, 1994 to $1.5 million for the year ended December 31, 1995 as
a result of increased demand for such services and continued growth in the
customer base.
Cost of Revenues. Cost of software license revenues increased 2100%, from
$4,000 for the year ended December 31, 1994 to $88,000 for the year ended
December 31, 1995. Cost of software license revenues as a percentage of software
license revenues increased from 0.7% for the year ended December 31, 1994 to
2.8% for the year ended December 31, 1995. Such increases in dollar amount and
as a percentage of software license revenues were due to an increase in
third-party products distributed by the Company, as well as costs associated
with increased sales volume.
Cost of service and maintenance revenues increased 427.2%, from $324,000
for the year ended December 31, 1994 to $1.7 million for the year ended December
31, 1995. Cost of service and maintenance revenues as a percentage of service
and maintenance revenues increased from 111.3% for the year ended December 31,
1994 to 112.6% for the year ended December 31, 1995. The increase in dollar
amount and as a percentage of revenues resulted primarily from increased
staffing in the consulting and support organizations in order to meet demand.
Sales and Marketing. Sales and marketing expenses increased 125.7%, from
$1.9 million for the year ended December 31, 1994 to $4.4 million for the year
ended December 31, 1995. The increase in sales and marketing expenses resulted
primarily from additional sales personnel and an increase in public relations
costs. Sales and marketing expenses as a percentage of total revenues decreased
from 225.9% in 1994 to 92.9% in 1995. The decrease as a percentage of revenues
was due to an increasing revenue base.
Product Development. Product development expenses increased 81.3%, from
$2.0 million for the year ended December 31, 1994 to $3.7 million for the year
ended December 31, 1995. The increase in product development expenses reflected
an increase in expenses related to the continued development and enhancement of
FlexiFinancials, FlexiInfoSuite and FlexiTools application products. Product
development expenses as a percentage of total revenues were 236.7% in 1994 and
78.2% in 1995. The decrease as a percentage of total revenues was due to an
increasing revenue base.
General and Administrative. General and administrative expenses increased
93.8%, from $679,000 for the year ended December 31, 1994 to $1.3 million for
the year ended December 31, 1995. The increase in general and administrative
expenses in dollar amount resulted primarily from an increase in the provision
for doubtful accounts due to continued growth in the customer base, higher
personnel costs and an increase in occupancy related expenses. General and
administrative expenses as a percentage of total revenues decreased from 79.6%
in 1994 to 28.1% in 1995, due to an increasing revenue base.
Provision for Income Taxes. No provision or benefit for federal, state or
foreign income taxes was made for the years ended December 31, 1994 or December
31, 1995 due to operating losses incurred in the respective periods.
22
<PAGE> 24
SELECTED QUARTERLY OPERATING RESULTS
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary significantly from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's Common Stock. Quarterly revenues and operating results may
fluctuate as a result of a variety of factors, including the Company's lengthy
sales cycle, the proportion of revenues attributable to software license
revenues versus service and maintenance revenues, changes in the level of
operating expenses, demand for the Company's products, the introduction of new
products and product enhancements by the Company or its competitors, changes in
customer budgets, competitive conditions in the industry and general economic
conditions. Furthermore, the purchase of the Company's products often involves a
significant commitment of capital by its customers with the attendant delays
frequently associated with large capital expenditures and authorization
procedures within an organization. For these and other reasons, the sales cycles
for the Company's products are typically lengthy and subject to a number of
significant risks over which the Company has little or no control. The Company
has often recognized a substantial portion of its revenues in the last month of
the quarter. As a result, software license revenues in any quarter are
substantially dependent on installations performed in the last month of that
quarter. Accordingly, a small variation in the timing of recognition of revenues
for specific transactions is likely to adversely and disproportionately affect
the Company's operating results for a quarter because the Company establishes
its expenditure levels on the basis of its expected future revenues and only a
small portion of the Company's expenses vary with its revenues. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as indicative of future
performance. The Company has only been profitable in one quarterly period, and
there can be no assurance that the Company will remain profitable on a quarterly
basis.
The Company's business has experienced and is expected to continue to
experience significant seasonality with respect to software license fees. In
recent years, the Company has had greater demand for its products in its fourth
quarter and has experienced lower revenues in its succeeding first quarter.
These fluctuations are caused primarily by the Company's quota-based
compensation arrangements, typical of those used in software companies, and
year-end budgetary pressures on the Company's customers. The Company believes
that seasonal trends may continue for the foreseeable future. See "Risk
Factors -- Potential Fluctuations in Quarterly Performance; Seasonality."
23
<PAGE> 25
The following table sets forth unaudited quarterly results of operations of
the Company for each of the quarters in the year ended December 31, 1996 and the
nine months ended September 30, 1997. In management's opinion, this unaudited
information has been prepared on the same basis as the audited Financial
Statements and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the Company's Financial
Statements and Notes thereto included elsewhere in this Prospectus. The results
of operations for any quarter are not necessarily indicative of future results
of operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license............... $ 659 $ 775 $ 1,658 $ 2,113 $ 1,311 $ 1,510 $4,541
Service and maintenance........ 311 839 894 1,098 1,236 1,465 2,397
------- ------- ------- ------- ------- ------- ------
Total revenues......... 970 1,614 2,552 3,211 2,547 2,975 6,938
Cost of revenues:
Software license............... 61 73 36 141 296 163 160
Service and maintenance........ 485 616 482 598 777 1,100 1,622
------- ------- ------- ------- ------- ------- ------
Total cost of
revenues............. 546 689 518 739 1,073 1,263 1,782
Operating expenses:
Sales and marketing............ 928 1,055 1,422 1,573 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>
24
<PAGE> 26
The following table sets forth unaudited quarterly results of operations as
a percentage of revenues for each of the quarters in the year ended December 31,
1996 and the nine months ended September 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30,
1996 1996 1996 1996 1997 1997 1997
-------- -------- --------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license.............. 67.9% 48.0% 65.0% 65.8% 51.5% 50.8% 65.5%
Service and maintenance....... 32.1 52.0 35.0 34.2 48.5 49.2 34.5
------ ------ ----- ----- ------ ----- -----
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues:
Software license.............. 6.3 4.5 1.4 4.4 11.6 5.5 2.3
Service and maintenance....... 50.0 38.2 18.9 18.6 30.5 37.0 23.4
------ ------ ----- ----- ------ ----- -----
Total cost of
revenues............ 56.3 42.7 20.3 23.0 42.1 42.5 25.7
Operating expenses:
Sales and marketing........... 95.7 65.4 55.7 49.0 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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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.
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A new generation of object-oriented, component-based technology has evolved
in recent years to address many of the limitations associated with legacy
client/server solutions and to support the efficient use of the Internet as an
integral part of financial accounting solutions. Object-oriented development
methodologies facilitate the reuse of application logic to adapt to changing
technological and accounting requirements. Component-based architecture allows
the timely creation of tailored business solutions by simplifying and shortening
the integration of software applications from multiple sources and facilitating
use of applications over the Internet. Additionally, the distributed model of
computing, in which processing logic resides at the appropriate level within a
client/server architecture, has created the potential for a higher degree of
functionality, flexibility and scalability than available with legacy
client/server or mainframe systems. The advantages inherent in these new
technologies have led many vendors of legacy client/server solutions, including
the Company's principal competitors, to announce their intention to transition
to these new technologies -- often at the cost of replacing or rewriting their
current products.
This new generation of technology provides a foundation by which users can
address critical business requirements that are not met effectively by legacy
mainframe or client/server accounting systems, including:
- Flexibility to embrace emerging technologies, such as the Internet, as
they are adopted;
- Adaptability to support rapidly evolving business processes and
strategies for organizations with sophisticated financial accounting
requirements;
- Performance, including the functionality, portability and scalability to
process massive amounts of data quickly, efficiently and securely; and
- Reduced cost of ownership through ease and speed of implementation,
integration with installed technology and existing databases without code
reconfiguration or customization, simplified training and reduced
maintenance.
THE FLEXI SOLUTION
The Flexi solution provides easy access to critical financial information
through a suite of open, distributed financial accounting applications and tools
based on an object-oriented, component-based architecture. The business
advantages of the Flexi solution include:
- Deployment of Emerging Technologies. The Flexi solution is designed to
support new technologies as they develop. For example, the Company was
one of the first client/server financial accounting software vendors to
offer Internet enhancements for its products in 1996. It was also one of
the first to introduce a broad range of ActiveX components in 1997,
allowing the Company's products to support Internet or intranet
communications and permitting its users to draw on the Internet for
flexible and cost-effective communications across dispersed locations
without significant code reconfiguration. This greatly increases the
flexibility and breadth of access to the Flexi solution without
significant additional customer investment.
- Ability to Adapt to Changing Business Processes. The Company's
object-oriented, component-based architecture allows the Flexi solution
to be modified quickly and efficiently by users. In addition, users can
seamlessly integrate the Flexi solution with new applications to support
business processes and to address new business strategies as they evolve.
As a result, the Flexi solution can facilitate the implementation by
organizations of new and more efficient ways to conduct their businesses.
- High Performance with Sophisticated Functionality. By offering native
support of multiple databases and server-based processing, the Flexi
solution provides enhanced data and transaction throughput and greater
scalability in comparison with traditional financial accounting
solutions. The Company believes that the Flexi solution is also among the
few client/server solutions offering the functionality and scalability
required by organizations with sophisticated accounting requirements,
especially multinational and rapidly growing organizations. For example,
the Company's FlexiLedger system can support multi-company
consolidations, full currency translation, a high level of user-defined
data security and broad capacity to implement allocations -- critical
functions for sophisticated users that are not
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otherwise available on a comprehensive basis in legacy client/server
systems. The performance and functionality of the Flexi solution allows
organizations to rapidly and efficiently process financial data and
close their books, providing managers with quicker access to critical
business information.
- Reduced Cost of Ownership. The Flexi solution can significantly reduce
the overall cost of ownership for organizations with sophisticated
financial accounting requirements. The Company's object-oriented,
component-based solution is written in an industry-standard language
(C++) and can be quickly and easily implemented, maintained and operated,
and the time involved to add or change features is far less than that
required with legacy client/server systems. The Flexi solution's ability
to operate across a broad range of hardware and database platforms
reduces the need for major technology investments to transition to the
Company's solution, while its data access layer reduces the need by
customers to change or reconfigure their installed databases. The Flexi
solution further reduces the need for hardware investment and reduces
personnel costs as its high performance allows users to satisfy their
processing requirements without the need for more powerful or additional
processing resources.
STRATEGY
The Company's goal is to establish itself as a global leader in the
financial accounting software market. Key elements of the Company's strategy
include:
- Extend Technology Leadership. The Company believes that its
object-oriented, component-based architecture and development expertise
provide it with competitive advantages. The Company intends to maintain a
significant investment in research and development to introduce further
enhancements to its open, distributed financial accounting solution. The
Company's architecture also enables the Company to take advantage of the
adoption of the Internet and corporate intranets as critical components
of an organization's future system deployments, enabling customers to use
cost-effective and security-enhanced communications and information
sharing among their employees without excessive development costs or
delays in implementation.
- Target Users with Sophisticated Financial Accounting Requirements. The
Company believes that its solution is particularly suited for adoption by
users with sophisticated financial accounting requirements. The Company
intends to continue to target its sales and marketing efforts at such
users, including those in the banking, insurance and other financial
services industries, as well as technology and healthcare industries. The
Company believes that a large number of users in these industries have
substantial processing requirements and operate on legacy systems,
including mainframe systems. The Company therefore believes that the
conversion of these systems to open, distributed systems provides a
significant market opportunity.
- Focus on Reduced Cost of Ownership. The Company believes that another
competitive advantage of its architecture is the reduction in cost of
ownership. The Company believes that its architecture allows
organizations to rapidly and easily implement, maintain and alter their
business applications across a number of widely used platforms and
operating systems, thus reducing costs. The Company believes that the
reduction in overall ownership cost is important for organizations
transitioning to a client/server solution and intends to invest in
development and marketing programs to maintain and underscore the
relative economic benefits of its products.
- Leverage Strategic Relationships. The Company has established technology
and marketing relationships with a number of technology firms. For
instance, Microsoft Corporation ("Microsoft") selected the Company as one
of its first Microsoft Solution Developers and listed the Company as one
of the two original Microsoft BackOffice-compliant enterprise accounting
vendors. In addition, the Company has technical and marketing
relationships with Arbor Software Corporation, Comshare Incorporated,
Crystal Computer Services Inc., Digital Equipment Corporation, Filenet
Corporation, Hewlett-Packard Company, IBM Corporation, Oracle
Corporation, SQRiBE Technologies, Sun Microsystems, Inc. and Sybase, Inc.
The Company has leveraged these relationships by taking advantage of its
solution's architecture to support a broad range of industry standards,
including multiple RDBMs, operating systems and hardware platforms. The
Company plans to continue to establish technological relationships and
support emerging industry standards (such as ActiveX controls and the
Java
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programming language) to assure that its products meet the technology
requirements, and can integrate seamlessly with other technology
solutions, of its principal customers.
- Expand Sales and Distribution Resources. The Company intends to extend
its sales resources by increasing the size of its direct sales
organization in major markets to target strategic accounts in both North
America and Europe. The Company believes that many potential customers
can benefit from the advanced functionality of its products (for example,
the abilities of the products to integrate tax computations, currency
fluctuations and multiple language considerations). To date, the Company
has focused its sales and marketing efforts primarily in the financial
services industry, including banks, insurance companies and other
financial services organizations. The Company intends to leverage its
high-profile, referenceable customers in this industry to gain additional
customers in this and other targeted vertical markets. In addition, the
Company has established its Flexi Industry Partner, or FIP, program,
identifying and partnering with software vendors in the healthcare, real
estate, retail and manufacturing industries. By leveraging the sales
organization and market expertise of its FIPs, the Company can focus on
the specific needs of vertical markets without disproportionate
investment.
TECHNOLOGY
To achieve high performance, full portability and scalability across
platforms, rich application functionality and easy access to information, the
Flexi solution incorporates the following key technical features:
- Object-oriented, component-based architecture assures that in addition to
high functionality, the Company's systems are highly flexible. The use of
leading CASE tools and coding in C++ facilitates customization by users
and maximizes reusable code for developers. Furthermore, the use of the
ANSI standards for the C++ language facilitates the portability of the
Company's products, as the code is supported over a range of native C++
compilers available on a number of widely used operating systems.
Component-based architecture allows organizations to create tailored
business solutions by simplifying and shortening the implementation of
applications acquired from multiple sources. The Company's
object-oriented, component-based architecture also facilitates the
support of Internet functionality by the Company's products.
- Distributed architecture to provide platform portability and optimize
performance. If an application's logic resides only on the client, users
are unable to efficiently process high-volume transactions, while if it
is resident only on the server, the interactive performance of the
application is degraded. The Company's multi-tier distributed
architecture allocates system functionality across tiers to avoid these
limitations and assures that the requirements of sophisticated users
needing high performance and immediate access, coupled with ease of use,
are met.
- Data abstraction layer that accesses multiple database systems natively,
enhancing the performance and portability of the Company's solution,
which currently supports Sybase, IBM's DB2, Microsoft's SQL Server and
Oracle.
- Support of open systems and industry standards enhances the portability
and scalability of the Company's products. The Company supports a wide
range of server operating systems (including Windows NT, UNIX and MVS),
traditional client platforms such as Windows (including Windows 3.x, 95
and NT) and emerging technologies such as the Internet, facilitating ease
of use, system portability and smooth integration of packages from
third-party vendors as required to provide generic functionality.
PRODUCTS
The Flexi solution is an integrated set of financial accounting
applications, together with related information applications and development
tools, that address the needs of users with sophisticated financial accounting
requirements and is easily customized and supports the latest technologies as
they evolve. The following table provides selected information relating to the
Company's three core families of products, its FlexiFinancials financial
accounting systems, its FlexiInfoSuite family of reporting and workflow
applications and its FlexiTools development and customization tools. All of the
Company's products can operate on a fully
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<PAGE> 31
integrated basis, or be licensed separately for use on a stand-alone basis or
for integration with products from third-party vendors.
<TABLE>
<CAPTION>
COMMERCIAL COMMERCIAL COMMERCIAL
FLEXIFINANCIALS INTRODUCTION FLEXIINFOSUITE INTRODUCTION FLEXITOOLS INTRODUCTION
- ----------------- ------------ -------------- ---------- ---------------------- ----------
<S> <C> <C> <C> <C> <C>
FlexiLedger 1993 FlexiWriter 1993 FlexiControl 1993
FlexiPayables 1994 FlexiAnalysis 1994 FlexiDesigner 1994
FlexiReceivables 1995 FlexiWorkFlow 1996 FlexiDeveloper 1994
FlexiPurchasing 1996 FlexiNet 1996 FlexiDB 1996
FlexiAssets 1997 FlexiActiveX Controls 1997
FlexiOrders 1997
FlexiInventory 1997
</TABLE>
FlexiFinancials
- FlexiLedger. FlexiLedger, the general ledger module for FlexiFinancials,
provides the functionality required for users with sophisticated
financial accounting requirements, including the ability to support
unlimited number of currencies, multicurrency accounts and multicurrency
sets of books; multi-company consolidations; user-defined subledgers;
flexible account validation; sophisticated summarization and allocation
structure, as well as other normal ledger functions, with levels of
security traditionally associated with mainframes.
- FlexiPayables. FlexiPayables is an accounts payable module that supports
centralized and decentralized accounts payable processing through
sophisticated operation and accounting security controls, while
supporting the generation of invoices and payment authorizations
automatically routed for approval. Users have the flexibility to
establish payment rules, terms for payment, cash management, expense
control and vendor management.
- FlexiReceivables. FlexiReceivables is an accounts receivable module that
supports automatic cash application, invoice aging and discounts, as well
as flexible rules for account group, payment schedule commission and
other terms. It can be easily configured to define multiple account
distribution or multiple-company accounting for management of receivables
across large organizations.
- FlexiPurchasing. FlexiPurchasing is a dynamic purchasing management
module that tracks purchases from requisition to purchase order to
invoicing, as well as delivery and storage, including data ranging from
discount levels to receipt and acceptance of goods. Users can define,
among other items, management approval levels, all relevant report
information and payment terms.
- FlexiAssets. FlexiAssets is a fixed-asset module for controlling and
tracking the physical location of all assets, while providing
depreciation calculations on a fully automated basis. The user can
maintain records on an unlimited number of assets. FlexiAssets permits
the user to choose depreciation methods, and to maintain records to
satisfy GAAP and federal, state and local property tax reporting
requirements.
- FlexiOrders. FlexiOrders handles a user's complete ordering cycle
online, from quotations and order processing to shipment and returns. In
addition, it generates all necessary forms and documentation for
processing and packaging orders and allows designation of multiple
scheduling and delivery dates.
- FlexiInventory. FlexiInventory is an inventory management module that
provides complete inventory control from receipt of stock through
inventory analysis and evaluation, while tracking parts through multiple
warehouses and bin locations. It can support an unlimited number of parts
and can define maximum, minimum and reorder points for each part.
FlexiInfoSuite
The FlexiInfoSuite software takes advantage of the flexibility of the
Company's products and their ability to be integrated seamlessly with other
technologies to provide a "best-of-class" report development, report
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generation and workflow system to serve a broad range of management information
and control requirements, ranging from high-volume batch processing to
interactive, on-line analytical processing to workflow design and
implementation. The FlexiInfoSuite software has the flexibility to provide
highly tailored reports in industry standard formats, with the functionality to
support a high volume of data across organizations, while providing customers
freedom of choice in their selection of GUI, security and presentation.
The FlexiInfoSuite software includes: FlexiWriter, for high-volume general
ledger financial statements, either on-site or at remote locations;
FlexiAnalysis, which provides general ledger access directly from Excel without
leaving the Microsoft spreadsheet environment; and FlexiWorkFlow, which manages
accounting approval processes throughout the organization. To meet specific
customer requirements, the Company also offers imaging, reporting and workflow
solutions developed by third parties as part of its FlexiInfoSuite solution,
including reporting applications by Arbor Software Corporation, imaging
solutions by Filenet Corporation and reporting applications by Crystal Computer
Services Inc.
During the fourth quarter of 1996, the Company released FlexiNet, an
Internet-enabled application extension. FlexiNet includes HTML-based queries for
key functions within the FlexiFinancials applications. These HTML-based queries
provide convenient access over the Internet to functional areas such as vendor
invoice status within FlexiPayables, purchase requisition input, customer
account inquiries within FlexiReceivables and dynamic balance analysis within
FlexiLedger. Full field-level security is maintained through the transparent,
yet secure, use of dual passwords between the browser, the Web server and the
FlexFinancials database.
FlexiTools
FlexiTools are development and customization tools based on the C++
language that permit users to take advantage of the object-oriented,
component-based architecture of the Company's systems to accommodate their
unique requirements in a timely and cost-effective manner. FlexiDesigner,
FlexiDeveloper and FlexiDB provide users with the flexibility to extend Flexi
applications and customize the interface and database definitions. With these
tools, customers may add additional fields to any table, modify the attributes
of a currently existing database or customize their graphical user interface.
Each customer has a high degree of flexibility regarding screen or menu
structure. Through the revision control feature, subsequent updates may be
easily applied without overriding customized modifications. By maintaining
customized applications throughout subsequent software releases, FlexiTools
reduce the risk of both subsequent system errors and overall system costs.
FlexiControl permits users to define and manage system-wide controls such
as security, while FlexiActiveX Controls allows customers to create interfaces
between any Windows-based applications supporting OLE (Object Linking and
Embedding) controls and FlexiFinancials modules. The Company believes that
FlexiTools increase the flexibility of its products and facilitate seamless
integration with customer applications.
Pricing
The Company offers server and client licenses for each of its products.
Such licenses vary broadly based on modules, authorized sites, enabled platforms
and volume discounts, if any. A module with typical configurations ranges in
price from $40,000 to over $300,000.
Product Enhancements and Developments
The Company plans to continue to build on its object-oriented,
component-based expertise and believes that it is particularly well positioned
to take advantage of the adoption of the Internet and corporate intranets as
critical components of an organization's future system deployments. The
Company's technology facilitates the distribution of accounting functionality
across users and workgroups in an automated, "just-in-time" manner over the
Internet, as opposed to the significant implementation efforts required by
networks associated with legacy client/server systems. With the introduction of
FlexiNet in 1996, the Company established itself as one of the first accounting
software vendors to provide Internet/intranet access.
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By the end of 1997, the Company plans to introduce, on a limited basis,
extended distributed computing capabilities incorporating a
platform-independent, Java-based presentation layer and utilizing multiple
network transaction monitors such as Microsoft Transaction Server and IBM
Component Broker. This will permit users to select a browser, spreadsheet or
other data access tool for accessing FlexiFinancials processes without
pre-installed Flexi software, which will allow full use of the Flexi solution as
the Internet increasingly becomes the common data exchange vehicle of choice for
users worldwide. The Company anticipates that it will continue to enhance the
Internet functionality of its products with the inclusion of additional features
on an ongoing basis. The Company will also continue over time to introduce
submodules to its products to meet specific requirements of key industry sectors
such as banking, insurance and other financial services.
SALES AND MARKETING
The Company sells its products through direct and indirect channels. The
Company believes there is a significant market for the advanced functionality of
its products and intends to supplement its direct sales force by expanding its
distribution network in selected foreign markets.
Direct Sales
The Company sells its products directly to end users through eight sales
offices in the United States and one office in the United Kingdom. The Company's
sales staff, which has extensive experience in financial accounting software and
computer technology, consists of account executives who develop leads and
coordinate sales activity, and product representatives with extensive knowledge
of the Company's product offerings. The percentage of the Company's total
revenues attributable to direct sales in 1994, 1995 and 1996 and the nine months
ended September 30, 1997 was 100%, 99.2%, 96.3% and 93.8%, respectively. As of
September 30, 1997, the Company had 28 employees in sales, and the Company plans
a significant expansion of its direct sales force during the remainder of 1997
and the first half of 1998.
Indirect Sales
The Company's indirect sales channel consists of Flexi Industry Partners
("FIPs") and an international distributor. The Company currently has
relationships with FIPs in the healthcare, real estate, retail and manufacturing
industries. By leveraging the sales organization and market expertise of its
FIPs, the Company can focus on the specific needs of vertical markets without
disproportionate investment. To date, the agreements between the Company and its
FIPs have required the payment of an initial technology fee by the FIPs and
additional royalty fees based on product sales by the FIPs.
The Company has an international distributor in Hong Kong and plans to
establish additional distributorships to complement its direct sales force and
FIPs and to provide penetration into additional geographic and vertical markets.
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CUSTOMERS
The Company's customers include a wide range of financial institutions and
other organizations that require a high level of functionality from their
financial accounting software, including banks, insurance companies and other
financial services firms, as well as organizations in other industries such as
healthcare and technology. In each of the years ended December 31, 1994, 1995
and 1996 and the nine months ended September 30, 1997, five customers, one
customer, one customer and two customers, respectively, each represented 10% or
more of the Company's total revenues, or an aggregate of 68.8%, 12.1%, 12.3% and
35.4% of total revenues, respectively. See "Risk Factors -- Concentration of
Customers." As of September 30, 1997, the Company, directly and through its FIPs
and distributors, had licensed its financial accounting solutions to more than
100 customers at over 150 sites. The following is a representative list of the
Company's customers as of September 30, 1997:
<TABLE>
<S> <C>
BANKING HEALTHCARE
Citibank, N.A. Enterprise Systems (subsidiary of HBOC)
Banco Popular del Ecuador Loma Linda University Medical Center
Canada Trust Mary Rutan Hospital
Skandinaviska Enskilda Banken TECHNOLOGY
INSURANCE Excite, Inc.
Blue Cross/Blue Shield of South Carolina Compaq Capital Corporation
Cologne Life Reinsurance DataWorks Corporation
Mercury General Corporation 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 Heitman Financial Ltd.
Babcock & Brown Packard-Hughes Interconnect
Freddie Mac Sikorsky Aircraft
PEMCO Financial Services The Spokesman Review
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
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the FlexiLedger application using an IBM RS/6000 platform and DB2/6000
relational database. During the test, the FlexiLedger software successfully
achieved a posting rate of over 500,000 journal transactions per hour,
representing an internal posting rate of over 5,000,000 journal balances per
hour. Canada Trust purchased the FlexiLedger software in June 1997.
Skandinaviska Enskilda Banken. Skandinaviska Enskilda Banken ("S-E-B"), a
global banking organization based in Stockholm, Sweden, offers a broad range of
banking services to approximately 180 multinational organizations, 850 major
companies and municipalities, 125,000 small and medium-sized companies and 1.8
million private customers in 16 countries. In 1996, S-E-B started a search for a
new general ledger system that was year 2000-compliant and offered Internet
functionality capabilities that could not be addressed by its current system.
After initial presentations by 13 accounting software vendors and follow-up
demonstrations by three vendors, S-E-B chose the Company as its financial
accounting software vendor. According to S-E-B, the Company demonstrated a
superior ability to handle the bank's global requirements of multicompany,
multi-currency processing while supporting S-E-B's network of server platforms.
Excite, Inc. With revenue of $14.8 million in 1996, Excite, Inc.
("Excite") is a leading provider of Web content search services worldwide. In
1996, Excite concluded that it had already outgrown its two-year-old accounting
system and required a sophisticated financial accounting solution that could
support rapid growth and adapt to changes in business requirements and was based
on complementary technologies. After an extensive evaluation, Excite chose the
Company's financial accounting software because of its adaptable,
object-oriented, component-based architecture and strong Internet capabilities.
Utilizing an implementation team composed of personnel from Excite, the Company
and a local systems integration firm, Excite implemented the Microsoft Windows
NT/SQL Server versions of the FlexiPayables and FlexiLedger software in four and
eight weeks, respectively.
Enterprise Systems, Inc. (HBOC's Resource Management Group). HBOC's
Resource Management Group ("HBOC"), formerly Enterprise Systems, Inc. ("ESi"),
provides information systems which allow over 1,000 healthcare organizations to
efficiently manage their most critical resources -- people, supplies, equipment,
facilities and service. In 1994, ESi began upgrading its full line of healthcare
resource management software to fully utilize a Windows-based client/server
architecture. In order to provide its clients with a single source for
operational and financial software, reduce the new product time to market and
minimize overall development costs, ESi chose to review third-party financial
application vendors. After an extensive evaluation, ESi chose the FlexiLedger
and FlexiPayables applications because of their open, scalable architecture,
which is based on industry-standard methodologies and tools consistent with
ESi's own development efforts. In 1996, ESi became a Flexi Industry Partner,
offering these Flexi applications with healthcare-specific capabilities as part
of its new client/server product line. ESi markets the Company's applications
utilizing Microsoft Windows NT/SQL Server and, as of September 1997, over 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
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<PAGE> 36
purchase an implementation consulting package, consisting of classroom and
on-site training, project planning and system review. Depending upon the
complexity of the customer's accounting and system requirements, the
implementation process can extend beyond 90 days.
In addition, the Company generally warrants that product performance will
comply with published specifications for one year after delivery and requires
customers to purchase an initial one-year maintenance contract that includes
updates, error corrections and new releases. The Company generally provides
technical support for the then current release and one prior release. The
Company's standard maintenance contract automatically renews each year, unless
the customer provides 30 days' notice. Annual maintenance fees are typically 17%
of the list price of the underlying products.
The Company's Flexi Support personnel provide toll-free telephone support
from 8:00 a.m. to 8:00 p.m., Eastern Time, with 24-hour/seven-day support
available for an additional fee. In addition, the Company's Flexi Support staff
provides upgrade assistance, premium support, migration assistance and
FlexiCenter remote management.
The Company also leverages the expertise and personnel of a number of
systems integrators and consultants, including Andersen Consulting, Deloitte &
Touche LLP and KPMG Peat Marwick LLP, in connection with the delivery of
sophisticated financial accounting solutions to certain customers.
COMPETITION
The market for the Company's financial accounting software products and
services is intensely competitive and characterized by rapid changes in
technology and the frequent introduction of new products. The Company's
principal competitors in the financial accounting software market include
PeopleSoft, Inc., SAP AG, Oracle Corporation, GEAC Computer Corporation Limited,
SQL Financials International, Inc. and Lawson Software. The Company also faces
competition from providers of industry-specific applications as well as indirect
competition from in-house, custom-developed financial management applications. A
number of the Company's competitors are more established, benefit from greater
name recognition and have substantially greater financial, technical and
marketing resources than the Company and its FIPs and distributors. Moreover,
other than the need for financial and technical expertise, there are no
significant proprietary or other technological barriers to entry in the
financial accounting software market. The Company believes that the principal
factors affecting competition in the financial accounting software market
include product flexibility, performance, functionality and features, use of
standards-based technology, quality of support and service, company reputation,
price and overall cost of ownership. See "Risk Factors -- Competition."
RESEARCH AND DEVELOPMENT
The Company believes that its future success depends in large part on its
ability to maintain and enhance its current product line, develop new products,
maintain technological competitiveness and meet an expanding range of customer
requirements. The Company plans to continue to enhance its products and develop
new products, including the development of additional functionality for its
financial accounting products. The Company has generally relied on internal
efforts and resources to develop its software, and, in some limited cases, the
Company has contracted with various firms to develop materials, processes,
software or portions of software for and on behalf of the Company.
As of September 30, 1997, the Company's research and development
organization consisted of 57 employees and 20 consultants. The Company's product
development expenses were $2.0 million, $3.7 million, $5.7 million and $6.0
million, or 236.7%, 78.2%, 68.7% and 48.0% of total revenues, for the years
ended December 31, 1994, 1995 and 1996 and the nine months ended September 30,
1997, respectively.
INTELLECTUAL PROPERTY
The Company relies on a combination of license agreements and copyright,
trade secret, service mark and trademark laws to protect its proprietary rights
in technology. In addition, the Company currently requires its
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<PAGE> 37
employees and consultants to enter into nondisclosure and invention agreements
to limit use of, access to and distribution of its proprietary information.
The Company's business includes the licensing of the Company's proprietary
software to end users, as well as to FIPs and distributors authorized to license
products to third parties. In general, such licensing of the Company's
proprietary software to a licensee is a limited term, limited use, non-exclusive
license that contains restrictions on copying, disclosure, usage, decompiling
and transferability. Within these licensing agreements the Company seeks to
avoid disclosure of its trade secrets, including, but not limited to, generally
requiring those persons with access to the Company's proprietary information to
execute confidentiality agreements restricting use of and access to the
Company's confidential information. In addition, the Company has entered into
license agreements with a limited number of customers that allow these customers
access to and use of the Company's software source code for certain purposes.
Access to the source code may increase the likelihood of misappropriation by
third parties.
The Company generally relies on internal efforts in order to develop its
software. However, in some limited cases the Company has contracted with
consultants to develop software or portions of software for and on behalf of the
Company. Software development by a contractor for the Company is done pursuant
to agreements that generally assign all rights to the Company and contain
nondisclosure provisions. Software developed by a contractor may be merged with
software developed by the Company's own employees.
The Company does not believe that it is infringing any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company of their intellectual property rights. The
Company expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability to the Company to license the infringed or similar
technology, the Company's business, financial condition and results of
operations would be materially adversely affected.
There can be no assurance that the Company's means of protecting its
proprietary rights in the United States or abroad will be adequate. The laws of
some foreign countries may not protect the Company's proprietary rights as fully
or in the same manner as do the laws of the United States. Also, despite the
steps taken by the Company to protect its proprietary rights, it may be possible
for unauthorized third parties to copy aspects of the Company's products,
reverse engineer, develop similar technology independently, or obtain and use
information that the Company regards as proprietary. Furthermore, there can be
no assurance that others will not develop technologies similar or superior to
the Company's technologies or design around the proprietary rights owned by the
Company. However, the Company believes that, because of the rapid pace of
technological change in the software industry,trade secret and copyright
protection is less significant to the Company's competitive position than
factors such as the knowledge, ability and experience of its personnel, new
product development, frequent product enhancements, name recognition and ongoing
product maintenance support with regard to developing, establishing and
maintaining a technology leadership position.
EMPLOYEES
As of September 30, 1997, the Company employed 138 employees, including 57
in research and development, 31 in sales and marketing, 38 in client services
and 12 in administration, finance and corporate support, and retained the
service of 20 product development consultants and eight consultants in client
services. The success of the Company depends on its continued ability to attract
and retain highly skilled and qualified personnel. Competition for such
personnel is intense in the software industry, particularly for talented
software developers, service consultants, and sales and marketing personnel.
There can be no assurance that the Company will be able to attract and retain
qualified personnel in the future.
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<PAGE> 38
The Company's employees are not represented by any labor unions. The
Company considers its relations with its employees to be good.
FACILITIES
The Company is headquartered in Shelton, Connecticut, where it leases
approximately 28,630 square feet under a lease expiring in June 2003. In
addition, the Company maintains leased office space in Atlanta, Georgia; Dallas,
Texas; Edmonds, Washington; Oakland and San Diego, California; Melbourne,
Florida; Norwood and Wellesley, Massachusetts; Schaumburg, Illinois; and London,
United Kingdom.
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine commercial litigation
that arises in the ordinary course of its business. For example, in a July 1997
letter to the Company, a former distributor of the Company's products asserted a
claim to commissions on sales to certain of the Company's customers. The Company
believes that this claim is without merit and that any commissions due to this
former distributor have been properly credited or paid. However, if this former
distributor brings formal claims against the Company, the Company believes that
it has meritorious defenses and it will vigorously defend any such claims.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, their respective ages
as of September 30, 1997 and their positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ ------ ---------------------------------------------------
<S> <C> <C>
Stefan R. Bothe............... 49 Chairman of the Board and Chief Executive Officer
Jennifer V. Cheng............. 47 President, Treasurer and Director
James W. Schenck (1).......... 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.
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<PAGE> 40
Mr. Horner has served as Vice President, Finance of the Company since
February 1997. From October 1995 to November 1996, Mr. Horner was Chief
Financial Officer and Vice President, Operations of Marco International, a
computer memory manufacturer. From February 1991 to March 1995, he was Vice
President, Finance of CSK Software (then known as Micrognosis, Inc.), a provider
of computer systems integration services. Prior to 1990, Mr. Horner held various
management positions with Control Data Corporation and IBM Corporation.
Ms. Okerstrom has served as Vice President, Sales of the Company since
August 1997. From August 1994 to July 1997, Ms. Okerstrom served in various
managerial-level sales and marketing positions with the Company. Prior to
joining the Company, Ms. Okerstrom was Vice President, Strategic Operations from
August 1993 to July 1994, and Vice President, Product Representation from
January 1991 to July 1993, with Platinum Software, Inc., a provider of
information management software products and services.
Mr. Berlingeri has served as Vice President, Client Services of the Company
since March 1997. From August 1996 to January 1997, he was President of Blaze
Consulting, a provider of business consulting services. From February 1996 to
August 1996, he was Chief Operating Officer of ATRE Associates, a management
consulting firm. From October 1992 to January 1996, he served as Regional
Director of Professional Services for Sybase, Inc., a provider of distributed,
open computing solutions. Mr. Berlingeri was Consulting Business Manager for
Oracle Corporation, a supplier of information management software, from October
1989 to September 1992.
Mr. Bredt has served on the Board of Directors of the Company since
February 1994. Since 1986, Mr. Bredt has been a general partner or managing
member of a number of Menlo Ventures funds, including MV Management VI, L.P., a
general partner of Menlo Ventures VI, L.P and Menlo Entrepreneurs Fund VI, L.P.,
venture capital investment firms and stockholders of the Company. Mr. Bredt is
also a director of Red Brick Systems, Inc., Clarify, Inc. and Interlink Computer
Sciences, Inc.
Ms. Carnahan has served on the Board of Directors of the Company since
January 1995. Since January 1988, she has been a general partner of William
Blair Venture Management Company, L.P., a private equity investment firm, and a
Managing Director of its successor, William Blair Capital Management, L.L.C.
William Blair Capital Management is the general partner of William Blair Capital
Partners V, L.P., a private equity investment fund and stockholder of the
Company. Ms. Carnahan is also a director of Desktop Data, Inc., Silvon Software,
Inc. and MatrixOne, Inc.
Mr. Dick has served on the Board of Directors of the Company since March
1994. Since December 1993, he has been a Managing Director of Primus Venture
Partners, Inc., the sole general partner of Primus Venture Partners III Limited
Partnership, the sole general partner of Primus Capital Fund III Limited
Partnership, a venture capital investment firm and stockholder of the Company.
From June 1991 to December 1993, Mr. Dick was an Investment Manager at Primus
Venture Partners Limited Partnership.
Mr. Kettaneh has served on the Board of Directors of the Company since
November 1993. Since 1987, he has been Chief Executive Officer of Turnaround
Properties, Inc., an investment firm concentrating in the high technology area.
Mr. Landry has served on the Board of Directors of the Company since
October 1995. Since June 1995, Mr. Landry has been Strategic Technology
Consultant to senior management of IBM Corporation. In addition, since October
1995, he has been Chairman of the Board of Narrative Communications Corporation,
a provider of interactive streaming technology for the distribution of
multimedia over the Internet. From 1990 to 1995, Mr. Landry was Senior Vice
President and Chief Technology Officer of Lotus Development Corporation, a
provider of software products and services. Mr. Landry is also a director of
Epicon Inc. and MCK Communications Corp.
Mr. Luikart has served on the Board of Directors of the Company since May
1996. Since February 1995, he has been Executive Vice President of Furman Selz
SBIC Investments, LLC, a general partner of Furman Selz SBIC, L.P., a private
equity investment firm and stockholder of the Company. From February 1988 to
January 1995, Mr. Luikart was Vice President of Citicorp Venture Capital Ltd., a
private equity investment firm. Mr. Luikart is also a director of Find/SVP, Inc.
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<PAGE> 41
Mr. Tory has served on the Board of Directors of the Company since
September 1997. Since September 1995, Mr. Tory has been an independent
consultant. From November 1988 to September 1995, he was President and Chief
Executive Officer of The Open Software Foundation, a non-profit consortium of
major computer hardware and software companies and user organizations. Mr. Tory
is also a director of ASI Solutions Incorporated.
Pursuant to a Stockholders' Voting Agreement dated May 7, 1996 among the
Company and certain stockholders of the Company (which terminates upon the
closing of this offering), such stockholders were granted the right to designate
representatives on the Company's Board of Directors. Under this agreement, Mr.
Bredt was elected the representative of Menlo Ventures VI, L.P. and Menlo
Entrepreneurs Fund VI, L.P., Ms. Carnahan was elected the representative of
William Blair Capital Partners V, L.P., Mr. Dick was elected the representative
of Primus Capital Fund III Limited Partnership and Mr. Luikart was elected the
representative of Furman Selz SBIC, L.P.
Following this offering, the Board of Directors of the Company will be
divided into three classes, each of whose members will serve for a staggered
three-year term. The Board will consist of two Class I Directors (Messrs. Bothe
and Bredt), one Class II Director (Ms. Cheng) and two Class III Directors
(Messrs. Landry and Tory). At each annual meeting of stockholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I Directors,
Class II Director and Class III Directors expire upon the election and
qualification of successor directors at the annual meeting of stockholders held
during the calendar years 1998, 1999 and 2000, respectively.
Each officer serves at the discretion of the Board of Directors and holds
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. With the exception of Mr. Bothe and Ms. Cheng,
who are husband and wife, there are no family relationships among any of the
directors or executive officers of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a Compensation Committee composed of Messrs.
Bredt and Landry, which makes recommendations concerning salaries and incentive
compensation for employees of and consultants to the Company and administers and
grants stock options pursuant to the Company's stock option plans, and an Audit
Committee composed of Messrs. Landry and Tory, which reviews the results and
scope of the audit and other services provided by the Company's independent
public accountant.
DIRECTOR COMPENSATION
All of the directors are reimbursed for expenses incurred in connection
with their attendance at Board of Directors and committee meetings. In addition,
non-employee directors of the Company are eligible to receive stock options
under the Company's 1997 Director Stock Option Plan. See " -- Stock
Plans -- 1997 Director Stock Option Plan."
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<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued for
the year ended December 31, 1996 for the Company's Chief Executive Officer and
its two other most highly compensated executive officers in 1996 who were
serving as executive officers on December 31, 1996 (the Chief Executive Officer
and such other executive officers are hereinafter referred to as the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
AWARDS
ANNUAL COMPENSATION ---------------------
-------------------- OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(1)
- --------------------------------------- -------- ------- ------------ ---------------------
<S> <C> <C> <C> <C>
Stefan R. Bothe........................ $165,000 $57,750 -- 150,000
Chairman of the Board and Chief
Executive Officer
Jennifer V. Cheng...................... 115,000 28,750 -- --
President
James W. Schenck....................... 150,000 -- $ 40,000(2) 75,000
Executive Vice President, Software
Engineering
</TABLE>
- ---------------
(1) Represents the number of shares covered by options to purchase shares of the
Company's Common Stock granted during the year ended December 31, 1996. The
Company has never granted any stock appreciation rights.
(2) Consists of reimbursement of expenses related to relocation.
Option Grants During 1996
The following table sets forth grants of stock options to each of the Named
Executive Officers during the year ended December 31, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL FAIR AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS MARKET OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR VALUE AT FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN BASE PRICE DATE EXPIRATION ------------------------------
NAME GRANTED FISCAL YEAR PER SHARE OF GRANT DATE 0% 5% 10%
- ----------------------------- ------------ ----------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stefan R. Bothe.... 150,000 38.1% $ 0.013 $ 2.20 5/7/06 $328,000 $535,535 $853,935
Jennifer V.
Cheng............ -- -- -- -- -- -- -- --
James W. Schenck... 75,000 19.1% 0.013 2.20 5/7/06 164,000 267,768 426,968
</TABLE>
- ---------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (0%, 5% and 10%)
on the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the individuals.
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<PAGE> 43
Year-End Option Values
The following table sets forth certain information concerning the number
and value of unexercised options held by each of the Named Executive Officers on
December 31, 1996. All such options were exercisable in full as of such date.
None of the Named Executive Officers exercised any stock options during the year
ended December 31, 1996.
FISCAL YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
NAME OPTIONS AT FISCAL YEAR-END OPTIONS AT FISCAL YEAR-END(1)
- ------------------------------------------ -------------------------- ---------------------------------
<S> <C> <C>
Stefan R. Bothe........................... 187,500 $ 747,990
Jennifer V. Cheng......................... 112,500 449,489
James W. Schenck.......................... 75,000 299,000
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock at fiscal year end as determined by the Board of
Directors of the Company.
STOCK PLANS
1997 Director Stock Option Plan
The Company's 1997 Director Stock Option Plan (the "Director Plan") was
adopted by the Board of Directors of the Company in September 1997 and approved
by the stockholders of the Company in October 1997. Under the terms of the
Director Plan, directors of the Company who are not employees of the Company or
any subsidiary of the Company are eligible to receive nonstatutory options to
purchase shares of Common Stock. A total of 150,000 shares of Common Stock may
be issued upon exercise of options granted under the Director Plan.
Pursuant to the Director Plan, each non-employee director continuing as a
director following this offering (each, an "IPO Director") will receive an
option to purchase 7,500 shares of Common Stock on the effective date of this
offering at a price per share equivalent to the initial public offering price.
In addition, each IPO Director will receive an option to purchase 5,250 shares
of Common Stock at the annual meeting of stockholders to be held in 1998, and at
each annual meeting of stockholders thereafter, at an exercise price per share
equal to the closing price of a share of Common Stock on the date of grant. Each
director, other than the IPO Directors, will receive an option to purchase 7,500
shares of Common Stock on the date of his or her initial election to the Board
of Directors and an option to purchase 5,250 shares of Common Stock on the date
of each annual meeting of stockholders after his or her election. The exercise
price per share of such options will be the closing price per share of Common
Stock on the date of grant. All options granted under the Director Plan vest one
year from the date of grant so long as the optionee remains a director of the
Company.
1992 Stock Option Plan and 1997 Stock Incentive Plan
The Company's 1992 Stock Option Plan (the "1992 Plan") was adopted by the
Board of Directors and approved by the stockholders of the Company in November
1993. Amendments to the 1992 Plan increased the number of authorized shares
under the 1992 Plan to 1,362,000 shares of Common Stock as of May 1996. As of
September 30, 1997, options to purchase an aggregate of 1,034,594 shares of
Common Stock at a weighted average exercise price of $2.28 per share were
outstanding under the 1992 Plan. No additional option grants will be made under
the 1992 Plan.
The Company's 1997 Stock Incentive Plan (the "Incentive Plan") was adopted
by the Board of Directors in September 1997 and approved by the stockholders of
the Company in October 1997. The Incentive Plan is intended to replace the
Company's 1992 Plan. Up to 1,875,000 shares of Common Stock (subject to
adjustment in the event of stock splits and other similar events) may be issued
pursuant to awards granted under the Incentive Plan.
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<PAGE> 44
The Incentive Plan provides for the grant of incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), nonstatutory stock options, restricted stock awards and
other stock-based awards (collectively, "Awards").
Officers, employees, directors, consultants and advisors of the Company and
its subsidiaries are eligible to receive Awards under the Incentive Plan. Under
present law, however, incentive stock options may only be granted to employees.
The maximum number of shares with respect to which an Award may be granted to
any participant under the Incentive Plan may not exceed 750,000 shares per
calendar year.
Optionees receive the right to purchase a specified number of shares of
Common Stock at a specified option price and subject to such other terms and
conditions as are specified in connection with the option grant. Options may be
granted at an exercise price which may be less than, equal to or greater than
the fair market value of the Common Stock on the date of grant. Under present
law, incentive stock options and options intended to qualify as
performance-based compensation under Section 162(m) of the Code may not be
granted at an exercise price less than the fair market value of the Common Stock
on the date of grant (or less than 110% of the fair market value in the case of
incentive stock options granted to optionees holding more than 10% of the voting
power of the Company). The Incentive Plan permits the Board of Directors to
determine the manner of payment of the exercise price of options, including
through payment by cash, check or in connection with a "cashless exercise"
through a broker, by surrender to the Company of shares of Common Stock, by
delivery to the Company of a promissory note, or by any combination of the
permitted forms of payment.
The Incentive Plan is administered by the Board of Directors. The Board of
Directors has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the Incentive Plan and to interpret the
provisions thereof. Pursuant to the terms of the Incentive Plan, the Board of
Directors may delegate authority under the Incentive Plan to one or more
committees of the Board of Directors and, subject to certain limitations, to one
or more executive officers of the Company. The Board of Directors has authorized
the Compensation Committee to administer the Incentive Plan, including the
granting of options to executive officers. Subject to any applicable limitations
contained in the Incentive Plan, the Board of Directors, the Compensation
Committee or any other committee or executive officer to whom the Board of
Directors delegates authority, as the case may be, selects the recipients of
Awards and determines (i) the number of shares of Common Stock covered by
options and the dates upon which such options become exercisable, (ii) the
exercise price of options, (iii) the duration of options, and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including the conditions for
repurchase, issue price and repurchase price.
In the event of a merger, liquidation or other Acquisition Event (as
defined in the Incentive Plan), the Board of Directors is authorized to provide
for outstanding options or other stock-based Awards to be assumed or substituted
for. If the acquiror refuses to assume or substitute for outstanding Awards,
they will accelerate, becoming fully exercisable and free of restriction, prior
to consummation of the Acquisition Event. In addition, following an Acquisition
Event, an assumed or substituted Award will accelerate if the employment of its
holder with the acquiror is terminated other than "for cause" or if the holder
terminates such employment for "good reason," each as defined in the Incentive
Plan.
No Award may be granted under the Incentive Plan after September 2007, but
the vesting and effectiveness of Awards previously granted may extend beyond
that date. The Board of Directors may at any time amend, suspend or terminate
the Incentive Plan, except that no Award granted after an amendment of the
Incentive Plan and designated as subject to Section 162(m) of the Code by the
Board of Directors shall become exercisable, realizable or vested (to the extent
such amendment was required to grant such Award) unless and until such amendment
is approved by the Company's stockholders.
1997 Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in September 1997 and approved by the
stockholders of the Company in October 1997. The
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<PAGE> 45
Purchase Plan authorizes the issuance of up to a total of 300,000 shares of
Common Stock to participating employees.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, whose customary
employment is more than 20 hours per week and for more than five months in any
calendar year are eligible to participate in the Purchase Plan. Employees who
would immediately after the grant own 5% or more of the total combined voting
power or value of the stock of the Company or any subsidiary are not eligible to
participate. As of September 30, 1997, approximately 130 of the Company's
employees would have been eligible to participate in the Purchase Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Purchase Plan an option to purchase shares of Common Stock as
follows: the employee may authorize an amount (a whole percentage from 1% to 10%
of such employee's base pay) to be deducted by the Company from such employee's
base pay during the Offering Period. On the last day of the Offering Period, the
employee is deemed to have exercised the option, at the option exercise price,
to the extent of accumulated payroll deductions. Under the terms of the Purchase
Plan, the option price is an amount equal to 85% of the average market price (as
defined) per share of the Common Stock on either the first day or the last day
of the Offering Period, whichever is lower. In no event may an employee purchase
in any one Offering Period a number of shares which exceeds the number of shares
determined by dividing $12,500 by the average market price of a share of Common
Stock on the commencement date of the Offering Period. The Compensation
Committee may, in its discretion, choose an Offering Period of 12 months or less
for each Offering and choose a different Offering Period for each Offering.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Purchase Plan terminate upon voluntary withdrawal from the Purchase
Plan at any time, or when such employee ceases employment for any reason, except
that upon termination of employment because of death, the employee's beneficiary
has certain rights to elect to exercise the option to purchase the shares which
the accumulated payroll deductions in the participant's account would purchase
at the date of death.
Because participation in the Purchase Plan is voluntary, the Company cannot
now determine the number of shares of Common Stock to be purchased by any
particular current executive officer, by all current executive officers as a
group or by non-executive employees as a group.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee of the Board of Directors
are Messrs. Bredt and Landry. No executive officer of the Company has served as
a director or member of the compensation committee (or other committee serving
an equivalent function) of any other entity, whose executive officers served as
a director of or member of the Compensation Committee of the Board of Directors.
CERTAIN TRANSACTIONS
On February 8, 1994, the Company issued an aggregate of 1,750,000 shares of
Series A Convertible Preferred Stock to Menlo Ventures VI, L.P. and Menlo
Entrepreneurs Fund VI, L.P. (collectively, "Menlo") for aggregate consideration
of $2,030,000 (convertible into an aggregate of 1,312,499 shares of Common
Stock). In connection with the issuance of Series A Convertible Preferred Stock,
the Company entered into a Voting Agreement (the "Voting Agreement") with Mr.
Bothe, Ms. Cheng and Mr. Schenck (collectively, the "Founders") and Menlo in
which the Founders and Menlo agreed to elect one member to the Board of
Directors of the Company designated by Menlo and three members designated by the
Founders. Mr. Bothe, Ms. Cheng and Mr. Schenck are the Company's Chairman of the
Board and Chief Executive Officer, President and Treasurer and Executive Vice
President, respectively, and all are members of the Board of Directors. Mr.
Bredt, a director of the Company, is a general partner of MV Management VI,
L.P., a general
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<PAGE> 46
partner of both Menlo partnerships. The Company also entered into a
Participation Agreement (the "Participation Agreement") and a Registration
Rights Agreement (the "Registration Rights Agreement") with Menlo which granted
Menlo a preemptive right on future stock issuances by the Company and certain
rights with respect to registration of shares of Common Stock. See "Shares
Eligible for Future Sale -- Registration Rights." The Voting Agreement and the
Participation Agreement will terminate upon the consummation of this offering.
On March 7, 1994, the Company issued 862,069 shares of Series A Convertible
Preferred Stock to Primus Capital Fund III Limited Partnership ("Primus") for
consideration of $1,000,000 (convertible into 646,551 shares of Common Stock).
In connection with this issuance, the Voting Agreement, the Participation
Agreement and the Registration Rights Agreement were amended to include Primus
as a party to those agreements, granting Primus the right to designate one
representative on the Board of Directors. Mr. Dick, a director of the Company,
is a Managing Director of Primus Venture Partners, Inc., the sole general
partner of Primus Venture Partners III Limited Partnership, the sole general
partner of Primus.
On November 21, 1994, the Company issued Convertible Promissory Notes in
the aggregate principal amount of $1,010,000 and Warrants to purchase an
aggregate of 189,375 shares of Common Stock, exercisable at $1.33 per share, to
Menlo and Primus. Such Convertible Promissory Notes and Warrants were cancelled
in connection with the issuance of shares of the Company's Series B Convertible
Preferred Stock described below.
On January 20, 1995, the Company issued an aggregate of 2,688,000 shares of
Series B Convertible Preferred Stock to Menlo, Primus and William Blair Capital
Partners V, L.P. ("William Blair") for aggregate consideration of $4,032,000
(convertible into an aggregate of 2,015,997 shares of Common Stock). In
connection with this issuance, the Voting Agreement, the Participation Agreement
and the Registration Rights Agreement were amended to include William Blair as a
party to those agreements, granting William Blair the right to designate one
representative on the Board of Directors. Ms. Carnahan, a director of the
Company, is a Managing Director of William Blair Capital Management Company,
L.L.C., the general partner of William Blair.
On October 25, 1995, January 23, 1996 and February 16, 1996, the Company
issued Convertible Promissory Notes in the aggregate principal amount of
$3,000,000, and Warrants to purchase an aggregate of 375,000 shares of Common
Stock exercisable at $2.00 per share, to Menlo, Primus and William Blair. Such
Convertible Promissory Notes and Warrants were cancelled in connection with the
issuance of shares of the Company's Series C Convertible Preferred Stock
described below.
On May 7, 1996, the Company issued an aggregate of 4,838,872 shares of
Series C Convertible Preferred Stock to Menlo, Primus, William Blair and Furman
Selz SBIC, L.P. ("Furman Selz") for aggregate consideration of $7,984,139
(convertible into an aggregate of 3,629,152 shares of Common Stock). In
connection with this issuance, the Voting Agreement, the Participation Agreement
and the Registration Rights Agreement were amended to include Furman Selz as a
party to those agreements, granting Furman Selz the right to designate one
representative on the Board of Directors of the Company. Mr. Luikart, a director
of the Company, is Vice President of Furman Selz SBIC Investments LLC, a general
partner of Furman Selz.
On January 10, 1997 and March 25, 1997, the Company issued an aggregate of
750,000 shares of Common Stock to H&Q Flexi Investors, L.P. ("H&Q") for
aggregate consideration of $3,000,000. In connection with this issuance, the
Registration Rights Agreement was amended to include H&Q as a party to such
agreement. H&Q is an investment company affiliated with Hambrecht & Quist LLC,
one of the managing underwriters of this offering.
The Company has adopted a policy providing that all material transactions
between the Company and its officers, directors and other affiliates must (i) be
approved by a majority of the members of the Company's Board of Directors and by
a majority of the disinterested members of the Company's Board of Directors and
(ii) be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
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<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of September 30, 1997, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by
(i) each person or entity known to the Company to own beneficially more than 5%
of the Company's Common Stock, (ii) each of the directors of the Company, (iii)
each of the Named Executive Officers, (iv) all directors and executive officers
as a group and (v) each of the other Selling Stockholders. Except as indicated
in this Prospectus, none of these entities has a relationship with the Company
or, to the knowledge of the Company, any of the Underwriters or their respective
affiliates. Unless otherwise indicated, each person or entity named in the table
has sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as owned by such
person or entity. The address of each of the officers and directors of the
Company is c/o FlexiInternational Software, Inc., Two Enterprise Drive, Shelton,
CT 06484.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY 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> 48
<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> 49
(10) Includes 112,500 shares subject to options held by Ms. Cheng which are
exercisable within 60 days after September 30, 1997. Excludes 978,750
shares held by Mr. Bothe, Ms. Cheng's husband, as to which shares Ms. Cheng
disclaims beneficial ownership.
(11) H&Q Flexi Investors, L.P. is an investment company affiliated with
Hambrecht & Quist LLC, one of the managing underwriters of this offering.
(12) Includes 12,375 shares subject to options held by Mr. Kettaneh on September
30, 1997 which were exercised on October 13, 1997.
(13) Consists of shares subject to 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.
48
<PAGE> 50
DESCRIPTION OF CAPITAL STOCK
After the filing of the Company's Restated Certificate of Incorporation
upon the closing of this offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, $.01 par value per share, and
5,000,000 shares of Preferred Stock, $.01 par value per share. As of September
30, 1997 (after giving effect to the three-for-four reverse split of the Common
Stock to be effected prior to the closing of this offering and the conversion of
all outstanding shares of Convertible Preferred Stock into Common Stock to be
effected upon the closing of this offering), there were outstanding (i)
14,024,764 shares of Common Stock held by 52 stockholders of record, (ii)
options to purchase an aggregate of 1,034,594 shares of Common Stock and (iii)
warrants to purchase an aggregate of 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
49
<PAGE> 51
$500,000 divided by the $1.55 exercise price. As of September 30, 1997, no
additional shares were issuable under this warrant. This warrant, which was
assigned to an affiliate of Comdisco in December 1995, expires in June 2004.
In July 1995, in connection with executing a Receivables Loan and Security
Agreement (the "Receivables Loan") with Comdisco, the Company issued two
warrants, each exercisable at $2.00 per share, to purchase 45,000 and 12,600
shares of Common Stock, respectively. The 45,000-share warrant is exercisable
for an additional (i) 22,500 shares if advances under the Receivables Loan
exceed $1.0 million, plus (ii) nine percent of the amount by which advances
under the Receivables Loan exceed $1.5 million divided by the $2.00 exercise
price. The 12,600-share warrant is exercisable for additional shares of Common
Stock equal to nine percent of the amount by which the cost of equipment
purchased under the Equipment Lease exceeds $280,000 divided by the $2.00
exercise price. As of September 30, 1997, no additional shares were issuable
under either of these warrants. Both warrants expire in July 2005.
In 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
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<PAGE> 52
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
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<PAGE> 53
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.
52
<PAGE> 54
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives, BT
Alex. Brown Incorporated, Hambrecht & Quist LLC and Wessels, Arnold & Henderson,
L.L.C., have severally agreed to purchase from the Company and the Selling
Stockholders the following respective numbers of shares of Common Stock at the
initial public offering price less the underwriting discounts and commissions
set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
BT Alex. Brown Incorporated...............................................
Hambrecht & Quist LLC.....................................................
Wessels, Arnold & Henderson, L.L.C........................................
---------
Total........................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all shares of the Common Stock offered hereby if any
such shares are purchased.
The Company and the Selling Stockholders have been advised by the
Representatives of the Underwriters that the Underwriters propose to offer the
shares of Common Stock to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to certain dealers at such price
less a concession not in excess of $ per share. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price and other selling terms may be changed by the Representatives of the
Underwriters.
The Selling Stockholders have granted to the Underwriters an option,
exercisable not later than 30 days after the date of this Prospectus, to
purchase up to 450,000 additional shares of Common Stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will have a firm commitment to purchase
approximately the same percentage thereof that the number of shares of Common
Stock to be purchased by it shown in the above table bears to 3,000,000, and
such Selling Stockholders will be obligated, pursuant to the option, to sell
such shares to the Underwriters. The Underwriters may exercise such option only
to cover over-allotments made in connection with the sale of the Common Stock
offered hereby. If purchased, the Underwriters will offer such additional shares
on the same terms as those on which the 3,000,000 shares are being offered.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.
The Company, each of its officers and directors, and certain of its
stockholders, including all of the Selling Stockholders, have agreed, subject to
certain exceptions, not to offer, sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of the Representatives of the Underwriters. BT Alex.
Brown Incorporated, on behalf of the Representatives, may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to Lock-up Agreements. See "Shares Eligible for Future Sale."
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
53
<PAGE> 55
In connection with this offering, the Underwriters and other persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Common Stock. Specifically, the
Underwriters may over-allot in connection with this offering, creating a short
position in Common Stock for their own account. To cover over-allotments or to
stabilize the price of the Common Stock, the Underwriters may bid for, and
purchase, shares of Common Stock in the open market. The Underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
Underwriter or a dealer for distributing Common Stock in this offering, if the
Underwriters repurchase previously distributed Common Stock in transactions to
cover their short position, in stabilization transactions or otherwise. Finally,
the Underwriters may bid for, and purchase, shares of Common Stock in market
making transactions. These activities may stabilize or maintain the market price
of the Common Stock above market levels that may otherwise prevail. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Prior to this offering, there has been no public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
Common Stock will be determined by negotiations among the Company,
representatives of the Selling Stockholders and the Representatives of the
Underwriters. Among the factors to be considered in such negotiations are the
prevailing market conditions, the results of operations of the Company in recent
periods, the market capitalizations and stages of development of other companies
which the Company, representatives of the Selling Stockholders and the
Representatives of the Underwriters believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant. Application has been
made for quotation of the Common Stock on the Nasdaq National Market under the
symbol "FLXI."
LEGAL MATTERS
The validity of the shares of Common Stock offered by the Company and the
Selling Stockholders hereby will be passed upon for the Company by Hale and Dorr
LLP, Boston, Massachusetts, and for the Underwriters by Goodwin, Procter & Hoar
LLP, Boston, Massachusetts.
EXPERTS
The Company's financial statements as of December 31, 1995 and 1996 and
September 30, 1997 and for each of the three years in the period ended December
31, 1996 and the nine months ended September 30, 1997 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
54
<PAGE> 56
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include all amendments,
exhibits, schedules and supplements thereto) on Form S-1 under the Securities
Act with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission, to
which Registration Statement reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and the exhibits thereto may be
inspected and copied at prescribed rates at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
In addition, the Company is required to file electronic versions to these
documents with the Commission through the Commission's Electronic Data
Gathering, Analysis, and Retrieval (EDGAR) system. The Commission maintains a
World Wide Web site at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing audited consolidated financial statements. The Company also intends
to make available to its stockholders, within 45 days after the end of each
fiscal quarter, reports for the first three quarters of each fiscal year
containing interim unaudited financial information.
55
<PAGE> 57
FLEXIINTERNATIONAL SOFTWARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-2
Balance Sheet as of December 31, 1995 and 1996 and as of September 30, 1997........... F-3
Statement of Operations for the years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1996 (unaudited) and September 30, 1997......... F-4
Statement of Stockholders' Equity (Deficit) for the years ended December 31, 1994,
1995 and 1996 and for the nine months ended September 30, 1997...................... F-5
Statement of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and for
the nine months ended September 30, 1996 (unaudited) and September 30, 1997......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 58
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
FlexiInternational Software, Inc.
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> 59
FLEXIINTERNATIONAL SOFTWARE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------
DECEMBER 31, PRO FORMA
-------------------- STOCKHOLDERS'
1995 1996 ACTUAL EQUITY (NOTE 2)
-------- -------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 15 $ 3,273 $ 3,257
Accounts receivable, net of allowance for doubtful
accounts of $422, $405 and $674, respectively..... 1,385 3,061 4,860
Prepaid expenses and other current assets........... 291 617 833
------- ------- -------
Total current assets......................... 1,691 6,951 8,950
Property and equipment at cost, net of accumulated
depreciation and amortization of $510, $905 and
$1,246, respectively................................ 677 647 1,145
Accounts receivable................................... 300 60 --
Other assets, net of accumulated amortization of $61,
$112 and $176, respectively......................... 158 175 137
------- ------- -------
Total assets................................. $ 2,826 $ 7,833 $ 10,232
======= ======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............... $ 1,462 $ 2,413 $ 2,533
Accrued commissions................................. 134 310 361
Convertible promissory note......................... 1,500 --
Convertible loan.................................... -- 500 --
Short-term borrowings............................... 453 -- 2,000
Current portion of convertible note payable......... 44 135 --
Current portion of capital lease obligations........ 257 238 166
Deferred revenues................................... 758 1,875 2,220
------- ------- -------
Total current liabilities.................... 4,608 5,471 7,280
Long-term portion of convertible note payable......... 707 571 --
Long-term portion of capital lease obligations........ 282 45 171
Deferred revenues..................................... 300 60 --
------- ------- -------
Total liabilities............................ 5,897 6,147 7,451
------- ------- -------
Commitments and contingencies (Note 8)
Mandatorily redeemable convertible preferred stock
(Note 6)............................................ 7,450 15,509 15,509 $ --
Stockholders' equity (deficit):
Preferred stock, $.01 par value; no shares
authorized, issued or outstanding; 5,000,000
shares authorized, no shares issued or outstanding
(pro forma)....................................... -- -- -- --
Common stock; $.01 par value; 18,750,000 shares
authorized; issued and outstanding
shares -- 3,774,522, 4,744,144 and 6,163,414,
respectively; 50,000,000 shares authorized pro
forma; 14,024,764 shares issued and outstanding
pro forma......................................... 38 48 62 140
Additional paid-in-capital.......................... 1,559 5,694 11,415 26,846
Accumulated deficit................................. (12,118) (19,565) (24,205) (24,205)
------- ------- ------- -------
Total stockholders' equity (deficit)......... (10,521) (13,823) (12,728) $ 2,781
-------- -------- -------- ===========
Total liabilities, mandatorily redeemable
convertible preferred stock and
stockholders' equity (deficit)............. $ 2,826 $ 7,833 $ 10,232
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 60
FLEXIINTERNATIONAL SOFTWARE, INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -----------------------
1994 1995 1996 1997
------- ------- ------- 1996 -------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license................... $ 562 $ 3,166 $ 5,205 $ 3,092 $ 7,362
Service and maintenance............ 291 1,517 3,142 2,044 5,098
-------- -------- -------- -------- --------
Total revenues............. 853 4,683 8,347 5,136 12,460
Cost of revenues:
Software license................... 4 88 311 170 619
Service and maintenance............ 324 1,708 2,181 1,583 3,499
-------- -------- -------- -------- --------
Total cost of revenues..... 328 1,796 2,492 1,753 4,118
Operating expenses:
Sales and marketing................ 1,927 4,350 4,978 3,405 5,306
Product development................ 2,019 3,660 5,733 4,025 5,972
General and administrative......... 679 1,316 2,453 1,798 1,699
-------- -------- -------- -------- --------
Total operating expenses... 4,625 9,326 13,164 9,228 12,977
-------- -------- -------- -------- --------
Operating loss....................... (4,100) (6,439) (7,309) (5,845) (4,635)
Interest income...................... 41 58 59 50 98
Interest expense..................... (28) (106) (197) (161) (103)
-------- -------- -------- -------- --------
Loss before provision for income
taxes.............................. (4,087) (6,487) (7,447) (5,956) (4,640)
Provision for income taxes........... -- -- -- -- --
-------- -------- -------- -------- --------
Net loss............................. $(4,087) $(6,487) $(7,447) $(5,956) $(4,640)
======== ======== ======== ======== ========
Unaudited pro forma net loss per
share (Note 2)..................... $ (0.69) $ (0.33)
======== ========
Shares used in computing unaudited
pro forma net loss per share (Note
2)................................. 10,788 13,975
======== ========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 61
FLEXIINTERNATIONAL SOFTWARE, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN- ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
--------- ------ ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994............ 100,768 $ 1 $ 1,705 $ (1,544) $ 162
Common stock split in the form of a
dividend......................... 3,706,492 37 (37) -- --
Exchange of common stock for Series
A convertible preferred stock.... (107,138) (1) (138) -- (139)
Compensation expense related to
stock options granted and
vested........................... -- -- 19 -- 19
Exercise of stock options........... 65,625 1 (1) -- --
Net loss............................ -- -- -- (4,087) (4,087)
--------- --- ------ -------- --------
Balance at December 31, 1994.......... 3,765,747 38 1,548 (5,631) (4,045)
Exercise of stock options........... 8,775 -- 11 -- 11
Net loss............................ -- -- -- (6,487) (6,487)
--------- --- ------ -------- --------
Balance at December 31, 1995.......... 3,774,522 38 1,559 (12,118) (10,521)
Issuance of common stock............ 885,000 9 3,531 -- 3,540
Compensation expense related to
stock options granted and
vested........................... -- -- 492 -- 492
Exercise of stock options........... 84,622 1 112 -- 113
Net loss............................ -- -- -- (7,447) (7,447)
--------- --- ------ -------- --------
Balance at December 31, 1996.......... 4,744,144 48 5,694 (19,565) (13,823)
Issuance of common stock............ 1,074,998 11 4,289 -- 4,300
Issuance of common stock to
vendor........................... 31,619 -- 289 -- 289
Exchange of debt for common stock... 275,003 3 1,097 -- 1,100
Exercise of stock options........... 37,650 -- 46 -- 46
Net loss............................ -- -- -- (4,640) (4,640)
--------- --- ------ -------- --------
Balance at September 30, 1997......... 6,163,414 $ 62 $ 11,415 $ (24,205) $(12,728)
========= === ====== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 62
FLEXIINTERNATIONAL SOFTWARE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ---------------------
1994 1995 1996 1997
------- ------- ------- 1996 -------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(4,087) $(6,487) $(7,447) $(5,956) $(4,640)
Non-cash items included in net loss:
Depreciation and amortization................ 166 393 466 354 404
Provision for doubtful accounts.............. 84 476 665 511 275
Conversion of accrued interest to preferred
stock..................................... -- 11 59 59 --
Expense related to stock options............. 19 -- 640 492 141
Loss on sale of property..................... 7 -- -- -- --
Change in operating accounts:
Accounts receivable.......................... (1,050) (1,160) (2,097) (2,713) (2,014)
Prepaid expenses and other assets............ (230) (259) (117) (751) (241)
Accounts payable and accrued expenses........ 731 817 738 798 319
Deferred revenues............................ 1,212 (172) 877 2,126 285
------- ------- ------- ------- -------
Net cash used in operating activities.......... (3,148) (6,381) (6,216) (5,080) (5,471)
Cash flows from investing activities:
Proceeds from sale of property and
equipment................................. 232 113 -- -- --
Purchase of property and equipment........... (303) (336) (425) (271) (575)
------- ------- ------- ------- -------
Net cash used in investing activities.......... (71) (223) (425) (271) (575)
Cash flows from financing activities:
Proceeds from sales of preferred stock....... 3,030 3,262 5,000 5,000 --
Proceeds from sales of common stock.......... -- -- 3,540 -- 4,300
Proceeds from exercise of stock options...... -- 11 113 113 46
Proceeds from convertible loan and
promissory notes.......................... 1,010 1,500 2,000 1,500 --
Proceeds from (repayments of) line of credit,
net....................................... -- 453 (453) 393 2,000
Proceeds from (repayments of) convertible
note payable.............................. -- 750 (45) (11) (106)
Payments of capital lease obligations........ (40) (227) (256) (190) (210)
Payment of note payable to officer........... (100) -- -- -- --
------- ------- ------- ------- -------
Net cash provided by financing activities...... 3,900 5,749 9,899 6,805 6,030
------- ------- ------- ------- -------
Increase (decrease) in cash and cash
equivalents.................................. 681 (855) 3,258 1,454 (16)
------- ------- ------- ------- -------
Cash and cash equivalents at beginning of
year......................................... 189 870 15 15 3,273
------- ------- ------- ------- -------
Cash and cash equivalents at end of year....... $ 870 $ 15 $ 3,273 $ 1,469 $ 3,257
======= ======= ======= ======= =======
Supplemental disclosures:
Interest paid in cash........................ $ 22 $ 105 $ 197 $ 161 $ 91
Assets acquired through capital lease
obligations............................... $ 354 $ 423 $ -- $ -- $ 264
Exchange of loan and accrued interest for
preferred stock........................... $ -- $ 1,021 $ 3,059 $ 3,059 $ --
Exchange of loans for common stock........... $ -- $ -- $ -- $ -- $ 1,100
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 63
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1 -- THE COMPANY
FlexiInternational Software, Inc. (the "Company") began operations in 1991.
The Company offers an integrated suite of object-oriented, component-based
financial accounting applications, reporting and workflow applications, and
development and customization tools based upon a client/server, multi-tier
architecture and rule-driven design to address the needs of users with
sophisticated financial accounting requirements, including high functionality,
high adaptability and scalability, low cost of implementation and capacity to
support new and emerging technologies.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Company licenses software under noncancellable license agreements
through direct and indirect channels, and provides services including
maintenance, training, and consulting. Software license revenues through the
Company's direct sales channel are recognized when a noncancellable license
agreement has been signed, the product has been delivered and installed,
collection is considered probable by management and all significant contractual
obligations have been satisfied. Software license revenues through the Company's
indirect sales channel are recognized as such fees are reported to the Company.
Revenues on all software license transactions in which there are significant
outstanding obligations are not recognized until such obligations are fulfilled.
Maintenance revenues for maintaining, supporting, and providing periodic
upgrading are deferred and recognized ratably over the maintenance period,
generally one year. Revenues from training and consulting services are
recognized as such services are performed. The Company does not require
collateral for its receivables and reserves are maintained for potential losses.
International sales
International sales for the years ended December 31, 1995 and 1996 and for
the nine months ended September 30, 1997 were approximately 17%, 15%, and 22%,
respectively. All international sales are denominated in U.S. dollars.
Product development costs
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise
Marketed," the Company has evaluated the establishment of technological
feasibility of its various products during the development phase. The time
period during which costs could be capitalized from the point of reaching
technological feasibility until the time of general product release is very
short and, consequently, the amounts that could be capitalized are not material
to the Company's financial position or results of operations. Therefore, the
Company charges all product development expenses to operations in the period
incurred.
Cash and cash equivalents
The Company considers all interest-bearing securities having original
maturities of three months or less to be cash equivalents.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
The Company controls this risk through credit approvals, customer limits and
monitoring procedures. The Company can, however, limit the amount of support
provided to its customers in the event of non-performance. Five customers, one
customer, one customer and two customers,
F-7
<PAGE> 64
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
respectively, each represented 10% or more of the Company's total revenues, or
an aggregate of 68.8%, 12.1%, 12.3% and 35.4% of total revenues for the years
ended December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1997, respectively. Three customers represented approximately 39% of the
Company's total accounts receivable at September 30, 1997.
Prepaid expenses and other assets
Prepaid expenses and other assets consist primarily of prepaid expenses,
organizational costs and other intangible assets. Organizational costs and other
intangible assets are being amortized over periods not exceeding five years.
Amortization expense for the years ended December 31, 1994, 1995 and 1996 and
for the nine months ended September 30, 1997 was $4, $45, $71 and $63,
respectively. The Company periodically reviews the recoverability of intangible
and other long-lived assets based upon anticipated cash flows generated from
such underlying assets.
Property and equipment
Property and equipment is composed of furniture and equipment and is stated
at cost less accumulated depreciation and amortization. Depreciation is
calculated using an accelerated method over the estimated useful lives of the
assets ranging from three to seven years. Depreciation expense for the years
ended December 31, 1994, 1995 and 1996 and for the nine months ended September
30, 1997 amounted to $162, $348, $395 and $341, respectively, and includes
amortization of assets recorded under capital lease obligations.
Income taxes
Deferred taxes are determined under the asset and liability approach.
Deferred tax assets and liabilities are recognized on differences between the
book and tax bases of assets and liabilities using presently enacted tax rates.
Fair value disclosure of financial instruments
The Company's financial instruments consist of cash, accounts receivable,
capital lease obligations, accounts payable and other short-term borrowings. The
current carrying amount of these instruments approximates fair market value.
Accounting for stock based compensation
The Company has adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock Based Compensation." As permitted by this statement,
the Company continues to apply Accounting Practices Board Opinion No. 25
"Accounting for Stock Issued to Employees" to account for its stock-based
employee compensation arrangements.
Unaudited pro forma net loss per share
Unaudited pro forma net loss per share is based on the unaudited pro forma
weighted average number of shares of common stock and common equivalent shares
outstanding for the period. The unaudited pro forma weighted average number of
shares assumes the conversion of the Company's mandatorily redeemable
convertible preferred stock into 6,640,268 shares of common stock for the year
ended December 31, 1996 and 7,861,350 shares of common stock for the nine months
ended September 30, 1997. Because of the significant impact of the assumed
conversion on the Company's capital structure and loss per share, historical
loss per share has been excluded from the financial statements as they are not
considered meaningful. Pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 83, options granted with exercise prices below the
initial public offering price during the 12-month period preceding the date of
the initial filing of the
F-8
<PAGE> 65
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Registration Statement have been included in the calculation of pro forma net
loss per share, using the treasury stock method based on the initial public
offering price, as if the options were outstanding for all periods presented.
Pro forma stockholders' equity (unaudited)
If the offering contemplated by this Prospectus is consummated, all of the
mandatorily redeemable convertible preferred stock outstanding at the closing
date will be converted into shares of common stock. The unaudited pro forma
stockholders' equity as of September 30, 1997 reflects the conversion of all
outstanding preferred stock at September 30, 1997 into 7,861,350 shares of
common stock.
Recently issued accounting standards
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." The adoption of this standard had no material effect on the Company's
financial statements. In October 1995, SFAS No. 123, "Accounting for Stock-Based
Compensation," was issued. Management has adopted this standard effective
January 1, 1996 by means of disclosure of the pro forma effect of the
compensation components of stock-based compensation in Note 7.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. Under
SFAS No. 128 the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share. SFAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing net income (loss) available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
Upon adoption of SFAS No. 128 the Company will be required to disclose basic
earnings per share and diluted earnings per share.
The pro forma effect of applying SFAS No. 128 on the Company's unaudited
pro forma net loss per share as reported is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
As reported:
Unaudited pro forma loss per share....... $ (0.69) $ (0.33)
Weighted average common shares
outstanding........................... 10,788,000 13,975,000
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> 66
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and distributions to owners. Management believes that the adoption of SFAS No.
130 will not have a material impact on the financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS
No. 131"). SFAS No. 131 applies to all public companies and is effective for
fiscal years beginning after December 15, 1997. SFAS No. 131 requires that
business segment financial information be reported in the financial statements
utilizing the management approach. The management approach is defined as the
manner in which management organizes the segments within the enterprise for
making operating decisions and assessing performance. Management believes the
adoption of SFAS No. 131 will not have a material impact on the financial
statements.
Use of estimates
The accompanying financial statements reflect estimates and assumptions
made in the application of generally accepted accounting principles. Actual
results may vary from those estimates.
Interim financial information
In the opinion of management, the Company has made all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and cash flows for the nine months
ended September 30, 1996 as presented in the accompanying unaudited financial
statements.
NOTE 3 -- INCOME TAXES
Significant components of the Company's deferred tax asset at December 31,
1995 and 1996 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Net operating loss carryforwards........... $ 3,669 $ 6,436 $ 6,436
Other...................................... 474 818 895
------- ------- -------
Subtotal......................... 4,143 7,254 7,331
Valuation allowance........................ (4,143) (7,254) (7,331)
------- ------- -------
Net deferred tax asset..................... $ -- $ -- $ --
======= ======= =======
</TABLE>
No provision or benefit for federal or state income taxes has been made for
the years ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997 given the Company's loss position. At September 30, 1997, the
Company had domestic net operating loss carryforwards of approximately $16,000
which expire through the year 2011. The deferred tax assets at December 31,
1995, 1996 and September 30, 1997 have been fully reserved due to the
uncertainty of their realization, primarily attributed to the Company's
historical losses.
For tax purposes, there is an annual limitation on the utilization of the
net operating loss carryforwards resulting from an ownership change as defined
by Internal Revenue Code Section 382. Due to this annual limitation, the net
operating loss carryforwards may expire prior to when otherwise utilizable.
F-10
<PAGE> 67
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- BORROWINGS
Convertible note payable
In August 1995, the Company executed a note agreement which provided
financing totaling $750. The note bore interest at the LIBOR rate, adjusted
annually. The note was convertible, subsequent to August 1, 1996 at the option
of the holder, into common stock at a price of $4.00 per share and was secured
by certain assets of the Company. In August 1997, the remaining principal
balance of the note of $600 was converted, pursuant to its terms, into 150,000
shares of the Company's common stock.
Accounts receivable line of credit
In April 1997, the Company entered into a revolving credit agreement with a
financial institution. The agreement allows the Company to borrow up to $2,000,
with maximum borrowings not to exceed 80% of eligible receivables as defined by
the agreement. Interest on borrowings is set at the lender's prime rate plus
0.5%. Among other provisions, the Company is required to maintain certain
financial covenants. In addition, payment of cash dividends is prohibited
without the lender's consent. The line of credit agreement expires in June 1998.
At September 30, 1997, total borrowings outstanding under this credit facility
were $2,000.
The Company maintained a line of credit facility with a holder of shares of
the Company's Series B convertible preferred stock, which allowed for borrowings
of the lesser of 75% of eligible receivables, as defined by the agreement, or
$1,500. This line of credit was extended through December 31, 1996 and then
canceled. There were no amounts outstanding under this credit facility at
December 31, 1995.
Convertible loan
In November 1996, the Company issued a convertible loan totaling $500 to a
private investor. In January 1997, the loan was converted into 125,002 shares of
common stock at a price of $4.00 per share.
Convertible promissory notes
In February 1996, the Company issued convertible promissory notes payable
totaling $900 to certain of its Series B preferred stockholders. The notes bore
interest at a rate of 5.33% and was canceled in connection with the issuance of
shares of Series C convertible preferred stock in May 1996 (Note 6).
In January 1996, the Company issued convertible promissory notes payable
totaling $600 to certain of its Series B preferred stockholders. The notes bore
interest at a rate of 5.33% and was converted into Series C convertible
preferred stock in May 1996 (Note 6).
In October 1995, the Company issued a convertible promissory note payable
totaling $1,500 to certain of its Series B preferred stockholders. The note bore
interest at a rate of 5.33% and was converted into Series C convertible
preferred stock in May 1996 (Note 6).
In November 1994, the Company issued a convertible promissory note payable
totaling $1,010 to certain of its Series A preferred stockholders. The note bore
interest at a rate of 6.24% and was converted into Series B preferred stock in
January 1995 (Note 6).
NOTE 5 -- CAPITAL LEASE OBLIGATIONS
In June 1995, the Company financed, under a sale leaseback arrangement, all
property and equipment it purchased from September 1994 to June 1995 and
received $113 in cash. The transaction was accounted for as a capital lease
wherein the property and equipment remained an asset of the Company and
continued to be depreciated. In addition, all purchases of property and
equipment made between June 1995 and December 1995, as well as certain fixed
asset acquisitions during the nine months ended September 30, 1997, were
F-11
<PAGE> 68
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
financed through a capital lease arrangement. Total property and equipment
acquired under these capitalized leases, which consisted primarily of computer
equipment, at December 31, 1995 and 1996 and at September 30, 1997 amounted to
$782, $782 and $1,057, respectively. Accumulated depreciation on these assets at
December 31, 1995 and 1996 and September 30, 1997 amounted to $360, $561 and
$689, respectively. The annual interest rates on such obligations range from
8.5% to 11.5%.
Approximate maturities of such capital lease obligations are as follows at
September 30, 1997:
<TABLE>
<S> <C>
Remainder of 1997..................................... $ 66
1998.................................................. 148
1999.................................................. 104
2000.................................................. 57
----
Total................................................. 375
Less amounts representing interest.................... 38
----
Total capital lease obligation........................ 337
Less amounts due within one year...................... 166
----
Long-term portion capital lease obligations........... $171
====
</TABLE>
NOTE 6 -- MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has authorized 13,027,874 shares of preferred stock, $.01 par
value per share and has designated the following series:
Series A mandatorily redeemable convertible preferred stock
In February 1994, the Company sold 1,750,000 shares of Series A convertible
preferred stock ("Series A Preferred Stock") to a private investor group for
$1.16 per share and sold 862,069 shares for $1.16 per share in March 1994 to
another private investor group. In addition, in July 1994, the board of
directors approved the exchange by a stockholder of 107,137 shares of common
stock for 172,414 shares of Series A preferred stock. Each share of Series A
preferred stock is convertible at any time into .75 shares of common stock, as
adjusted in the event of future dilution, and has full voting rights. The total
number of Series A preferred shares authorized is 2,840,517, with a par value of
$.01. In the event of involuntary liquidation or some other event as described
in the Company's certificate of incorporation, a holder of such Series A
preferred stock is entitled to receive up to $3.30 per share (for a total of
$9,189). Further, beginning May 7, 2001, and on the 7th day of each May, August,
November and February thereafter, a portion of all outstanding shares of the
Series A preferred stock must be redeemed by the Company at a price of $1.16 per
share plus any accrued but unpaid dividends. The right to receive dividends is
noncumulative. Dividends are payable when and as declared by the Company's board
of directors at the rate of $0.0812 per share per annum. The Series A preferred
shares are mandatorily convertible upon the closing of the Company's initial
public offering of shares of common stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, subject to a minimum per
share price and gross proceeds.
Series B mandatorily redeemable convertible preferred stock
In January 1995, the Company sold 2,007,645 shares of Series B convertible
preferred stock ("Series B Preferred Stock") to a private investor group for
$1.50 per share. In addition, in July 1995, the Company sold 125,000 shares of
Series B preferred stock to a private investor group for $2.00 per share. In
connection with the sale, the convertible promissory note issued in November
1994 totaling $1,010 and related accrued interest were converted into 680,355
shares of Series B convertible preferred stock and such note was canceled. Each
share of Series B preferred stock is convertible at any time into .75 shares of
common stock, as adjusted in the
F-12
<PAGE> 69
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
event of future dilution, and has full voting rights. The total number of Series
B preferred shares authorized is 5,000,000 with a par value of $.01. In the
event of involuntary liquidation or some other event as described in the
Company's certificate of incorporation, a holder of such Series B preferred
stock is entitled to receive up to $3.30 per share (for a total of $9,283).
Further, beginning May 7, 2001, and on the 7th day of each May, August, November
and February thereafter, a portion of all outstanding shares of the Series B
preferred stock must be redeemed by the Company at a price of $1.50 per share
plus any accrued but unpaid dividends. The right to receive dividends is
noncumulative. Dividends are payable when and as declared by the Company's board
of directors at the rate of $0.105 per share per annum. The Series B preferred
shares are mandatorily convertible upon the closing of the Company's initial
public offering of shares of common stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, subject to a minimum per
share price and gross proceeds.
Series C mandatorily redeemable convertible preferred stock
In May 1996, the Company sold 3,030,303 shares of Series C convertible
preferred stock ("Series C Preferred Stock") to a private investor group for
$1.65 per share. In connection with the sale, the convertible promissory notes
issued in October 1995, January 1996 and February 1996 totaling $3,000 and
related accrued interest were converted into 1,854,024 shares of Series C
preferred stock and such notes were canceled. Each share of Series C preferred
stock is convertible at any time into .75 shares of common stock, as adjusted in
the event of future dilution, and has full voting rights. The total number of
Series C preferred shares authorized is 5,187,357 with a par value of $.01. In
the event of involuntary liquidation or some other event as described in the
Company's certificate of incorporation, a holder of such Series C preferred
stock is entitled to receive up to $3.30 per share (for a total of $16,118).
Further, beginning May 7, 2001, and on the 7th day of each May, August, November
and February thereafter, a portion of all outstanding shares of the Series C
preferred stock must be redeemed by the Company at a price of $1.65 per share
plus any accrued but unpaid dividends. The right to receive dividends is
noncumulative. Dividends are payable when and as declared by the Company's board
of directors at the rate of $0.1155 per share per annum. The Series C preferred
shares are mandatorily convertible upon the closing of the Company's initial
public offering of shares of common stock pursuant to an effective registration
statement under the Securities Act of 1933, as amended, subject to a minimum per
share price and gross proceeds.
NOTE 7 -- STOCKHOLDERS' EQUITY
Common stock
In December 1996, the Company sold 885,000 shares of the Company's common
stock to a private investor group. The shares were sold for $4.00 per share and
the total proceeds were $3,540.
On January 10, 1997, January 15, 1997, February 28, 1997, and March 25,
1997, the Company sold 500,000, 75,000, 249,998 and 250,000 shares of the
Company's common stock, respectively. The shares were sold for $4.00 per share
and the total proceeds were $4,300.
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> 70
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the Company's 1995 financing arrangements, a warrant was
issued for the purchase of 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.
Stock plans
The Company's 1992 Stock Option Plan provides for the issuance of up to
1,362,000 shares of common stock through the granting of stock options to
employees, officers, directors, consultants and advisors. The board of directors
has authority to determine awards and establish the exercise price. Such options
vest over various periods up to five years and expire on various dates through
2007. No additional option grants will be made under this plan after September
1997.
Options to purchase 47,938 shares of common stock were granted to a
consultant for services rendered in 1996 and 1997. Such options vest after 6
months, are exercisable at $.01 per share and expire in 2006. The Company has
reserved an additional 8,311 shares of common stock for issuance to a
third-party supplier for services rendered.
The Company's 1997 Stock Incentive Plan (the "Incentive Plan") was adopted
by the board of directors in September 1997 and was approved by the stockholders
in October 1997. The Incentive Plan is intended to replace the Company's 1992
Plan. Up to 1,875,000 shares of common stock (subject to adjustment in the event
of stock splits and other similar events) may be issued pursuant to awards
granted under the Incentive Plan. Options may be granted at an exercise price
which may be less than, equal to or greater than the fair market value of the
common stock on the date of grant. Officers, employees, directors, consultants
and advisors of the Company and its subsidiaries are eligible to receive awards
under the Incentive Plan.
The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the board of directors in September 1997 and was approved by the
stockholders in October 1997. The Purchase Plan authorizes the issuance of up to
a total of 300,000 shares of common stock to participating employees. Under the
terms of the Purchase Plan, the option price is an amount equal to 85% of the
average market price (as defined) per share of the common stock on either the
first day or the last day of the offering period, whichever is lower.
The Company's 1997 Director Stock Option Plan (the "Director Plan") was
adopted by the board of directors in September 1997 and was approved by the
stockholders in October 1997. Under the terms of the Director Plan, directors of
the Company who are not employees of the Company or any subsidiary of the
Company are eligible to receive nonstatutory options to purchase shares of
common stock. A total of 150,000 shares of common stock may be issued upon
exercise of options granted under the Director Plan. The exercise price per
share for shares granted initially will be equivalent to the initial public
offering price. The exercise price per share for all shares thereafter will be
the closing price per share of common stock on the date of grant. All options
granted under the Director Plan vest one year from the date of grant so long as
the optionee remains a director of the Company.
F-14
<PAGE> 71
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table describes the Company's stock option activity under the
1992 Stock Option Plan:
<TABLE>
<CAPTION>
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> 72
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information regarding stock options granted
during 1995, 1996 and the nine months ended September 30, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE WEIGHTED
NUMBER OF PRICE AVERAGE
OPTIONS PER FAIR
GRANTED SHARE VALUE
--------- -------- --------
<S> <C> <C> <C>
1995:
Options granted at less than market value............ 121,875 $ 0.93 $ 1.89
Options granted at market value...................... 170,625 $ 2.00 $ 0.57
Options granted above market value................... 36,225 $ 2.67 $ 0.03
1996:
Options granted at less than market value............ 256,619 $ 0.01 $ 2.19
Options granted at market value...................... 168,525 $ 2.09 $ 0.53
1997:
Options granted at less than market value............ 136,319 $ 1.33 $ 3.04
Options granted at market value...................... 301,575 $ 5.75 $ 1.55
</TABLE>
The following table summarizes information regarding stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
WEIGHTED AVERAGE ---------------------------
AVERAGE EXERCISE WEIGHTED
RANGE OF NUMBER REMAINING PRICE NUMBER AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL LIFE PER EXERCISABLE EXERCISE
PRICES AT 9/30/97 IN YEARS SHARE AT 9/30/97 PRICE
- --------------- ----------- ---------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$0.0003 - $0.01 404,444 7.61 $0.0009 403,694 $0.0009
$ 1.33 - $2.00 264,150 6.96 $ 1.45 158,025 $ 1.41
$ 2.20 - $2.67 79,050 8.71 $ 2.33 16,545 $ 2.40
$4.00 150,300 9.43 $ 4.00 -- --
$8.67 136,650 9.84 $ 8.67 -- --
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123"), on January 1, 1996.
The Company continues to apply Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," in accounting for its stock based
compensation plans. If the Company had recorded compensation cost based upon the
fair value at the grant date for awards under these plans, consistent with SFAS
No. 123, the Company's net loss would have increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED NINE
DECEMBER 31, MONTHS ENDED
------------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
<S> <C> <C> <C>
Net loss as reported....................... $(6,487) $(7,447) $(4,640)
Net loss pro forma......................... $(6,495) $(7,452) $(4,671)
Net loss per share as reported............. $ (0.69) $ (0.33)
Net loss per share pro forma............... $ (0.69) $ (0.33)
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions: risk free interest rate of 6.48% for the years ended December 31,
1995 and 1996 and 6.37% for the nine months ended September 30, 1997 and an
expected option life of 5 years. In accordance with SFAS No. 123, the fair value
method of accounting has not
F-16
<PAGE> 73
FLEXIINTERNATIONAL SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
been applied to options granted prior to January 1, 1995. Therefore, the
resulting pro forma impact may not be representative of that to be expected in
future years.
The Company has reserved 9,216,243 shares of common stock for the
conversion of preferred stock, outstanding stock options and exercisable
warrants and 43,103 shares of Series A convertible preferred stock, 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> 74
[INSIDE BACK COVER]
[The inside back cover graphic is a circular flow chart, divided into three
horizontal sections which are distinguishable by their background shading. The
top section contains the text "Flexi Windows Desktop," the center section
contains the text "Flexi Internet Universal Interface," and the bottom section
contains the text "FlexiActiveX 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> 75
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR
ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 3
Risk Factors...................... 6
Use of Proceeds................... 14
Dividend Policy................... 14
Capitalization.................... 15
Dilution.......................... 16
Selected Financial Data........... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 18
Business.......................... 26
Management........................ 38
Certain Transactions.............. 44
Principal and Selling
Stockholders.................... 46
Description of Capital Stock...... 49
Shares Eligible for Future Sale... 51
Underwriting...................... 53
Legal Matters..................... 54
Experts........................... 54
Additional Information............ 55
Index to Financial Statements..... F-1
</TABLE>
---------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
3,000,000 SHARES
flexi logo
COMMON STOCK
---------------
PROSPECTUS
---------------
BT ALEX. BROWN
HAMBRECHT & QUIST
WESSELS, ARNOLD & HENDERSON
, 1997
======================================================
<PAGE> 76
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 12,546
NASD filing fee........................................................... 4,640
Nasdaq National Market listing fee........................................ 50,000
Blue Sky fees and expenses................................................ 15,000
Transfer Agent and Registrar fees......................................... 10,000
Accounting fees and expenses.............................................. 190,000
Legal fees and expenses................................................... 250,000
Director and Officer Liability Insurance.................................. 100,000
Printing and mailing expenses............................................. 100,000
Miscellaneous............................................................. 17,814
--------
Total........................................................... $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article EIGHTH of the Registrant's Amended and Restated Certificate of
Incorporation (the "Restated Certificate of Incorporation") provides that no
director of the Registrant shall be personally liable for any monetary damages
for any breach of fiduciary duty as a director, except to the extent that the
Delaware General Corporation Law prohibits the elimination or limitation of
liability of directors for breach of fiduciary duty.
Article NINTH of the Registrant's Restated Certificate of Incorporation
provides that a director or officer of the Registrant (a) shall be indemnified
by the Registrant against all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement incurred in connection with any litigation
or other legal proceeding (other than an action by or in the right of the
Registrant) brought against him by virtue of his position as a director or
officer of the Registrant if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Registrant against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Registrant brought against him by virtue of his position as a
director or officer of the Registrant if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Registrant, unless a court determines that, despite such adjudication but in
view of all of the circumstances, he is entitled to indemnification of such
expenses. Notwithstanding the foregoing, to the extent that a director or
officer has been successful, on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, he is required to be
indemnified by the Registrant against all expenses (including attorneys' fees)
incurred in connection therewith. Expenses shall be advanced to a director or
officer at his request, provided that he undertakes to repay the amount advanced
if it is ultimately determined that he is not entitled to indemnification for
such expenses.
Indemnification is required to be made unless the Registrant determines
that the applicable standard of conduct required for indemnification has not
been met. In the event of a determination by the Registrant that the director or
officer did not meet the applicable standard of conduct required for
indemnification, or if the
II-1
<PAGE> 77
Registrant fails to make an indemnification payment within 60 days after such
payment is claimed by such person, such person is permitted to petition the
court to make an independent determination as to whether such person is entitled
to indemnification. As a condition precedent to the right of indemnification,
the director or officer must give the Registrant notice of the action for which
indemnity is sought and the Registrant has the right to participate in such
action or assume the defense thereof.
Article NINTH of the Registrant's Restated Certificate of Incorporation
further provides that the indemnification provided therein is not exclusive, and
provides that in the event that the Delaware General Corporation Law is amended
to expand the indemnification permitted to directors or officers the Registrant
must indemnify those persons to the fullest extent permitted by such law as so
amended.
Section 145 of the Delaware General Corporation Law provides that a
corporation has the power to indemnify a director, officer, employee or agent of
the corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred in
connection with an action or proceeding to which he is or is threatened to be
made a party by reason of such position, if such person shall have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, in any criminal proceeding, if such person
had no reasonable cause to believe his conduct was unlawful; provided that, in
the case of actions brought by or in the right of the corporation, no
indemnification shall be made with respect to any matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the adjudicating court determines that such indemnification is
proper under the circumstances.
Under Section 8 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act. Reference is made to the form of Underwriting Agreement filed as
Exhibit 1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth in chronological order is information regarding shares of Common
Stock and Preferred Stock issued, warrants issued and options granted by the
Registrant since September 1994 (after giving effect to the Registrant's
three-for-four reverse stock split to be effected prior to the closing of this
offering). Further included is the consideration, if any, received by the
Registrant for such shares, warrants and options and information relating to the
section of the Securities Act of 1933, as amended (the "Securities Act"), or
rule of the Securities and Exchange Commission under which exemption from
registration was claimed.
1. On November 21, 1994, the Registrant issued Convertible Promissory Notes
to three private investors, in the aggregate principal amount of $1,010,000. The
principal amount of these Notes together with all accrued interest thereon was
subsequently cancelled in connection with the issuance to such investors of
shares of Series B Convertible Preferred Stock. The Registrant also issued
five-year Warrants to purchase an aggregate of 189,375 shares of Common Stock at
an exercise price of $1.33 per share to such investors. These Notes and Warrants
were subsequently cancelled in connection with the issuance to such investors of
shares of Series B Convertible Preferred Stock.
2. On January 12, 1995, the Registrant issued a total of 172,414 shares of
Series A Convertible Preferred Stock to an employee in exchange for 107,137
shares of Common Stock.
3. On January 20, 1995 and June 30, 1995, the Registrant sold a total of
2,813,000 shares of Series B Convertible Preferred Stock to five institutional
investors for an aggregate purchase price of $4,282,000.
4. On July 25, 1995, the Registrant issued a ten-year warrant to purchase
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> 78
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> 79
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.
11 Computation of earnings per common share.
</TABLE>
II-4
<PAGE> 80
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------------
<C> <S>
*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.
<TABLE>
<S> <C>
* Filed herewith.
** To be filed by amendment.
+ Superseding exhibit filed herewith.
</TABLE>
(b) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required or
because the required information is given in the Registrant's Financial
Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions contained in the Amended and Restated
Certificate of Incorporation of the Registrant and the laws of the State of
Delaware, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted form the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-5
<PAGE> 81
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Shelton,
Connecticut, on this 10th day of November, 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. 1 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) November 10, 1997
*
- ---------------------------------- Vice President, Finance (Principal
RICHARD P. HORNER Financial and Accounting Officer) November 10, 1997
*
- ----------------------------------
THOMAS H. BREDT Director November 10, 1997
*
- ----------------------------------
ELLEN CARNAHAN Director November 10, 1997
*
- ----------------------------------
JENNIFER V. CHENG Director November 10, 1997
*
- ----------------------------------
JONATHAN E. DICK Director November 10, 1997
- ----------------------------------
TAREK KETTANEH Director
- ----------------------------------
JOHN B. LANDRY Director
- ----------------------------------
JAMES L. LUIKART Director
*
- ----------------------------------
JAMES W. SCHENCK Director November 10, 1997
*
- ----------------------------------
A. DAVID TORY Director November 10, 1997
*By /s/ STEFAN R. BOTHE
- ----------------------------------
STEFAN R. BOTHE
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE> 82
FLEXIINTERNATIONAL SOFTWARE, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1996 EXPENSES DEDUCTIONS SEPTEMBER 30, 1997
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 405 $ 275 $ (6) $ 674
Valuation allowance for deferred tax
asset................................. $ 7,254 $ 77 $7,331
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1995 EXPENSES DEDUCTIONS DECEMBER 31, 1996
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 422 $ 665 $ (682) $ 405
Valuation allowance for deferred tax
asset................................. $ 4,143 $3,111 $7,254
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1994 EXPENSES DEDUCTIONS DECEMBER 31, 1995
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 75 $ 476 $ (129) $ 422
Valuation allowance for deferred tax
asset................................. $ 1,630 $2,513 $4,143
</TABLE>
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT COSTS AND BALANCE AT
DESCRIPTION DECEMBER 31, 1993 EXPENSES DEDUCTIONS DECEMBER 31, 1994
- ---------------------------------------- ----------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts......... $ 0 $ 75 $ 75
Valuation allowance for deferred tax
asset................................. $ 617 $1,013 $1,630
</TABLE>
S-1
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
FIRST. The name of the Corporation is:
Flexiware Corporation
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
by the Corporation is as follows:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which the Corporation shall
have authority to issue is 1,000,000 shares of Common Stock, $.01 par value per
share.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
FIFTH. The name and mailing address of the sole incorporator are as
follows:
NAME MAILING ADDRESS
Jennifer V. Cheng 173B Allyn Road
Goshen, CT 06756
SIXTH. In furtherance of and not in limitation of powers conferred by
statute, it is further provided:
1. Election of directors need not be by written ballot.
2. The Board of Directors is expressly authorized to adopt, amend or
repeal the By-Laws of the Corporation.
<PAGE> 2
SEVENTH. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
EIGHTH. Except to the extent that the General Corporation Law of Delaware
prohibits the elimination or limitation of liability of directors for breaches
of fiduciary duty, no director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, notwithstanding any provision of law imposing such
liability. No amendment to or repeal of this provision shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment.
NINTH. The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation law of Delaware, as amended from time to time,
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was, or has agreed to become, a director or officer of the Corporation, or
is or was serving, or has agreed to serve, at the request of the Corporation, as
a director, officer or trustee of, or in a similar capacity with, another
corporation, partnership, joint venture, trust or other enterprise (including
any employee benefit plan), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or on his behalf in connection with such action, suit or
proceeding and any appeal therefrom.
Indemnification may include payment by the Corporation of expenses in
defending an action or proceeding in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by the person indemnified to
repay
<PAGE> 3
such payment if it is ultimately determined that such person is not entitled to
indemnification under this Article, which undertaking may be accepted without
reference to the financial ability of such person to make such repayment.
The Corporation shall not indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person unless the initiation thereof was approved by the Board of Directors
of the Corporation.
The indemnification rights provided in this Article (i) shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any law, agreement or vote of stockholders or disinterested directors or
otherwise, and (ii) shall inure to the benefit of the heirs, executors and
administrators of such persons. The Corporation may, to the extent authorized
from time to time by its Board of Directors, grant indemnification rights to
other employees or agents of the Corporation or other persons serving the
Corporation and such rights may be equivalent to, or greater or less than, those
set forth in this Article.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute and this Certificate of
Incorporation, and all rights conferred upon stockholders herein are granted
subject to this reservation.
EXECUTED at Goshen, Connecticut, on the 4th day of November, 1993.
/s/ Jennifer V. Cheng
-----------------------------
Jennifer V. Cheng
<PAGE> 4
CERTIFICATE OF MERGER
OF
FLEXIWARE CORPORATION
(a Connecticut corporation)
INTO
FLEXIWARE CORPORATION
(a Delaware corporation)
FlexiWare Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: That the name and state of incorporation of each of the constituent
corporations of the merger is as follows:
Name State of Incorporation
FlexiWare Corporation Connecticut
FlexiWare Corporation Delaware
SECOND: That a Plan of Merger between the parties to the merger has been
approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of Subsection (c)
of Section 252 of the General Corporation Law of the State of Delaware.
THIRD: That the name of the surviving corporation of the merger is
FlexiWare Corporation.
FOURTH: That the Certificate of Incorporation of FlexiWare Corporation, a
Delaware corporation which will survive the merger, shall be the Certificate of
Incorporation of the surviving corporation.
FIFTH: That the executed Plan of Merger is on file at the principal place
of business of the surviving corporation. The address of said principal place of
business is One Research Drive, Shelton, Connecticut 06484.
SIXTH: That a copy of the Plan of Merger will be furnished by the
surviving corporation upon request and without cost to any stockholder of any
constituent corporation.
<PAGE> 5
SEVENTH: That this Certificate of Merger shall be effective immediately
upon filing with the Office of the Secretary of State of the State of Delaware.
EIGHTH: FlexiWare Corporation, a Connecticut corporation, is authorized to
issue 100,000 shares of Common Stock, no par value per share.
IN WITNESS WHEREOF, FlexiWare Corporation has caused this Certificate to
be executed by its Chairman and attested by its Secretary this 4th day of
November, 1993.
FLEXIWARE CORPORATION
(a Delaware corporation)
By: /s/ Stefan R. Bothe
------------------------------
Chairman
Dated: November 4, 1993
ATTEST
/s/ Jennifer V. Cheng
- -------------------------------
Secretary
2
<PAGE> 6
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
FLEXIWARE CORPORATION (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
By written action of the Board of Directors of the Corporation in lieu of
a meeting, resolutions were duly adopted, pursuant to Sections 141(f) and 242 of
the General Corporation Law of the State of Delaware, setting forth an amendment
to the Certificate of Incorporation of the Corporation and declaring said
amendment to be advisable. The stockholders of the Corporation duly approved
said proposed amendment by written consent in accordance with Sections 228 and
242 of the General Corporation Law of the State of Delaware, and written notice
of such consent has been given to all stockholders who have not consented in
writing to said amendment. The resolution setting forth the amendment is as
follows:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is amended by
deleting such paragraph in its entirety and by inserting the
following in lieu thereof:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is one million five hundred thousand
(1,500,000) shares of Common Stock, $.01 par value per share."
<PAGE> 7
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested to by its Secretary this 22nd day of December, 1993.
FLEXIWARE CORPORATION
By: /s/ Stefan R. Bothe
---------------------------
Chairman
ATTEST:
/s/ Jennifer V. Cheng
- -----------------------
Secretary
[Corporate Seal]
2
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
FlexiWare Corporation (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and that the following
Article FOURTH be and hereby is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 10,000,000 shares of Common Stock,
$.01 par value per share ("Common Stock"), and (ii) 2,625,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which
2,625,000 shares are hereby designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock").
<PAGE> 9
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A CONVERTIBLE PREFERRED STOCK.
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series A Preferred Stock shall be as
follows:
1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.0812 per share per annum (subject to
appropriate adjustment in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares), payable
when and as declared by the Board of Directors of the Corporation. The right to
receive dividends on Series A Preferred Stock shall be non-cumulative, and no
right to dividends shall accrue by
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<PAGE> 10
reason of the fact that no dividend has been declared on the Series A Preferred
Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or other
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock then outstanding shall have first received a
dividend at the rate specified in Subsection 1(a) above. After payment of any
dividends or distributions to holders of Series A Preferred Stock as specified
in such Subsection 1(a), the Board of Directors of the Corporation may declare
and pay dividends or other distributions on the Common Stock from funds legally
available therefor; provided, however, that the holders of Series A Preferred
Stock shall be entitled to receive concurrently a dividend or other distribution
on each outstanding share of Series A Preferred Stock in an amount at least
equal to the product of (i) the per share amount, if any, of the dividend or
other distribution to be declared, paid or set aside for the Common Stock,
multiplied by (ii) the number of whole shares of Common Stock into which such
share of Series A Preferred Stock is then convertible.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
(d) Notwithstanding the provisions of this Section 1, the Board of
Directors shall not declare or pay any dividends or other distributions on
shares of Series A Preferred Stock or Common Stock if and for so long as the
Corporation is in a Financial Crisis, as such term is defined in Subsection 3(d)
below.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other class or series of stock of the Corporation ranking on
liquidation prior and in preference to the Series A Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any payment
shall be made to the holders of Common Stock or
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<PAGE> 11
any other class or series of stock ranking on liquidation junior to the Series A
Preferred Stock (such Common Stock and other stock being collectively referred
to as "Junior Stock") by reason of their ownership thereof, an amount equal to
$1.16 per share (subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), plus any dividends declared but unpaid on such shares. If upon any
such liquidation, dissolution or winding up of the Corporation the remaining
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series A Preferred Stock the
full amount to which they shall be entitled, the holders of shares of Series A
Preferred Stock and any class or series of stock ranking on liquidation on a
parity with the Series A Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Corporation in proportion to the
respective amounts which would otherwise be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock, Series A Preferred Stock and any
other class or series of stock of the Corporation ranking on liquidation on a
parity with the Series A Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the remaining assets and funds of the Corporation
available for distribution to its stockholders shall be distributed (i) first,
among the holders of shares of Series A Preferred Stock, Common Stock and any
other class or series of stock entitled to participate in liquidation
distributions with the holders of Common Stock, pro rata based on the number of
shares of Common Stock held by each (assuming conversion into Common Stock of
all such shares) until the holders of Series A Preferred Stock shall have
received an amount equal to $2.32 per share (subject to appropriate adjustment
in the event of any stock dividend, stock split, combination or other similar
recapitalization affecting such shares); (ii) second, among the holders of
shares of Common Stock and any other class or series of stock entitled to
participate in liquidation distributions with the holders of Common Stock, pro
rata based on the number of shares of Common Stock held by each (assuming
conversion into Common Stock of all such shares) until the holders of Common
Stock and any other such class or series of stock shall have received an amount
equal to $2.32 per share (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares); and (iii) third, among the holders of shares of Series A
Preferred Stock, Common Stock and any other class or series of stock entitled to
participate in liquidation distributions with the holders of Common Stock, pro
rata based on the number of shares of Common Stock held by each (assuming
conversion into Common Stock of all such shares).
(c) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of
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<PAGE> 12
the Corporation immediately prior to such merger or consolidation continue to
hold at least 51% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 51% of the then outstanding shares of
Series A Preferred Stock so elect by giving written notice thereof to the
Corporation at least three days before the effective date of such event, then
such merger, consolidation or asset sale shall be deemed to be a liquidation of
the Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) and 2(b)
above. The Corporation shall promptly provide to the holders of shares of Series
A Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by the holders of Series A Preferred Stock in order
to assist them in determining whether to make such an election. If the holders
of the Series A Preferred Stock make such an election, the Corporation shall use
its best efforts to amend the agreement or plan of merger or consolidation to
adjust the rate at which the shares of capital stock of the Corporation are
converted into or exchanged for cash, new securities or other property to give
effect to such election. The amount deemed distributed to the holders of Series
A Preferred Stock upon any such merger or consolidation shall be the cash or the
value of the property, rights or securities distributed to such holders by the
acquiring person, firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board of Directors of
the Corporation or, in the case of securities, as set forth in Subsection 2(d)
below. If no notice of the election permitted by this Subsection (c) is given,
the provisions of Subsection 4(h) shall apply.
(d) Any securities requiring valuation as noted in Subsection 2(c)
above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through
Nasdaq-NNM, the value shall be deemed to be the average of the closing prices of
the securities on such exchange or market over the 30-day period ending three
days prior to the closing;
(b) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the 30-day period ending three days prior to the closing; and
5
<PAGE> 13
(c) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least a majority of the voting power of all then
outstanding shares of Series A Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (a), (b) or (c) to reflect the approximate fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least a majority of the voting power of all then outstanding
shares of Series A Preferred Stock.
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsections 3(b),
3(c) or 3(d) below or by the provisions establishing any other series of
Preferred Stock, holders of Series A Preferred Stock and of any other
outstanding series of Series Preferred Stock shall vote together with the
holders of Common Stock as a single class.
(b) Subject to the provisions of Subsection 3(d) below, the holders
of a majority of the then outstanding shares of Series A Preferred Stock, voting
as a separate class, shall be entitled to elect one (1) director of the
Corporation (such director and any additional directors elected or to be elected
pursuant to Subsection 3(d) below shall be individually referred to as a "Series
A Director" and collectively referred to as the "Series A Directors"). At any
meeting (or written action of stockholders in lieu of a meeting) held for the
purpose of electing Series A Directors, each share of Series A Preferred Stock
shall be entitled to the number of votes specified in Subsection 3(a) above, and
the presence in person or by proxy (or by written consent) of the holders of a
majority of the shares of Series A Preferred Stock then outstanding shall
constitute a quorum of the Series A Preferred Stock for the election of Series A
Directors. A vacancy in any Series A Directorship shall be filled only by vote
at a meeting or by written consent of the holders of the Series A Preferred
Stock.
(c) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series A Preferred Stock shall be outstanding, the
Corporation
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<PAGE> 14
shall not, without first obtaining the affirmative vote or written consent of
the holders of a majority of the then outstanding shares of Series A Preferred
Stock:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock;
(ii) Increase the authorized number of shares of Series A
Preferred Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series A Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's assets; or
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation.
(d) If, prior to the earlier of (i) the Mandatory Conversion Date
(as defined in Subsection 5(a) below) or (ii) February 7, 1996, the Corporation
has a Financial Crisis (as defined in Subsection 3(e) below), the management of
the Corporation shall present, within ten days of the commencement of the
Financial Crisis, a plan (the "Plan") to the Board of Directors of the
Corporation to alleviate such Crisis. If all the members of the Board of
Directors then in office do not unanimously approve the Plan, or the Plan is not
presented to the Board of Directors within ten days of the commencement of the
Financial Crisis, (i) as of the close of business of such tenth day, the number
of Series A Directors (and the number of directors of the Corporation) shall
automatically increase by such number of additional directors as, when added to
the number one, would constitute a majority of the Board. The vacancies so
created shall be filled by the Series A Director elected pursuant to Subsection
3(b). If, for any reason, such vacancies are not so filled, the holders of
shares of Series A Preferred Stock (voting separately as a class) shall be
entitled to fill such vacancies at a meeting or by written consent of the
holders of Series A Preferred Stock. The right of the holders of shares of
Series A Preferred Stock to elect such additional Series A Directors shall
terminate when the Financial Crisis terminates. The terms of office of all
Series A Directors elected pursuant to this Subsection 3(d) shall terminate
immediately upon the termination of the right to
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<PAGE> 15
elect such additional Series A Directors, and the number of Series A Directors
shall automatically thereupon be reduced to one.
The foregoing right of the holders of shares of Series A Preferred Stock
with respect to the election of directors may be exercised at any annual meeting
of stockholders or at any special meeting of stockholders held for such purpose.
If the right to elect directors shall have accrued to the holders of shares of
Series A Preferred Stock more than ten days preceding the date established for
the next annual meeting of stockholders, the President of the Corporation shall,
within two days after the delivery to the Corporation at its principal office of
a written request for a special meeting signed by the holders of at least 10% of
all outstanding shares of Series A Preferred Stock, call a special meeting of
the holders of Series A Preferred Stock to be held within ten days after the
delivery of such request for the purpose of electing such additional Series A
Directors.
The holders of shares of Series A Preferred Stock voting as a class shall
have the right to remove without cause at any time and replace any Series A
Directors.
Notwithstanding the foregoing provisions of this Subsection 3(d), if (i)
any member of the Board of Directors other than the Series A Director elected
pursuant to Subsection 3(b), holds, or represents a holder of, not less than
500,000 shares of Series A Preferred Stock, and (ii) a Plan to alleviate a
Financial Crisis is proposed before the Board of Directors as provided in
paragraph (d), the vote of all but one director shall be sufficient to approve
the Plan.
(e) The Corporation shall be deemed to be in a "Financial Crisis"
for purposes of this Certificate of Incorporation when and if (i) the sum of the
Corporation's cash, amounts available under lines of credit with its banks or
other financial institutions and accounts receivable of not more than 90 days'
duration, reduced by any amounts owed under notes payable to holders of Series A
Preferred Stock ("Net Liquid Assets"), is less than the Corporation's average
monthly operating loss (as calculated by averaging, on a rolling basis, the
monthly operating loss of the previous three months) or (ii) the Corporation
files for bankruptcy or defaults under debt instruments under which the
Corporation has a material amount of indebtedness outstanding and which defaults
are not being contested in good faith by the Corporation. The Corporation shall
no longer be in a Financial Crisis when it has Net Liquid Assets in excess of
the average monthly operating loss (in the case of (i) above) or cures, to the
satisfaction of its creditors, any default enumerated in (ii) above.
4. Optional Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
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<PAGE> 16
(a) Right to Convert. Each share of Series A Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from time
to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $1.16 by the Conversion Price (as defined below) in
effect at the time of conversion. The "Conversion Price" shall initially be
$1.16. Such initial Conversion Price, and the rate at which shares of Series A
Preferred Stock may be converted into shares of Common Stock, shall be subject
to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to
convert shares of Series A Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Series
A Preferred Stock, at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
If required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
his or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A
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<PAGE> 17
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion.
(iv) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor and payment of any dividends
declared or accrued but unpaid thereon. Any shares of Series A Preferred Stock
so converted shall be retired and cancelled and shall not be reissued, and the
Corporation (without the need for stockholder action) may from time to time take
such appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock pursuant to
this Section 4. The Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other than that in which the shares
of Series A Preferred Stock so converted were registered, and no such issuance
or delivery shall be made unless and until the person or entity requesting such
issuance has paid to the Corporation the amount of any such tax or has
established, to the satisfaction of the Corporation, that such tax has been
paid.
(d) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after February 8, 1994 (the "Original
Issue Date") effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision shall be
proportionately decreased. If the Corporation shall at any time or from time to
time after the Original Issue Date effect a subdivision of the Series A
Preferred Stock, the Conversion Price then in effect immediately before that
subdivision shall be proportionately increased. If the Corporation shall at any
time or from time to time
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<PAGE> 18
after the Original Issue Date combine the outstanding shares of Common Stock,
the Conversion Price then in effect immediately before the combination shall be
proportionately increased. If the Corporation shall at any time or from time to
time after the Original Issue Date combine the outstanding shares of Series A
Preferred Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately decreased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Conversion
Price for the Series A Preferred Stock then in effect shall be decreased as of
the time of such issuance or, in the event such a record date shall have been
fixed, as of the close of business on such record date, by multiplying the
Conversion Price for the Series A Preferred Stock then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price for the Series A Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price for the Series A Preferred Stock shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of shares of Common
Stock in a number equal to the number of shares of Common Stock as they would
have received if all outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(f) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
for the Series A Preferred Stock shall make or issue, or fix a record date for
the
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<PAGE> 19
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Corporation other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of the Series A Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Corporation that they would have received had the
Series A Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, giving application to all adjustments called
for during such period under this paragraph with respect to the rights of the
holders of the Series A Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock
simultaneously receive a dividend or other distribution of such securities in an
amount equal to the amount of such securities as they would have received if all
outstanding shares of Series A Preferred Stock had been converted into Common
Stock on the date of such event.
(g) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification, or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Series A Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(h) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board of Directors) shall be made
in the application of the provisions in this Section 4 set forth with respect to
the rights and interest thereafter of the holders of the Series A Preferred
Stock, to the end that the provisions set forth in this Section 4 (including
12
<PAGE> 20
provisions with respect to changes in and other adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Series A Preferred Stock.
(i) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock, furnish or cause to be furnished
to such holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of Series A Preferred Stock.
(k) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
13
<PAGE> 21
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least ten
days prior to the date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
5. Mandatory Conversion.
(a) Upon the closing of the Corporation's initial public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $10,000,000 of gross
proceeds to the Corporation (the "Mandatory Conversion Date"), (i) all
outstanding shares of Series A Preferred Stock shall automatically be converted
into shares of Common Stock, at the then effective conversion rate and (ii) the
number of authorized shares of Preferred Stock shall be automatically reduced by
the number of shares of Preferred Stock that had been designated as Series A
Preferred Stock, and all provisions included under the caption "Series A
Convertible Preferred Stock", and all references to the Series A Preferred
Stock, shall be deleted and shall be of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock will
be given written notice of the Mandatory Conversion Date and the place
designated for mandatory conversion of all such shares of Series A Preferred
Stock pursuant to this Section 5. Such notice shall be sent by first class or
registered mail, postage prepaid, to each record holder of Series A Preferred
Stock at such holder's address last shown on the records of the transfer agent
for the Series A Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent). Upon receipt of such notice, each holder of
shares of Series A Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the place designated in
such
14
<PAGE> 22
notice, and shall thereafter receive certificates for the number of shares of
Common Stock to which such holder is entitled pursuant to this Section 5. On the
Mandatory Conversion Date, all rights with respect to the Series A Preferred
Stock so converted, including the rights, if any, to receive notices and vote,
will terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock has
been converted, and payment of any declared or accrued but unpaid dividends
thereon (all of which shall be deemed to be declared by the Board of Directors
on the Mandatory Conversion Date). If so required by the Corporation,
certificates surrendered for conversion shall be endorsed or accompanied by
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or by his or its attorney
duly authorized in writing. As soon as practicable after the Mandatory
Conversion Date and the surrender of the certificate or certificates for Series
A Preferred Stock, the Corporation shall cause to be issued and delivered to
such holder, or on his or its written order, a certificate or certificates for
the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the Mandatory Conversion Date, be deemed
to have been retired and cancelled and the shares of Series A Preferred Stock
represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action (without the need for stockholder action) as may be necessary
to reduce the authorized Series A Preferred Stock accordingly.
15
<PAGE> 23
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 7th day of February, 1994.
FLEXIWARE CORPORATION
By: /s/ Stefan R. Bothe
--------------------------
Chairman
ATTEST:
/s/ Jennifer V. Cheng
- ----------------------------
Secretary
[Corporate Seal]
16
<PAGE> 24
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIWARE CORPORATION
Pursuant to Section 242
of the General Corporation Law of
the State Of Delaware
FlexiWare Corporation (hereinafter called the "Corporation"), organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Section B(3) of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is deleted in its entirety and
that the following Section B(3) be and hereby is inserted in lieu thereof:
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
Common Stock into which the shares of Series A Preferred Stock held by such
holder are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders
<PAGE> 25
in lieu of meetings) with respect to any and all matters presented to the
stockholders of the Corporation for their action or consideration. Except as
provided by law, by the provisions of Subsections 3(b), 3(c) or 3(d) below or by
the provisions establishing any other series of Preferred Stock, holders of
Series A Preferred Stock and of any other outstanding series of Series Preferred
Stock shall vote together with the holders of Common Stock as a single class.
(b) Subject to the provisions of Subsection 3(d) below, the holders
of a majority of the then outstanding shares of Series A Preferred Stock, voting
as a separate class, shall be entitled to elect two (2) directors of the
Corporation (such directors and any additional directors elected or to be
elected pursuant to Subsection 3(d) below shall be individually referred to as a
"Series A Director" and collectively referred to as the "Series A Directors").
At any meeting (or written action of stockholders in lieu of a meeting) held for
the purpose of electing Series A Directors, each share of Series A Preferred
Stock shall be entitled to the number of votes specified in Subsection 3(a)
above, and the presence in person or by proxy (or by written consent) of the
holders of a majority of the shares of Series A Preferred Stock then outstanding
shall constitute a quorum of the Series A Preferred Stock for the election of
Series A Directors. A vacancy in any Series A Directorship shall be filled only
by vote at a meeting or by written consent of the holders of the Series A
Preferred Stock.
(c) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series A Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of a majority of the then outstanding shares of Series A
Preferred Stock:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock;
(ii) Increase the authorized number of shares of Series A
Preferred Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series A Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
2
<PAGE> 26
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's assets; or
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation.
(d) If, prior to the earlier of (i) the Mandatory Conversion Date
(as defined in Subsection 5(a) below) or (ii) February 7, 1996, the Corporation
has a Financial Crisis (as defined in Subsection 3(e) below), the management of
the Corporation shall present, within ten days of the commencement of the
Financial Crisis, a plan (the "Plan") to the Board of Directors of the
Corporation to alleviate such Crisis. If all the members of the Board of
Directors then in office do not unanimously approve the Plan, or the Plan is not
presented to the Board of Directors within ten days of the commencement of the
Financial Crisis, (i) as of the close of business of such tenth day, the number
of Series A Directors (and the number of directors of the Corporation) shall
automatically increase by such number of additional directors as, when added to
the number two, would constitute a majority of the Board. The vacancies so
created shall be filled by the Series A Directors elected pursuant to Subsection
3(b). If, for any reason, such vacancies are not so filled, the holders of
shares of Series A Preferred Stock (voting separately as a class) shall be
entitled to fill such vacancies by a written consent of the holders of Series A
Preferred Stock or at any meeting of stockholders of the Corporation at which
directors are to be elected held during the period such Financial Crisis remains
in effect. Thereafter, at any meeting of the stockholders of the Corporation (or
in any written consent used for such purpose) during the period such Financial
Crisis remains in effect, the holders of a majority of the then outstanding
shares of Series A Preferred Stock, voting as a separate class, shall be
entitled to elect that number of directors of the Corporation as shall
constitute a majority of the number of directors of the Corporation then
authorized. At any meeting (or written action of stockholders in lieu of a
meeting) held for the purpose of electing directors, each share of Series A
Preferred Stock shall be entitled to the number of votes specified in Subsection
3(a) above, and the presence in person or by proxy (or by written consent) of
the holders of a majority of the shares of Series A Preferred Stock then
outstanding shall constitute a quorum of the Series A Preferred Stock for the
election of directors to be elected solely by the holders of the Series A
Preferred Stock. A vacancy in any directorship elected by the holders of the
Series A Preferred Stock shall be filled only by vote at a meeting or by written
consent of the holders of the Series A Preferred Stock.
The right of the holders of shares of Series A Preferred Stock to elect
such additional Series A Directors shall terminate when the Financial Crisis
terminates. The terms of office of all Series A Directors elected pursuant to
this Subsection 3(d) shall terminate immediately upon the termination of the
right to elect such additional
3
<PAGE> 27
Series A Directors, and the number of Series A Directors shall automatically
thereupon be reduced to two.
The foregoing right of the holders of shares of Series A Preferred Stock
with respect to the election of directors may be exercised at any annual meeting
of stockholders or at any special meeting of stockholders held for such purpose.
If the right to elect directors shall have accrued to the holders of shares of
Series A Preferred Stock more than ten days preceding the date established for
the next annual meeting of stockholders, the President of the Corporation shall,
within two days after the delivery to the Corporation at its principal office of
a written request for a special meeting signed by the holders of at least 10% of
all outstanding shares of Series A Preferred Stock, call a special meeting of
the holders of Series A Preferred Stock to be held within ten days after the
delivery of such request for the purpose of electing such additional Series A
Directors.
The holders of shares of Series A Preferred Stock voting as a class shall
have the right to remove without cause at any time and replace any Series A
Directors.
Notwithstanding the foregoing provisions of this Subsection 3(d), if (i)
any member of the Board of Directors other than the Series A Directors elected
pursuant to Subsection 3(b), holds, or represents a holder of, not less than
500,000 shares of Series A Preferred Stock, and (ii) a Plan to alleviate a
Financial Crisis is proposed before the Board of Directors as provided in
paragraph (d), the vote of all but one director shall be sufficient to approve
the Plan.
(e) The Corporation shall be deemed to be in a "Financial Crisis"
for purposes of this Certificate of Incorporation when and if (i) the sum of the
Corporation's cash, amounts available under lines of credit with its banks or
other financial institutions and accounts receivable of not more than 90 days'
duration, reduced by any amounts owed under notes payable to holders of Series A
Preferred Stock ("Net Liquid Assets"), is less than the Corporation's average
monthly operating loss (as calculated by averaging, on a rolling basis, the
monthly operating loss of the previous three months) or (ii) the Corporation
files for bankruptcy or defaults under debt instruments under which the
Corporation has a material amount of indebtedness outstanding and which defaults
are not being contested in good faith by the Corporation. The Corporation shall
no longer be in a Financial Crisis when it has Net Liquid Assets in excess of
the average monthly operating loss (in the case of (i) above) or cures, to the
satisfaction of its creditors, any default enumerated in (ii) above.
4
<PAGE> 28
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 7th day of March, 1994.
FLEXIWARE CORPORATION
By: /s/ Stefan R. Bothe
-------------------------
Chairman
ATTEST:
/s/ Jennifer V. Cheng
- ------------------------
Secretary
[Corporate Seal]
5
<PAGE> 29
FLEXIWARE CORPORATION
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Stefan R. Bothe and Brian A. Marks, Ph.D. certify:
1. That they are the Chief Executive Officer and Secretary, respectively, of
FlexiWare Corporation, a Delaware corporation;
2. That (i) the directors acting in accordance with Section 141 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 28th day of June, 1994; and (ii) the
shareholders acting in accordance with Sections 228 and 242 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 1st day of July, 1994; the following
resolutions:
RESOLVED: That (i) Article FIRST of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and
that the following be and hereby is inserted in lieu thereof:
"FIRST: The name of the Corporation is: FlexiInternational
Software, Inc." and
(ii) that the first paragraph of Article FOURTH of the
Certificate of incorporation of the Corporation be and hereby
is deleted in its entirety and that the following paragraph be
and hereby is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
10,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 2,840,517 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock")."
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 1st day of July, 1994.
/s/ Stefan R. Bothe /s/ Brian A. Marks
- -------------------------- -------------------------
Stefan R. Bothe Brian A. Marks, Ph.D.
Chief Executive Officer Secretary
<PAGE> 30
FLEXIINTERNATIONAL SOFTWARE, INC.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Stefan R. Bothe and Brian A. Marks, Ph.D. certify:
1. That they are the Chief Executive Officer and Secretary, respectively, of
FlexiInternational Software, Inc., a Delaware corporation;
2. That (i) the directors acting in accordance with Section 141 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 21st day of November, 1994; and (ii) the
shareholders acting in accordance with Sections 228 and 242 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 21st day of November, 1994; the following
resolutions:
RESOLVED: That (i) that the first paragraph of Article FOURTH of
the Certificate of Incorporation of the Corporation be and hereby
is deleted in its entirety and that the following paragraph be and
hereby is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
10,252,500 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 2,840,517 shares of Preferred
Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock")."
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 11 January 1995.
/s/ Stefan R. Bothe /s/ Brian A. Marks
- ----------------------------- -----------------------------
Stefan R. Bothe Brian A. Marks, Ph.D.
Chief Executive Officer Secretary
<PAGE> 31
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
FlexiInternational Software, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and that the following
Article FOURTH be and hereby is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 15,000,000 shares of Common Stock,
$.01 par value per share ("Common Stock"), and (ii) 5,528,517 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock")
<PAGE> 32
and 2,688,000 shares are hereby designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class or series of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available there for as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A AND SERIES B CONVERTIBLE PREFERRED STOCK.
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series A Preferred Stock and the Series B
Preferred Stock shall be as follows:
1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.0812 per share per annum and the holders of
Series B
2
<PAGE> 33
Preferred Stock shall be entitled to receive dividends of $.105 per annum (in
each case subject to appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting such
shares), payable when and as declared by the Board of Directors of the
Corporation. The rights to receive dividends on Series A Preferred Stock and
Series B Preferred Stock shall be non-cumulative, and no right to dividends
shall accrue by reason of the fact that no dividend has been declared on the
Series A Preferred Stock or the Series B Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or other
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock and Series B Preferred Stock then outstanding shall
have first received dividends at the respective rates specified in Subsection
1(a) above. After payment of any dividends or distributions to holders of Series
A Preferred Stock and Series B Preferred Stock as specified in such Subsection
1(a), the Board of Directors of the Corporation may declare and pay dividends or
other distributions on the Common Stock from funds legally available therefor;
provided, however, that the holders of Series A Preferred Stock and Series B
Preferred Stock shall be entitled to receive concurrently a dividend or other
distribution on each outstanding share of Series A Preferred Stock and Series B
Preferred Stock in an amount at least equal to the product of (i) the per share
amount, if any, of the dividend or other distribution to be declared, paid or
set aside for the Common Stock, multiplied by (ii) the number of whole shares of
Common Stock into which such share of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, is then convertible.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available for distribution to its stockholders shall be distributed among the
holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock
then outstanding as follows:
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<PAGE> 34
(i) first, pro rata based on Common Equivalent Shares to the
holders of shares of Series A Preferred Stock and Series B Preferred Stock, in
the proportion which the number of shares of Series A Preferred Stock then
outstanding multiplied by $1.16 bears to the number of shares of Series B
Preferred Stock then outstanding multiplied by $1.50, until the holders of
Series A Preferred Stock have received a total of $1.16 per share plus any
dividends declared but unpaid on such shares, and the holders of Series B
Preferred Stock have received a total of $1.50 per share plus any dividends
declared but unpaid on such shares;
(ii) second, pro rata based on Common Equivalent Shares to the
holders of shares of Common Stock, Series A Preferred Stock and Series B
Preferred Stock then outstanding, in equal amount per Common Equivalent Share,
until the holders of Series A Preferred Stock have received an aggregate of
$2.32 per share of Series A Preferred Stock when taking into account both the
amount distributed with respect to such share of Series A Preferred Stock
pursuant to Section 2(a)(i) above and the amount distributed with respect to
such share pursuant to this Section 2(a)(ii);
(iii) third, pro rata based on Common Equivalent Shares to the
holders of Common Stock and Series B Preferred Stock then outstanding, in equal
amounts per Common Equivalent Share, until the holders of Series B Preferred
Stock have received an aggregate of $3.00 per share of Series B Preferred Stock
when taking into account the amount distributed with respect to such share of
Series B Preferred Stock pursuant to Section 2(a)(i) above, the amount
distributed with respect to such share pursuant to Section 2(a)(ii) above and
the amount distributed with respect to such share pursuant to this Section
2(a)(iii);
(iv) fourth, pro rata to the holders of Common Stock then
outstanding until such holders have received an aggregate of $2.32 per share
when taking into account the amount distributed with respect to such share of
Common Stock pursuant to Section 2(a)(ii) above, the amount distributed with
respect to such share pursuant to Section 2(a)(iii) above and the amount
distributed with respect to such share pursuant to this Section 2(a)(iv);
(v) fifth, pro rata based on Common Equivalent Shares to the
holders of Common Stock and Series A Preferred Stock then outstanding, in equal
amounts per Common Equivalent Share, until the holders of Common Stock and
Series A Preferred Stock have each received an aggregate of $3.00 per share of
Common Stock or Series A Preferred Stock, as the case may be, when taking into
account the amount distributed with respect to such share of Common Stock or
Series A Preferred Stock, as the case may be, pursuant to Section 2(a)(i) above,
the amount distributed with respect to each such share pursuant to Section
2(a)(ii) above, the amount distributed with respect to each such share pursuant
to Section 2(a)(iii) above, the amount distributed with respect to each such
share pursuant to Section
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(a)(iv) above and the amount distributed with respect to each such share
pursuant to this Section 2(a)(v); and
(vi) sixth, to the extent of all amounts remaining
undistributed, pro rata based on Common Equivalent Shares to the holders of
Common Stock, Series A Preferred Stock and Series B Preferred Stock.
In each case, appropriate adjustment shall be made to reflect
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares. The term "Common Equivalent Share" shall mean, (i) in the
case of Common Stock, the number of shares of Common Stock outstanding, (ii) in
the case of Series A Preferred Stock, the number of shares of Common Stock
issuable upon conversion of outstanding Series A Preferred Stock at the time of
the particular distribution and (iii) in the case of Series B Preferred Stock,
the number of shares of Common stock issuable upon conversion of outstanding
Series B Preferred Stock at the time of the particular distribution.
(b) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of the Corporation immediately prior to such merger or consolidation
continue to hold at least 51% by voting power of the capital stock of the
surviving corporation), or the sale of all or substantially all the assets of
the Corporation, if the holders of at least 66% of the then outstanding shares
of Series A Preferred Stock and Series B Preferred Stock, each voting separately
as a class, so elect by giving written notice thereof to the Corporation at
least three days before the effective date of such event, then such merger,
consolidation or asset sale shall be deemed to be a liquidation of the
Corporation, and all consideration payable to the stockholders of the
Corporation (in the case of a merger or consolidation), or all consideration
payable to the Corporation, together with all other available assets of the
Corporation (in the case of an asset sale), shall be distributed to the holders
of capital stock of the Corporation in accordance with Subsections 2(a) above.
The Corporation shall promptly provide to the holders of shares of Series A
Preferred Stock and Series B Preferred Stock such information concerning the
terms of such merger, consolidation or asset sale and the value of the assets of
the Corporation as may reasonably be requested by such holders in order to
assist them in determining whether to make such election. If the holders of the
Series A Preferred Stock and the Series B Preferred Stock make such an election,
the Corporation shall use its best efforts to amend the agreement or plan of
merger or consolidation to adjust the rate at which the shares of capital stock
of the Corporation are converted into or exchanged for cash, new securities or
other property to give effect to such election. The amount deemed distributed to
the holders of Series A Preferred Stock and the Series B Preferred Stock upon
any such merger or consolidation shall be the cash or the value of the property,
rights or securities distributed to such holders by the acquiring person, firm
or other entity. The value of such property, rights or other securities shall be
determined in good
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<PAGE> 36
faith by the Board of Directors of the Corporation or, in the case of
securities, as set forth in Subsection 2(c) below. If no notice of the election
permitted by this Subsection (b) is given, the provisions of Subsection 4(i)
shall apply.
(c) Any securities requiring valuation as noted in Subsection 2(b)
above shall be valued as follows:
(i) Securities not subject to investment letter or other
similar restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through
Nasdaq-NMS, the value shall be deemed to be the average of the closing prices of
the securities on such exchange or market over the 30-day period ending three
days prior to the closing;
(b) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the 30-day period ending three days prior to the closing; and
(c) If there is no active public market, the value shall
be the fair market value thereof, as mutually determined by the Board of
Directors and the holders of at least 66% of the voting power of all then
outstanding shares of Series B Preferred Stock.
(ii) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i)(a), (b) or (c) to reflect the approximate fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least 66% of the voting power of all then outstanding shares of
Series A Preferred Stock and Series B Preferred Stock, each voting separately as
a class.
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock
and each holder of Series B Preferred Stock shall be entitled to the number of
votes equal to the number of whole shares of Common Stock into which the shares
of Series A Preferred Stock or Series B Preferred Stock, as the case may be,
held by such holder are then convertible (as adjusted from time to time pursuant
to Section 4 hereof), at each meeting of stockholders of the Corporation (and
written actions of stockholders in lieu of meetings) with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsections 3(b)
below or by the provisions establishing any other
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<PAGE> 37
series of Preferred Stock, holders of Series A Preferred Stock and Series B
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series A Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of 66% of the then outstanding shares of Series A
Preferred Stock, voting separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock;
(ii) Increase the authorized number of shares of Preferred
Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series A Preferred Stock, or authorize or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series A
Preferred Stock;
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's
intellectual property or other assets;
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation;
(vi) Redeem, purchase or otherwise acquire, directly or
indirectly, any of the Company's equity securities other than securities issued
pursuant to options granted pursuant to an incentive stock option plan of the
Corporation; or
(vii) Fix the size of the Corporation's board of directors at
any number other than seven or alter the composition of such board in any manner
inconsistent with the provisions of the Stockholders Voting Agreement dated
January 20, 1995 among the Corporation and the holders of its Preferred Stock,
as such Agreement may be amended from time to time.
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(c) In addition to any other rights provided by law, so long as at
least 500,000 shares of Series B Preferred Stock shall be outstanding, the
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of 66% of the then outstanding shares of Series B
Preferred Stock, voting separately as a class:
(i) Amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series B Preferred
Stock;
(ii) Increase the authorized number of shares of Preferred
Stock;
(iii) Authorize or issue any new or existing class or classes
or series of capital stock having any preference or priority as to dividends,
assets or voting superior to or on a parity with any such preference or priority
of the Series B Preferred Stock, or authorized or issue shares of stock of any
class or any bonds, debentures, notes or other obligations convertible into or
exchangeable for, or having rights to purchase, any shares of stock of the
Corporation having any preference or priority as to dividends, assets or voting
superior to or on a parity with any such preference or priority of the Series B
Preferred Stock;
(iv) Merge or consolidate into or with any other corporation
or other entity or sell all or substantially all of the Corporation's assets;
(v) Effect a reclassification or recapitalization of the
outstanding capital stock of the Corporation;
(vi) Redeem, purchase or otherwise acquire, directly or
indirectly, any of the Company's equity securities other than securities issued
pursuant to options granted pursuant to an incentive stock option plan of the
Corporation; or
(vii) Fix the size of the Corporation's board of directors at
any number other than seven or alter the composition of such board in any manner
inconsistent with the provisions of the Stockholders Voting Agreement dated
January 20, 1995 among the Corporation and the holders of its Preferred Stock,
as such Agreement may be amended from time to time.
4. Optional Conversion. The holders of the Series A Preferred Stock and
the Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
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<PAGE> 39
(a) Right to Convert. Each share of Series A Preferred Stock and
each share of Series B Preferred Stock shall be convertible, at the option of
the holder thereof, at any time and from time to time, and without the payment
of additional consideration by the holder thereof, into such number of fully
paid and nonassessable shares of Common Stock as is determined (i) in the case
of the Series A Preferred Stock, by dividing $1.16 by the Series A Conversion
Price (as defined below) in effect at the time of conversion and (ii) in the
case of the Series B Preferred Stock, by dividing $1.50 by the Series B
Conversion Price (as defined below) in effect at the time of conversion. The
"Series A Conversion Price" shall initially be $1.16, and the "Series B
Conversion Price" shall initially be $1.50. Each such initial Conversion Price,
and the rate at which shares of Series A Preferred Stock and Series B Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock and Series B Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock or the Series B Preferred
Stock. In lieu of any fractional shares to which the holder would otherwise be
entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock or
Series B Preferred Stock to convert such shares into shares of Common Stock,
such holder shall surrender the certificate or certificates for such shares of
Series A Preferred Stock or Series B Preferred Stock at the office of the
transfer agent for the Series A Preferred Stock or Series B Preferred Stock, as
the case may be (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock or Series B Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the
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<PAGE> 40
Conversion Date, issue and deliver at such office to such holder of Series A
Preferred Stock or Series B Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share.
(ii) The Corporation shall at all times when the Series A
Preferred Stock or Series B Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock or Series B Preferred
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding Series A
Preferred Stock and Series B Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock or Series B Preferred Stock, the Corporation will take any corporate
action which may, in the opinion of its counsel, be necessary in order that the
Corporation may validly and legally issue fully paid and nonassessable shares of
Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the
Conversion Price shall be made for any declared but unpaid dividends on the
Series A Preferred Stock or Series B Preferred Stock surrendered for conversion
or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock and Series B
Preferred Stock which shall have been surrendered for conversion as herein
provided shall no longer be deemed to be outstanding and all rights with respect
to such shares, including the rights, if any, to receive notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only the
right of the holders thereof to receive shares of Common Stock in exchange there
for and payment of any dividends declared or accrued but unpaid thereon. Any
shares of Series A Preferred stock or Series B Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Corporation
(without the need for stockholder action) may from time to time take such
appropriate action as may be necessary to reduce the authorized Series A
Preferred Stock or Series B Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or delivery of shares of
Common Stock upon conversion of shares of Series A Preferred Stock and Series B
Preferred Stock pursuant to this Section 4. The Corporation shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of shares of Common Stock in a name other
than that in which the shares of Series A Preferred Stock or Series B Preferred
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the
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<PAGE> 41
person or entity requesting such issuance has paid to the Corporation the amount
of any such tax or has established, to the satisfaction of the Corporation, that
such tax has been paid.
(vi) Notwithstanding any other provision hereof, if a
conversion of Series A Preferred Stock or Series B Preferred Stock is to be made
in connection with a public offering of Common Stock, the conversion of any
shares of Series A Preferred Stock or Series B Preferred Stock may, at the
election of the holder of such shares, be conditioned upon the consummation of
such public offering in which case such conversion shall not be deemed to be
effective until the consummation of such public offering.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection 4(d),
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities, excluding options described in subsection 4(d)(i)(D)(IV) below.
(B) "Original Issue Date" shall mean the date on which a
share of Series B Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Subsection 4(d)(iii) below,
deemed to be issued) by the Corporation after the Original Issue Date, other
than shares of Common Stock issued or issuable:
(I) upon conversion of any Convertible
Securities outstanding on the Original Issue
Date, or upon exercise of any Options
outstanding on the Original Issue Date;
(II) as a dividend or distribution on Series A
Preferred Stock or Series B Preferred Stock;
(III) by reason of a dividend, stock split,
split-up or other distribution on shares of
Common
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Stock that is covered by Subsection 4(e) or
4(f) below; or
(IV) to employees or directors of, or consultants
to, the Corporation pursuant to a plan
adopted by the Board of Directors of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock is convertible shall be made, by adjustment in the
applicable Conversion Price thereof: (a) unless the consideration per share
(determined pursuant to Subsection 4(d)(v)) for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
applicable Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least 66% of the then
outstanding shares of Series A Preferred Stock and Series B Preferred Stock,
each acting separately as a class, agreeing that no such adjustment shall be
made as the result of the issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of
Common Stock.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
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<PAGE> 43
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
(C) Upon the expiration or termination of any
unexercised Option or any unexercised rights of conversion or exchange under any
Convertible Security, the Conversion Price shall be readjusted to eliminate the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option or such Convertible Security;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuances
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d) (iii) shall
apply.
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(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock without consideration or for a
consideration per share less than the applicable Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event, such
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, (A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock which the aggregate consideration received or to be
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of such Additional Shares of Common Stock so
issued; provided that, (i) for the purpose of this Subsection 4(d)(iv), all
shares of Common Stock issuable upon exercise or conversion of Options or
Convertible Securities outstanding immediately prior to such issue shall be
deemed to be outstanding, and (ii) the number of shares of Common Stock deemed
issuable upon exercise or conversion of such outstanding Options and Convertible
Securities shall not give effect to any adjustments to the conversion price or
conversion rate of such Options or Convertible Securities resulting from the
issuance of Additional Shares of Common Stock that is the subject of this
calculation.
Notwithstanding the provisions of this Subsection 4(d)(iv), in
the event the Corporation makes a Dilutive Issuance (as defined below), the
adjustment to the Conversion Price of shares of Series A Preferred Stock and
Series B Preferred Stock provided for in this Subsection 4(d)(iv) as a result of
such Dilutive Issuance shall not be made with respect to shares of Series A
Preferred Stock or Series B Preferred Stock held by a person or entity who was
given the opportunity to purchase its Pro Rata Portion (as defined below) of
such Dilutive Issuance (whether pursuant to a right of first refusal or
otherwise), and who failed to purchase its Pro Rata Portion of such Dilutive
Issuance. Each such holder shall be deemed to have waived (i) the reduction in
the Conversion Price of such holder's shares of Series A Preferred Stock or
Series B Preferred Stock that would have otherwise resulted pursuant to this
Subsection 4(d)(iv) from such Dilutive Issuance, (ii) the right to receive, upon
conversion of its Series A Preferred Stock or Series B Preferred Stock pursuant
to this Section 4, any additional shares of Common Stock that would have been
issuable as a result of such reduction in the Conversion Price; and such waiver
shall be binding upon any transferee of the shares of Series A Preferred Stock
and Series B Preferred Stock held by such holder and (iii) the right to a
reduction in the Conversion Price of such holder's shares of Series A Preferred
Stock or Series B Preferred Stock pursuant to this Section 4(d)(iv) upon any
subsequent Dilutive
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<PAGE> 45
Issuance. A "Dilutive Issuance" shall mean any issuance of Additional Shares of
Common Stock that results (or would result, except for this paragraph) in a
reduction in the Conversion Price pursuant to this Subsection 4(d)(iv). A
holder's "Pro Rata Portion" of a Dilutive Issuance shall mean the number of
Additional Shares of Common Stock issued in such Dilutive Issuance, multiplied
by a fraction, the numerator of which is the number of shares of Common Stock
issuable upon conversion of all shares of Preferred Stock (including the Series
A Preferred Stock and Series B Preferred Stock) of the Corporation then held by
such holder, and the denominator of which is the aggregate number of shares of
Common Stock issuable upon conversion of all shares of Preferred Stock
(including the Series A Preferred Stock and Series B Preferred Stock) of the
Corporation then outstanding. For purposes of this paragraph, the portion of a
Dilutive Issuance purchased by a holder of Series A Preferred Stock or Series B
Preferred Stock shall be deemed to include any portion of such Dilutive Issuance
purchased by an "affiliate" (as defined in Rule 144 under the Securities Act of
1933, as amended) of such holder.
All certificates representing shares of Series A Preferred Stock or Series
B Preferred Stock shall have affixed thereto a legend substantially in the
following form:
"The shares represented by this certificate are convertible into
shares of common stock at a rate which may vary among different
stockholders of the corporation. Information concerning the
conversion rate applicable to the shares represented by this
certificate may be obtained from the Secretary of the corporation."
(v) Determination of Consideration. For purposes of this
Subsection 4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
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<PAGE> 46
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 4(d) (iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation
shall issue on more than one date Additional Shares of Common Stock which are
comprised of shares of the same series or class of Preferred Stock, and such
issuance dates occur within a period of no more than 30 days, then the Series A
Conversion Price and the Series B Conversion Price shall each be adjusted only
once on account of such issuances, with such adjustment to occur upon the final
such issuance and to give effect to all such issuances as if they occurred on
the date of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price and
the Series B Conversion Price then in effect immediately before that subdivision
shall each be proportionately decreased. If the Corporation shall at any time or
from time to time after the Original Issue Date effect a subdivision of the
Series A Preferred Stock or the Series B Preferred Stock, the Series A
Conversion Price and the Series B Conversion Price then in effect immediately
before that subdivision shall be proportionately increased. If the Corporation
shall at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock, the Series A Conversion Price and the Series
B Conversion Price then in effect immediately before the combination shall each
be proportionately increased. If the
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Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Series A Preferred Stock or Series B Preferred
Stock, the Series A Conversion Price and the Series B Conversion Price then in
effect immediately before the combination shall be proportionately decreased.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price and the Series B Conversion Price then in effect shall each be
decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price and the Series B Conversion Price then
in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price and the Series B Conversion Price shall
be recomputed accordingly as of the close of business on such record date and
thereafter the Series A Conversion Price and the Series B Conversion Price shall
be adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions; and provided further, however, that no such
adjustment shall be made if the holders of Series A Preferred Stock and Series B
Preferred Stock simultaneously receive a dividend or other distribution of
shares of Common Stock in a number equal to the number of shares of Common Stock
as they would have received if all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock had been converted into Common Stock on the
date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the
17
<PAGE> 48
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Series A Preferred Stock and
the Series B Preferred Stock shall receive upon conversion thereof in addition
to the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation that they would have received had the Series A
Preferred Stock and the Series B Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Series A Preferred
Stock and the Series B Preferred Stock; and provided further, however, that no
such adjustment shall be made if the holders of Series A Preferred Stock and the
Series B Preferred Stock simultaneously receive a dividend or other distribution
of such securities in an amount equal to the amount of such securities as they
would have received if all outstanding shares of Series A Preferred Stock and
the Series B Preferred Stock had been converted into Common Stock on the date of
such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock or
Series B Preferred Stock shall be changed into the same or a different number of
shares of any class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares or stock dividend provided for above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each such share of Series A Preferred Stock and each share
of Series B Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Series A Preferred Stock or Series B Preferred Stock might have been converted
immediately prior to such reorganization, reclassification, or change, all
subject to further adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(c)), each share of Series A Preferred Stock and each share of
Series B Preferred Stock shall thereafter be convertible (or shall be converted
into a security which shall be convertible) into the kind and amount of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock of the Corporation deliverable upon conversion of such
Series A Preferred Stock or Series B Preferred Stock would have been entitled
upon such consolidation, merger or sale; and, in such case, appropriate
adjustment (as determined in good faith by the Board
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<PAGE> 49
of Directors) shall be made in the application of the provisions in this Section
4 set forth with respect to the rights and interest thereafter of the holders of
the Series A Preferred Stock and Series B Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the Series A
Preferred Stock and Series B Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock and Series B Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price or the Series B
Conversion Price pursuant to this Section 4, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each holder of Series A Preferred Stock or Series B
Preferred Stock, as the case may be, a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series A Preferred Stock or Series B Preferred Stock,
furnish or cause to be furnished to such holder a similar certificate setting
forth (i) such adjustments and readjustments, (ii) the Conversion Price then in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which then would be received upon the conversion of Series A
Preferred Stock or Series B Preferred Stock, as the case may be.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other securities of
the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
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<PAGE> 50
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock and Series B
Preferred Stock, and shall cause to be mailed to the holders of the Series A
Preferred Stock and Series B Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the date specified in (A) below or twenty days before the date specified in
(B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled
to such dividend, distribution, subdivision or combination are
to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
5. Mandatory Conversion.
(a) Upon the closing of the Corporation's initial public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, at a price of not less than $3.00 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) and
resulting in at least $10,000,000 of gross proceeds to the Corporation (the
"Mandatory Conversion Date"), (i) all outstanding shares of Series A Preferred
Stock and Series B Preferred Stock shall automatically be converted into shares
of Common Stock, at the then effective conversion rate and (ii) the number of
authorized shares of Preferred Stock shall be automatically reduced by the
number of shares of Preferred Stock that had been designated as Series A
Preferred Stock and Series B Preferred Stock, and all provisions included under
the caption "Series A Preferred Stock and Series B
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<PAGE> 51
Convertible Preferred Stock", and all references to the Series A Preferred Stock
and Series B Preferred Stock, shall be deleted and shall be of no further force
or effect.
(b) All holders of record of shares of Series A Preferred Stock and
Series B Preferred Stock will be given written notice of the Mandatory
Conversion Date and the place designated for mandatory conversion of all such
shares of Series A Preferred Stock and Series B Preferred Stock pursuant to this
Section 5. Such notice shall be sent by first class or registered mail, postage
prepaid, to each record holder of Series A Preferred Stock and Series B
Preferred Stock at such holder's address last shown on the records of the
transfer agent for the Series A Preferred Stock and Series B Preferred Stock (or
the records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A Preferred Stock and
each holder of Series B Preferred Stock shall surrender his or its certificate
or certificates for all such shares to the Corporation at the place designated
in such notice, and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to this Section
5. On the Mandatory Conversion Date, all rights with respect to the Series A
Preferred Stock and Series B Preferred Stock so converted, including the rights,
if any, to receive notices and vote, will terminate, except only the rights of
the holders thereof, upon surrender of their certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series A Preferred Stock and Series B Preferred Stock has been
converted, and payment of any declared or accrued but unpaid dividends thereon
(all of which shall be deemed to be declared by the Board of Directors on the
Mandatory Conversion Date). If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or by his or its attorney duly authorized
in writing. As soon as practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series A Preferred Stock and
Series B Preferred Stock, the Corporation shall cause to be issued and delivered
to such holder, or on his or its written order, a certificate or certificates
for the number of full shares of Common Stock issuable on such conversion in
accordance with the provisions hereof and cash as provided in Subsection 4(b) in
respect of any fraction of a share of Common Stock otherwise issuable upon such
conversion.
(c) All certificates evidencing shares of Series A Preferred Stock
and Series B Preferred Stock which are required to be surrendered for conversion
in accordance with the provisions hereof shall, from and after the Mandatory
Conversion Date, be deemed to have been retired and cancelled and the shares of
Series A Preferred Stock and Series B Preferred Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for
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<PAGE> 52
stockholder action) as may be necessary to reduce the authorized Series A
Preferred Stock and Series B Preferred Stock accordingly.
6. Mandatory Redemption.
(a) Irrespective of the provisions of Section 5, the Corporation
shall, subject to the conditions set forth in Subsection 6(b) below, on January
20, 2000 and on the 17th day of each April, July, October and January thereafter
until all amounts payable under this Section 6 have been paid in full (each such
date being referred to hereinafter as a "Mandatory Redemption Date"), redeem
from each holder of shares of Series A Preferred Stock, at a price equal to
$1.16 per share, and from each holder of Series B Preferred Stock, at a price
equal to $1.50 per share, plus in each case any dividends declared but unpaid
thereon, and subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the following respective
portions of the number of shares of Series A Preferred Stock and Series B
Preferred Stock held by such holder on the applicable Mandatory Redemption Date:
Portion of Shares of Preferred
Mandatory Redemption Date Stock To Be Redeemed
January 20, 2000 12.5%
April 20, 2000 14.29%
July 20, 2000 16.67%
October 20, 2000 20.0%
January 20, 2001 25.0%
April 20, 2001 33.3%
July 20, 2001 50.0%
October 20, 2001 All outstanding shares of Series A and
B Preferred Stock
Notwithstanding the foregoing, no redemption shall be required with
respect to Series A Preferred Stock if the holders of more than 66% of the then
outstanding shares of Series A Preferred Stock waive such redemption obligation,
or with respect to Series B Preferred Stock if the holders of more than 66% of
the then outstanding shares of Series B Preferred Stock waive such redemption
obligation.
(b) The Corporation shall not, during any fiscal year, be required
to pay more than 50% of its consolidated net cash flow, for the immediately
preceding fiscal year to redeem shares of the Series A Preferred Stock and
Series B Preferred Stock pursuant to Subsection 6(a) above. If the Corporation
cannot by application of this Subsection (b) redeem all of the shares subject to
mandatory redemption on a particular Mandatory Redemption Date, it shall redeem
the maximum possible number of whole shares of Series A Preferred Stock and
Series B Preferred Stock
22
<PAGE> 53
ratably on the basis of the number of shares of Series A Preferred Stock and
Series B Preferred Stock which would be redeemed on such date if the Corporation
were not prevented by this Subsection 6(b) from redeeming any shares.
Notwithstanding the foregoing, the Corporation shall, subject to Subsection 6(c)
below, be obligated to redeem 100% of the then outstanding shares of Series A
Preferred Stock and Series B Preferred Stock on January 20, 2005.
(c) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock and Series B Preferred Stock on any Mandatory
Redemption Date are insufficient to redeem the number of shares of Series A
Preferred Stock and Series B Preferred Stock required under this Section 6 to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares of Series A Preferred Stock
and Series B Preferred Stock ratably on the basis of the number of shares of
Series A Preferred Stock and Series B Preferred Stock which would be redeemed on
such date if the funds of the Corporation legally available there for had been
sufficient to redeem all shares of Series A Preferred Stock and Series B
Preferred Stock required to be redeemed on such date. At any time thereafter
when additional funds of the Corporation become legally available for the
redemption of Series A Preferred Stock and Series B Preferred Stock, such funds
will be used, at the next succeeding Mandatory Redemption Date, to redeem the
balance of the shares which the Corporation was theretofore obligated to redeem,
ratably on the basis set forth in the preceding sentence.
(d) The Corporation shall provide notice of any redemption of Series
A Preferred Stock or Series B Preferred Stock pursuant to this Section 6
specifying the time and place of redemption and the Mandatory Redemption Price,
by first class or registered mail, postage prepaid, to each holder of record of
Series A Preferred Stock or Series B Preferred Stock, as the case may be, at the
address for such holder last shown on the records of the transfer agent therefor
(or the records of the Corporation, if it serves as its own transfer agent), not
more than 60 nor less than 30 days prior to the date on which such redemption is
to be made. If less than all Series A Preferred Stock or Series B Preferred
Stock owned by such holder is then to be redeemed, the notice will also specify
the number of shares which are to be redeemed. Upon mailing any such notice of
redemption, the Corporation will become obligated to redeem at the time of
redemption specified therein all Series A Preferred Stock and Series B Preferred
Stock specified therein (other than such shares of Series A Preferred Stock and
Series B Preferred Stock as are duly converted pursuant to Section 4 prior to
the close of business on the fifth full day preceding the Mandatory Redemption
Date). In case less than all Series A Preferred Stock and Series B Preferred
Stock represented by any certificate is redeemed in any redemption pursuant to
this Section 6, a new certificate will be issued representing the unredeemed
Series A Preferred Stock and Series B Preferred Stock without cost to the holder
thereof.
23
<PAGE> 54
(e) Unless there shall have been a default in payment of the
Mandatory Redemption Price, no share of Series A Preferred Stock or Series B
Preferred Stock shall be entitled to any dividends declared after its Mandatory
Redemption Date, and on such Mandatory Redemption Date all rights of the holder
of such share as a stockholder of the Corporation by reason of the ownership of
such share will cease, except the right to receive the Mandatory Redemption
Price of such share, without interest, upon presentation and surrender of the
certificate representing such share, and such share will not from and after such
Mandatory Redemption Date be deemed to be outstanding.
(f) Any Series A Preferred Stock or Series B Preferred Stock
redeemed pursuant to this Section 6 will be cancelled and will not under any
circumstances be reissued, sold or transferred and the Corporation may from time
to time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock or Series B Preferred Stock accordingly.
7. Events of Noncompliance.
(a) Definition. An Event of Noncompliance shall be deemed to have
occurred if:
(i) the Corporation fails to make any redemption payment with
respect to the Series B Preferred Stock which it is obligated to make under
Section 6(a), whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject and whether or
not such payment is not required by virtue of Section 6(b);
(ii) the Corporation breaches or otherwise fails to perform or
observe any other covenant or agreement set forth herein or in the Series B
Preferred Stock Purchase Agreement dated as of January 20, 1995 by and among the
Corporation and the investors named therein (the "Purchase Agreement"), provided
that no Event of Noncompliance shall be deemed to have occurred under this
subparagraph (ii) if the Corporation established that (a) the particular Event
of Noncompliance has not been caused by knowing or purposeful conduct by the
Corporation or any subsidiary, (b) the Corporation has exercised, and continues
to exercise, best efforts to expeditiously cure the Event of Noncompliance (if
cure is possible), (c) the Event of Noncompliance is not material to the
financial condition, operating results, operations, assets or business prospects
of the Corporation and its subsidiaries, taken as a whole, and (d) the Event of
Noncompliance is not material to any holder's investment in the Series B
Preferred Stock; or
(iii) to the best of the Corporation's knowledge, after
reasonable inquiry, any representation or warranty made by the Corporation and
24
<PAGE> 55
contained in the Purchase Agreement is false or misleading in any material
respect on the date made.
(b) Consequences of Certain Events of Noncompliance
(i) If any Event of Noncompliance has occurred, the holder or
holders of 66% of the Series B Preferred Stock then outstanding may demand (by
written notice delivered to the Corporation) immediate redemption of all or any
portion of the Series B Preferred Stock owned by such holder or holders at a
price of $3.00 per share, plus any dividends declared by unpaid thereon. The
Corporation shall give prompt written notice of such election to the other
holders of Series B Preferred Stock (but in any event within five days after
receipt of the initial demand for redemption), and each such other holder may
demand immediate redemption of all or any portion of such holder's Series B
Preferred Stock by giving written notice thereof to the Corporation within seven
days after receipt of the Corporation's notice. The Corporation shall redeem all
Series B Preferred Stock as to which rights under this paragraph have been
exercised within 15 days after receipt of the initial demand for redemption.
(ii) If any Event of Noncompliance has occurred, the number of
directors constituting the Corporation's board of directors will, at the request
of more than 20% of the Series B Preferred Stock then outstanding, be increased
by one member, and the holders of Series B Preferred Stock will have the special
right, voting as a single class (with each share being entitled to one vote) and
to the exclusion of all other classes of the Corporation's stock, to elect an
individual to fill such newly created directorship, to fill any vacancy of such
directorship and to remove any individual elected to such directorship. The
newly created directorship will constitute a separate class of directors, and
the director elected by the holders of the Series B Preferred Stock will be
entitled to cast a number of votes on each matter considered by the board of
directors (including for purposes of determining the existence of a quorum)
equal to the sum of the number of votes entitled to be case by all of the other
directors plus one. The special right of the holders of Series B Preferred to
elect a member of the board of directors may be exercised at the special meeting
called pursuant to this subparagraph (ii), at any annual or other special
meeting of stockholders and, to the extent and in the manner permitted by
applicable law, pursuant to a written consent in lieu of a stockholders meeting.
Such special right shall continue until such time as there is no longer any
Event of Noncompliance in existence, at which time such special right shall
terminate subject to revesting upon the occurrence and continuation of any Event
of Noncompliance which gives rise to such special right hereunder.
At any time when such special right has vested in the holders of
Series B Preferred Stock, a proper officer of the Corporation shall, upon the
written request of the holder of at least 20% of the Series B Preferred Stock
then outstanding,
25
<PAGE> 56
addressed to the secretary of the Corporation, call a special meeting of the
holders of Series B Preferred Stock for the purpose of electing a director
pursuant to this subparagraph. Such meeting shall be held at the earliest
legally permissible date at the principal office of the Corporation, or at such
other place designated by the holders of at least 20% of the Series B Preferred
Stock then outstanding. If such meeting has not been called by a proper officer
of the Corporation within 10 days after personal service of such written request
upon the secretary of the Corporation or within 20 days after mailing the same
to the secretary of the Corporation at its principal office, then the holders of
at least 20% of the Series B Preferred Stock then outstanding may designate in
writing one of their number to call such meeting at the expense of the
Corporation, and such meeting may be called by such holder so designated upon
the notice required for annual meetings of stockholders and shall be held at the
Corporation's principal office, or at such other place designated by the holders
of at least 20% of the Series B Preferred Stock then outstanding. Any holder of
Series B preferred Stock so designated shall be given access to the stock record
books of the Corporation for the purpose of causing a meeting of stockholders to
be called pursuant to this paragraph.
At any meeting or at any adjournment thereof at which the holders of
Series B Preferred Stock have the special right to elect directors, the
presence, in person or by proxy, of the holders of at least 66% of the Series B
Preferred Stock then outstanding shall be required to constitute a quorum for
the election or removal of any director by the holders of the Preferred Stock
exercising such special right. The vote of at least 66% of the Preferred Stock
shall be required to elect or remove any such director.
Any director so elected by the holders of Series B Preferred Stock
shall continue to serve as a director until the expiration of the lesser of (a)
a period of three months following the date on which there is not longer any
Event of Noncompliance in existence or (b) the remaining period of the full term
for which such director has been elected. After the expiration of such
three-month period or when the full term for which such director has been
elected ceases (provided that the special right to elect directors has
terminated), as the case may be, the number of directors constituting the board
of directors of the Corporation shall decrease to such number as constituted the
whole board of directors of the Corporation immediately prior to the occurrence
of the Events of Noncompliance giving rise to the special right to elect
directors.
(iii) If any Event of Noncompliance exists, each holder of
Series B Preferred Stock shall also have any other rights which such holder is
entitled to under any contract or agreement at any time and any other rights
which such holder may have pursuant to applicable law.
26
<PAGE> 57
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 20th day of January, 1995.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan R. Bothe
-----------------------------------
Chairman
ATTEST:
/s/ Brian A. Marks, Ph.D.
- ----------------------------
Secretary
[Corporate Seal]
27
<PAGE> 58
FlexiInternational Software, Inc.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Stefan R. Bothe and Brian A. Marks, Ph.D. certify;
1. That they are the Chief Executive Officer and Secretary, respectively, of
FlexiInternational Software, Inc., a Delaware corporation;
2. That (i) the directors acting in accordance with Section 141 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 30th day of June 1995; and (ii) the
shareholders acting in accordance with Sections 228 and 242 of the
Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 30th day of June, 1995; the following
resolution:
RESOLVED: That the first paragraph of Article FOURTH of the
Certificate of Incorporation of the Corporation be and hereby is
deleted in its entirety and that the following paragraph be and
hereby is inserted In lieu thereof:
FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
15,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 5,821,428 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and 2,980,911
shares are hereby designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock")."
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the
seal of the Corporation this 12th day of July 1995.
/s/ Stefan R. Bothe /s/ Brian A. Marks, Ph.D
- -------------------------------- --------------------------------
Stefan R. Bothe Brian A. Marks
Chief Executive Officer Secretary
<PAGE> 59
CERTIFICATE OF CORRECTION FILED TO CORRECT A CERTAIN ERROR
IN THE CERTIFICATE OF AMENDMENT OF CERTIFICATE OF
INCORPORATION OF FLEXIINTERNATIONAL SOFTWARE, INC.
FlLED IN THE OFFICE OF THE SECRETARY OF STATE OF
DELAWARE ON JULY 12, 1995
FlexiInternational Software, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation").
DOES HEREBY CERTIFY:
1. The name of the corporation is FlexiInternational Software, Inc.
2. That a Certificate of Amendment of Certificate of Incorporation was filed
by the Secretary of State of Delaware on July 12, 1995 and that said
Certificate requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: the shareholders of the Corporation did not unanimously adopt the
resolution set forth in said Certificate.
4. The amendment to the first paragraph of Article FOURTH of the Certificate
of Amendment of Certificate of Incorporation of the Corporation is hereby
eliminated, and the Certificate of Amendment as filed July 12, 1995, is
hereby rendered null and void.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Correction to
be signed by its Secretary this 24th day of July, 1995.
/s/ Brian A. Marks, Ph.D.
- -----------------------------
Brian A. Marks, Ph.D.
Secretary
2
<PAGE> 60
FlexiInternational Software, Inc,
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Brian A. Marks, Ph.D. certifies:
1. That I am the Secretary of FlexiInternational Software, Inc., a Delaware
Corporation;
2. That (i) the directors acting in accordance with Section 141 and Section
242 of the Delaware General Corporation Law and the Corporation's
Certificate of Incorporation adopted on the 30th day of June, 1995; and
(ii) the shareholders acting in accordance with Sections 228 and 242 of
the Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 30th day of June, 1995; the following
resolution:
RESOLVED: That the first paragraph of Article FOURTH of the
Certificate of Incorporation of the Corporation be and hereby is
deleted in its entirety and that the following paragraph be and
hereby is inserted in lieu thereof:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have authority to issue is
15,000,000 shares of Common Stock, $.01 par value per share
("Common Stock"), and (ii) 5,821,428 shares of Preferred
Stock, $0.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible
Preferred Stock (the "Series A Preferred Stock") and 2,980,911
shares are hereby designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock")."
3. That written notice of such resolution has been given to all shareholders
who have not consented in writing to said resolution.
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 24th day of July, 1995.
/s/ Brian A. Marks, Ph.D.
- -------------------------------
Brian A. Marks
Secretary
3
<PAGE> 61
FlexiInternational Software,Inc.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
Brian A. Marks, Ph.D. certifies:
1. That he is the Secretary of FlexiInternational Software, Inc., a Delaware
Corporation;
2. That (i) the directors acting in accordance with Section 141 and Section
242 of the Delaware General Corporation Law and the Corporation's
Certificate of Incorporation adopted on the 25th day of October, 1995; and
(ii) the shareholders acting in accordance with Sections 228 and 242 of
the Delaware General Corporation Law and the Corporation's Certificate of
Incorporation adopted on the 25th day of October, 1995; the following
resolution:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation be and hereby is deleted in its entirety
and that the following paragraph be and hereby is inserted in lieu
thereof:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 20,000,000 shares
of Common Stock, $0.01 par value per share ("Common Stock"), and
(ii) 7,840,517 shares of Preferred Stock, $0.01 par value per share
("Preferred Stock"), of which 2,840,517 shares are hereby designated
as Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and 5,000,000 shares are hereby designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock")."
3. That written notice of such resolution has been given to all shareholders who
have not consented in writing to said resolution.
IN WITNESS WHEREOF, we have hereunder subscribed our names and affixed the seal
of the Corporation this 26th day of October 1995.
/s/ Brian A. Marks, Ph.D.
- ----------------------------
Brian A. Marks, Ph.D.
Secretary
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
FlexiInternational Software, Inc. (hereinafter called the "Corporation"),
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
By unanimous written consent of the Board of Directors of the Corporation
a resolution was duly adopted, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware, and written notice of such
consent has been given to all stockholders who have not consented in writing to
said amendment. The resolution setting forth the amendment is as follows:
RESOLVED: That Article FOURTH of the Certificate of Incorporation of the
Corporation be and hereby is deleted in its entirety and that the following
Article FOURTH be and hereby is inserted in lieu thereof:
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 25,000,000 shares of Common Stock,
$.01 par value per share ("Common Stock"), and (ii) 13,027,874 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), of which
2,840,517 shares are hereby designated as Series A Convertible Preferred Stock
(the "Series A Preferred Stock"), 5,000,000 shares are hereby designated as
Series B Convertible Preferred Stock (the
<PAGE> 63
"Series B Preferred Stock"), and 5,187,357 shares are hereby designated as
Series C Convertible Preferred Stock (the "Series C Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions
thereof in respect of each class or series of capital stock of the Corporation.
A. COMMON STOCK.
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock.
2. Voting. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
The number of authorized shares of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the stock of the Corporation
entitled to vote, irrespective of the provisions of Section 242(b)(2) of the
General Corporation Law of Delaware.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available there for as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
B. SERIES A, SERIES B AND SERIES C CONVERTIBLE PREFERRED STOCK.
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock shall be as follows:
1. Dividends.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends of $.0812 per share per annum, the holders of
Series B Preferred
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Stock shall be entitled to receive dividends of $.105 per annum, and the holders
of Series C Preferred Stock shall be entitled to receive dividends of $.1155 per
annum (in each case subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares), payable when and as declared by the Board of Directors of the
Corporation. The rights to receive dividends on Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock shall be non-cumulative, and no
right to dividends shall accrue by reason of the fact that no dividend has been
declared on the Series A Preferred Stock, the Series B Preferred Stock or the
Series C Preferred Stock in any prior year.
(b) The Corporation shall not declare or pay any dividends or other
distributions (as defined below) on shares of Common Stock until the holders of
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock then outstanding shall have first received dividends at the respective
rates specified in Subsection 1(a) above. After payment of any dividends or
distributions to holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock as specified in such Subsection 1(a), the Board of
Directors of the Corporation may declare and pay dividends or other
distributions on the Common Stock from funds legally available therefor;
provided, however, that the holders of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock shall be entitled to receive
concurrently a dividend or other distribution on each outstanding share of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
in an amount at least equal to the product of (i) the per share amount, if any,
of the dividend or other distribution to be declared, paid or set aside for the
Common Stock, multiplied by (ii) the number of whole shares of Common Stock into
which such share of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, as the case may be, is then convertible.
(c) For purposes of this Section 1, unless the context requires
otherwise, "distribution" shall mean the transfer of cash or property without
consideration, whether by way of dividend or otherwise, payable other than in
Common Stock or other securities of the Corporation, or the purchase or
redemption of shares of the Corporation (other than repurchases of Common Stock
held by employees or directors of, or consultants to, the Corporation upon
termination of their employment or services pursuant to agreements providing for
such repurchase at a price equal to the original issue price of such shares and
other than redemptions in liquidation or dissolution of the Corporation) for
cash or property, including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
2. Liquidation, Dissolution or Winding Up; Certain Mergers, Consolidations
and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the assets of the Corporation
available
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for distribution to its stockholders shall be distributed among the holders of
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock then outstanding as follows:
(i) first, pro rata based on Common Equivalent Shares to the holders of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, in the proportion which (x) the number of shares of Series A
Preferred Stock then outstanding multiplied by $1.16 bears to (y) the number of
shares of Series B Preferred Stock then outstanding multiplied by $1.50 bears to
(z) the number of shares of Series C Preferred Stock then outstanding multiplied
by $1.65, until the holders of Series A Preferred Stock have received a total of
$1.16 per share plus any dividends declared but unpaid on such shares, the
holders of Series B Preferred Stock have received a total of $1.50 per share
plus any dividends declared but unpaid on such shares, and the holders of Series
C Preferred Stock have received a total of $1.65 per share plus any dividends
declared but unpaid on such shares;
(ii) second, pro rata based on Common Equivalent Shares to the holders of
shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock then outstanding, in equal amount per Common Equivalent
Share, until the holders of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock have received an aggregate of $2.32 per share of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, when taking into account both the amount distributed with
respect to such share of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, as the case may be, pursuant to Section 2(a)(i) above
and the amount distributed with respect to such share pursuant to this Section
2(a)(ii);
(iii) third, pro rata based on Common Equivalent Shares to the holders of
Common Stock and Series B Preferred Stock then outstanding, in equal amounts per
Common Equivalent Share, until the holders of Series B Preferred Stock have
received an aggregate of $3.00 per share of Series B Preferred Stock when taking
into account the amount distributed with respect to such share of Series B
Preferred Stock pursuant to Section 2(a)(i) above, the amount distributed with
respect to such share pursuant to Section 2(a)(ii) above and the amount
distributed with respect to such share pursuant to this Section 2(a)(iii);
(iv) fourth, pro rata based on Common Equivalent Shares to the holders of
Common Stock, Series A Preferred Stock and Series C Preferred Stock then
outstanding, in equal amounts per Common Equivalent Share, until the holders of
Series A Preferred Stock and Series C Preferred Stock have received an aggregate
of $3.00 per share of Series A Preferred Stock or Series C Preferred Stock, as
the case may be, when taking into account the amount distributed with respect to
such share of Series A Preferred Stock or Series C Preferred Stock, as the case
may be, pursuant to Section 2(a)(i) above, the amount distributed with respect
to such share pursuant
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<PAGE> 66
to Section 2(a)(ii) above (if any) and the amount distributed with respect to
such share pursuant to this Section 2(a)(iv);
(v) fifth, pro rata based on Common Equivalent Shares to the holders of
Common Stock and Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock then outstanding, in equal amounts per Common Equivalent Share,
until the holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock have received an aggregate of $3.30 per share of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock, as the
case may be, when taking into account the amount distributed with respect to
such share of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock, as the case may be, pursuant to Section 2(a)(i) above, the
amount distributed with respect to such share pursuant to Section 2(a)(ii) above
(if any), the amount distributed with respect to such share pursuant to Section
2(a)(iii) above (if any), the amount distributed with respect to such share
pursuant to Section 2(a)(iv) above (if any), and the amount distributed with
respect to such share pursuant to this Section 2(a)(v);
(vi) sixth, pro rata to the holders of Common Stock then outstanding until
such holders have received an aggregate of $3.30 per share when taking into
account the amount distributed with respect to such share of Common Stock
pursuant to Section 2(a)(ii) above, the amount distributed with respect to such
share pursuant to Section 2(a)(iii) above, the amount distributed with respect
to such share pursuant to Section 2(a)(iv) above, the amount distributed with
respect to such share pursuant to Section 2(a)(v) above, and the amount
distributed with respect to such share pursuant to this Section 2(a)(vi); and
(vii) seventh, to the extent of all amounts remaining undistributed, pro
rata based on Common Equivalent Shares to the holders of Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
In each case, appropriate adjustment shall be made to reflect
any stock dividend, stock split, combination or other similar recapitalization
affecting such shares. The term "Common Equivalent Share" shall mean, (i) in the
case of Common Stock, the number of shares of Common Stock outstanding, (ii) in
the case of Series A Preferred Stock, the number of shares of Common Stock
issuable upon conversion of outstanding Series A Preferred Stock at the time of
the particular distribution, (iii) in the case of Series B Preferred Stock, the
number of shares of Common Stock issuable upon conversion of outstanding Series
B Preferred Stock at the time of the particular distribution, and (iv) in the
case of Series C Preferred Stock, the number of shares of Common Stock issuable
upon conversion of outstanding Series C Preferred Stock at the time of the
particular distribution.
(b) In the event of any merger or consolidation of the Corporation
into or with another corporation (except one in which the holders of capital
stock of
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the Corporation immediately prior to such merger or consolidation continue to
hold at least 51% by voting power of the capital stock of the surviving
corporation), or the sale of all or substantially all the assets of the
Corporation, if the holders of at least 64% of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
all voting together as a single class of Preferred Stock, so elect by giving
written notice thereof to the Corporation at least three days before the
effective date of such event, then such merger, consolidation or asset sale
shall be deemed to be a liquidation of the Corporation, and all consideration
payable to the stockholders of the Corporation (in the case of a merger or
consolidation), or all consideration payable to the Corporation, together with
all other available assets of the Corporation (in the case of an asset sale),
shall be distributed to the holders of capital stock of the Corporation in
accordance with Subsection 2(a) above. The Corporation shall promptly provide to
the holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock such information concerning the terms of such merger,
consolidation or asset sale and the value of the assets of the Corporation as
may reasonably be requested by such holders in order to assist them in
determining whether to make such election. If the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
make such an election, the Corporation shall use its best efforts to amend the
agreement or plan of merger or consolidation to adjust the rate at which the
shares of capital stock of the Corporation are converted into or exchanged for
cash, new securities or other property to give effect to such election. The
amount deemed distributed to the holders of Series A Preferred Stock, the Series
B Preferred Stock and the Series C Preferred Stock upon any such merger or
consolidation shall be the cash or the value of the property, rights or
securities distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the Corporation or, in the
case of securities, as set forth in Subsection 2(c) below. If no notice of the
election permitted by this Subsection (b) is given, the provisions of Subsection
4(i) shall apply.
(c) Any securities requiring valuation as noted in Subsection 2(b)
above shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability covered by (ii) below:
(a) If traded on a securities exchange or through Nasdaq-NMS, the
value shall be deemed to be the average of the closing prices of the securities
on such exchange or market over the 30-day period ending three days prior to the
closing;
(b) If actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid or sale prices (whichever is applicable)
over the 30-day period ending three days prior to the closing; and
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(c) If there is no active public market, the value shall be the fair
market value thereof, as mutually determined by the Board of Directors and the
holders of at least 64% of the voting power of all then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
(all voting together as a single class of Preferred Stock).
(ii) The method of valuation of securities subject to investment letter or
other restrictions on free marketability (other than restrictions arising solely
by virtue of a stockholder's status as an affiliate or former affiliate) shall
be to make an appropriate discount from the market value determined as above in
(i)(a), (b) or (c) to reflect the approximate fair market value thereof, as
mutually determined by the Board of Directors and the holders of at least 64% of
the voting power of all then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock (all voting together as a
single class of Preferred Stock).
3. Voting.
(a) Each holder of outstanding shares of Series A Preferred Stock,
each holder of Series B Preferred Stock and each holder of Series C Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock, as the case may be, held by such
holder are then convertible (as adjusted from time to time pursuant to Section 4
hereof), at each meeting of stockholders of the Corporation (and written actions
of stockholders in lieu of meetings) with respect to any and all matters
presented to the stockholders of the Corporation for their action or
consideration. Except as provided by law, by the provisions of Subsection 3(b)
below or elsewhere in the Corporation's Certificate of Incorporation, as
amended, or by the provisions establishing any other series of Preferred Stock,
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock shall vote together with the holders of Common Stock as a single
class.
(b) Except as provided by law, so long as at least 500,000 shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
shall be outstanding, the Corporation shall not, without first obtaining the
affirmative vote or written consent of the holders of 64% of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, all voting together as a single class of Preferred
Stock:
(i) Amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or By-laws, if such action would
adversely affect the rights, preferences or privileges of the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock;
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(ii) Increase the authorized number of shares of Preferred Stock;
(iii) Authorize or issue any new or existing class or classes or series of
capital stock having any preference or priority as to dividends, assets or
voting superior to or on a parity with any such preference or priority of the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
or authorize or issue shares of stock of any class or any bonds, debentures,
notes or other obligations convertible into or exchangeable for, or having
rights to purchase, any shares of stock of the Corporation having any preference
or priority as to dividends, assets or voting superior to or on a parity with
any such preference or priority of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock;
(iv) Merge or consolidate into or with any other corporation or other
entity or sell all or substantially all of the Corporation's intellectual
property or other assets;
(v) Effect a reclassification or recapitalization of the outstanding
capital stock of the Corporation;
(vi) Redeem, purchase or otherwise acquire, directly or indirectly, any of
the Company's equity securities other than securities issued pursuant to options
granted pursuant to an incentive stock option plan of the Corporation; or
(vii) Fix the size of the Corporation's board of directors at any number
other than nine or alter the composition of such board in any manner
inconsistent with the provisions of the Stockholders' Voting Agreement dated May
7, 1996 among the Corporation, the holders of its Preferred Stock and certain
other parties, as such Agreement may be amended from time to time.
4. Optional Conversion. The holders of the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock, each
share of Series B Preferred Stock and each share of Series C Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, and without the payment of additional consideration by the holder
thereof, into such number of fully paid and nonassessable shares of Common Stock
as is determined (i) in the case of the Series A Preferred Stock, by dividing
$1.16 by the Series A Conversion Price (as defined below) in effect at the time
of conversion, (ii) in the case of the Series B Preferred Stock, by dividing
$1.50 by the Series B Conversion Price (as defined below) in effect at the time
of conversion, and (iii) in the case of the Series C Preferred Stock, by
dividing $1.65 by the Series C Conversion Price (as defined below) in effect at
the time of conversion. The "Series A Conversion Price" shall initially be
$1.16, the "Series B Conversion Price" shall initially be $1.50 and the
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"Series C Conversion Price" shall initially be $1.65. Each such initial
Conversion Price, and the rate at which shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided below.
In the event of a liquidation of the Corporation, the Conversion Rights
shall terminate at the close of business on the first full day preceding the
date fixed for the payment of any amounts distributable on liquidation to the
holders of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock.
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock, the Series B Preferred
Stock or the Series C Preferred Stock. In lieu of any fractional shares to which
the holder would otherwise be entitled, the Corporation shall pay cash equal to
such fraction multiplied by the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock to convert such shares into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock at the office of the transfer agent for the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock, as the case may be
(or at the principal office of the Corporation if the Corporation serves as its
own transfer agent), together with written notice that such holder elects to
convert all or any number of the shares of the Series A Preferred Stock, Series
B Preferred Stock or Series C Preferred Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The Corporation shall,
as soon as practicable after the Conversion Date, issue and deliver at such
office to such holder of Series A Preferred Stock, Series B Preferred Stock or
Series C Preferred Stock, or to his or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled, together with cash in lieu of any fraction of a share.
(ii) The Corporation shall at all times when the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock shall be outstanding,
reserve and
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keep available out of its authorized but unissued stock, for the purpose of
effecting the conversion of the Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Corporation may validly and legally issue fully paid and nonassessable
shares of Common Stock at such adjusted Conversion Price.
(iii) Upon any such conversion, no adjustment to the Conversion Price
shall be made for any declared but unpaid dividends on the Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion.
(iv) All shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock which shall have been surrendered for conversion as
herein provided shall no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to receive notices and to
vote, shall immediately cease and terminate on the Conversion Date, except only
the right of the holders thereof to receive shares of Common Stock in exchange
there for and payment of any dividends declared or accrued but unpaid thereon.
Any shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock so converted shall be retired and cancelled and shall not be
reissued, and the Corporation (without the need for stockholder action) may from
time to time take such appropriate action as may be necessary to reduce the
authorized Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock accordingly.
(v) The Corporation shall pay any and all issue and other taxes that may
be payable in respect of any issuance or delivery of shares of Common Stock upon
conversion of shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock pursuant to this Section 4. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of Common Stock in a
name other than that in which the shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock so converted were registered, and no
such issuance or delivery shall be made unless and until the person or entity
requesting such issuance has paid to the Corporation the amount of any such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
(vi) Notwithstanding any other provision hereof, if a conversion of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock is to be
made in
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connection with a public offering of Common Stock, the conversion of any shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock may, at the election of the holder of such shares, be conditioned upon the
consummation of such public offering in which case such conversion shall not be
deemed to be effective until the consummation of such public offering.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection 4(d), the
following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to subscribe
for, purchase or otherwise acquire Common Stock or Convertible Securities,
excluding options described in subsection 4(d)(i)(D)(IV) below.
(B) "Original Issue Date" shall mean the date on which a share of
Series C Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Subsection 4(d)(iii) below, deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable:
(I) upon conversion of any Convertible Securities outstanding
on the Original Issue Date, or upon exercise of any Options outstanding on the
Original Issue Date;
(II) as a dividend or distribution on Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock;
(III) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that is covered by Subsection 4(e) or
4(f) below; or
(IV) to employees or directors of, or consultants to, the
Corporation pursuant to a plan adopted by the Board of Directors of the
Corporation.
(ii) No Adjustment of Conversion Price. No adjustment in the number of
shares of Common Stock into which the Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock is convertible shall be made, by
adjustment in the
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applicable Conversion Price thereof: (a) unless the consideration per share
(determined pursuant to Subsection 4(d)(v)) for an Additional Share of Common
Stock issued or deemed to be issued by the Corporation is less than the
applicable Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares, or (b) if prior to such issuance, the
Corporation receives written notice from the holders of at least 64% of the then
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock, all acting together as a single class of Preferred
Stock, agreeing that no such adjustment shall be made as the result of the
issuance of Additional Shares of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock.
If the Corporation at any time or from time to time after the Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of Common Stock (as set forth in the instrument relating thereto
without regard to any provision contained therein for a subsequent adjustment of
such number) issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be Additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Subsection 4(d)(v) hereof)
of such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, upon the exercise, conversion or
exchange thereof, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase becoming
effective, be recomputed to reflect such increase insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities;
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(C) Upon the expiration or termination of any
unexercised Option or any unexercised rights of conversion or exchange under any
Convertible Security, the Conversion Price shall be readjusted to eliminate the
Additional Shares of Common Stock deemed issued as the result of the original
issue of such Option or such Convertible Security;
(D) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of such Option or Convertible
Security not exercised or converted prior to such change been made upon the
basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (i) the Conversion Price on the original adjustment
date, or (ii) the Conversion Price that would have resulted from any issuances
of Additional Shares of Common Stock between the original adjustment date and
such readjustment date.
In the event the Corporation, after the Original Issue Date, amends the
terms of any Options or Convertible Securities (whether such Options or
Convertible Securities were outstanding on the Original Issue Date or were
issued after the Original Issue Date), then such Options or Convertible
Securities, as so amended, shall be deemed to have been issued after the
Original Issue Date and the provisions of this Subsection 4(d) (iii) shall
apply.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of
Common Stock.
In the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock without consideration or for a
consideration per share less than the applicable Conversion Price in effect on
the date of and immediately prior to such issue, then and in such event, such
Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying such Conversion Price
by a fraction, (A) the numerator of which shall be (1) the number of shares of
Common Stock outstanding immediately prior to such issue plus (2) the number of
shares of Common Stock which the aggregate consideration received or to be
received by the Corporation for the total number of Additional Shares of Common
Stock so issued would purchase at such Conversion Price; and (B) the denominator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the
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number of such Additional Shares of Common Stock so issued; provided that, (i)
for the purpose of this Subsection 4(d)(iv), all shares of Common Stock issuable
upon exercise or conversion of Options or Convertible Securities outstanding
immediately prior to such issue shall be deemed to be outstanding, and (ii) the
number of shares of Common Stock deemed issuable upon exercise or conversion of
such outstanding Options and Convertible Securities shall not give effect to any
adjustments to the conversion price or conversion rate of such Options or
Convertible Securities resulting from the issuance of Additional Shares of
Common Stock that is the subject of this calculation.
Notwithstanding the provisions of this Subsection 4(d)(iv), in the event
the Corporation makes a Dilutive Issuance (as defined below), the adjustment to
the Conversion Price of shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock provided for in this Subsection 4(d)(iv) as a
result of such Dilutive Issuance shall not be made with respect to shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
held by a person or entity who was given the opportunity to purchase its Pro
Rata Portion (as defined below) of such Dilutive Issuance (whether pursuant to a
right of first refusal or otherwise), and who failed to purchase its Pro Rata
Portion of such Dilutive Issuance. Each such holder shall be deemed to have
waived (i) the reduction in the Conversion Price of such holder's shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
that would have otherwise resulted pursuant to this Subsection 4(d)(iv) from
such Dilutive Issuance, (ii) the right to receive, upon conversion of its Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock pursuant
to this Section 4, any additional shares of Common Stock that would have been
issuable as a result of such reduction in the Conversion Price; and such waiver
shall be binding upon any transferee of the shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock held by such holder and
(iii) the right to a reduction in the Conversion Price of such holder's shares
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock pursuant to this Section 4(d)(iv) upon any subsequent Dilutive Issuance. A
"Dilutive Issuance" shall mean any issuance of Additional Shares of Common Stock
that results (or would result, except for this paragraph) in a reduction in the
Conversion Price pursuant to this Subsection 4(d)(iv). A holder's "Pro Rata
Portion" of a Dilutive Issuance shall mean the number of Additional Shares of
Common Stock issued in such Dilutive Issuance, multiplied by a fraction, the
numerator of which is the number of shares of Common Stock issuable upon
conversion of all shares of Preferred Stock (including the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock) of the Corporation
then held by such holder, and the denominator of which is the aggregate number
of shares of Common Stock issuable upon conversion of all shares of Preferred
Stock (including the Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock) of the Corporation then outstanding. For purposes of
this paragraph, the portion of a Dilutive Issuance purchased by a holder of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock
shall be deemed
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to include any portion of such Dilutive Issuance purchased by an "affiliate" (as
defined in Rule 144 under the Securities Act of 1933, as amended) of such
holder.
All certificates representing shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock shall have affixed thereto a legend
substantially in the following form:
"The shares represented by this certificate are convertible into
shares of common stock at a rate which may vary among different
stockholders of the corporation. Information concerning the
conversion rate applicable to the shares represented by this
certificate may be obtained from the Secretary of the corporation."
(v) Determination of Consideration. For purposes of this Subsection 4(d),
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding amounts paid or payable
for accrued interest;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (11) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Subsection 4(d) (iii), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities,
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or in the case of Options for Convertible Securities, the exercise of such
Options for Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the exercise
of such Options or the conversion or exchange of such Convertible Securities.
(vi) Multiple Closing Dates. In the event the Corporation shall issue on
more than one date Additional Shares of Common Stock which are comprised of
shares of the same series or class of Preferred Stock, and such issuance dates
occur within a period of no more than 30 days, then the Series A Conversion
Price, the Series B Conversion Price and the Series C Conversion Price shall
each be adjusted only once on account of such issuances, with such adjustment to
occur upon the final such issuance and to give effect to all such issuances as
if they occurred on the date of the final such issuance.
(e) Adjustment for Stock Splits and Combinations. If the Corporation
shall at any time or from time to time after the Original Issue Date effect a
subdivision of the outstanding Common Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before that subdivision shall each be proportionately decreased. If
the Corporation shall at any time or from time to time after the Original Issue
Date effect a subdivision of the Series A Preferred Stock, the Series B
Preferred Stock or Series C Preferred Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before that subdivision shall be proportionately increased. If the
Corporation shall at any time or from time to time after the Original Issue Date
combine the outstanding shares of Common Stock, the Series A Conversion Price,
the Series B Conversion Price and the Series C Conversion Price then in effect
immediately before the combination shall each be proportionately increased. If
the Corporation shall at any time or from time to time after the Original Issue
Date combine the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock, the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price then in effect
immediately before the combination shall be proportionately decreased. Any
adjustment under this paragraph shall become effective at the close of business
on the date the subdivision or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In the event
the Corporation at any time, or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
additional shares of Common Stock, then and in each such event the Series A
Conversion Price, the Series
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B Conversion Price and the Series C Conversion Price then in effect shall each
be decreased as of the time of such issuance or, in the event such a record date
shall have been fixed, as of the close of business on such record date, by
multiplying the Series A Conversion Price, the Series B Conversion Price and the
Series C Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to
the time of such issuance or the close of business on such record
date plus the number of shares of Common Stock issuable in payment
of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Series A Conversion Price, the Series B Conversion Price and the
Series C Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series A Conversion Price, the
Series B Conversion Price and the Series C Conversion Price shall be adjusted
pursuant to this paragraph as of the time of actual payment of such dividends or
distributions; and provided further, however, that no such adjustment shall be
made if the holders of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock simultaneously receive a dividend or other distribution
of shares of Common Stock in a number equal to the number of shares of Common
Stock as they would have received if all outstanding shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock had been
converted into Common Stock on the date of such event.
(g) Adjustments for Other Dividends and Distributions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall make or issue, or fix a record date for the determination of holders of
Common Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of the Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock been converted into Common
Stock on the date of such event and had they thereafter, during the period from
the date of such event to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this
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paragraph with respect to the rights of the holders of the Series A Preferred
Stock, the Series B Preferred Stock and the Series C Preferred Stock; and
provided further, however, that no such adjustment shall be made if the holders
of Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock simultaneously receive a dividend or other distribution of such
securities in an amount equal to the amount of such securities as they would
have received if all outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock had been converted into Common
Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock shall be changed into the
same or a different number of shares of any class or classes of stock, whether
by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holder of each such share of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock shall have the right
thereafter to convert such share into the kind and amount of shares of stock and
other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Common
Stock into which such shares of Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock might have been converted immediately prior to
such reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation (other than a consolidation, merger or sale which is covered by
Subsection 2(b)), each share of Series A Preferred Stock, each share of Series B
Preferred Stock and each share of Series C Preferred Stock shall thereafter be
convertible (or shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions in this Section 4 set forth with respect to the
rights and interest thereafter of the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, to the end that the
provisions set forth in this Section 4 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter
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deliverable upon the conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Series A Conversion Price, the Series B
Conversion Price or the Series C Conversion Price pursuant to this Section 4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any holder
of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments, (ii) the Conversion Price
then in effect, and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other distribution)
on its Common Stock payable in Common Stock or other securities of the
Corporation;
(ii) that the Corporation subdivides or combines its outstanding shares of
Common Stock;
(iii) of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
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(iv) of the involuntary or voluntary dissolution, liquidation or winding
up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, and shall cause to be mailed to the holders
of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock at their last addresses as shown on the records of the Corporation or such
transfer agent, at least ten days prior to the date specified in (A) below or
twenty days before the date specified in (B) below, a notice stating
(A) the record date of such dividend, distribution, subdivision or
combination, or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock
for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
5. Mandatory Conversion.
(a) Upon the closing of the Corporation's initial public offering of
shares of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, at a price of not less than $3.30 per share
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting such shares) and
resulting in at least $10,000,000 of gross proceeds to the Corporation (the
"Mandatory Conversion Date"), (i) all outstanding shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock shall automatically
be converted into shares of Common Stock, at the then effective conversion rate
and (ii) the number of authorized shares of Preferred Stock shall be
automatically reduced by the number of shares of Preferred Stock that had been
designated as Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, and all provisions included under the caption "Series A, Series
B and Series C Convertible Preferred Stock", and all references to the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, shall be
deleted and of no further force or effect.
(b) All holders of record of shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock will be given written
notice of the Mandatory Conversion Date and the place designated for mandatory
conversion of
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all such shares of Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock pursuant to this Section 5. Such notice shall be sent by first
class or registered mail, postage prepaid, to each record holder of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock at such
holder's address last shown on the records of the transfer agent for the Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock shall surrender his or its
certificate or certificates for all such shares to the Corporation at the place
designated in such notice, and shall thereafter receive certificates for the
number of shares of Common Stock to which such holder is entitled pursuant to
this Section 5. On the Mandatory Conversion Date, all rights with respect to the
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
so converted, including the rights, if any, to receive notices and vote, will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock has been converted, and
payment of any declared but unpaid dividends thereon. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after the
Mandatory Conversion Date and the surrender of the certificate or certificates
for Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, the Corporation shall cause to be issued and delivered to such holder, or
on his or its written order, a certificate or certificates for the number of
full shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Subsection 4(b) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(c) All certificates evidencing shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock which are required to be
surrendered for conversion in accordance with the provisions hereof shall, from
and after the Mandatory Conversion Date, be deemed to have been retired and
cancelled and the shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock represented thereby converted into Common Stock for
all purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action (without the need for stockholder
action) as may be necessary to reduce the authorized Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock accordingly.
6. Mandatory Redemption.
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(a) Irrespective of the provisions of Section 5, the Corporation
shall, subject to the conditions set forth in Subsection 6(b) below, on May 7,
2001 and on the 7th day of each August, November, February and May thereafter
until all amounts payable under this Section 6 have been paid in full (each such
date being referred to hereinafter as a "Mandatory Redemption Date"), redeem
from each holder of shares of Series A Preferred Stock, at a price equal to
$1.16 per share, from each holder of Series B Preferred Stock, at a price equal
to $1.50 per share, and from each holder of Series C Preferred Stock, at a price
equal to $1.65 per share, plus in each case any dividends declared but unpaid
thereon, and subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization affecting
such shares (the "Mandatory Redemption Price"), the following respective
portions of the number of shares of Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock held by such holder on the applicable
Mandatory Redemption Date:
Portion of Shares of Preferred
Mandatory Redemption Date Stock To Be Redeemed
May 7, 2001 12.5%
August 7, 2001 14.29%
November 7, 2001 16.67%
February 7, 2002 20.0%
May 7, 2002 25.0%
August 7, 2002 33.3%
November 7, 2002 50.0%
February 7, 2003 All outstanding shares of Series A,
B and C Preferred Stock
Notwithstanding the foregoing, no redemption shall be required with
respect to any series of Preferred Stock if the holders of more than 64% of the
then outstanding shares of Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock (all acting together as a single class of Preferred
Stock) waive such redemption obligation.
(b) The Corporation shall not, during any fiscal year, be required
to pay more than 50% of its consolidated net cash flow, for the immediately
preceding fiscal year to redeem shares of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock pursuant to Subsection 6(a) above.
If the Corporation cannot by application of this Subsection (b) redeem all of
the shares subject to mandatory redemption on a particular Mandatory Redemption
Date, it shall redeem the maximum possible number of whole shares of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock ratably
on the basis of the number of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock which would be redeemed on such
date if the Corporation were not prevented
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by this Subsection 6(b) from redeeming any shares. Notwithstanding the
foregoing, the Corporation shall, subject to Subsection 6(c) below, be obligated
to redeem 100% of the then outstanding shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock on May 7, 2006.
(c) If the funds of the Corporation legally available for redemption
of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock on any Mandatory Redemption Date are insufficient to redeem the number of
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock required under this Section 6 to be redeemed on such date, those
funds which are legally available will be used to redeem the maximum possible
number of such shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock ratably on the basis of the number of shares of Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock which
would be redeemed on such date if the funds of the Corporation legally available
therefor had been sufficient to redeem all shares of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock required to be redeemed on
such date. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock, such funds will be used, at the
next succeeding Mandatory Redemption Date, to redeem the balance of the shares
which the Corporation was theretofore obligated to redeem, ratably on the basis
set forth in the preceding sentence; provided, however, that, if less than all
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock were redeemed on the last Mandatory Redemption Date
specified in Section 6(a) above, then all such shares not so redeemed shall,
subject to Section 6(b) above, be redeemed by the Corporation promptly after
funds become legally available therefor.
(d) The Corporation shall provide notice of any redemption of Series
A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock pursuant
to this Section 6 specifying the time and place of redemption and the Mandatory
Redemption Price, by first class or registered mail, postage prepaid, to each
holder of record of Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock, as the case may be, at the address for such holder last shown
on the records of the transfer agent therefor (or the records of the
Corporation, if it serves as its own transfer agent), not more than 60 nor less
than 30 days prior to the date on which such redemption is to be made. If less
than all Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock owned by such holder is then to be redeemed, the notice will
also specify the number of shares which are to be redeemed. Upon mailing any
such notice of redemption, the Corporation will become obligated to redeem at
the time of redemption specified therein all Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock specified therein (other than such
shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock as are duly converted pursuant to Section 4 prior to the
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close of business on the fifth full day preceding the Mandatory Redemption
Date). In case less than all Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock represented by any certificate is redeemed in any
redemption pursuant to this Section 6, a new certificate will be issued
representing the unredeemed Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock without cost to the holder thereof.
(e) Unless there shall have been a default in payment of the
Mandatory Redemption Price, no share of Series A Preferred Stock, Series B
Preferred Stock or Series C Preferred Stock shall be entitled to any dividends
declared after its Mandatory Redemption Date, and on such Mandatory Redemption
Date all rights of the holder of such share as a stockholder of the Corporation
by reason of the ownership of such share will cease, except the right to receive
the Mandatory Redemption Price of such share, without interest, upon
presentation and surrender of the certificate representing such share, and such
share will not from and after such Mandatory Redemption Date be deemed to be
outstanding.
(f) Any Series A Preferred Stock, Series B Preferred Stock or Series
C Preferred Stock redeemed pursuant to this Section 6 will be cancelled and will
not under any circumstances be reissued, sold or transferred and the Corporation
may from time to time take such appropriate action as may be necessary to reduce
the authorized Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock accordingly.
24
<PAGE> 86
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its Chairman
and attested by its Secretary this 7th day of May, 1996.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan R. Bothe
----------------------------------
Chairman
ATTEST:
/s/ Brian A. Marks, Ph.D.
- --------------------------------
Secretary
[Corporate Seal]
25
<PAGE> 87
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FLEXIINTERNATIONAL SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
--------------------------------------------
FlexiInternational Software, Inc., a Delaware corporation (the
"Corporation"), does hereby certify that:
At a meeting of the Board of Directors of the Corporation, a resolution
was duly adopted, pursuant to Section 242 of the General Corporation Law of the
State of Delaware, setting forth an amendment of the Certificate of
Incorporation of the Corporation and declaring said amendment to be advisable.
The stockholders of the Corporation duly approved said proposed amendment by
written consent in accordance with Sections 228 and 242 of the General
Corporation Law of the State of Delaware. The resolution setting forth the
amendment is as follows:
RESOLVED: That the first paragraph of Article FOURTH of the Certificate of
Incorporation of the Corporation, as amended, be and hereby is deleted
in its entirety and the following paragraphs are inserted in lieu
thereof:
"FOURTH. That upon the filing date of this Certificate of Amendment of
this Certificate of Incorporation, filed with the Secretary of State
of Delaware on November 6, 1997 (the "Effective Date"), a
three-for-four reverse split of the Corporation's Common Stock shall
become effective, pursuant to
<PAGE> 88
which each four shares of Common Stock outstanding and held of
record by each stockholder of the Corporation (including
treasury shares) immediately prior to the Effective Date shall
be reclassified and combined into three shares of Common Stock
automatically and without any action by the holder thereof
upon the Effective Date and shall represent three shares of
Common Stock from and after the Effective Date. No fractional
shares of Common Stock shall be issued as a result of such
reclassification and combination. In lieu of any fractional
shares to which the stockholder would otherwise be entitled,
the Corporation shall pay cash equal to such fraction
multiplied by the then fair market value of the Common Stock
as determined by the Board of Directors of the Corporation.
The total number and classes of shares of capital
stock that the Corporation shall have authority to issue are
as follows: (i) 25,000,000 shares of Common Stock, $.01 par
value per share ("Common Stock"), and (ii) 13,027,874 shares
of Preferred Stock, $.01 par value per share ("Preferred
Stock"), of which 2,840,517 shares are hereby designated as
Series A Convertible Preferred Stock (the "Series A Preferred
Stock"), 5,000,000 shares are hereby designated as Series B
Convertible Preferred Stock (the "Series B Preferred Stock")
and 5,187,357 shares are hereby designated as Series C
Convertible Preferred Stock (the "Series C Preferred Stock")."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment of Certificate of Incorporation
to be signed by its Chairman of the Board and Chief Executive Officer this sixth
day of November, 1997.
FLEXIINTERNATIONAL SOFTWARE, INC.
By: /s/ Stefan R. Bothe
---------------------------
Stefan R. Bothe
Chairman of the Board and
Chief Executive Officer
2
<PAGE> 1
Exhibit 4
Number Shares
[LOGO]
FLEXIINTERNATIONAL SOFTWARE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
CUSIP 338923 10 5
THIS CERTIFIES THAT_____________________________________________________________
is the owner of_________________________________________________________________
FULLY PAID AND NONASSESSABLE SHARES, PAR VALUE $.01 PER SHARE,
OF THE COMMON STOCK OF
FlexiInternational Software, Inc. transferrable upon the books of the
Corporation in person or by attorney upon surrender of this Certificate properly
endorsed or assigned. This Certificate and the shares represented hereby are
subject to the laws of the State of Delaware and the to provisions of the
Certificate of Incorporation and By-Laws of the Corporation as from time to time
amended or restated. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:_________________ COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY___________________________
AUTHORIZED SIGNATURE
/s/Jennifer V. Cheng /s/Stefan R. Bothe
PRESIDENT AND TREASURER CHAIRMAN OF THE BOARD
[CORPORATE
SEAL]
<PAGE> 2
FLEXIINTERNATIONAL SOFTWARE, INC.
The Corporation is authorized to issue more than one class of stock. A
statement of the powers, designations, preferences and relative participating,
optional or other special rights of each class and series of stock and the
qualifications, limitations or restrictions thereof will be provided without
charge to each stockholder upon request to the Corporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________ Custodian__________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship Act__________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
ASSIGNMENT
For value received, __________________________________, hereby sell,
assign, and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS
INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
Irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated:_____________________ ________________________________________
NOTICE: The signatures to this assignment
must correspond with the name as written
upon the face of the Certificate in every
particular, without alteration or
enlargement, or any change whatever.
SIGNATURE(S) GUARANTEED:________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
Exhibit 10.2
FLEXIINTERNATIONAL SOFTWARE, INC
1997 STOCK INCENTIVE PLAN
1. Purpose
The purpose of this 1997 Stock Incentive Plan (the "Plan") of
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate persons who make (or are expected to
make) important contributions to the Company by providing such persons with
equity ownership opportunities and performance-based incentives and thereby
better aligning the interests of such persons with those of the Company's
stockholders. Except where the context otherwise requires, the term "Company"
shall include any present or future subsidiary corporations of
FlexiInternational Software, Inc. as defined in Section 424(f) of the Internal
Revenue Code of 1986, as amended, and any regulations promulgated thereunder
(the "Code").
2. Eligibility
All of the Company's employees, officers, directors, consultants and
advisors are eligible to be granted options, restricted stock, or other
stock-based awards (each, an "Award") under the Plan. Any person who has been
granted an Award under the Plan shall be deemed a "Participant".
3. Administration, Delegation
a. Administration by Board of Directors. The Plan will be administered
by the Board of Directors of the Company (the "Board"). The Board shall have
authority to grant Awards and to adopt, amend and repeal such administrative
rules, guidelines and practices relating to the Plan as it shall deem advisable.
The Board may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem expedient to carry the Plan into effect and it shall be the sole and final
judge of such expediency. All decisions by the Board shall be made in the
Board's sole discretion and shall be final and binding on all persons having or
claiming any interest in the Plan or in any Award. No director or person acting
pursuant to the authority delegated by the Board shall be liable for any action
or determination relating to or under the Plan made in good faith.
<PAGE> 2
b. Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of the
Company the power to make Awards and exercise such other powers under the Plan
as the Board may determine, provided that the Board shall fix the maximum number
of shares subject to Awards and the maximum number of shares for any one
Participant to be made by such executive officers.
c. Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one or
more committees or subcommittees of the Board (a "Committee"). If and when the
common stock, $.01 par value per share, of the Company (the "Common Stock") is
registered under the Securities Exchange Act of 1934 (the "Exchange Act"), the
Board shall appoint one such Committee of not less than two members, each member
of which shall be an "outside director" within the meaning of Section 162(m) of
the Code and a "non-employee director" as defined in Rule 16b-3 promulgated
under the Exchange Act. All references in the Plan to the "Board" shall mean the
Board or a Committee of the Board or the executive officer referred to in
Section 3(b) to the extent that the Board's powers or authority under the Plan
have been delegated to such Committee or executive officer.
4. Stock Available for Awards
a. Number of Shares. Subject to adjustment under Section 4(c), Awards
may be made under the Plan for up to 2,500,000 shares of Common Stock. If any
Award expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Award shall
again be available for the grant of Awards under the Plan, subject, however, in
the case of Incentive Stock Options (as hereinafter defined), to any limitation
required under the Code. Shares issued under the Plan may consist in whole or in
part of authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 4(c), for
Awards granted after the Common Stock is registered under the Exchange Act, the
maximum number of shares with respect to which an Award may be granted to any
Participant under the Plan shall be 1,000,000 per calendar year. The
per-participant limit described in this Section 4(b) shall be construed and
applied consistently with Section 162(m) of the Code.
c. Adjustment to Common Stock. In the event of any stock split, stock
dividend, recapitalization, reorganization, merger, consolidation, combination,
exchange of shares, liquidation, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock other
than a normal cash
2
<PAGE> 3
dividend, (i) the number and class of securities available under this Plan, (ii)
the number and class of security and exercise price per share subject to each
outstanding Option, (iii) the repurchase price per security subject to each
outstanding Restricted Stock Award, and (iv) the terms of each other outstanding
stock-based Award shall be appropriately adjusted by the Company (or substituted
Awards may be made, if applicable) to the extent the Board shall determine, in
good faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 4(c) applies and Section 8(e)(1) also applies to
any event, Section 8(e)(1) shall be applicable to such event, and this Section
4(c) shall not be applicable.
5. Stock Options
a. General. The Board may grant options to purchase Common Stock (each,
an "Option") and determine the number of shares of Common Stock to be covered by
each Option, the exercise price of each Option and the conditions and
limitations applicable to the exercise of each Option, including conditions
relating to applicable federal or state securities laws, as it considers
necessary or advisable. An Option which is not intended to be an Incentive Stock
Option (as hereinafter defined) shall be designated a "Nonstatutory Stock
Option".
b. Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an "Incentive
Stock Option") shall only be granted to employees of the Company and shall be
subject to and shall be construed consistently with the requirements of Section
422 of the Code. The Company shall have no liability to a Participant, or any
other party, if an Option (or any part thereof) which is intended to be an
Incentive Stock Option is not an Incentive Stock Option.
c. Exercise Price. The Board shall establish the exercise price at the
time each Option is granted and specify it in the applicable option agreement.
d. Duration of Options. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Board may specify in the
applicable option agreement.
e. Exercise of Option. Options may be exercised only by delivery to the
Company of a written notice of exercise signed by the proper person together
with payment in full as specified in Section 5(f) for the number of shares for
which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the Company;
3
<PAGE> 4
ii. except as the Board may otherwise provide in an Option
Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
iii. to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
iv. any combination of the above permitted forms of payment.
6. Restricted Stock
a. Grants. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other stated or
formula price (or to require forfeiture of such shares if issued at no cost)
from the recipient in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each,
"Restricted Stock Award").
b. Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award, including the conditions for
repurchase (or forfeiture) and the issue price, if any. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the name of
the Participant and, unless otherwise determined by the Board, deposited by the
Participant, together with a stock power endorsed in blank, with the Company (or
its designee). At the expiration of the applicable restriction periods, the
Company (or such designee) shall deliver the certificates no longer subject to
such restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a Participant to
receive amounts due or exercise rights of the Participant in the event of the
Participant's death (the "Designated Beneficiary"). In the absence of an
effective designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
4
<PAGE> 5
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including the grant of shares based upon certain conditions, the grant of
securities convertible into Common Stock and the grant of stock appreciation
rights.
8. General Provisions Applicable to Awards
a. Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. Documentation. Each Award under the Plan shall be evidenced by
a written instrument in such form as the Board shall determine. Each Award may
contain terms and conditions in addition to those set forth in the Plan.
c. Board Discretion. Except as otherwise provided by the Plan,
each type of Award may be made alone or in addition or in relation to any other
type of Award. The terms of each type of Award need not be identical, and the
Board need not treat Participants uniformly.
d. Termination of Status. The Board shall determine the effect on
an Award of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the extent
to which, and the period during which, the Participant, the Participant's legal
representative, conservator, guardian or Designated Beneficiary may exercise
rights under the Award.
e. Acquisition Events
i. Consequences of Acquisition Events. Upon the occurrence of
an Acquisition Event (as defined below), each outstanding Option or Award shall
be assumed or an equivalent option or award substituted by the successor
corporation or a parent or subsidiary of the successor corporation, provided
that any such Options substituted for Incentive Stock Options shall satisfy, in
the determination of the Board, the requirements of Section 424(a) of the Code,
unless the successor corporation refuses to assume or substitute for the Option
or Award, in which case (i) the Participant shall have the right to exercise the
Option in full, including with respect to shares of Common Stock as to which it
would not otherwise be exercisable,
5
<PAGE> 6
(ii) all Restricted Stock Awards then outstanding shall become free of all
restrictions prior to the consummation of the Acquisition Event; and (iii) any
other stock-based Awards outstanding shall become exercisable, realizable or
vested in full, or shall be free of all conditions or restrictions, as
applicable to each such Award, prior to the consummation of the Acquisition
Event. If an Option or Award is exercisable in lieu of assumption or
substitution in the event of an Acquisition Event, the Board shall notify the
Participant in writing or electronically that the Option or Award shall be fully
exercisable for a period of not less than forty-five (45) days from the date of
such notice, and the Option or Award shall terminate upon the expiration of such
period.
Each Option or other Award assumed or substituted pursuant to the
immediately preceding paragraph shall include a provision to the effect that
such Option or Award shall become immediately exercisable (or vested) in full
if, on or prior to the first anniversary of the Acquisition Event, the
Participant terminates his or her employment for Good Reason or is terminated
without Cause by the surviving or acquiring corporation. "Good Reason" shall
mean any significant diminution in the optionee's title, authority, or
responsibilities from and after such Acquisition Event or any reduction in the
annual cash compensation payable to the Participant from and after such
Acquisition Event. "Cause" shall mean any willful misconduct by the Participant
which affects the business reputation of the Company or willful failure by the
Participant to perform his or her material responsibilities to the Company
(including, without limitation, breach by the Participant of any provision of
any employment, consulting, advisory, nondisclosure, non-competition or other
similar agreement between the Participant and the Company). The Participant
shall be considered to have been discharged for "Cause" if the Company
determines, within 30 days after the Participant's resignation, that discharge
for Cause was warranted.
An "Acquisition Event" shall mean: (a) any merger or consolidation
which results in the voting securities of the Company outstanding immediately
prior thereto representing immediately thereafter (either by remaining
outstanding or by being converted into voting securities of the surviving or
acquiring entity) less than 50% of the combined voting power of the voting
securities of the Company or such surviving or acquiring entity outstanding
immediately after such merger or consolidation; (b) any sale of all or
substantially all of the assets of the Company; or (c) the complete liquidation
of the Company.
ii. Assumption of Options Upon Certain Events. The Board may
grant Awards under the Plan in substitution for stock and stock-based awards
held by employees of another corporation who become employees of the Company as
a result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of property or stock of the employing
corporation. The substitute Awards shall be granted on such terms and conditions
as the Board
6
<PAGE> 7
considers appropriate in the circumstances.
(f) Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Awards to such Participant no later than the date
of the event creating the tax liability. The Board may allow Participants to
satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Award creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
(g) Amendment of Award. The Board may amend, modify or terminate any
outstanding Award, including but not limited to, substituting therefor another
Award of the same or a different type, changing the date of exercise or
realization, and converting an Incentive Stock Option to a Nonstatutory Stock
Option, provided that the Participant's consent to such action shall be required
unless the Board determines that the action, taking into account any related
action, would not materially and adversely affect the Participant.
(h) Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
(i) Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any Restricted
Stock Awards shall be free of all restrictions or that any other stock-based
Awards may become exercisable in full or in part or free of some or all
restrictions or conditions, or otherwise realizable in full or in part, as the
case may be.
9. Miscellaneous
a. No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not be
construed as giving a Participant the right to continued employment or any other
relationship with the Company. The Company expressly reserves the right at any
7
<PAGE> 8
time to dismiss or otherwise terminate its relationship with a Participant free
from any liability or claim under the Plan, except as expressly provided in the
applicable Award.
b. No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any rights
as a stockholder with respect to any shares of Common Stock to be distributed
with respect to an Award until becoming the record holder of such shares.
c. Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board, but no Award granted to a
Participant designated as subject to Section 162(m) by the Board shall become
exercisable, vested or realizable, as applicable to such Award, unless and until
the Plan has been approved by the Company's stockholders. No Awards shall be
granted under the Plan after the completion of ten years from the earlier of (i)
the date on which the Plan was adopted by the Board or (ii) the date the Plan
was approved by the Company's stockholders, but Awards previously granted may
extend beyond that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time, provided that no Award granted to a
Participant designated as subject to Section 162(m) by the Board after the date
of such amendment shall become exercisable, realizable or vested, as applicable
to such Award (to the extent that such amendment to the Plan was required to
grant such Award to a particular Participant), unless and until such amendment
shall have been approved by the Company's stockholders.
e. Stockholder Approval. For purposes of this Plan, stockholder
approval shall mean approval by a vote of the stockholders in accordance with
the requirements of Section 162(m) of the Code.
f. Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
on September 22, 1997
Approved by the Stockholders
on October 24, 1997
8
<PAGE> 9
FLEXIINTERNATIONAL SOFTWARE, INC.
Incentive Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
1. Grant of Option.
This agreement evidences the grant by FlexiInternational Software,
Inc., a Delaware corporation (the "Company") on ___________, 199[ ] to
[________________], an employee of the Company (the "Participant"), of an option
to purchase, in whole or in part, on the terms provided herein and in the
Company's 1997 Stock Incentive Plan (the "Plan"), a total of [_____________]
shares of common stock, $.01 par value per share, of the Company ("Common
Stock") (the "Shares") at $[___________] per Share. Unless earlier terminated,
this option shall expire on [_______] (the "Final Exercise Date").
It is intended that the option evidenced by this agreement shall be an
incentive stock option as defined in Section 422 of the Internal Revenue Code of
1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
This option will become exercisable ("vest") as to ____% of the
original number of Shares on the [________] anniversary of the date of the grant
of the option (the "Grant Date") and as to an additional ____% of the original
number of Shares at the end of each successive full [_________] period following
the first anniversary of the Grant Date until the [_________] anniversary of the
Grant Date. This option shall expire upon, and will not be exercisable after,
the Final Exercise Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
<PAGE> 10
3. Exercise of Option.
(a) Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered hereby, provided that no partial exercise of this option may be
for any fractional share.
(b) Continuous Relationship with the Company Required. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the date of grant of this option, an employee, officer or
director of, or consultant or advisor to, the Company or any parent or
subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an
"Eligible Participant").
(c) Termination of Relationship with the Company. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
(d) Exercise Period Upon Death or Disability. If the Participant dies
or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior
to the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant by the
Participant, provided that this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
(e) Discharge for Cause. If the Participant, prior to the Final
Exercise Date, is discharged by the Company for "cause" (as defined below), the
right to exercise this option shall terminate immediately upon the effective
date of such discharge. "Cause" shall mean willful misconduct by the Participant
or willful failure by the Participant to perform his or her responsibilities to
the Company (including, without limitation, breach by the Participant of any
provision of any employment, consulting,
2
<PAGE> 11
advisory, nondisclosure, noncompetition or other similar agreement between the
Participant and the Company), as determined by the Company, which determination
shall be conclusive. The Participant shall be considered to have been discharged
for "cause" if the Company determines, within 30 days after the Participant's
resignation, that discharge for cause was warranted.
4. Withholding.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
5. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
6. Disqualifying Disposition.
If the Participant disposes of Shares acquired upon exercise of this
option within two years from the date of grant of the option or one year after
such Shares were acquired pursuant to exercise of this option, the Participant
shall notify the Company in writing of such disposition.
7. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
FlexiInternational Software, Inc.
Dated: _________ By:______________________________
Name:______________________
Title:_____________________
3
<PAGE> 12
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
______________________________
Address: _____________________
_____________________
4
<PAGE> 13
FLEXIINTERNATIONAL SOFTWARE, INC.
Nonstatutory Stock Option Agreement
Granted Under 1997 Stock Incentive Plan
1. Grant of Option.
This agreement evidences the grant by FlexiInternational Software,
Inc., a Delaware corporation (the "Company") on ________, 199[ ] to
[__________________], an [employee], [consultant], [director] of the Company
(the "Participant"), of an option to purchase, in whole or in part, on the terms
provided herein and in the Company's 1997 Stock Incentive Plan (the "Plan"), a
total of [____________] shares of common stock, $.01 par value per share, of the
Company ("Common Stock") (the "Shares") at $[___________] per Share. Unless
earlier terminated, this option shall expire on [_______] (the "Final Exercise
Date").
It is intended that the option evidenced by this agreement shall not be
an incentive stock option as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
This option will become exercisable ("vest") as to ___% of the original
number of Shares on the [_______] anniversary of the date of the grant of the
option (the "Grant Date") and as to an additional ___% of the original number of
Shares at the end of each successive full [_______] period following the first
anniversary of the Grant Date until the [_______] anniversary of the Grant Date.
This option shall expire upon, and will not be exercisable after, the Final
Exercise Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
<PAGE> 14
3. Exercise of Option.
(a) Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered hereby, provided that no partial exercise of this option may be
for any fractional share.
(b) Continuous Relationship with the Company Required. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the date of grant of this option, an employee, officer or
director of, or consultant or advisor to, the Company or any parent or
subsidiary of the Company as defined in Section 424(e) or (f) of the Code (an
"Eligible Participant").
(c) Termination of Relationship with the Company. If the Participant
ceases to be an Eligible Participant for any reason, then, except as provided in
paragraphs (d) and (e) below, the right to exercise this option shall terminate
three months after such cessation (but in no event after the Final Exercise
Date), provided that this option shall be exercisable only to the extent that
the Participant was entitled to exercise this option on the date of such
cessation. Notwithstanding the foregoing, if the Participant, prior to the Final
Exercise Date, violates the non-competition or confidentiality provisions of any
employment contract, confidentiality and nondisclosure agreement or other
agreement between the Participant and the Company, the right to exercise this
option shall terminate immediately upon such violation.
(d) Exercise Period Upon Death or Disability. If the Participant dies
or becomes disabled (within the meaning of Section 22(e)(3) of the Code) prior
to the Final Exercise Date while he or she is an Eligible Participant and the
Company has not terminated such relationship for "cause" as specified in
paragraph (e) below, this option shall be exercisable, within the period of one
year following the date of death or disability of the Participant, by the
Participant, provided that this option shall be exercisable only to the extent
that this option was exercisable by the Participant on the date of his or her
death or disability, and further provided that this option shall not be
exercisable after the Final Exercise Date.
(e) Discharge for Cause. If the Participant, prior to the Final
Exercise Date, is discharged by the Company for "cause" (as defined below), the
right to exercise this option shall terminate immediately upon the effective
date of such discharge. "Cause" shall mean willful misconduct by the Participant
or willful failure by the Participant to perform his or her responsibilities to
the Company (including, without limitation, breach by the Participant of any
provision of any employment, consulting,
2
<PAGE> 15
advisory, nondisclosure, noncompetition or other similar agreement between the
Participant and the Company), as determined by the Company, which determination
shall be conclusive. The Participant shall be considered to have been discharged
for "cause" if the Company determines, within 30 days after the Participant's
resignation, that discharge for cause was warranted.
4. Withholding.
No Shares will be issued pursuant to the exercise of this option unless
and until the Participant pays to the Company, or makes provision satisfactory
to the Company for payment of, any federal, state or local withholding taxes
required by law to be withheld in respect of this option.
5. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
6. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
FlexiInternational Software, Inc.
Dated: _________ By:___________________________________
Name:___________________________
Title:__________________________
3
<PAGE> 16
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1997 Stock Incentive Plan.
PARTICIPANT:
______________________________
Address: _____________________
_____________________
4
<PAGE> 1
Exhibit 10.3
FLEXIINTERNATIONAL SOFTWARE, INC.
1997 DIRECTOR STOCK OPTION PLAN
1. Purpose
The purpose of this 1997 Director Stock Option Plan (the "Plan") of
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), is to
advance the interests of the Company's stockholders by enhancing the Company's
ability to attract, retain and motivate outside directors ("Directors") of the
Company by providing such Directors with equity ownership opportunities and
performance-based incentives and thereby better aligning the interests of such
persons with those of the Company's stockholders.
2. Eligibility
Each Director of the Company who is not an employee of the Company (an
"Eligible Director") is eligible to be granted options (an "Option") under the
Plan. Any person who has been granted an Option under the Plan shall be deemed a
"Participant".
3. Administration, Delegation
The Plan will be administered by the Board of Directors of the Company
(the "Board"). The Board shall have authority to adopt, amend and repeal such
administrative rules, guidelines and practices relating to the Plan as it shall
deem advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Option in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. All decisions by the Board shall be
made in the Board's sole discretion and shall be final and binding on all
persons having or claiming any interest in the Plan or in any Option. No
Director or person acting pursuant to the authority delegated by the Board shall
be liable for any action or determination relating to or under the Plan made in
good faith.
4. Stock Available for Options
a. Number of Shares. Subject to adjustment under Section 4(b), Options
may be made under the Plan for up to 200,000 shares of Common Stock. If any
Option expires or is terminated, surrendered or canceled without having been
fully exercised or is forfeited in whole or in part or results in any Common
Stock not being issued, the unused Common Stock covered by such Option shall
again be
<PAGE> 2
available for the grant of Options under the Plan. Shares issued under the Plan
may consist in whole or in part of authorized but unissued shares or treasury
shares.
b. Adjustment to Common Stock. In the event of any stock split,
stock dividend, recapitalization, reorganization, merger, consolidation,
combination, exchange of shares, liquidation, spin-off or other similar change
in capitalization or event, or any distribution to holders of Common Stock other
than a normal cash dividend, (i) the number and class of securities available
under this Plan, (ii) the number and class of securities and exercise price per
share subject to each outstanding Option and (iii) the number and class of
securities available for automatic grants shall be appropriately adjusted by the
Company (or substituted Options may be made, if applicable) to the extent the
Board shall determine, in good faith, that such an adjustment (or substitution)
is necessary and appropriate. If this Section 4(b) applies and Section 6(c) also
applies to any event, Section 6(c) shall be applicable to such event, and this
Section 4(b) shall not be applicable.
5. Stock Options
a. Automatic Grants.
(i) Each Eligible Director who is serving on the Board on
the effective date (the "Effective Date") of the
initial public offering (the "IPO") of the Common
Stock and who continues to serve after the closing of
the IPO (an "IPO Director") shall be granted an
Option to purchase 10,000 shares of Common Stock as
of the Effective Date.
(ii) Each IPO Director who is serving on the Board at the
adjournment of the annual meeting of the Company held
in the year 1998 or at the adjournment of any
subsequent annual meeting shall be granted an option
to purchase 7,000 shares of Common Stock at the close
of business on the date of each such adjournment;
provided, however, that no further grants shall be
made after the Eligible Director has received five
such grants.
(iii) Each Eligible Director who is not an IPO Director
shall be granted an Option to purchase 10,000 shares
of Common Stock at the close of business on the date
such Eligible Director is first elected to serve on
the Board.
(iv) Each Eligible Director who is not an IPO Director and
who is serving on the Board at the adjournment of any
annual meeting which begins after the date of his or
her election shall be granted an Option to purchase
7,000 shares of Common Stock at the close
2
<PAGE> 3
of business on the date of each such adjournment;
provided, however, that no further grants shall be
made after the Eligible Director has received five
such grants.
b. Option Exercise Price. The option exercise price per share for
each Option granted under the Plan shall equal (i) the last reported sales price
per share of the Company's Common Stock as listed on a nationally recognized
securities exchange, on the date of grant (or, if no such price is reported on
such date, such price as reported on the nearest preceding day); or (ii) the
fair market value of the stock on the date of grant, as determined by the Board
of Directors, if the Common Stock is not publicly traded. Notwithstanding the
preceding sentence, the option exercise price per share for each Option granted
on the Effective Date shall be the price per share for which the Common Stock
was offered to the public.
c. Exercise Period. Each Option granted on the Effective Date
shall vest and be exercisable on the first anniversary of the date of the grant
of such option, provided that, subject to the provisions of Section 5(d), no
Option may be exercised more than 90 days after the optionee ceases to serve as
a director of the Company and such option may only be exercised for the purchase
of such number of shares as were vested and exercisable at the time of such
termination. No Option shall be exercisable after the expiration of ten (10)
years from the date of grant or prior to approval of the Plan by the
stockholders of the Company.
d. Exercise Period Upon Death or Disability. Notwithstanding the
provisions of Section 5(c), any Option granted under the Plan:
(i) may be exercised in full by an optionee who becomes
disabled (within the meaning of Section 22(e)(3) of
the Code or any successor provision thereto) while
serving as a Director of the Company; or
(ii) may be exercised
(x) in full upon the death of an optionee while
serving as a Director of the Company, or
(y) to the extent then exercisable upon the
death of an optionee within 90 days of
ceasing to serve as a Director of the
Company,
by the person to whom it is transferred by will, by
the laws of descent and distribution, or by written
designation of beneficiary filed with the Company;
3
<PAGE> 4
in each such case within the period of one year after the date the optionee
ceases to be such a director by reason of such death or disability; provided,
that no Option shall be exercisable after the expiration of ten (10) years from
the date of grant.
e. Payment Upon Exercise. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as follows:
i. in cash or by check, payable to the order of the
Company;
ii. except as the Board may otherwise provide in an
Option Agreement, delivery of an irrevocable and unconditional undertaking by a
creditworthy broker to deliver promptly to the Company sufficient funds to pay
the exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to deliver
promptly to the Company cash or a check sufficient to pay the exercise price;
iii. to the extent permitted by the Board and explicitly
provided in an Option Agreement (i) by delivery of shares of Common Stock owned
by the Participant valued at their fair market value as determined by the Board
in good faith ("Fair Market Value"), which Common Stock was owned by the
Participant at least six months prior to such delivery, (ii) by delivery of a
promissory note of the Participant to the Company on terms determined by the
Board, or (iii) by payment of such other lawful consideration as the Board may
determine; or
iv. any combination of the above permitted forms of
payment.
6. General Provisions Applicable to Options
a. Transferability of Options. Except as the Board may otherwise
determine or provide in an Option, Options shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the laws
of descent and distribution, and, during the life of the Participant, shall be
exercisable only by the Participant. References to a Participant, to the extent
relevant in the context, shall include references to authorized transferees.
b. Documentation. Each Option under the Plan shall be evidenced
by a written instrument in such form as the Board shall determine. Each Option
may contain terms and conditions in addition to those set forth in the Plan.
c. Acquisition Events. Upon the occurrence of an Acquisition
Event (as defined below), the Participant shall have the right to exercise the
Option in full, including with respect to shares of Common Stock as to which it
would not otherwise be exercisable. In the event of an Acquisition Event, the
Board shall notify
4
<PAGE> 5
the Participant in writing or electronically that the Option shall be fully
exercisable for a period of not less than forty-five (45) days from the date of
such notice, and the Option shall terminate upon the expiration of such period.
An "Acquisition Event" shall mean: (a) any merger or consolidation which results
in the voting securities of the Company outstanding immediately prior thereto
representing immediately thereafter (either by remaining outstanding or by being
converted into voting securities of the surviving or acquiring entity) less than
50% of the combined voting power of the voting securities of the Company or such
surviving or acquiring entity outstanding immediately after such merger or
consolidation; (b) any sale of all or substantially all of the assets of the
Company; or (c) the complete liquidation of the Company.
d. Withholding. Each Participant shall pay to the Company, or make
provision satisfactory to the Board for payment of, any taxes required by law to
be withheld in connection with Options to such Participant no later than the
date of the event creating the tax liability. The Board may allow Participants
to satisfy such tax obligations in whole or in part in shares of Common Stock,
including shares retained from the Option creating the tax obligation, valued at
their Fair Market Value. The Company may, to the extent permitted by law, deduct
any such tax obligations from any payment of any kind otherwise due to a
Participant.
e. Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Option have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal matters
in connection with the issuance and delivery of such shares have been satisfied,
including any applicable securities laws and any applicable stock exchange or
stock market rules and regulations, and (iii) the Participant has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations.
f. Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part.
7. Miscellaneous
a. No Right To Board Membership or Other Status. Neither the Plan nor
the granting of an Option shall be construed as giving a Participant the right
to continue as a Director of the Company.
b. No Rights As Stockholder. Subject to the provisions of the
applicable Options, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed with
5
<PAGE> 6
respect to an Option until becoming the record holder of such shares.
c. Effective Date and Term of Plan. The Plan shall become effective on
the date on which it is adopted by the Board. No Options shall be granted under
the Plan after the completion of ten years from the earlier of (i) the date on
which the Plan was adopted by the Board or (ii) the date the Plan was approved
by the Company's stockholders, but Options previously granted may extend beyond
that date.
d. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
e. Governing Law. The provisions of the Plan and all Options made
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware, without regard to any applicable conflicts of law.
Adopted by the Board of Directors
on September 22, 1997
Approved by the Stockholders
on October 24, 1997
6
<PAGE> 7
FLEXIINTERNATIONAL SOFTWARE, INC.
Nonstatutory Stock Option Agreement
Granted Under 1997 Director Stock Option Plan
1. Grant of Option.
This agreement evidences the grant by FlexiInternational Software,
Inc., a Delaware corporation (the "Company") on _________, 199[ ] (the "Grant
Date") to [______________], a director of the Company (the "Participant"), of an
option to purchase, in whole or in part, on the terms provided herein and in the
Company's 1997 Director Stock Option Plan (the "Plan"), a total of [___________]
shares of common stock, $.01 par value per share, of the Company ("Common
Stock") (the "Shares") at $[____________] per Share. Unless earlier terminated,
this option shall expire on the tenth anniversary of the Grant Date (the "Final
Exercise Date").
It is intended that the option evidenced by this agreement shall not be
an incentive stock option as defined in Section 422 of the Internal Revenue Code
of 1986, as amended, and any regulations promulgated thereunder (the "Code").
Except as otherwise indicated by the context, the term "Participant", as used in
this option, shall be deemed to include any person who acquires the right to
exercise this option validly under its terms.
2. Vesting Schedule.
This option will become exercisable ("vest") as to 100 % of the
original number of Shares on the first anniversary of the Grant Date. This
option shall expire upon, and will not be exercisable after, the Final Exercise
Date.
The right of exercise shall be cumulative so that to the extent the
option is not exercised in any period to the maximum extent permissible it shall
continue to be exercisable, in whole or in part, with respect to all shares for
which it is vested until the earlier of the Final Exercise Date or the
termination of this option under Section 3 hereof or the Plan.
3. Exercise of Option.
(a) Form of Exercise. Each election to exercise this option shall be in
writing, signed by the Participant, and received by the Company at its principal
office, accompanied by this agreement, and payment in full in the manner
provided in the Plan. The Participant may purchase less than the number of
shares covered
<PAGE> 8
hereby, provided that no partial exercise of this option may be for any
fractional share.
(b) Continuous Relationship with the Company Required. Except as
otherwise provided in this Section 3, this option may not be exercised unless
the Participant, at the time he or she exercises this option, is, and has been
at all times since the date of grant of this option, a director of the Company
or any parent or subsidiary of the Company as defined in Section 424(e) or (f)
of the Code (an "Eligible Participant").
(c) Termination of Relationship with the Company. If the
Participant ceases to be an Eligible Participant for any reason, then, except as
provided in paragraph (d) below, the right to exercise this option shall
terminate ninety (90) days after such cessation (but in no event after the Final
Exercise Date), provided that this option shall be exercisable only to the
extent that the Participant was entitled to exercise this option on the date of
such cessation.
(d) Exercise Period Upon Death or Disability. Notwithstanding the
provisions of Section 5(c), any Option granted under the Plan:
(i) may be exercised in full by an optionee who becomes
disabled (within the meaning of Section 22(e)(3) of
the Code or any successor provision thereto) while
serving as a Director of the Company; or
(ii) may be exercised
(x) in full upon the death of an optionee while
serving as a Director of the Company, or
(y) to the extent then exercisable upon the
death of an optionee within 90 days of
ceasing to serve as a Director of the
Company,
by the person to whom it is transferred by will, by
the laws of descent and distribution, or by written
designation of beneficiary filed with the Company;
in each such case within the period of one year after the date the optionee
ceases to be such a director by reason of such death or disability; provided,
that no Option shall be exercisable after the expiration of ten (10) years from
the date of grant.
2
<PAGE> 9
4. Nontransferability of Option.
This option may not be sold, assigned, transferred, pledged or
otherwise encumbered by the Participant, either voluntarily or by operation of
law, except by will or the laws of descent and distribution, and, during the
lifetime of the Participant, this option shall be exercisable only by the
Participant.
5. Provisions of the Plan.
This option is subject to the provisions of the Plan, a copy of which
is furnished to the Participant with this option.
IN WITNESS WHEREOF, the Company has caused this option to be executed
under its corporate seal by its duly authorized officer. This option shall take
effect as a sealed instrument.
FlexiInternational Software, Inc.
Dated: _________ By:______________________________
Name:______________________
Title:_____________________
3
<PAGE> 10
PARTICIPANT'S ACCEPTANCE
The undersigned hereby accepts the foregoing option and agrees to the
terms and conditions thereof. The undersigned hereby acknowledges receipt of a
copy of the Company's 1997 Director Stock Option Plan.
PARTICIPANT:
______________________________
Address: _____________________
_____________________
4
<PAGE> 1
Exhibit 10.5
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of May 7, 1996 is entered into by and among
FlexiInternational Software, Inc., a Delaware corporation (the "Company"), and
the list of purchasers set forth on Exhibit A hereto (the "Purchasers").
WHEREAS, certain of the Purchasers are the holders of shares of the
Company's Common Stock, Series A Convertible Preferred Stock and/or Series B
Convertible Preferred Stock; and
WHEREAS, certain of the Purchasers are the holders of warrants to purchase
shares of the Company's Common Stock, Series A Convertible Preferred Stock
and/or Series B Convertible Preferred Stock, and/or promissory notes convertible
into Common Stock of the Company; and
WHEREAS, the Company and certain of the Purchasers have entered into a
Series C Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to the registration of shares of capital stock of the
Company under the Securities Act of 1933, as amended (the "Securities Act");
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share, of
the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Registration Statement" means a registration statement filed by the
Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or
<PAGE> 2
any other form for a similar limited purpose, or any registration statement
covering only securities proposed to be issued in exchange for securities or
assets of another corporation).
"Registration Expenses" means the expenses described in Section 5.
"Registrable Shares" means (i) the shares of Common Stock issued or
issuable upon conversion of the Shares, (ii) any shares of Common Stock, and any
shares of Common Stock issued or issuable upon the conversion or exercise of any
other securities, acquired by the Purchasers pursuant to the Participation
Agreement of even date herewith among the Company, the Purchasers and Comdisco,
Inc., (iii) any shares of Common Stock issued or issuable upon (A) exercise of
the warrant issued by the Company to The Connecticut Development Authority
("CDA") as of August 1, 1995 or (B) conversion, in accordance with its terms, of
the loan made to the Company by CDA pursuant to the Loan Agreement between the
Company and CDA dated as of August 1, 1995, and (iv) any other shares of Common
Stock issued in respect of such shares (because of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events); provided,
however, that shares of Common Stock which are Registrable Shares shall cease to
be Registrable Shares (x) upon any sale pursuant to a Registration Statement or
Rule 144 under the Securities Act or (y) upon any sale in any manner to a person
or entity which, by virtue of Section 12 of this Agreement, is not entitled to
the rights provided by this Agreement. Wherever reference is made in this
Agreement to a request or consent of holders of a certain percentage of
Registrable Shares, the determination of such percentage shall include shares of
Common Stock issuable upon conversion of the Shares even if such conversion has
not yet been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Shares" shall mean shares of the Company's Series A Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock.
"Stockholders" means the Purchasers and any persons or entities to
whom the rights granted under this Agreement are transferred by any Purchasers,
their successors or assigns pursuant to Section 12 hereof.
2. Required Registrations.
(a) At any time after November 7, 1996 but prior to the closing of
the Company's initial public offering of shares of Common Stock pursuant to an
effective registration statement under the Securities Act at a price of not less
than $3.30 per
2
<PAGE> 3
share (appropriately adjusted to reflect any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) and
resulting in at least $10,000,000 of gross proceeds to the Company (the "Initial
Public Offering"), a Stockholder or Stockholders holding in the aggregate a
majority of the Registrable Shares may request, in writing, that the Company
effect the registration on Form S-1 or Form S-2 (or any successor form) of
Registrable Shares owned by such Stockholder or Stockholders. If the holders
initiating the registration intend to distribute the Registrable Shares by means
of an underwriting, they shall so advise the Company in their request. In the
event such registration is underwritten, the right of other Stockholders to
participate shall be conditioned on such Stockholders' participation in such
underwriting. Upon receipt of any such request, the Company shall promptly give
written notice of such proposed registration to all Stockholders. Such
Stockholders shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect to have included
in such registration such of their Registrable Shares as such Stockholders may
request in such notice of election; provided that if the underwriter (if any)
managing the offering determines that, because of marketing factors, all of the
Registrable Shares requested to be registered by all Stockholders may not be
included in the offering, then all Stockholders who have requested registration
shall participate in the registration pro rata based upon the number of
Registrable Shares which they have requested to be so registered. Thereupon, the
Company shall, as expeditiously as possible, use its best efforts to effect the
registration on Form S-1 or Form S-2 (or any successor form) of all Registrable
Shares which the Company has been requested to so register.
(b) At any time after the Initial Public Offering, a Stockholder or
Stockholders may request the Company, in writing, to effect the registration on
Form S-1, Form S-2 or Form S-3 (or such successor forms relating to secondary
offerings), of Registrable Shares having an aggregate offering price of at least
$10,000,000 (based on the then current public market price). Upon receipt of any
such request, the Company shall promptly give written notice of such proposed
registration to all Stockholders. Such Stockholders shall have the right, by
giving written notice to the Company within 30 days after the Company provides
its notice, to elect to have included in such registration such of their
Registrable Shares as such Stockholders may request in such notice of election;
provided that if the underwriter (if any) managing the offering determines that,
because of marketing factors, all of the Registrable Shares requested to be
registered by all Stockholders may not be included in the offering, then all
Stockholders who have requested registration shall participate in the
registration pro rata based upon the number of Registrable Shares which they
have requested to be so registered. Thereupon, the Company shall, as
expeditiously as possible, use its best efforts to effect the registration of
all Registrable Shares which the Company has been requested to so register.
(c) The Company shall not be required to effect more than one
registration pursuant to paragraph (a) above or more than two registrations
pursuant
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<PAGE> 4
to paragraph (b) above. In addition, the Company shall not be required to effect
any registration (other than on Form S-3 or any successor form relating to
secondary offerings) within six months after the effective date of any other
Registration Statement of the Company.
(d) If at the time of any request to register Registrable Shares
pursuant to this Section 2, the Company is engaged or has fixed plans to engage
within 30 days of the time of the request in a registered public offering as to
which the Stockholders may include Registrable Shares pursuant to Section 3 or
is engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of six
months from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a request
to be exercised by the Company not more than once in any two-year period.
3. Incidental Registration.
(a) Whenever the Company proposes to file a Registration Statement
(other than pursuant to Section 2) at any time and from time to time, it will,
prior to such filing, give written notice to all Stockholders of its intention
to do so and, upon the written request of a Stockholder or Stockholders given
within 20 days after the Company provides such notice (which request shall state
the intended method of disposition of such Registrable Shares), the Company
shall use its best efforts to cause all Registrable Shares which the Company has
been requested by such Stockholder or Stockholders to register to be registered
under the Securities Act to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of distribution specified in
the request of such Stockholder or Stockholders; provided that the Company shall
have the right to postpone or withdraw any registration effected pursuant to
this Section 3 without obligation to any Stockholder.
(b) In connection with any registration under this Section 3
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such registration unless the holders thereof accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (provided that such terms must be consistent with
this Agreement). If in the opinion of the managing underwriter it is appropriate
because of marketing factors to limit the number of Registrable Shares to be
included in the offering, then the Company shall be required to include in the
registration only that number of Registrable Shares, if any, which the managing
underwriter believes should be included therein. If the number of Registrable
Shares to be included in the offering in accordance with the foregoing is less
than the total number of shares which the
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<PAGE> 5
holders of Registrable Shares have requested to be included, then the holders of
Registrable Shares who have requested registration and other holders of
securities entitled to include them in such registration shall participate in
the registration pro rata based upon their total ownership of shares of Common
Stock (giving effect to the conversion into Common Stock of all securities
convertible thereinto). If any holder would thus be entitled to include more
securities than such holder requested to be registered, the excess shall be
allocated among other requesting holders pro rata in the manner described in the
preceding sentence.
4. Registration Procedures. If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any of the Registrable Shares under the Securities Act, the Company shall:
(a) file with the Commission a Registration Statement with respect
to such Registrable Shares and use its best efforts to cause that Registration
Statement to become and remain effective;
(b) as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
(c) as expeditiously as possible furnish to each selling Stockholder
such reasonable numbers of copies of the prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as the selling Stockholder may reasonably request in order to
facilitate the public sale or other disposition of the Registrable Shares owned
by the selling Stockholder;
(d) as expeditiously as possible use its best efforts to register or
qualify the Registrable Shares covered by the Registration Statement under the
securities or Blue Sky laws of such states as the selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by such selling Stockholders; provided, however, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction;
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<PAGE> 6
(e) provide a transfer agent and registrar for all Registrable
Shares registered pursuant hereto and a CUSIP number for all such Registrable
Shares, in each case not later than the effective date of such registration; and
(f) use its best efforts to furnish, at the request of any Purchaser
requesting registration of Registrable Shares, on the date that such Registrable
Shares are delivered to the underwriters for sale in connection with a
registration under this Agreement, if such securities are being sold through
underwriters, or, if such securities are not being sold through underwriters, on
the date that the Registration Statement with respect to such securities becomes
effective, (i) an opinion dated such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to the Purchasers requesting registration of
Registrable Shares and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and to
the Purchasers requesting registration of Registrable Shares.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
5. Allocation of Expenses. The Company will pay all Registration Expenses
of all registrations under this Agreement; provided, however, that if a
registration under Section 2 is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders elect not to have such registration counted as a
registration requested under Section 2, the requesting Stockholders shall pay
the Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section 5, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Company and the fees and expenses
of one counsel selected by the selling Stockholders to represent the selling
Stockholders, to the extent the selling Stockholders are required pursuant to
the terms of any underwriting agreement to
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<PAGE> 7
deliver to the underwriters opinions of counsel, the fees and expenses of
counsel to each selling Stockholder rendering any such opinion (not to exceed
$4,000 in each case), state Blue Sky fees and expenses, and the expense of any
special audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of selling
Stockholders' own counsel (other than as set forth above and other than the
counsel selected to represent all selling Stockholders).
6. Indemnification and Contribution.
(a) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless the seller of such Registrable Shares, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred, as such expenses are incurred, by such seller, underwriter
or controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon any untrue statement or
omission made in such Registration Statement, preliminary prospectus or final
prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors and officers and each underwriter (if any)
and each person, if any, who controls the Company or any such underwriter within
the meaning of the Securities Act or the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company, such
directors and officers, underwriter or
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<PAGE> 8
controlling person may become subject under the Securities Act, Exchange Act,
state securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such seller furnished in writing to the Company by or on
behalf of such seller specifically for use in connection with the preparation of
such Registration Statement, prospectus, amendment or supplement; provided,
however, that the obligations of such Stockholders hereunder shall be limited to
an amount equal to the proceeds to each Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, provided, further, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 6; and, provided, further, that, to the extent
that any failure of any Indemnified Party to give notice as provided herein
causes any Indemnifying Party to incur costs, damages or expenses, such
Indemnifying Party shall have a claim against such Indemnified Party for such
costs, damages and expenses. The Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of such Indemnified Party by the
counsel retained by the Indemnifying Party would be inappropriate due to actual
or potential differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding. No Indemnifying Party, in
the defense of any such claim or litigation shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect of such claim or litigation, and no Indemnified Party shall
consent to entry of any judgment or settle such claim or litigation without the
prior written consent of the Indemnifying Party.
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<PAGE> 9
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Registrable Shares exercising rights under this Agreement, or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 6 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling Stockholder or any such controlling
person in circumstances for which indemnification is provided under this Section
6; then, in each such case, the Company and such Stockholder will contribute to
the aggregate losses, claims, damages or liabilities which they would otherwise
be obligated to indemnify under Section 6(a) or (b) (after contribution from
others) in such proportions so that such holder is responsible for the portion
represented by the percentage that the public offering price of its Registrable
Shares offered by the Registration Statement bears to the public offering price
of all securities offered by such Registration Statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
case, (A) no such holder will be required to contribute any amount in excess of
the proceeds to it of all Registrable Shares sold by it pursuant to such
Registration Statement, and (B) no person or entity guilty of fraudulent
misrepresentation, within the meaning of Section 11(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
7. Indemnification with Respect to Underwritten Offering. In the event
that Registrable Shares are sold pursuant to a Registration Statement in an
underwritten offering pursuant to Section 2, the Company agrees to enter into an
underwriting agreement containing customary representations and warranties with
respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering. To the
extent that the indemnification provisions of this Agreement addressing the
relative rights and obligations of the Company and the underwriters or the
Stockholders and the underwriters conflict with, or are otherwise modified by,
the indemnification provisions of the underwriting agreement, the provisions of
such underwriting agreement shall control.
8. Information by Holder. Each Stockholder including Registrable Shares in
any registration shall furnish to the Company such information regarding such
Stockholder and the distribution proposed by such Stockholder as the Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
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<PAGE> 10
9. "Stand-Off" Agreement. Each Stockholder, if requested by the Company
and the managing underwriter of an offering by the Company of Common Stock or
other securities of the Company pursuant to a Registration Statement, shall
agree not to sell publicly or otherwise transfer or dispose of any Registrable
Shares or other securities of the Company held by such Stockholder for a
specified period of time (not to exceed 90 days) following the effective date of
such Registration Statement; provided, that:
(a) such agreement shall only apply to the first Registration
Statement covering Common Stock to be sold on its behalf to the public in an
underwritten offering; and
(b) all Stockholders holding not less than the number of shares of
Common Stock held by such Stockholder (including shares of Common Stock issuable
upon the conversion of Shares, or other convertible securities, or upon the
exercise of options, warrants or rights) and all officers and directors of the
Company enter into similar agreements.
10. Rule 144 Requirements. After the earliest of (i) the closing of the
sale of securities of the Company pursuant to a Registration Statement, (ii) the
registration by the Company of a class of securities under Section 12 of the
Exchange Act, or (iii) the issuance by the Company of an offering circular
pursuant to Regulation A under the Securities Act, the Company agrees to:
(a) comply with the requirements of Rule 144(c) under the Securities
Act with respect to current public information about the Company;
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) furnish to any holder of Registrable Shares upon request (i) a
written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
11. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of
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the Company under this Agreement, and for that purpose references hereunder to
"Registrable Shares" shall be deemed to be references to the securities which
the Stockholders would be entitled to receive in exchange for Registrable Shares
under any such merger, consolidation or reorganization; provided, however, that
the provisions of this Section 11 shall not apply in the event of any merger,
consolidation or reorganization in which the Company is not the surviving
corporation if all Stockholders are entitled to receive in exchange for their
Registrable Shares consideration consisting solely of (i) cash, (ii) securities
of the acquiring corporation which may be immediately sold to the public without
registration under the Securities Act, or (iii) securities of the acquiring
corporation which the acquiring corporation has agreed to register within 90
days of completion of the transaction for resale to the public pursuant to the
Securities Act.
12. Transfers of Rights. This Agreement, and the rights and obligations of
each Purchaser hereunder, may be assigned by such Purchaser to any person or
entity to which Shares are transferred by such Purchaser, and such transferee
shall be deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company.
13. Prior Agreement. The Registration Rights Agreement dated as of January
20, 1995, as amended to date, among the Company and certain of the Purchasers
and their affiliates is hereby terminated.
14. General.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at Two Enterprise Drive, Shelton, Connecticut 06484,
Attention: Stefan R. Bothe, Chairman, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to John K.P. Stone, III, Esq., Hale and Dorr, 60 State Street, Boston,
Massachusetts 02109; or
If to a Purchaser, at his or its address set forth on Exhibit A or at such
other address or addresses as may have been furnished to the Company in writing
by such Purchaser.
Notices provided in accordance with this Section 14(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
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<PAGE> 12
(b) Entire Agreement. This Agreement embodies the entire agreement
and understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and understandings relating to such
subject matter.
(c) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least 80% of the Registrable Shares; provided, that this Agreement may be
amended with the consent of the holders of less than all Registrable Shares only
in a manner which affects all Registrable Shares in the same fashion. No waivers
of or exceptions to any term, condition or provision of this Agreement, in any
one or more instances, shall be deemed to be, or construed as, a further or
continuing waiver of any such term, condition or provision.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
(e) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware.
Executed as of the date first written above.
COMPANY:
FlexiInternational Software, Inc.
By: /s/ Stefan Bothe
--------------------------------
Title:
--------------------------------
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PURCHASERS:
William Blair Capital Partners V, L.P.
By: William Blair Capital Management
Company, L.L.C., its General Partner
By: /s/ Ellen Carnahan
------------------------------------
Managing Director
William Blair & Company
By: NOT APPLICABLE
------------------------------------
Title:
Menlo Ventures VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/ Thomas Bredt
------------------------------------
General Partner
Menlo Entrepreneurs Fund VI, L.P.
By: MV Management VI, L.P.,
its General Partner
By: /s/ Thomas Bredt
------------------------------------
General Partner
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Primus Capital Fund III
Limited Partnership
By: Primus Venture Partners III
Limited Partnership,
its General Partner
By: Primus Venture Partners, Inc.
its General Partner
By: /s/ Jonathan E. Dick
------------------------------------
Title: Executive Vice President
Furman Selz SBIC, L.P.
By: Furman Selz SBIC Investments LLC,
its General Partner
By: /s/ James Luikart
------------------------------------
Title: Vice President
/s/ Terrence M. Quinn
------------------------------------------
Terrence M. Quinn
Comdisco, Inc.
By: /s/ Jill C. Hanses
------------------------------------
Title:
CDC Realty, Inc.
By: /s/ Jill C. Hanses
------------------------------------
Title:
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The Connecticut Development Authority
By: /s/ DSR
------------------------------------
Title: Sr. Vice President
and Managing Director
/s/ Christopher McManus
------------------------------------------
Christopher McManus
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<PAGE> 16
EXHIBIT A
Schedule of Purchasers
Name and Address
William Blair Capital Partners V, L.P.
222 West Adams Street
Chicago, IL 60606
Menlo Ventures VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Menlo Entrepreneurs Fund VI, L.P.
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Primus Capital Fund III
Limited Partnership
Suite 2700
One Cleveland Center
Cleveland, OH 44114
Furman Selz SBIC, L.P.
230 Park Avenue
New York, NY 10169
Terrence M. Quinn
230 Park Avenue
New York, NY 10169
with a copy in each case to:
Steven M. Spurlock, Esq.
Gunderson Dettmer Stough
Villeneuve Franklin
& Hachigan, LLP
600 Hansen Way, Second Floor
Palo Alto, California 94304.
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Comdisco, Inc.
6111 North River Road
Rosemont, Illinois 60018
CDC Realty, Inc.
6111 North River Road
Rosemont, Illinois 60018
The Connecticut Development Authority
845 Brook Street, STE 2
Rocky Hill, CT 06067
Christopher McManus
Offshore Asset Management, Inc.
191 Post Road West
Westport, CT 06880
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AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
This Agreement (the "Agreement") is entered into as of the fourth day
of November, 1997 by and among FlexiInternational Software, Inc., a Delaware
corporation (the "Company"), and the persons whose names are set forth below.
WHEREAS, the Company has entered into a certain Registration Rights
Agreement, dated as of May 7, 1996, as amended (the "Registration Rights
Agreement"), with the Purchasers (as defined therein); and
WHEREAS, the parties to the Registration Rights Agreement wish to amend
the Registration Rights Agreement; and
WHEREAS, the persons whose signatures are set forth below represent the
Company and at least eighty percent (80%) of the outstanding Registrable Shares
(as defined in the Registration Rights Agreement) presently subject to the
Registration Rights Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto do hereby agree with each other
as follows:
1. Amendment to Registration Rights Agreement.
The definition of "Registrable Shares" contained in Section 1
of the Registration Rights Agreement is hereby deleted in its entirety and the
following paragraph is inserted in lieu thereof:
"Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon conversion of the Shares, (ii) any
shares of Common Stock, and any shares of Common Stock issued
or issuable upon the conversion or exercise of any other
securities, acquired by the Purchasers pursuant to the
Participation Agreement of even date herewith among the
Company, the Purchasers and Comdisco, Inc., (iii) any shares
of Common Stock issued or issuable upon (A) exercise of the
warrant issued by the Company to The Connecticut Development
Authority ("CDA") as of August 1, 1995, or (B) conversion, in
accordance with its terms, of the loan made to the Company by
CDA pursuant to the Loan Agreement between the Company and CDA
dated as of August 1, 1995, and (iv) any other shares of
Common Stock issued in respect of such shares (because of
stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that
shares of Common Stock which are Registrable Shares shall
cease to be Registrable Shares (x) upon any sale pursuant to a
Registration
<PAGE> 19
Statement or Rule 144 under the Securities Act, (y) upon
becoming eligible for sale under Rule 144(k) under the
Securities Act, and (z) upon any sale in any manner to a
person or entity which, by virtue of Section 12 of this
Agreement, is not entitled to the rights provided by this
Agreement. Wherever reference is made in this Agreement to a
request or consent of holders of a certain percentage of
Registrable Shares, the determination of such percentage shall
include shares of Common Stock issuable upon conversion of the
Shares even if such conversion has not yet been effected.
2. Miscellaneous.
(a) 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.
(b) Except as expressly modified pursuant to this Agreement,
the terms of the Registration Rights Agreement shall remain unchanged and in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: THE PURCHASERS:
FlexiInternational Software, Inc. William Blair Capital Partners V, L.P.
Menlo Ventures VI, L.P.
Menlo Entrepreneurs Fund VI, L.P.
Primus Capital Fund III
By: /s/ Stefan R. Bothe Limited Partnership
-----------------------------
Stefan R. Bothe Furman Selz SBIC, L.P.
Chairman of the Board and Comdisco, Inc.
Chief Executive Officer Christopher McManus
The Connecticut Development Authority
By: /s/ Stefan R. Bothe
----------------------------------
Stefan R. Bothe
Attorney-in-Fact
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<PAGE> 1
Exhibit 10.20
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH
MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933
WARRANT AGREEMENT
To Purchase Shares of the Series C Convertible Preferred Stock of
FLEXINTERNATIONAL SOFTWARE, INC.
Dated as of December 10, 1996 (the "Effective Date")
WHEREAS, FlexInternational Software, Inc., a Delaware corporation (the
"Company") has entered into a Receivables Loan and Security Agreement dated as
of July 10, 1995 and related Promissory Notes (the "Loan") with Comdisco, Inc.,
a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for extending the payment date for principal and interest in
connection with the Loan until December 31, 1996, the right to purchase shares
of its Series C Preferred Stock;
WHEREAS, Warrantholder agrees to extend the payment due date of
principal and interest in connection with the Loan until December 31, 1996, and
waive the provisions set forth in Section 11.4 of the Loan
NOW, THEREFORE, in consideration of the Warrantholder extending the
payment due date of principal and interest as provided in a letter dated
December 9, 1996, and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE SERIES C PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 5,129 shares fully paid and
non-assessable shares of the Company's Series C Convertible Preferred Stock
("Preferred Stock") at a purchase price of $1.65 per share (the "Exercise
Price") computed as ($846,213 x .01 divided by $1.65). The number and purchase
price of such shares are subject to adjustment as provided in Section 8 hereof.
<PAGE> 2
2. TERM OF THE WARRANT AGREEMENT.
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the Notice of Exercise indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
A
Where: X = the number of shares of Preferred Stock to
be issued to the Warrantholder.
Y = the number of shares of Preferred Stock
requested to be exercised under this Warrant
Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean
with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering,
and if the Company's Registration Statement relating to such public offering has
been declared effective by the SEC, then the initial "Price to Public" specified
in the final prospectus with respect to the offering;
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<PAGE> 3
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market value of the
securities is being determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked prices quoted on
the NASDAQ system (or similar system) over the twenty-one (21) day period ending
three days before the day the current fair market value of the securities is
being determined;
(iii) if at any time the Common Stock is not listed on any
securities exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition or
other consolidation pursuant to which the Company is not the surviving party, in
which case the fair market value of Common Stock shall be deemed to be the value
received by the holders of the Company's Preferred Stock on a common equivalent
basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
Notwithstanding the foregoing, Warrantholder shall only be allowed to
exercise via a Net Issuance when at least one of the following conditions is
met: 1) the company is a public corporation with its securities traded on a
securities exchange or traded over-the-counter; or 2) the company is subject to
a merger event as defined in Section 8(a); or 3) this Warrant Agreement is due
to expire within three (3) months of the date of the Warrantholder's exercise
thereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of
this Warrant Agreement, the Company will at all times have authorized and
reserved a sufficient number of shares of its Preferred Stock to provide for the
exercise of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock
required to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then
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<PAGE> 4
in effect, or any similar Federal statute then enforced, or any state securities
law, required by reason of any transfer involved in such conversion), or listing
on any domestic securities exchange, before such shares may be issued upon
conversion, the Company will, at its expense and as expeditiously as possible,
use its best efforts to cause such shares to be duly registered, listed or
approved for listing on such domestic securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation when the Company is not the surviving corporation, or the sale of
all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of preferred stock or other securities of the successor corporation
resulting from such Merger Event, equivalent in value to that which would have
been issuable if Warrantholder had exercised this Warrant immediately prior to
the Merger Event. In any such case, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant Agreement with respect to the rights and
interest of the Warrantholder after the Merger Event to the end that the
provisions of this Warrant Agreement (including adjustments of the Exercise
Price and number of shares of Preferred Stock purchasable) shall be applicable
to the greatest extent possible.
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<PAGE> 5
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Certificate of Incorporation. A true copy of the Company's
Certificate of Incorporation, as amended through the Effective Date, is attached
hereto as Exhibit III (the "Charter"). The Company shall promptly provide the
Warrantholder with any restatement, amendment, modification or waiver of the
Charter. The Company shall provide Warrantholder with prior written notice of
any issuance of its stock or other equity security to occur after the Effective
Date of this Warrant, which notice shall include (a) the price at which such
stock or security is to be sold, (b) the number of shares to be issued, and (c)
such other information as necessary for Warrantholder to determine if a dilutive
event has occurred.
(f) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in connection with each
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<PAGE> 6
such event, the Company shall send to the Warrantholder: (A) at least twenty
(20) days' prior written notice of the date on which the books of the Company
shall close or a record shall be taken for such dividend, distribution,
subscription rights (specifying the date on which the holders of Preferred Stock
shall be entitled thereto) or for determining rights to vote in respect of such
Merger Event, dissolution, liquidation or winding up; and (B) in the case of any
such Merger Event, dissolution, liquidation or winding up, at least twenty (20)
days' prior written notice of the date when the same shall take place (and
specifying the date on which the holders of Preferred Stock shall be entitled to
exchange their Preferred Stock for securities or other property deliverable upon
such Merger Event, dissolution, liquidation or winding up). In the case of a
public offering, the Company shall give Warrantholder at least twenty (20) days,
written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever; provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred
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<PAGE> 7
Stock, have been duly authorized by all necessary corporate action on the part
of the Company, and the Loan and this Warrant Agreement are not inconsistent
with the Company's Charter or Bylaws, do not contravene any law or governmental
rule, regulation or order applicable to it, do not and will not contravene any
provision of, or constitute a default under, any indenture, mortgage, contract
or other instrument to which it is a party or by which it is bound, and the Loan
and this Warrant Agreement constitute legal, valid and binding agreements of the
Company, enforceable in accordance with their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of
notice to, registration with, or taking of any other action in respect of any
state, Federal or other governmental authority or agency is required with
respect to the execution, delivery and performance by the Company of its
obligations under this Warrant Agreement.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Series A Convertible Preferred Stock, Preferred Stock or any other
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. All outstanding shares of Common Stock, Series A
Convertible Preferred Stock, Preferred Stock and any other securities were
issued in full compliance with all Federal and state securities laws. In
addition as of November 30, 1996,:
(i) The authorized capital of the Company consists of: (A) 25,000,000
shares of Common Stock, of which 145,530 shares are issued and outstanding; (B)
2,840,517 shares of Series A Preferred Stock, of which 2,784,483 shares are
issued and outstanding and are convertible into shares of Common Stock at a
conversion price of $1.16 per share, which price may be adjusted as provided in
the Certificate of Incorporation Article Fourth; (C) 2,980,911 shares of Series
B Preferred Stock, of which 2,813,000 shares are issued and outstanding and are
convertible into shares of Common Stock at a conversion price of $1.50 per
share, which price may be adjusted as provided in the Certificate of
Incorporation Article Fourth; and (D) 5,187,357 shares of Series C Preferred
Stock of which 4,884,327 shares are issued and outstanding and are convertible
into shares of Common Stock at a conversion price of $1.65 per share, which
price may be adjusted as provided in the Certificate of Incorporation Article
Fourth.
(ii) The Company has reserved 1,604,470 shares of Common Stock for
issuance under its Stock Option Plan, of which, 496,500 Non Statutory Stock
Options are outstanding at prices ranging from $0.0002-$1.00 per share, and
356,660 Incentive Stock Options are outstanding at prices ranging from
$1.00-$2.00 per share. With the exception of this Agreement and the following
agreements, there are no other options, warrants, conversion privileges or other
rights presently outstanding to purchase or otherwise acquire any authorized but
unissued shares of the Company's capital stock or other securities of the
Company:
- - Dated June 28, 1994 for 43,103 shares of the Company's Series A
Convertible Preferred Stock in connection with the Company's Master
Lease Agreement with Comdisco, Inc. dated as of June 28, 1994,
Equipment Schedule No. VL-1;
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<PAGE> 8
- - Dated July 25, 1995 for 16,800 shares of the Company's Series B
Convertible Preferred Stock in connection with the Company's Master
Lease Agreement with Comdisco, Inc. dated as of June 28, 1994,
Equipment Schedule No. VL-2 dated as of May 24, 1995;
- - Dated July 25, 1995 for 60,000 shares of the Company's Series B
Convertible Preferred Stock in connection with a Receivables Loan and
Security Agreement with Comdisco, Inc. dated July 10, 1995;
- - Dated July 25, 1995 for 30,000 shares of the Company's Series B
Convertible Preferred Stock in connection with a Receivables Loan and
Security Agreement with Comdisco, Inc. dated July 10, 1995;
- - Dated August 1, 1995 for 250,000 shares of the Company's Common Stock
in connection with a Convertible Promissory Note with The Connecticut
Development Authority dated August 1, 1995;
- - Dated August 1, 1995 for 100,000 shares of the Company's Common Stock
in connection with a Loan Agreement with The Connecticut Development
Authority dated August 1, 1995.
(iii) In accordance with the Company's Certificate of Incorporation,
no shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth
in this Warrant Agreement and in the Registration Rights Agreement dated as of
May 7, 1996, the Company is not, pursuant to the terms of any other agreement
currently in existence, under any obligation to register under the 1933 Act any
of its presently outstanding securities or any of its securities which may
hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the
Warrantholder's representations in Section 10 hereof, the issuance of the
Preferred Stock upon exercise of this Warrant will constitute a transaction
exempt from (i) the registration requirements of Section 5 of the 1933 Act, in
reliance upon Section 4(2) thereof, and (ii) the qualification requirements of
the Illinois Corporate Securities Laws of 1953, in reliance upon Section 4.C
thereof.
(h) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the
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<PAGE> 9
Company shall furnish to the Warrantholder, within ten days after receipt of
such request, a written statement confirming the Company's compliance with the
filing requirements of the Securities and Exchange Commission as set forth in
such Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then
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<PAGE> 10
outstanding as to which such restrictions have terminated shall be entitled to
receive from the Company, without expense to such holder, one or more new
certificates for the Warrant or for such shares of Preferred Stock not bearing
any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Delaware.
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(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
President, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465) and
(ii) to the Company at Two Enterprise Drive, Shelton, Connecticut 06484,
attention: Stefan R. Bothe, Chief Executive Officer cc: Brian A. Marks, Ph.D.,
Vice President Administration & Legal Affairs (and/or if by facsimile, (203)
925-3044) or at such other address as any such party may subsequently designate
by written notice to the other party. A copy of all notices should also be sent
to: John K.P. Stone at Hale & Dorr, 60 State Street, Boston, MA 02109.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
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(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: FLEXIINTERNATIONAL
SOFTWARE, INC.
By: /s/Stefan R. Bothe
------------------------------------------
Title: Chairman of the Board
---------------------------------------
Warrantholder: COMDISCO, INC.
By: /s/James P. Labe
------------------------------------------
Title: President, Venture Leasing Division
---------------------------------------
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<PAGE> 13
EXHIBIT I
NOTICE OF EXERCISE
To: _______________________
(1) The undersigned Warrantholder hereby elects to purchase ______ shares of the
Preferred Stock of ______________, pursuant to the terms of the Warrant
Agreement dated the ____________ day of _________________________, 19__ (the
"Warrant Agreement") between _____________________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of _______________,
____________________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the Warrant
Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
______________________________
(Name)
______________________________
(Address)
Warrantholder: COMDISCO, INC.
By:___________________________
Title:________________________
Date:_________________________
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<PAGE> 14
ACKNOWLEDGMENT OF EXERCISE
The undersigned _________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ___ shares
of the Preferred Stock of _______________ pursuant to the terms of the Warrant
Agreement, and further acknowledges that _______ shares remain subject to
purchase under the terms of the Warrant Agreement.
Company:
By:___________________________
Title:________________________
Date:_________________________
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<PAGE> 15
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
____________________________________________________
(Please Print)
whose address is____________________________________
____________________________________________________
Dated_______________________________________
Holder's Signature__________________________
Holder's Address____________________________
____________________________________________
Signature Guaranteed:___________________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the
name as it appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those acting in
a fiduciary or other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
15
<PAGE> 16
EXHIBIT III
CERTIFICATE OF INCORPORATION, AS AMENDED
[See Exhibit 3.1]
16
<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
November 7, 1997
