<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 3, 1999
REGISTRATION NO. 333-89817
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CENTRA SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7379 04-3268918
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
430 BEDFORD STREET
LEXINGTON, MASSACHUSETTS 02420
(781) 861-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------------------
MR. LEON NAVICKAS
CENTRA SOFTWARE, INC.
430 BEDFORD STREET
LEXINGTON, MASSACHUSETTS 02420
(781) 861-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT L. BIRNBAUM, JR., ESQ. PETER B. TARR, ESQ.
MARK L. JOHNSON, ESQ. HALE AND DORR LLP
FOLEY, HOAG & ELIOT LLP 60 STATE STREET
ONE POST OFFICE SQUARE BOSTON, MASSACHUSETTS 02109
BOSTON, MASSACHUSETTS 02109 TELEPHONE: (617) 526-6000
TELEPHONE: (617) 832-1000 TELECOPY: (617) 526-5000
TELECOPY: (617) 832-7000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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 of
1933, 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 of 1933, 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 of 1933, 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 of 1933, 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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
<S> <C> <C> <C> <C>
COMMON STOCK, $.001 PAR VALUE.......... 5,750,000 $10.00 $57,500,000 $15,985
</TABLE>
(1) Includes 750,000 shares of Common Stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933,
as amended.
(3) Previously paid.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: (a) one
prospectus to be used in connection with an offering in the United States and
Canada and (b) one prospectus to be used in connection with a concurrent
offering outside of the United States and Canada. The U.S. prospectus and the
international prospectus are identical in all respects except for the front
cover page and the "Underwriting" section. The front cover page and the
"Underwriting" section of the international prospectus are included immediately
before Part II of this registration statement.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1999
[LOGO]
5,000,000 SHARES
COMMON STOCK
Centra Software, Inc. is offering 5,000,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied to have the shares being offered approved for quotation
on the Nasdaq National Market under the symbol "CTRA." We anticipate that the
initial public offering price will be between $8.00 and $10.00 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ----------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Centra.......................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
[Description of gatefold artwork
The words "Centra Live eBusiness Collaboration" appear at the top of the
gatefold. A "cloud" shape appears in the center of the gatefold, on which the
words "Live eBusiness Interaction" are surrounded by the words "Marketing."
"Services," "Training" and "Selling." The cloud is positioned in the middle
of a three-dimensionally rendered circle divided into slices labeled
"Partners" (with icon of personal computer user), "CentraNow Users" (with
icons of computer users), "Content" (with document icons), "Network Channels"
(with icons of three monitors labeled "Education." "e-commerce" and
"Services"), "Remote Teams" (with an icon of a laptop user), "Employees"
(with an icon of a computer user), "Prospects" (with an icon of a computer
user), "Customers" (with an icon of a computer user) and "Distribution
Channels" (with an icon of a computer user). The front edge of the circle
displays the phrases "Shared Workspace," "Voice-over-IP," "Collaboration
Management" and "Enterprise System Integration." An arrow pointing from the
upper left corner of the page to the cluster of spheres bears the phrases
"BUSINESS RELATIONSHIPS," "BUSINESS CONTENT" and "BUSINESS KNOWLEDGE." A
dialog box on the upper left edge of the circle states "Centra 99/Centra 99
is an enterprise application that improves business performance and
flexibility by enabling live collaboration to support internal and external
business processes." A dialog box on the lower left edge of the circle states
"CentraNow/CentraNow provides live collaboration to business professionals
and their teams through the centra.com Web site." A dialog box on the right
edge of the circle states "Centra Business Collaboration Network/The Centra
Business Collaboration Network, or Centra BCN, is a global eBusiness network
that enables content and service providers and users to conduct
business-to-business interactions over the Web." The Centra logo appears in
the bottom righthand corner of the gatefold.]
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "CENTRA,"
"WE," "US" AND "OUR" REFER TO CENTRA SOFTWARE, INC., A DELAWARE CORPORATION, AND
ITS WHOLLY OWNED SUBSIDIARY, UNLESS THE CONTEXT REQUIRES OTHERWISE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary..................................................... 3
Risk Factors................................................ 6
Use of Proceeds............................................. 15
Dividend Policy............................................. 15
Capitalization.............................................. 16
Dilution.................................................... 17
Selected Consolidated Financial Data........................ 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 30
Management.................................................. 43
Transactions with Related Parties........................... 53
Principal Stockholders...................................... 56
Description of Capital Stock................................ 58
Shares Eligible for Future Sale............................. 60
Underwriting................................................ 62
Legal Matters............................................... 64
Experts..................................................... 64
Where You Can Find More Information......................... 64
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
We own or have rights to trademarks or trade names that we use in
conjunction with the sale of our products and services. Centra is a registered
trademark owned by us. Adaptive Connectivity, CentraNow and Centra Symposium are
trademarks owned by us. This prospectus also contains trademarks and trade names
of other companies.
2
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION IN THIS PROSPECTUS, INCLUDING RISK FACTORS, REGARDING OUR COMPANY
AND THE COMMON STOCK SOLD IN THIS OFFERING.
OUR COMPANY
OUR BUSINESS
We are a leading provider of software and services that support live
business collaboration over the Internet, enabling the development of stronger
customer, partner and employee relationships, collaborative commerce, and
corporate learning and training. Our products provide Internet infrastructure
for comprehensive live collaboration and include functionalities such as voice
over the Internet, software application sharing, real-time data exchange and
shared workspaces. Our products are accessible by users of intranets, business
partners on extranets and remote constituents over the Internet. Our products
provide for the exchange of business-critical information in a variety of
contexts, including one-to-one customer and sales interactions, one-to-many
seminar and presentation events, and many-to-many learning and interactive
teamwork sessions.
OUR MARKET
Companies are increasingly using the Internet as a means for conducting
business online. Forrester Research estimates that business-to-business
e-commerce will increase from $43 billion in 1998 to $1.3 trillion in 2003. To
date, companies have focused their Internet infrastructure spending primarily on
technologies designed to enhance the efficiency of processing commercial
transactions. Companies increasingly seek technologies that complement the
transactional processing of electronic commerce applications with a live,
interactive environment for the exchange of important information with their
constituents, including customers, partners and employees. In order to
collaborate with multiple constituents more effectively and efficiently,
companies need a comprehensive, flexible and broadly accessible Web-based
solution that supports a broad range of live interactions.
OUR PRODUCTS
Our products and services are designed to enable companies to strengthen
their customer, partner and employee relationships, promote revenue growth
through frequent customer interaction, use their intellectual capital more
effectively, improve the productivity of their employees and reduce the costs
associated with traditional live collaboration. Our comprehensive live online
business collaboration solution takes advantage of the power and accessibility
of the Internet to provide broad audience reach and the ability to handle many
concurrent users. It is designed to integrate easily with existing computer
systems and emerging Web technologies. Our solution consists of three elements:
Centra 99, a Web-based enterprise-class software application; CentraNow, a Web
collaboration service; and the Centra Business Collaboration Network of members
and users, or Centra BCN. We intend to continue to engage selected online
content and service providers to be members of Centra BCN, which we believe will
increase market awareness of the value of live eBusiness collaboration as well
as the benefits of our products and services.
OUR CUSTOMERS
As of September 30, 1999, we had over 150 customers, including Clarke
American, Compaq, i2 Technologies, Kraft Foods, MCI WorldCom, Nationwide Mutual
Insurance, Nortel Networks, PricewaterhouseCoopers, Schering Plough, University
of Tennessee and Viacom.
OUR ADDRESS
Our executive offices are located at 430 Bedford Street, Lexington,
Massachusetts 02420, and our telephone number at that location is
(781) 861-7000. Our Web site address is WWW.CENTRA.COM. Information contained on
our Web site is not part of this prospectus.
3
<PAGE>
ADDITIONAL CONSIDERATIONS
We began shipping our first product in July 1997, and to date we have
derived all of our revenues from Centra 99 software products and related
services. Broad and timely acceptance of our CentraNow Web service and
Centra BCN, which were introduced in October 1999, is critical to our future
success. Because our market is rapidly changing and highly competitive, we may
not succeed in generating significant revenues from our CentraNow Web service
and Centra BCN and our revenues from Centra 99 may not meet our expectations.
Since inception, we have incurred substantial net losses in each fiscal period,
resulting in an accumulated deficit of $23.3 million at September 30, 1999. We
expect to continue to incur losses for the foreseeable future. For a discussion
of these and other risks relating to an investment in our common stock, see
"Risk Factors" below.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Centra............... 5,000,000 shares
Common stock to be outstanding after the
offering................................... 22,676,837 shares
Use of proceeds.............................. To pay $6.5 million due to holders of our
series A and series B preferred stock upon
completion of the offering and to fund
working capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... CTRA
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on shares outstanding as of October 25, 1999. This number includes
13,746,735 shares of common stock to be issued upon conversion of our
outstanding preferred stock upon completion of the offering. It excludes
(a) 1,906,500 shares issuable upon exercise of options outstanding as of
October 25, 1999, which have a weighted average exercise price of $0.78 per
share, and (b) 5,200,000 additional shares reserved as of October 25, 1999 for
future issuance under our stock-based compensation plans.
After this offering, our directors and management will hold a sufficient
number of shares of common stock to influence all matters requiring stockholder
approval, including any proposed change in control of our company. See "Risk
Factors" below.
------------------------
EXCEPT WHERE WE STATE OTHERWISE, THE INFORMATION WE PRESENT IN THIS
PROSPECTUS REFLECTS:
- A THREE-FOR-TWO COMMON STOCK SPLIT EFFECTED AS OF OCTOBER 27, 1999,
- THE AUTOMATIC CONVERSION OF OUR OUTSTANDING PREFERRED STOCK INTO COMMON
STOCK UPON COMPLETION OF THIS OFFERING,
- AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION AND BY-LAWS EFFECTIVE UPON
COMPLETION OF THIS OFFERING, AND
- NO EXERCISE OF THE UNDERWRITERS' OPTION TO PURCHASE ADDITIONAL SHARES IN
THE OFFERING.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize the financial data of our business. The pro
forma share information included in the consolidated statement of operations
data have been computed as described in note 1(l) of the notes to consolidated
financial statements included elsewhere in this prospectus. The pro forma column
in the consolidated balance sheet data reflects the conversion of our
outstanding preferred stock into common stock upon completion of this offering
and an increase in the book value of the series A and series B preferred stock
to reflect amounts payable to holders upon conversion. The pro forma as adjusted
column in the consolidated balance sheet data also reflects our sale of the
5,000,000 shares of common stock offered by us at an assumed public offering
price of $9.00 per share and after deducting the estimated underwriting
discounts and commissions and the estimated offering expenses that we will pay,
and the application of the estimated net proceeds as described under "Use of
Proceeds," including our payment of $6.5 million to the holders of the series A
and series B preferred stock.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
INCEPTION ENDED
(APRIL 4, 1995) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ------------------------------ -------------------
1995 1996 1997 1998 1998 1999
--------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................... -- -- $ 234 $ 3,356 $ 2,117 $ 4,534
Service................................... -- -- 55 870 599 1,048
Total revenues.......................... -- -- 289 4,226 2,716 5,582
Gross profit.............................. -- -- 84 3,122 1,912 4,386
Operating loss............................ $ (646) $(2,634) (6,406) (6,464) (4,721) (5,750)
Net loss.................................. (614) (2,569) (6,371) (6,253) (4,528) (5,539)
Net loss attributable to common
stockholders............................ (699) (2,942) (6,877) (6,759) (4,908) (5,919)
Basic and diluted net loss per common
share................................... $(0.45) $ (0.75) $ (1.33) $ (1.16) $ (0.86) $ (0.92)
Weighted average common shares
outstanding............................. 1,561 3,935 5,156 5,845 5,706 6,457
Pro forma basic and diluted net loss per
common share............................ $ (0.68) $ (0.45)
Pro forma weighted average common shares
outstanding............................. 11,725 14,736
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 9,652 $ 9,652 $44,122
Working capital............................................. 9,548 3,068 44,018
Total assets................................................ 13,620 13,620 48,090
Term loan, net of current maturities........................ 455 455 455
Redeemable convertible preferred stock...................... 32,353 -- --
Total stockholders' equity (deficit)........................ (22,221) 3,652 44,602
</TABLE>
5
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CONSIDER CAREFULLY
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, OPERATING RESULTS OR
FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE, AND COULD CAUSE YOU TO LOSE ALL OR
PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR FUTURE
PROSPECTS.
Our company was founded in April 1995 and has a limited operating history,
which makes it difficult for investors to evaluate our future prospects. We
began shipping our first product in July 1997 and began to operate our CentraNow
Web service and Centra BCN in October 1999.
WE HAVE INCURRED SUBSTANTIAL LOSSES IN THE PAST AND MAY NOT BE PROFITABLE IN THE
FUTURE.
Since we began operations, we have incurred substantial net losses in every
fiscal period. We cannot predict when we will become profitable, if at all, and
if we do, we may not remain profitable for any substantial period of time. If we
fail to achieve profitability within the time frame expected by investors, the
market price of our common stock may fall. We had net losses of $6.4 million in
1997, $6.3 million in 1998 and $5.5 million in the nine months ended
September 30, 1999. As a result of ongoing operating losses, we had an
accumulated deficit of $23.3 million at September 30, 1999. We have generated
limited amounts of revenues while increasing operating expenditures in all
areas, particularly in product development and sales and marketing. Although we
have experienced revenue growth in recent periods, the growth has been off of a
small base and it is unlikely that the rate of our recent revenue growth is
sustainable.
DISAPPOINTING QUARTERLY RESULTS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK
TO FALL.
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter. If our quarterly revenues
or operating results fall below the expectations of securities analysts or
investors, the price of our common stock could fall substantially.
Our quarterly revenues and operating results may fluctuate for numerous
reasons, including the other risks identified below.
Most of our expenses, such as employee compensation and rent, are relatively
fixed. Moreover, our expense levels are based, in part, on our expectations
regarding future revenue increases. As a result, any shortfall in revenues in
relation to our expectations could cause significant changes in our operating
results from quarter to quarter and could result in increased quarterly losses.
OUR SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY OPERATING RESULTS.
We have a long sales cycle because we generally need to educate potential
customers regarding the benefits of our live online business, or eBusiness,
collaboration products and services prior to sale. Our sales cycle varies
depending on the size and type of customer contemplating a purchase and whether
we have conducted business with a potential customer in the past. Potential
customers frequently need to obtain approvals from multiple decision makers
within their organization prior to making purchase decisions. Our long sales
cycle, which can range from several weeks to several months or more, makes it
difficult to predict the quarter in which sales may occur. Delays in sales could
cause significant variability in our revenues and operating results for any
particular period.
6
<PAGE>
THE DEVELOPMENT OF A MARKET FOR OUR LIVE eBUSINESS COLLABORATION PRODUCTS AND
SERVICES IS UNCERTAIN.
The market for live eBusiness collaboration products and services is
immature and rapidly evolving. If the market for eBusiness collaboration
solutions does not grow at the rate we expect, this will have a material adverse
effect on our business, operating results and financial condition. As is typical
for new and rapidly evolving industries, customer demand for recently introduced
eBusiness collaboration products and services is highly uncertain.
WE EXPECT TO DEPEND ON SALES OF OUR CENTRA 99 SOLUTION FOR SUBSTANTIALLY ALL OF
OUR REVENUES FOR THE FORESEEABLE FUTURE.
Our Centra 99 software products and related services accounted for all of
our revenues in the nine months ended September 30, 1999. We anticipate that
revenues from Centra 99 products and related services will continue to
constitute substantially all of our revenues for the foreseeable future.
Consequently, any decline in the demand for Centra 99, or its failure to achieve
broad market acceptance, would seriously harm our business.
OUR CENTRANOW WEB SERVICE AND CENTRA BCN ARE AT AN EXTREMELY EARLY STAGE OF
DEVELOPMENT AND MARKET ACCEPTANCE.
We began operating our CentraNow Web service and Centra BCN in
October 1999. To date, the CentraNow Web collaboration service offers only free
services. Broad and timely acceptance of our CentraNow Web service and Centra
BCN is critical to our future success and is subject to a number of significant
risks, many of which are outside our control. These risks include:
- our system's ability to support large numbers of users, content and
service providers and purchasers is unproven;
- we must significantly expand our internal resources and increase our
operating expenses to support the anticipated growth of the Web service
and the network;
- the idea for an online marketplace for content and services is new and
unproven, and it is not clear whether we can attract participants and
advertisers to the service; and
- we must identify and partner with a large number of industry-leading
content and service providers that want to market and sell their offerings
over the network.
WE HAVE NOT INTRODUCED REVENUE-GENERATING SERVICES ON OUR CENTRANOW WEB SERVICE
OR CENTRA BCN.
Although we expect to derive a significant portion of our future revenues
from our CentraNow Web service and Centra BCN, we have not yet introduced priced
offerings for the Web service and we do not have a proven pricing, expense and
revenue model for the services we provide in connection with Centra BCN. If we
are unable to introduce priced offerings on CentraNow successfully or if our
pricing, expense and revenue model for the network is not acceptable to our
customers, either or both of CentraNow and Centra BCN may not be commercially
viable. This would seriously harm our business, particularly if the failure of
CentraNow or Centra BCN to achieve market acceptance negatively affects sales of
our other products and services.
WE FACE SIGNIFICANT COMPETITION FROM OTHER TECHNOLOGY COMPANIES AND WE MAY NOT
BE ABLE TO COMPETE EFFECTIVELY.
The market for live eBusiness collaboration solutions is immature, intensely
competitive, developing rapidly and subject to rapid technological change. We
expect that the intensity of our competition will increase in the future.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any one of which could seriously harm our
business.
7
<PAGE>
Competitors vary in size and in the scope and breadth of the products and
services offered. We encounter competition with respect to different aspects of
our collaboration solution from a variety of software and services vendors
including Interwise, LearnLinc, the Lotus division of IBM, Placeware and WebEx.
Siebel has announced that it is extending its enterprise software application
with collaboration features, and other enterprise software vendors, such as
Oracle and SAP, may choose to extend their applications with similar features in
the future. These collaborative features could make it more difficult for us to
sell our products to these vendors' customers. In addition, current and
potential competitors have established, and may in the future establish,
cooperative relationships with third parties to increase the availability of
their products to the marketplace. Accordingly, new competitors or alliances may
emerge and rapidly acquire significant market share. Potential competitors may
have significantly greater financial, marketing, technical and other competitive
resources than we have. The entry of new competitors or alliances into our
market could reduce our sales, require us to lower our prices, or both. Many of
these factors are outside our control, and there can be no assurance that we can
maintain or enhance our competitive position against current and future
competitors.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OUR SALES FORCE AND DISTRIBUTION
CHANNELS.
To increase our revenues, we must increase the size of our sales force and
the number of our indirect channel partners, including original equipment
manufacturers, value-added resellers and systems integrators. There is intense
competition for sales personnel in our business, and we cannot assure you that
we will be successful in attracting, integrating, motivating and retaining new
sales personnel. Our existing or future channel partners may choose to devote
greater resources to marketing and supporting the products of other companies.
In addition, we may face conflicts among our sales force and channel partners.
Our inability to increase our direct sales force and our number of indirect
channel partners may limit our future revenue growth and hurt our future
operating results.
OUR PERFORMANCE DEPENDS ON OUR ABILITY TO OBTAIN FOLLOW-ON SALES.
Customers typically place limited initial orders for Centra 99 installations
that allow the customers to evaluate the software's performance. Our strategy is
to pursue more significant follow-on sales after these initial installations.
Follow-on sales accounted for 29% of our revenues in the nine months ended
September 30, 1999. Our future financial performance will depend on successful
initial deployments of our products that, in turn, lead to follow-on sales. We
cannot be sure that initial deployments of our products by our customers will
meet their needs and expectations, or that we will be able to generate follow-on
sales.
WE MUST HIRE AND RETAIN SKILLED PERSONNEL IN A COMPETITIVE LABOR MARKET.
Qualified personnel are in great demand throughout the software and Internet
industries. Our success depends in large part upon our ability to attract,
train, motivate and retain highly skilled employees, particularly sales and
marketing personnel, professional services personnel, software engineers and
other senior personnel. Our failure to attract and retain the highly trained
technical personnel that are integral to our direct sales, professional services
and product development teams may limit the rate at which we can generate sales
and develop new products or product enhancements. This could have a material
adverse effect on our business, operating results and financial condition.
IF WE LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, CHIEF OPERATING OFFICER
OR ANY OTHER MEMBER OF OUR MANAGEMENT TEAM, OUR BUSINESS COULD SUFFER.
Our future success depends to a significant degree on the skill, experience
and efforts of Leon Navickas, our chief executive officer, Anthony Mark, our
president and chief operating officer, and the other members of our management
team. The loss of any member of our management team could have a material
adverse effect on our business. We do not have employment agreements with any of
8
<PAGE>
our executive officers. We do not maintain "keyman" life insurance that would
result in a payment to us in the event of the death of one of our officers,
except for a $2.0 million policy with respect to Mr. Navickas.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF THE INTERNET DOES NOT BECOME A VIABLE
AND SUBSTANTIAL COMMERCIAL MEDIUM.
Our future success depends heavily on the acceptance and wide use of the
Internet for e-commerce. If e-commerce does not continue to grow or grows more
slowly than expected, demand for our products and services may fail to develop.
Consumers and businesses may reject the Internet as a viable commercial medium
for a number of reasons, including potentially inadequate network
infrastructure, slow development of enabling technologies, insufficient
commercial support or privacy concerns. In addition, delays in the development
or adoption of new standards and protocols required to handle increased levels
of e-commerce, or increased government regulation or taxation, could cause the
Internet to lose its viability as a commercial medium.
FUTURE REGULATIONS COULD BE ENACTED THAT EITHER DIRECTLY RESTRICT OUR BUSINESS
OR INDIRECTLY IMPACT OUR BUSINESS BY LIMITING THE GROWTH OF ELECTRONIC COMMERCE.
As commercial use of the Internet increases, federal, state and foreign
agencies could adopt regulations covering issues such as user privacy, content
and taxation of products and services. If enacted, government regulations could
limit the market for our products and services. Although many regulations might
not apply to our business directly, we expect that laws regulating personal and
consumer information could indirectly affect our business. The
Telecommunications Act of 1996 prohibits certain types of information and
content from being transmitted over the Internet. The prohibition's scope and
the liability associated with a violation are currently unsettled. In addition,
although substantial portions of the Communications Decency Act were held to be
unconstitutional, we cannot be certain that similar legislation will not be
enacted and upheld in the future. It is possible that legislation could expose
companies involved in e-commerce to liability, which could limit the growth of
e-commerce generally. Legislation like the Telecommunications Act and the
Communications Decency Act could dampen the growth in Web usage and decrease its
acceptance as a medium of communications and commerce.
OUR FAILURE TO MANAGE OUR RAPID GROWTH EFFECTIVELY COULD HURT OUR BUSINESS.
Our failure to manage our rapid growth effectively could have a material
adverse effect on the quality of our products, our ability to retain key
personnel, and our business, operating results and financial condition. We have
been experiencing a period of rapid growth that has been placing a significant
strain on all of our resources. From January 1, 1999 to September 30, 1999, the
number of our employees increased from 72 to 104. To manage our future growth,
if any, effectively, we must enhance our information technology infrastructure,
financial and accounting systems, controls and personnel, integrate a
significant number of new hires, and manage expanded operations in
geographically distributed locations. In addition, we may need to identify and
move to alternative facilities to accommodate our growth, which could disrupt
our business and hurt our operating results.
OUR FUTURE SUCCESS WILL DEPEND ON OUR ABILITY TO ENHANCE OUR EXISTING PRODUCTS
AND SERVICES AND TO DEVELOP AND INTRODUCE NEW PRODUCTS AND SERVICES.
We believe our future success will depend in large part on our ability to
enhance and broaden our live eBusiness collaboration products and services to
meet the evolving needs of the market. Our market is characterized by rapidly
changing technologies, frequent new product and service introductions, and
evolving industry standards. The recent growth of the Internet and intense
competition in our industry exacerbate these market characteristics. To achieve
our goals, we need to
9
<PAGE>
respond effectively to technological changes and new industry standards and
developments. In the past, we have experienced delays in the introduction of new
products. In addition, our product enhancements must meet the requirements of
our current and prospective customers and must achieve significant market
acceptance. We could also incur substantial costs if we need to modify our
products, services or information technology infrastructure to adapt to these
changes, standards and developments.
IF OUR PRODUCTS FAIL TO FUNCTION WHEN USED BY MANY USERS IN A COMPANY-WIDE
ENVIRONMENT, WE MAY LOSE SALES AND SUFFER DECREASED REVENUES.
Our strategy requires that our software be highly scalable, or able to
accomodate substantial increases in the number of users concurrently using the
product. We are just beginning to deploy large-scale Web-based software
implementations, and none of our large-scale deployments has been operating at
any customer site for an extended period of time. If our products do not perform
adequately in large-scale implementations, we may lose customer sales, resulting
in decreased revenues.
AS WE EXPAND OUR INTERNATIONAL OPERATIONS, WE WILL FACE NEW BUSINESS RISKS THAT
WE HAVE NOT ENCOUNTERED PREVIOUSLY.
Historically, we have not derived a significant portion of our total
revenues from sales to customers outside the United States. We have established
or are seeking to establish a sales or operations presence in countries such as
France, Germany, Greece, Japan, Portugal, Sweden and the United Kingdom, and we
expect to continue to do so in the future. This expansion will require
additional resources and management attention and will subject us to new
regulatory, economic and political risks. Given our limited experience in
international markets, we cannot be sure that our international expansion will
be successful. In addition, we will face new risks in doing business
internationally. These risks could reduce demand for our products and services,
lower the prices at which we can sell our products and services, or otherwise
have an adverse effect on our operating results. Among the risks we believe are
most likely to affect us are:
- longer payment cycles and problems in collecting accounts receivable;
- adverse changes in trade and tax regulations;
- the absence or significant lack of legal protection for intellectual
property rights;
- the adoption of data privacy laws or regulations;
- political and economic instability; and
- currency risks.
OUR SUCCESS DEPENDS ON OUR ABILITY TO PROTECT OUR PROPRIETARY RIGHTS.
Our success depends to a significant degree upon the protection of our
software and other proprietary technology. If we fail to protect our proprietary
rights, other companies might copy our technology and introduce products or
services which compete with ours, without paying us for our technology. This
could have a material adverse effect on our business, operating results and
financial condition. Our proprietary technology includes the Centra, CentraNow
and Adaptive Connectivity trademarks and three patent applications, none of
which has been issued. We depend upon a combination of patent and trademark
laws, license agreements, non-disclosure and other contractual provisions to
protect proprietary and distribution rights in our products. In addition, we
attempt to protect our proprietary information and those of our vendors and
partners through confidentiality and license agreements with our employees and
others. Although we have taken steps to protect our proprietary technology, they
may be inadequate. Existing trade secret, copyright and trademark laws offer
only limited protection. Moreover, the laws of other countries in which we
market our products
10
<PAGE>
may afford little or no effective protection of our intellectual property. If we
resort to legal proceedings to enforce our intellectual property rights, the
proceedings could be burdensome and expensive, even if we were to prevail.
CLAIMS BY OTHER COMPANIES THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD
FORCE US TO REDESIGN OUR PRODUCTS OR OTHERWISE HURT OUR FINANCIAL CONDITION.
If we were to discover that any of our products violated third-party
proprietary rights, there can be no assurance that we would be able to
reengineer the product or to obtain a license on commercially reasonable terms,
if at all, to continue offering the product without substantial reengineering.
We do not conduct comprehensive patent searches to determine whether the
technology used in our products infringes patents held by third parties. In
addition, product development is inherently uncertain in a rapidly developing
technology environment in which there may be numerous patent applications
pending, many of which are confidential when filed, with regard to similar
technologies. Any claim of infringement could cause us to incur substantial
costs defending against the claim, even if the claim is invalid, and could
distract our management from our business. Furthermore, a party making such a
claim could secure a judgment that requires us to pay substantial damages. A
judgment could also include an injunction or other court order that could
prevent us from selling our products or cause our customers to stop using our
products.
OUR BUSINESS COULD BE ADVERSELY AFFECTED IF OUR PRODUCTS CONTAIN ERRORS.
Software products as complex as ours may contain undetected errors or "bugs"
that result in product failures. Like most software companies, from time to time
we have identified errors in our products after commercial introduction of the
products. While we have not been materially harmed by errors in the past, the
occurrence of errors in the future could result in loss of or delay in revenues,
loss of market share, diversion of product development resources, injury to our
reputation or damage to our efforts to build brand awareness, any of which could
have a material adverse effect on our business, operating results and financial
condition.
WE COULD INCUR SUBSTANTIAL COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
RELATING TO OUR CUSTOMERS' USE OF OUR PRODUCTS AND SERVICES.
Many of the business interactions supported by our products and services are
critical to our customers' businesses. Any failure in a customer's business
interaction or other collaborative activity caused or allegedly caused by our
products and services could result in a claim for substantial damages against
us, regardless of our responsibility for the failure. Although we maintain
general liability insurance, including coverage for errors and omissions, there
can be no assurance that our existing coverage will continue to be available on
reasonable terms or will be available in amounts sufficient to cover one or more
large claims, or that the insurer will not disclaim coverage as to any future
claim.
WE MAY REQUIRE ADDITIONAL FUNDS.
We may need to raise additional capital in order to fund the development and
marketing of our products and services. Although we expect that this offering
will provide us with sufficient working capital for at least the next
12 months, our current plans and projections may prove to be inaccurate or our
expected cash flow may prove to be insufficient to fund our operations because
of product delays, unanticipated expenses or other unforeseen difficulties.
Our ability to obtain additional financing will depend on a number of
factors, including market conditions, our operating performance and investor
interest, particularly in business collaboration software companies. These
factors may make the timing, amount, terms and conditions of any financing
unattractive. They may also result in our incurring additional indebtedness or
accepting stockholder
11
<PAGE>
dilution. If adequate funds are not available or are not available on acceptable
terms, we may have to forego strategic acquisitions or investments, defer our
product development activities, or delay our continued roll out of new products
and product versions. Any of these actions may seriously harm our business and
operating results.
WE MAY BE ADVERSELY AFFECTED BY UNEXPECTED YEAR 2000 ISSUES.
The Year 2000 issue is the result of computer programs being written using
two digits rather than four digits to define the applicable year. This could
result in a system failure or miscalculations if a computer program recognizes a
date of "00" as the year 1900 instead of 2000. If not corrected, many computer
systems could fail or create erroneous results in 2000. Although we believe the
current versions of our products and services are Year 2000 compliant, we may
face claims based on Year 2000 issues arising from the integration of multiple
products within an overall system. In addition, although we have received
compliance reports from a number of our vendors, there can be no assurance that
Year 2000 errors or defects will not be discovered in our internal software
systems and, if such errors or defects are discovered, there can be no assurance
that the costs of making these systems Year 2000 compliant will not be material.
Some of our customers and potential customers have implemented policies that
prohibit or discourage changing their internal computer systems until after
January 1, 2000. Our revenues may suffer if potential customers delay the
purchase of our products and services until after January 1, 2000. Purchasing
decisions may be delayed as potential customers halt development of their
internal computer systems or use their information technology budgets to address
Year 2000 issues. If our potential customers delay purchasing or implementing
our products and services in preparation for the Year 2000 problem, our business
could be harmed.
THE FORWARD-LOOKING STATEMENTS WE MAKE IN THIS PROSPECTUS MIGHT PROVE
INACCURATE. AS A RESULT, OUR ACTUAL RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR
ACHIEVEMENTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING
STATEMENTS.
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus constitute forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "could," "expects," "plans,"
"intends," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue" or other comparable terminology. These statements involve known and
unknown risks and uncertainties that may cause our actual results, levels of
activity, performance or achievements to differ materially from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. These factors include, among other things,
those listed under "Risk Factors" and elsewhere in this prospectus. We cannot
guarantee any future results, levels of activity, performance or achievements.
This prospectus contains market data related to the Internet and to us.
These data have been included in studies published by the Internet market
research firms of Forrester Research and International Data Corporation.
International Data Corporation's estimate that the number of Web users in
commercial businesses will increase from 59 million in 1998 to 250 million by
2003 is based on several assumptions, including that:
- all devices using the Internet for email will also be using the Web;
- by 2003, one-third of commercial business Web users will be purchasing via
the Web; and
- e-commerce will rapidly increase as the Web becomes an accepted vehicle
for volume business-to-business purchases.
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<PAGE>
Forrester Research's estimate that business-to-business e-commerce will
increase from $43 billion in 1998 to $1.3 trillion in 2003, is based on several
assumptions, including that:
- the business trade in hard goods conducted over the Internet will rise
dramatically;
- technology vendors and service providers will continue to shift priorities
to support Internet commerce;
- buyers will continue to press their suppliers to offer frequently
purchased goods over the Internet;
- suppliers will continue to incentivize buyers not to use high-cost
channels like phone and fax; and
- three industries--aerospace, utilities, and motor vehicles--will increase
Internet sales.
International Data Corporation's estimate that corporate spending on
Internet software will increase from $1.7 billion in 1998 to $13.6 billion in
2002, is based on several assumptions, including that:
- the reengineering of business processes that span departmental functions
will continue through the millennium; and
- organizations will use Web-enabled analytical applications to control
expenses and find new business opportunities.
If any of these assumptions is incorrect, actual results may differ from the
projections based on those assumptions. The applications and Internet related
markets may not grow at rates projected by International Data Corporation or
Forrester Research. The failure of these markets to grow at projected rates may
seriously harm our business and may cause the price of our common stock to
decline.
RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
THE MARKET PRICE OF OUR COMMON STOCK MAY BE VOLATILE, WHICH COULD RESULT IN
SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING.
Prior to this offering, you could not buy or sell our common stock publicly.
An active public market for our common stock may not develop or be sustained
after this offering. We will negotiate and determine the initial public offering
price with the representatives of the underwriters based on several factors.
This price may vary from the market price of our common stock after this
offering. You may be unable to sell your shares of common stock at or above the
initial offering price. The market price of our common stock may fluctuate
significantly in response to the following factors, some of which are beyond our
control:
- general fluctuations in stock market prices and volume, which are
particularly common among highly volatile securities of software and
Internet-based companies like ours;
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant products, contracts,
acquisitions or strategic partnerships; and
- additions or departures of key personnel.
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<PAGE>
WE COULD BE THE SUBJECT OF SECURITIES CLASS ACTION LITIGATION DUE TO FUTURE
STOCK PRICE VOLATILITY.
The stock market in general, and market prices for Internet-related
companies like ours in particular, recently have experienced extreme volatility
that often has been unrelated to the operating performance of the underlying
companies. These broad market and industry fluctuations may adversely affect the
market price of our common stock, regardless of our operating performance.
Recently, when the market price of a stock has been volatile, holders of that
stock have often instituted securities class action litigation against the
company that issued the stock. If any of our stockholders brought a lawsuit
against us, we could incur substantial costs defending the lawsuit. The lawsuit
could also divert the time and attention of our management.
FUTURE SALES OF COMMON STOCK BY OUR EXISTING SHAREHOLDERS COULD CAUSE OUR STOCK
PRICE TO FALL.
The market price of our common stock could decline as a result of market
sales of the 17,676,837 shares of common stock that will be held by our existing
stockholders after this offering, or the perception that these sales could
occur. These sales might also make it more difficult for us to sell equity
securities at a time and price that we deem appropriate.
OUR DIRECTORS AND MANAGEMENT WILL COLLECTIVELY CONTROL OVER 45% OF OUR
OUTSTANDING COMMON STOCK.
After this offering, our directors and executive officers and their
affiliates will collectively control approximately 45.6% of our outstanding
common stock. As a result, these stockholders, if they act together, will be
able to influence our management and affairs and all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. This concentration of ownership may have the
effect of delaying or preventing a change in control of our company and might
affect the market price of our common stock.
OUR CORPORATE DOCUMENTS AND DELAWARE LAW MAKE A TAKEOVER OF OUR COMPANY MORE
DIFFICULT, WHICH MAY LIMIT THE MARKET PRICE OF OUR COMMON STOCK.
Our charter and by-laws and Section 203 of the Delaware General Corporation
Laws contain provisions that might enable our management to resist a takeover of
our company. These provisions might discourage, delay or prevent a change in the
control of Centra or a change in our management. These provisions could also
discourage proxy contests and make it more difficult for you and other
stockholders to elect directors and take other corporate actions. The existence
of these provisions could limit the price that investors might be willing to pay
in the future for shares of our common stock.
OUR HOLDERS OF SERIES A AND SERIES B PREFERRED STOCK WILL RECEIVE A SUBSTANTIAL
BENEFIT FROM THIS OFFERING.
Pursuant to the terms of our charter, the holders of our series A and
series B preferred stock will receive an aggregate payment of $6.5 million from
us upon the closing of this offering. In addition, all of series A and series B
preferred stock will convert into 3,824,235 shares of common stock.
INVESTORS IN THIS OFFERING WILL PAY A MUCH HIGHER PRICE THAN THE BOOK VALUE OF
OUR COMMON STOCK.
The initial public offering price of our common stock is $7.03 higher than
the book value per share of our common stock, based on an assumed public
offering price of $9.00. As a result, investors purchasing common stock in this
offering will incur immediate and substantial dilution. In the past, we issued
options to acquire common stock at prices significantly below the initial public
offering price. To the extent these outstanding options are ultimately
exercised, there will be further dilution to investors.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from our sale of the 5,000,000 shares of
common stock offered by us will be $41.0 million, based on an assumed public
offering price of $9.00 per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses that we will pay.
We intend to pay $6.5 million of our net proceeds to entities and persons
who hold series A and series B preferred stock immediately before the completion
of this offering. Under the provisions of our certificate of incorporation, this
amount, which equals 150% of the original purchase price paid for the series A
and series B preferred stock, will be payable as a result of the completion of
this offering. The series A and series B preferred stock, along with our other
outstanding series of preferred stock, will convert into common stock
automatically upon the completion of this offering.
We will use our remaining net proceeds for working capital and other general
corporate purposes, including sales and marketing expenses and capital
expenditures. We have not yet determined with any certainty the manner in which
we will allocate the net proceeds, but we currently intend to use approximately
$10 million of the net proceeds to expand our sales and marketing capabilities
and approximately $2 million for capital expenditures. The amounts and timing of
these expenditures will vary depending on a number of factors, including the
amount of cash generated by our operations, competitive and technological
developments, and the rate of growth, if any, of our business. We may also use a
portion of the net proceeds for acquisitions of businesses, products and
technologies complementary to our business. Although we have evaluated possible
acquisitions, from time to time, we currently have no commitments or agreements
to make any acquisitions and we cannot assure you that we will make any
acquisitions in the future. Pending these uses, we intend to invest the net
proceeds in U.S. government securities and other short-term, investment-grade,
interest-bearing instruments, repurchase agreements or high-grade corporate
notes.
DIVIDEND POLICY
We have never declared or paid any cash dividends on shares of our capital
stock. We currently intend to retain earnings, if any, to fund the development
and growth of our business and do not anticipate paying cash dividends in the
foreseeable future. Our payment of any future dividends will be at the
discretion of our board of directors after taking into account various factors,
including our financial condition, operating results, cash needs and growth
plans. Our credit facility contains restrictive covenants that prohibit us from
paying cash dividends or making stock repurchases or redemptions without the
prior written consent of the lender bank.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999:
- on an actual basis, giving effect to a three-for-two common stock split,
and a related charter amendment, effected as of October 27, 1999;
- on a pro forma basis to reflect (a) the conversion of all of our
outstanding preferred stock into common stock upon completion of this
offering, (b) an increase in the book value of the series A and series B
preferred stock to reflect amounts payable to holders upon conversion, and
(c) amendments to our certificate of incorporation effective upon
completion of this offering; and
- on a pro forma as adjusted basis to reflect (a) our sale of 5,000,000
shares of common stock at an assumed public offering price of $9.00 per
share and after deducting estimated underwriting discounts and commissions
and estimated offering expenses that we will pay and (b) the payment of
$6.5 million of our net proceeds to the holders of the series A and series
B preferred stock as described in "Use of Proceeds."
This table should be read together with the consolidated financial
statements and related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Term loan, net of current maturities........................ $ 455 $ 455 $ 455
-------- -------- -------
Redeemable convertible preferred stock, $0.001 par value;
9,164,490 shares authorized, issued, actual; no shares
authorized, issued, pro forma and pro forma as adjusted... 32,353 -- --
-------- -------- -------
Stockholders' equity (deficit):
Preferred stock (undesignated), $0.001 par value; no
shares authorized, actual; 10,000,000 shares authorized,
pro forma and pro forma as adjusted; no shares issued... -- -- --
Common stock, $0.001 par value; 25,000,000 shares
authorized, actual; 100,000,000 shares authorized, pro
forma and pro forma as adjusted; 4,572,003 shares
issued, actual; 18,318,738 shares issued, pro forma;
23,318,738 shares issued, pro forma as adjusted......... 4 18 23
Additional paid-in capital................................ 2,709 29,345 70,290
Accumulated deficit....................................... (23,325) (24,102) (24,102)
Deferred compensation..................................... (1,561) (1,561) (1,561)
Stock subscription receivable............................. (11) (11) (11)
Less--treasury stock, at cost; 641,901 shares actual, pro
forma and pro forma as adjusted......................... (37) (37) (37)
-------- -------- -------
Total stockholders' equity (deficit).................... (22,221) 3,652 44,602
-------- -------- -------
Total capitalization.................................. $ 10,587 $ 4,107 $45,057
======== ======== =======
</TABLE>
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DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $3.7 million, or $0.21 per share of common stock. Pro forma net
tangible book value per share is determined by dividing (a) the amount of our
total tangible assets less our total liabilities, including $6.5 million payable
to the holders of series A and series B preferred stock, by (b) the pro forma
number of shares of common stock outstanding after giving effect to the
conversion of our preferred stock into common stock. After giving effect to our
sale of 5,000,000 shares of common stock at an assumed public offering price of
$9.00 per share and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our adjusted pro
forma net tangible book value as of September 30, 1999 would have been
$44.6 million, or $1.97 per share. This amount represents an immediate increase
in pro forma net tangible book value to our existing stockholders of $1.76 per
share and an immediate dilution to new investors of $7.03 per share. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $9.00
Pro forma net tangible book value per share as of
September 30, 1999...................................... $0.21
Increase per share attributable to new investors.......... 1.76
-----
Adjusted pro forma net tangible book value per share after
this offering............................................. 1.97
-----
Dilution per share to new investors......................... $7.03
=====
</TABLE>
If the underwriters exercise their option to purchase additional shares in
this offering, our adjusted pro forma net tangible book value at September 30,
1999 would have been $50.9 million, or $2.17 per share, representing an
immediate increase in pro forma net tangible book value to our existing
stockholders of $1.96 per share and an immediate dilution to new investors of
$6.83 per share.
The following table summarizes as of September 30, 1999, on a pro forma
basis after giving effect to the conversion of our preferred stock, the number
of shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by our existing stockholders and by new
investors, based upon an assumed public offering price of $9.00 per share and
before deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -----------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 17,676,837 78.0% $31,374,000 41.1% $ 1.77
New investors............................ 5,000,000 22.0 45,000,000 58.9 9.00
---------- ----- ----------- -----
Total.................................. 22,676,837 100.0% $76,374,000 100.0%
========== ===== =========== =====
</TABLE>
The preceding discussion and tables assume no exercise of any stock options
outstanding as of September 30, 1999. As of September 30, 1999, there were
options outstanding to purchase a total of 1,695,525 shares of common stock.
Those options had a weighted average exercise price of $0.26 per share. To the
extent any of these options are exercised, there will be further dilution to new
investors.
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SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this prospectus. The consolidated statement
of operations data for the years ended December 31, 1996, 1997 and 1998 and the
consolidated balance sheet data as of December 31, 1997 and 1998 are derived
from financial statements audited by Arthur Andersen LLP and included elsewhere
in this prospectus. The consolidated statement of operations data for the period
from our inception, April 4, 1995, to December 31, 1995 and the consolidated
balance sheet data as of December 31, 1995 and 1996 are derived from audited
financial statements not included in this prospectus. The consolidated statement
of operations data for the nine months ended September 30, 1998 and 1999 and the
consolidated balance sheet data as of September 30, 1999 are derived from
unaudited consolidated financial statements appearing elsewhere in this
prospectus. The unaudited consolidated financial statements have been prepared
on the same basis as the audited consolidated financial statements and, in the
opinion of our management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information set
forth therein. Historical results are not necessarily indicative of operating
results to be expected in the future.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS
INCEPTION ENDED
(APRIL 4, 1995) YEAR ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, ------------------------------ -------------------
1995 1996 1997 1998 1998 1999
--------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License.............................................. -- -- $ 234 $ 3,356 $ 2,117 $ 4,534
Service.............................................. -- -- 55 870 599 1,048
------- ------- ------- -------
Total revenues..................................... -- -- 289 4,226 2,716 5,582
------- ------- ------- -------
Cost of revenues:
License.............................................. -- -- 75 185 120 138
Service.............................................. -- -- 130 919 684 1,058
------- ------- ------- -------
Total cost of revenues............................. -- -- 205 1,104 804 1,196
------- ------- ------- -------
Gross profit........................................... -- -- 84 3,122 1,912 4,386
------- ------- ------- -------
Operating expenses:
Sales and marketing.................................. $ 94 $ 607 2,465 5,066 3,534 5,218
Product development.................................. 411 1,564 3,042 3,078 2,035 3,138
General and administrative........................... 141 463 983 1,442 1,064 1,544
Compensation charge for issuance of stock options.... -- -- -- -- -- 236
------ ------- ------- ------- ------- -------
Total operating expenses........................... 646 2,634 6,490 9,586 6,633 10,136
------ ------- ------- ------- ------- -------
Operating loss......................................... (646) (2,634) (6,406) (6,464) (4,721) (5,750)
Interest income, net................................... 32 65 35 211 193 211
------ ------- ------- ------- ------- -------
Net loss............................................... (614) (2,569) (6,371) (6,253) (4,528) (5,539)
Accretion of discount on preferred stock............... 85 373 506 506 380 380
------ ------- ------- ------- ------- -------
Net loss attributable to common stockholders........... $ (699) $(2,942) $(6,877) $(6,759) $(4,908) $(5,919)
====== ======= ======= ======= ======= =======
Basic and diluted net loss per common share............ $(0.45) $ (0.75) $ (1.33) $ (1.16) $ (0.86) $ (0.92)
====== ======= ======= ======= ======= =======
Weighted average common shares outstanding............. 1,561 3,935 5,156 5,845 5,706 6,457
====== ======= ======= ======= ======= =======
Pro forma basic and diluted net loss per common
share................................................ $ (0.68) $ (0.45)
======= =======
Pro forma weighted average common shares outstanding... 11,725 14,736
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
-------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 514 $ 964 $ 8,079 $ 1,979 $ 9,652
Working capital............................................. 396 681 7,241 1,541 9,548
Total assets................................................ 676 1,503 9,238 4,753 13,620
Term loan, net of current maturities........................ 48 55 158 530 455
Redeemable convertible preferred stock...................... 1,105 4,240 17,992 18,498 32,353
Total stockholders' equity (deficit)........................ 438 828 (9,977) (16,672) (22,221)
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ TOGETHER WITH "SELECTED CONSOLIDATED FINANCIAL
DATA" AND OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING
ELSEWHERE IN THIS PROSPECTUS. THIS DISCUSSION AND ANALYSIS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS, UNCERTAINTIES AND ASSUMPTIONS.
THE ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF MANY FACTORS, INCLUDING THOSE SET
FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
We are a leading provider of comprehensive Web-based solutions for live
eBusiness collaboration. From our incorporation in April 1995 through
June 1997, we were in the development stage. In July 1997, we began commercial
shipment of the initial version of our software product. In April 1999, we
significantly expanded the functionality of this product and introduced the
enhanced version under the name Centra 99. In October 1999, we announced the
introduction of our Web collaboration service, CentraNow, and the Centra
Business Collaboration Network.
Through September 30, 1999, our revenues were derived from licenses of our
software products, from related maintenance, and from the delivery of
implementation consulting, training and hosting services. We price licenses of
Centra 99 on a rental or purchase basis under a variety of licensing models,
including named-user licenses, concurrent-user licenses, time-limited licenses
and revenue-sharing. Customers who license Centra 99 typically purchase
renewable maintenance contracts that provide software upgrades and technical
support over a stated term, usually a twelve-month period. Maintenance is priced
as a percentage of our license fees. We also offer implementation consulting,
training and education services to our customers on a time-and-materials basis.
In August 1999, we began providing hosting services for customers on a temporary
basis under hosting agreements, with terms ranging from six to twelve months, to
outsource the administration and infrastructure necessary to operate Centra 99.
The hosting fees include a set-up fee and monthly service fees, in addition to
license fees for the software. While CentraNow currently is a free service, we
intend to offer priced services with expanded functionality on CentraNow in the
future.
We recognize our software license revenues in accordance with AICPA
Statement of Position 97-2, "Software Revenue Recognition," and related
amendments and interpretations contained in the AICPA's Statement of Position
98-4. We generally recognize revenues allocated to software licenses upon
delivery of the software products, when all of the following conditions have
been met:
- we have signed a non-cancelable license agreement with the customer;
- the license fee is fixed or determinable; and
- the license fee is collectible.
Because substantially all of our software license agreements include related
services, these agreements are multiple-element arrangements. We allocate the
fees in multiple-element arrangements based on vendor-specific objective
evidence of value for each element. Delivery of the software generally is deemed
to occur upon shipment of the software. In situations where we provide
application hosting services, delivery of the software occurs upon initiation of
the hosting service. Revenues from maintenance and hosting services are
recognized ratably over the related contractual period. Revenues allocable to
implementation, consulting and training services are recognized as services are
performed.
We record as deferred revenues any billed amounts due from customers in
excess of revenues recognized.
We sell our products and services primarily through a direct sales force and
through relationships with distributors and other strategic partners. We have
established European sales operations based in the United Kingdom and have a
master distributor in Japan. Revenues from international sales were
19
<PAGE>
$435,000 for the nine months ended September 30, 1999, or 8% of total revenues.
We intend to continue to build our international presence and anticipate that
the percentage of revenues derived from outside the United States will increase.
Our cost of license revenues includes royalties due to third parties for
technology included in our products, as well as costs of product documentation,
media used to deliver our products and fulfillment. Our cost of service revenues
includes (a) salaries and related expenses for our consulting, education and
technical support services organizations, (b) an overhead allocation consisting
primarily of our facilities, communications and depreciation expenses, and
(c) direct costs related to our hosting services.
Our operating expenses are classified into four general categories: sales
and marketing, product development, general and administrative, and compensation
charge for issuance of stock options.
- Sales and marketing expenses consist primarily of (a) salaries and other
related costs for sales and marketing personnel and (b) costs associated
with marketing programs, including trade shows and seminars, public
relations activities and new product launches.
- Product development expenses consist primarily of employee salaries and
benefits, fees for outside consultants and related costs associated with
the development of new products, the enhancement of existing products,
quality assurance, testing and documentation.
- General and administrative expenses consist primarily of salaries and
other related costs for executive, financial, administrative and
information technology personnel, as well as accounting and legal costs.
- Compensation charge for issuance of stock options represents the
amortization, over the vesting period of the option, of the difference
between the exercise price of options granted to employees and the deemed
fair market value of the options for financial reporting purposes.
In the development of new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, our software
development costs eligible for capitalization have been insignificant and all
costs related to internal product development have been expensed as incurred.
Our series A and series B preferred stock have participation rights that
allow holders to receive a liquidation premium equal to 150% of their original
investment upon the redemption, liquidation and automatic conversion of the
preferred stock into common stock. For financial reporting purposes, we
discounted the value of series A and series B preferred stock by the value of
these participating rights. We have been increasing the carrying value of the
series A and series B preferred stock for the liquidation premium and
participation discount through charges to stockholders' deficit over the
redemption period. This increase is also reflected in the accretion of discount
on preferred stock in our statement of operations. Upon the automatic conversion
of the series A and series B preferred stock into common stock at the completion
of this offering, any unamortized liquidation premium and participation discount
on the series A and series B preferred stock will be accreted. The unamortized
liquidation premium and participation discount on the series A and series B
preferred stock as of September 30, 1999 totalled $777,000. This accretion will
have a significant adverse impact on net income (loss) attributable to common
stockholders and basic and diluted net income (loss) per share in the period in
which the conversion occurs.
We have experienced substantial losses in each fiscal period since our
inception. As of September 30, 1999, we had an accumulated deficit of
$23.3 million. These losses and our accumulated deficit have resulted from our
lack of substantial revenues, as well as the significant costs incurred in the
development of our products and services and in the preliminary establishment of
our infrastructure. We expect to increase our expenditures in all areas in order
to execute our business plan, particularly in sales and marketing. The planned
increase in sales and marketing expense will result principally from the hiring
of additional sales force personnel to focus on major account sales
20
<PAGE>
and from marketing programs to increase brand awareness. Accordingly, we expect
to experience additional losses for the foreseeable future.
Although we have experienced revenue growth in recent periods, our recent
rate of revenue growth may not be sustainable. We may not be able to continue to
increase our revenues or to attain profitability and, if we do achieve
profitability, we may not be able to sustain profitability for any period. We
believe that period-to-period comparisons of our historical operating results
may not be meaningful, and you should not rely upon them as an indication of our
future financial performance.
RESULTS OF OPERATIONS
The following table sets forth operating data expressed as percentages of
total revenues for each period indicated. We had no revenues in 1996.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ----------------------
1997 1998 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................................... 81% 79% 78% 81%
Service................................................... 19 21 22 19
------ ---- ---- ----
Total revenues.......................................... 100 100 100 100
------ ---- ---- ----
Cost of revenues:
License................................................... 26 4 4 2
Service................................................... 45 22 26 19
------ ---- ---- ----
Total cost of revenues.................................. 71 26 30 21
------ ---- ---- ----
Gross margin................................................ 29 74 70 79
------ ---- ---- ----
Operating expenses:
Sales and marketing....................................... 853 120 130 94
Product development....................................... 1,053 73 75 56
General and administrative................................ 340 34 39 28
Compensation charge for issuance of stock options......... -- -- -- 4
------ ---- ---- ----
Total operating expenses................................ 2,246 227 244 182
------ ---- ---- ----
Operating loss.............................................. (2,217) (153) (174) (103)
Interest income, net........................................ 12 5 7 4
------ ---- ---- ----
Net loss.................................................... (2,205)% (148)% (167)% (99)%
====== ==== ==== ====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES. Total revenues increased by $2.9 million, or 106%, to
$5.6 million for the nine months ended September 30, 1999, from $2.7 million for
the nine months ended September 30, 1998. The increase was attributable to an
increase in our customer base resulting in substantial growth in license and
service revenues.
- License revenues increased by $2.4 million, or 114%, to $4.5 million for
the nine months ended September 30, 1999, from $2.1 million for the nine
months ended September 30, 1998. The increase was attributable to the
expansion of our sales force, increased sales productivity due to the
addition of new sales management personnel, expanded sales to our existing
customer base, and an increase in the average selling prices of software
licenses resulting from the introduction and release of Centra 99 in
April 1999.
21
<PAGE>
- Service revenues increased by $449,000, or 75%, to $1.0 million for the
nine months ended September 30, 1999, from $599,000 for the nine months
ended September 30, 1998. The increase related primarily to an increase in
maintenance support contracts and consulting services sold to new
customers. Service revenues represented 19% of total revenues for the nine
months ended September 30, 1999 and 22% of total revenues for the nine
months ended September 30, 1998.
COST OF LICENSE REVENUES. Cost of license revenues increased by $18,000, or
15%, to $138,000 for the nine months ended September 30, 1999, from $120,000 for
the nine months ended September 30, 1998. The increase was primarily the result
of increased license revenues. Cost of license revenues was 3% of license
revenues for the nine months ended September 30, 1999 and 6% of license revenues
for the nine months ended September 30, 1998. The decrease as a percentage of
license revenues was attributable to a decrease in royalty obligations to third
parties resulting from our purchase in 1999 of technology that we previously
licensed. We anticipate that costs of license revenues will increase in the
future in absolute dollars due to additional customers licensing our products
and the licensing of additional technologies from third parties.
COST OF SERVICE REVENUES. Cost of service revenues increased by $374,000,
or 55%, to $1.1 million for the nine months ended September 30, 1999, from
$684,000 for the nine months ended September 30, 1998. The increase was due
primarily to an increase in the number of technical support, consulting and
education personnel providing services to our customers. Cost of service
revenues was 101% of service revenues for the nine months ended September 30,
1999 and 114% of service revenues for the nine months ended September 30, 1998.
The decrease as a percentage of service revenues was due primarily to the growth
in service revenues resulting from a larger installed customer base. We
anticipate that the cost of service revenues will continue to increase in
absolute dollars to the extent that we continue to generate new customers and
associated license and service revenues. Cost of service revenues as a
percentage of service revenues can be expected to vary significantly from period
to period depending on the mix of services that we provide and overall
utilization rates of our service personnel.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$1.7 million, or 48%, to $5.2 million for the nine months ended September 30,
1999, from $3.5 million for the nine months ended September 30, 1998. The
increase was primarily attributable to an increase in the number of direct
sales, telemarketing and sales management employees. To a lesser extent, the
increase was related to an increase in marketing programs, including trade
shows, and advertising and public relations related to product launch
activities. Sales and marketing expenses were 94% of total revenues for the nine
months ended September 30, 1999 and 130% of total revenues for the nine months
ended September 30, 1998. The decrease as a percentage of total revenues was due
primarily to the increase in total revenues. We expect that sales and marketing
expenses will continue to increase in absolute dollars to support marketing
programs for new product launches, international expansion and increased sales
efforts.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased by
$1.1 million, or 54%, to $3.1 million for the nine months ended September 30,
1999, from $2.0 million for the nine months ended September 30, 1998. The
increase primarily resulted from salaries associated with newly hired product
development personnel, increased fees for outside consultants and, to a lesser
extent, the purchase of certain source code. Product development expenses were
56% of total revenues for the nine months ended September 30, 1999 and 75% of
total revenues for the nine months ended September 30, 1998. The decrease as a
percentage of total revenues was due primarily to the increase in total
revenues. We believe that continued investment in product development is
critical to attaining our strategic objectives, and, as a result, we expect
product development expenses will continue to increase in absolute dollars as
additional product development personnel are added.
22
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $480,000, or 45%, to $1.5 million for the nine months ended
September 30, 1999, from $1.1 million for the nine months ended September 30,
1998. The increase primarily resulted from salaries associated with newly hired
personnel and related operational costs required to manage our growth. General
and administrative expenses were 28% of total revenues for the nine months ended
September 30, 1999 and 39% of total revenues for the nine months ended
September 30, 1998. The decrease as a percentage of total revenues was due
primarily to the increase in total revenues. We expect that general and
administrative expenses will continue to increase in absolute dollars, as we
continue to add personnel to support our expanding operations, incur additional
costs related to the growth of our business, and assume the responsibilities and
the costs associated with becoming a public company.
COMPENSATION CHARGE FOR ISSUANCE OF STOCK OPTIONS. We incurred a charge of
$236,000 for the nine months ended September 30, 1999 related to the issuance of
stock options during 1999 with exercise prices less than the deemed fair market
value for financial reporting purposes on the date of grant. These options vest
over four years, which will result in additional compensation expense of up to
$2.3 million for periods ending subsequent to September 30, 1999. If all options
vest in accordance with the original vesting terms, we expect to incur charges
of $112,000 in the fourth quarter of 1999, $449,000 in 2000, $449,000 in 2001,
$449,000 in 2002 and $101,000 in 2003.
INTEREST INCOME, NET. Interest income, net increased by $18,000, or 9%, to
$211,000 for the nine months ended September 30, 1999, from $193,000 for the
nine months ended September 30, 1998. The increase resulted from a higher
average cash balance for the nine months ended September 30, 1999 compared to
the nine months ended September 30, 1998 due to the receipt of proceeds from our
sale of equity securities in April 1999.
NET LOSS. Net loss increased by $1.0 million, or 22%, to $5.5 million for
the nine months ended September 30, 1999, from $4.5 million for the nine months
ended September 30, 1998. The increase was due to increased operating expenses,
partially offset by increased revenues.
COMPARISON OF 1998, 1997 AND 1996
REVENUES. Total revenues increased by $3.9 million to $4.2 million for 1998
from $289,000 for 1997, due to the release of our initial product in July 1997
and increased acceptance of our products. We had no revenues in 1996. Bay
Networks, which was subsequently acquired by Nortel Networks, accounted for 11%
of total revenues for 1998.
- License revenues increased by $3.1 million to $3.4 million for 1998 from
$234,000 for 1997. The increase in license revenues reflected a full year
of sales in 1998, the release of a new product version in October 1997 and
the expansion of the direct sales force in 1998. License revenues
represented 79% of total revenues for 1998 and 81% of total revenues for
1997.
- Service revenues increased by $815,000 to $870,000 for 1998 from $55,000
for 1997. The increase related primarily to an increase in maintenance
support contracts and consulting services sold to new customers. Service
revenues represented 21% of total revenues for 1998 and 19% of total
revenues for 1997.
COST OF LICENSE REVENUES. Cost of license revenues increased by $110,000 to
$185,000 for 1998 from $75,000 for 1997. The increase was attributable to
increases in license revenues and third-party royalties. Cost of license
revenues was 6% of license revenues for 1998 and 32% of license revenues for
1997. The improvement in margins for license revenues was related primarily to
the increase in license revenues.
COST OF SERVICE REVENUES. Cost of service revenues increased by $789,000 to
$919,000 for 1998 from $130,000 for 1997. The increase was principally a result
of an increase in the number of service personnel, as well as a full year of
service costs in 1998. Cost of service revenues was 106% of service revenues for
1998 and 236% of service revenues for 1997. During 1997 and 1998, we realized
negative
23
<PAGE>
margins on service revenues as we increased the number of our service employees
in anticipation of a larger customer base.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased by
$1.9 million, or 306%, to $2.5 million for 1997 from $607,000 for 1996, and
increased by $2.6 million, or 106%, to $5.1 million for 1998 from $2.5 million
for 1997. The increases in these periods were due to increases in sales and
marketing personnel and marketing program expenditures.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased by
$1.4 million, or 95%, to $3.0 million for 1997 from $1.6 million for 1996, and
increased by $36,000, or 1%, to $3.1 million for 1998 from $3.0 million for
1997. The increases in these periods were primarily related to an increase in
the number of product development personnel.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased by $520,000, or 112%, to $983,000 for 1997 from $463,000 for 1996, and
increased by $459,000, or 47%, to $1.4 million for 1998 from $983,000 for 1997.
The increases in these periods were primarily due to salaries associated with an
increase in the number of general and administrative employees.
INTEREST INCOME, NET. Interest income, net decreased by $30,000, or 46%, to
$35,000 for 1997 from $65,000 for 1996, and increased by $176,000 to $211,000
for 1998 from $35,000 for 1997. The decrease from 1996 to 1997 was due primarily
to an increase in debt obligations in 1997, combined with a lower average cash
balance in 1997 compared with 1996 resulting from the timing of capital
financing activities. The increase from 1997 to 1998 resulted from an increase
in average cash balances in 1998 compared to 1997 due to the receipt of proceeds
from our sale of equity securities in December 1997.
NET LOSS. Net loss increased by $3.8 million, or 148%, to $6.4 million for
1997 from $2.6 million for 1996, and decreased by $118,000, or 1%, to $6.3
million for 1998 from $6.4 million for 1997. The increase in 1997 reflected an
increase in overall headcount and operating expenses in connection with our
initial product shipments beginning in July 1997. The decrease in 1998 was due
to a full year of revenues in 1998, partially offset by increased operating
expenses.
QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited quarterly results of operations
for 1998 and the nine months ended September 30, 1999 both in absolute dollars
and as a percentage of our total revenues for each quarter. You should read the
following table in conjunction with our consolidated financial statements and
related notes appearing elsewhere in this prospectus. We have prepared this
unaudited information on a basis consistent with the audited consolidated
financial statements contained in this prospectus and includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of our financial position and operating results for the
quarters presented. You should not draw any conclusions about our future results
from the results of operations for any quarter.
24
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- --------- ---------- --------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................... $ 645 $ 674 $ 798 $ 1,239 $ 686 $ 1,503 $ 2,345
Service................................... 169 228 202 271 340 337 371
------- ------- ------- ------- ------- ------- -------
Total revenues.......................... 814 902 1,000 1,510 1,026 1,840 2,716
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License................................... 35 43 42 65 36 55 47
Service................................... 178 265 241 235 327 320 411
------- ------- ------- ------- ------- ------- -------
Total cost of revenues.................. 213 308 283 300 363 375 458
------- ------- ------- ------- ------- ------- -------
Gross profit................................ 601 594 717 1,210 663 1,465 2,258
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing....................... 1,270 1,123 1,141 1,532 1,356 1,861 2,001
Product development....................... 629 715 691 1,043 1,122 1,041 975
General and administrative................ 343 389 332 378 417 492 635
Compensation charge for issuance of stock
options................................. -- -- -- -- 21 103 112
------- ------- ------- ------- ------- ------- -------
Total operating expenses................ 2,242 2,227 2,164 2,953 2,916 3,497 3,723
------- ------- ------- ------- ------- ------- -------
Operating loss.............................. (1,641) (1,633) (1,447) (1,743) (2,253) (2,032) (1,465)
Interest income, net........................ 93 57 43 18 5 80 126
------- ------- ------- ------- ------- ------- -------
Net loss.................................... (1,548) (1,576) (1,404) (1,725) (2,248) (1,952) (1,339)
Accretion of discount on preferred stock.... 127 127 126 126 127 127 126
------- ------- ------- ------- ------- ------- -------
Net loss attributable to common
stockholders.............................. $(1,675) $(1,703) $(1,530) $(1,851) $(2,375) $(2,079) $(1,465)
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
--------- --------- ---------- --------- --------- --------- ----------
(AS PERCENTAGES OF TOTAL REVENUES)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
License................................... 79% 75% 80% 82% 67% 82% 86%
Service................................... 21 25 20 18 33 18 14
---- ---- ---- ---- ---- ---- ---
Total revenues.......................... 100 100 100 100 100 100 100
---- ---- ---- ---- ---- ---- ---
Cost of revenues:
License................................... 4 5 4 4 3 3 2
Service................................... 22 29 24 16 32 17 15
---- ---- ---- ---- ---- ---- ---
Total cost of revenues.................. 26 34 28 20 35 20 17
---- ---- ---- ---- ---- ---- ---
Gross margin................................ 74 66 72 80 65 80 83
---- ---- ---- ---- ---- ---- ---
Operating expenses:
Sales and marketing....................... 156 125 114 101 132 101 74
Product development....................... 77 79 69 69 109 57 36
General and administrative................ 42 43 33 25 41 27 23
Compensation charge for issuance of stock
options................................. -- -- -- -- 2 5 4
---- ---- ---- ---- ---- ---- ---
Total operating expenses................ 275 247 216 195 284 190 137
---- ---- ---- ---- ---- ---- ---
Operating loss.............................. (201) (181) (144) (115) (219) (110) (54)
Interest income, net........................ 11 6 4 1 -- 4 5
---- ---- ---- ---- ---- ---- ---
Net loss.................................... (190) (175) (140) (114) (219) (106) (49)
Accretion of discount on preferred stock.... 16 14 13 8 12 7 5
---- ---- ---- ---- ---- ---- ---
Net loss attributable to common
stockholders.............................. (206)% (189)% (153)% (122)% (231)% (113)% (54)%
==== ==== ==== ==== ==== ==== ===
</TABLE>
25
<PAGE>
Our total revenues have increased each period except for a decrease for the
three months ended March 31, 1999, which resulted from decreased sales
productivity related to our replacement of a senior sales executive. These
increases have primarily been due to increased acceptance of our products, the
expansion of our sales force and increased service revenues as our installed
customer base has grown. Total cost of revenues also have generally increased in
absolute dollars over the periods presented due to increased royalty costs and
an increase in the number of customer support personnel. A significant portion
of our revenues has been generated from a limited number of customers, and it is
difficult to predict the timing of future orders and shipment to these and other
customers. We anticipate that our operating results in any given period will
continue to depend to a significant extent upon sales to a small number of
customers.
Operating expenses have experienced significant variations from quarter to
quarter primarily as the result of the timing and number of additions of
personnel and related compensation costs for sales and marketing, product
development and general and administrative expenses. In addition, variations in
sales and marketing are also related to the timing, number and significance of
specific marketing activities, such as trade shows, product launches and other
promotional activities. Operating expenses will continue to increase as we grow
our infrastructure to support our expanding operations.
A variety of factors, many of which are outside of our control, may affect
our quarterly operating results. These factors include:
- the evolution of the market for live eBusiness collaboration solutions;
- market acceptance of our products and services;
- our success and timing in developing and introducing new products and
enhancements to existing products;
- the introduction of products and services by our competitors;
- changes in pricing policies by us or our competitors;
- the length of our sales cycle;
- changes in customer buying patterns; and
- market entry by new competitors.
Our quarterly operating results have varied widely in the past, and we
expect that they will continue to fluctuate in the future as a result of a
number of factors, many of which are outside our control. Our limited operating
history and the undeveloped nature of the market for live eBusiness
collaboration solutions make predicting future revenues difficult. Our expense
levels are based, in part, on expectations regarding future revenue increases,
and to a large extent, such expenses are fixed, particularly in the short term.
There can be no assurance that our expectations regarding future revenues are
accurate. Moreover, we may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to our expectations would likely cause
significant increases in our net losses for that period.
Due to the foregoing factors, our operating results are difficult to
forecast. We believe that period-to-period comparisons of our operating results
are not meaningful, and you should not rely on them as indicative of our future
performance. You should also evaluate our prospects in light of the risks,
expenses and difficulties commonly encountered by comparable early-stage
companies in new and rapidly emerging markets. We cannot assure you that we will
successfully address the risks and challenges that face us. In addition,
although we have experienced significant revenue growth recently, we cannot
assure you that our revenues will continue to grow or that we will become or
remain profitable in the future.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
private sales of equity securities, resulting in net proceeds of $31.4 million
through September 30, 1999. To a lesser extent, we
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have financed our operations with equipment financing through a line of credit
and term loan arrangements with Silicon Valley Bank.
As of September 30, 1999, we had cash and cash equivalents totaling
$3.9 million, an increase from $2.0 million of cash and cash equivalents held as
of December 31, 1998. This increase primarily resulted from our sale of equity
securities in April 1999, which provided net proceeds of $13.4 million, reduced
by cash used to fund operations and investing activities for the first nine
months of 1999.
Our operating activities resulted in a net cash outflow of $5.2 million for
the nine months ended September 30, 1999, primarily due to operating losses, as
well as increases in account receivables and prepaid expenses, partially offset
by increases in depreciation and amortization and deferred revenue. Our
operating activities resulted in net cash outflows of $2.3 million for 1996,
$5.6 million for 1997 and $6.5 million for 1998. The operating cash outflows
primarily resulted from operating losses and increases in accounts receivable,
partially offset by increases in accounts payable, accrued expenses and deferred
revenues.
Our investing activities resulted in a net cash outflow of $6.4 million for
the nine months ended September 30, 1999, primarily due to increases in
short-term investments. Our investing activities resulted in net cash inflows of
$51,000 for 1996 and net cash outflows of $661,000 for 1997 and $181,000 for
1998. Our investing activities principally consist of purchases of property and
equipment.
Our financing activities resulted in a net cash inflow of $13.5 million for
the nine months ended September 30, 1999, primarily due to our sale of equity
securities in April 1999. Our financing activities resulted in net cash inflows
of $3.2 million for 1996, $13.3 million for 1997 and $632,000 for 1998. Our
financing activities principally consist of sales of equity securities and the
issuance and repayment of bank loans.
As of September 30, 1999, under an equipment term loan line of credit, we
had outstanding loans of $734,000, of which $525,000 bear interest at the rate
of 8.75% per year and $209,000 bear interest at the rate of 9.25% per year.
Principal payments are due in 36 equal monthly installments through
September 30, 2002, and all borrowings are secured by substantially all of our
assets. We have a $750,000 bank revolving line of credit that expires on
December 30, 1999. Borrowings under the revolving line of credit bear interest
at a reference prime rate plus .50% and are secured by substantially all of our
assets. As of September 30, 1999, no amounts were outstanding under the
revolving line of credit. All of our lending facilities require us to comply
with financial covenants, including requirements that we maintain specified
financial ratios. We were in compliance with these financial covenants as of
September 30, 1999.
Capital expenditures totalled $315,000 for 1996, $543,000 for 1997, $472,000
for 1998 and $557,000 for the nine months ended September 30, 1999. Our capital
expenditures consisted of purchases of operating resources to manage our
operations, including computer hardware and software, office furniture and
equipment and leasehold improvements. Purchases of computer equipment represent
the largest component of our capital expenditures. We expect capital
expenditures to increase for the foreseeable future as we increase our number of
employees, increase the size of our operating facilities, and improve and expand
our information systems. Since inception, we have generally funded capital
expenditures either through the use of working capital or with equipment bank
loans.
As of December 31, 1998, we had net operating loss carryforwards of
$14.6 million and research and development credit carryforwards of $278,000. The
net operating loss and credit carryforwards will expire at various dates,
beginning in 2000, if not used. Under the provisions of the Internal Revenue
Code, substantial changes in our ownership may limit the amount of net operating
loss carryforwards that could be utilized annually in the future to offset
taxable income. A full valuation allowance has been established in our financial
statements to reflect the uncertainty of our ability to use available tax loss
carryforwards and other deferred tax assets.
We expect to experience significant growth in our operating expenses,
particularly product development and sales and marketing expenses, for the
foreseeable future in order to execute our
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business plan. As a result, we anticipate that such operating expenses, as well
as planned capital expenditures, international sales expansion and the launch of
our Web-based service will constitute a material use of our cash resources. A
portion of our net proceeds from this offering may be used to fund the expansion
of our sales and marketing capabilities and capital expenditures, as described
in "Use of Proceeds." We also may utilize cash resources to fund acquisitions
of, or investments in, complementary businesses, technologies or product lines.
We believe that the net proceeds from the sale of common stock in this offering,
together with our existing cash and cash equivalents, will be sufficient to
finance our operations through at least the next 12 months. Thereafter, we may
find it necessary to obtain additional equity or debt financing. If additional
financing is needed, there can be no assurance that such financing will be
available to us on commercially reasonable terms, if at all.
IMPACT OF THE YEAR 2000 ISSUE
Many currently installed computer systems and software products are unable
to distinguish between twentieth and twenty-first century dates because those
systems and products were developed using two digits rather than four to
determine the applicable year. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such "Year
2000" requirements.
STATE OF READINESS OF OUR OPERATIONS. Our business is dependent on the
operation of numerous systems that could potentially be affected by Year
2000-related problems. Those systems include, among others:
- the software products we sell to customers;
- hardware and software systems used by us in our operations;
- communication networks such as our client/server network, the Internet and
our corporate intranet;
- the hardware and software systems of our customers and suppliers; and
- non-information technology systems and services, such as utilities,
telephone systems and building systems.
We have conducted an assessment of the potential overall impact of the Year
2000 on our operations. To date, we have identified and tested the material
systems used in our business that may be affected by the Year 2000 and we have
not identified any non-compliant systems used in our operations.
READINESS OF OUR PRODUCTS. Based on a third-party review of the use of
dates within our products, each of the current versions of our products was
found to be Year 2000 compliant when used in accordance with the related
documentation, subject to the Year 2000 compliance of the underlying host
machine and any other software used in connection with our products.
RISKS. Although we have not been party to any litigation or arbitration
proceedings to date involving our products or services related to Year 2000
compliance issues, we may in the future be required to defend our products or
services in such proceedings, or to negotiate resolutions of claims based on
Year 2000 issues. The costs of defending and resolving Year 2000-related
disputes, regardless of the merits of such disputes, and any liability for Year
2000 related damages, including consequential damages, could have a material
adverse effect on our business, operating results and financial condition.
CONTINGENCY PLAN. To date, we have not encountered any material Year 2000
problems with the hardware and software systems we use in our operations.
However, we could experience material adverse effects on our business if we fail
to identify all Year 2000 dependencies in our systems and in the systems of our
suppliers, customers and financial institutions. We have completed a contingency
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plan for handling Year 2000 problems that are not detected and corrected prior
to their occurrence. Despite our efforts, we may not identify and remediate all
significant Year 2000 problems on a timely basis, remediation efforts may
involve significant time and expense, and unremediated problems may have a
material adverse effect on our business. We do not plan to assess the specific
Year 2000 compliance of external forces such as utility and transportation
systems or Year 2000 compliance failures that might generally affect industry
and commerce. Any Year 2000 failure of this type, or any other significant
unforeseen Year 2000 failure may force us to halt or significantly curtail our
operations for an indeterminate period.
COSTS. To date, we have not incurred any material costs directly associated
with our Year 2000 compliance efforts, except for compensation expense
associated with our salaried employees who have devoted some of their time to
our Year 2000 assessment and remediation efforts and the costs of a third party
hired by us to test our products and internal systems for Year 2000 problems. We
do not expect the total cost of Year 2000 problems to be material to our
business, operating results and financial condition. Costs associated with Year
2000 issues totalled less than $50,000 through September 30, 1999. We anticipate
that we will spend less than $50,000 in future costs associated with our Year
2000 readiness.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133,
as recently amended, is effective for fiscal years beginning after June 15,
2000. Because we do not currently hold any derivative instruments and do not
currently engage in hedging activities, we expect the adoption of SFAS No. 133
will not have a material effect on our financial position or operating results.
In December 1998, the AICPA issued Statement of Position 98-9, "Modification
of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." SOP 98-9 requires use of the residual method of recognition of
revenues when vendor-specific objective evidence exists for undelivered elements
but does not exist for delivered elements of a software arrangement. We will be
required to comply with the provisions of SOP 98-9 for transactions entered into
beginning January 1, 2000. We do not expect the adoption of SOP 98-9 will have a
material effect on our financial position or operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and sell them worldwide. As a
result, our financial results could be affected by factors such as changes in
foreign currency exchange rates or weak economic conditions in foreign markets.
Since our sales are currently priced in U.S. dollars and translated to local
currency amounts, a strengthening of the dollar could make our products less
competitive in foreign markets. Interest income and expense are sensitive to
changes in the general level of U.S. interest rates, particularly since our
investments are in short-term instruments and our long-term debt and available
line of credit require interest payments calculated at variable rates. Based on
the nature and current levels of our investments and debt, however, we have
concluded that there is no material market risk exposure.
Our general investing policy is to limit the risk of principal loss and
ensure the safety of invested funds by limiting market and credit risk. We
currently use a registered investment manager to place our investments in highly
liquid money market accounts and short-term investments. All highly liquid
investments with original maturities of three months or less are considered to
be cash equivalents.
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BUSINESS
OVERVIEW
We are a leading provider of software and services that support live
eBusiness collaboration, enabling the development of stronger customer, partner
and employee relationships, collaborative commerce, and corporate learning and
training. Our products provide Internet infrastructure for comprehensive live
collaboration and include functionalities such as voice over the Internet,
software application sharing, real-time data exchange and shared workspaces.
Companies can use our products for selling, marketing, services and learning.
Our products are reliable and easy to use, and are able to handle many
concurrent users. They are designed to integrate with our customers' existing
computer systems and emerging Internet technologies. As of September 30, 1999,
we had over 150 customers, including Clarke American, Compaq, i2 Technologies,
Kraft Foods, MCI WorldCom, Nationwide Mutual Insurance, Nortel Networks,
PricewaterhouseCoopers, Schering Plough, University of Tennessee and Viacom. In
October 1999, we introduced CentraNow, a Web service for live online business
collaboration, as well as the Centra Business Collaboration Network or Centra
BCN, a global online business network that enables content and service providers
and users to conduct business-to-business interactions over the Web.
INDUSTRY BACKGROUND
The Internet is experiencing dramatic growth, both in the number of users
and as a means of conducting business. International Data Corporation estimates
that the number of Web users in commercial businesses will increase from
59 million in 1998 to 250 million by 2003. According to Forrester Research,
business-to-business e-commerce will increase from $43 billion in 1998 to
$1.3 trillion in 2003. As e-commerce and the number of online constituents
grows, companies are making substantial investments in the development of the
software infrastructure necessary to take advantage of the power and
accessibility of the Internet. International Data Corporation also estimates
that corporate spending on Internet software will increase from $1.7 billion in
1998 to $13.6 billion in 2002.
To date, companies have focused their Internet infrastructure spending
primarily on technologies designed to enhance the efficiency of processing
commercial transactions. Companies increasingly seek solutions that complement
the transactional processing of e-commerce applications with a live, interactive
environment for the exchange of important information with their constituents,
including customers, partners and employees. These companies seek to utilize the
capabilities of the Internet for business interactions in order to enhance
relationships, create revenue-generating opportunities through customer
collaboration, use intellectual capital more effectively, improve employee
productivity and lower operating costs. In order to achieve these goals,
companies need collaborative technologies that enable the sharing of
business-critical information across geographically distributed enterprises.
These technologies must support the numerous ways in which people collaborate,
including one-to-one customer and sales interactions, one-to-many seminar and
presentation events and many-to-many learning and interactive teamwork sessions.
In order to develop and maintain strong business relationships, companies
historically have relied on in-person meetings and traditional business
collaboration technologies, such as the telephone and videoconferencing. To
support in-person meetings, companies incur significant costs resulting from
lost productivity and from employee travel. More importantly, the time and
expense required for in-person collaboration limit a company's ability to
deliver the frequent and spontaneous real-time interactions that are necessary
to strengthen customer and partner relationships and to improve employee
productivity. While the telephone offers broad accessibility and live
interaction, it supports only voice communication and lacks support for other
critical elements of effective business collaboration, such as shared workspaces
and the ability to share control of, and access to, software applications.
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Videoconferencing provides real-time video and voice communication, but it is
expensive and generally limited to specifically configured corporate sites.
The Internet provides a new medium for live collaboration between a company
and its constituents. However, most existing Internet-based solutions, including
text chat, instant messaging and screen sharing, address only discrete live
collaboration needs and are not integrated with each other around a common user
interface or back-end management system. As a result, these products do not
support the broad range of live interaction required by business professionals
for effective live collaboration, and they are not suitable for organizations
seeking to simplify their information technology systems around corporate
standards.
To maximize the return on their investments in Internet infrastructure and
harness the power and accessibility of the Internet for conducting business
interactions, companies require a solution that can integrate voice
communication, conferencing, content sharing and group interaction, which
collectively enable live online business, or eBusiness, collaboration. A live
eBusiness collaboration solution must support a broad range of group
interactions in a variety of business contexts through one consistent and
easy-to-use interface. The solution must allow customers, partners and employees
to interact from any location, regardless of whether they are on a corporate
network or dialing-in from home or on the road. Finally, an effective live
eBusiness collaboration solution must have a reliable and scalable management
environment that can grow to support and integrate with e-commerce Web sites,
enterprise computer systems and emerging Web technologies.
OUR SOLUTION
We are a leading provider of solutions for live eBusiness collaboration that
enable the development of stronger business relationships, collaborative
commerce, and corporate learning and training. Our solution consists of three
elements: Centra 99, a Web-based enterprise-class software application;
CentraNow, a Web collaboration service; and Centra BCN, our online network of
members and users. Centra 99 is an enterprise software application that improves
business performance and flexibility by enabling live collaboration to support
internal and external business processes. CentraNow provides a live
collaboration service for business professionals and their teams through our Web
site, WWW.CENTRA.COM. Centra BCN is a global eBusiness network that enables
content and service providers and users to conduct business-to-business
interactions over the Web.
We believe our live eBusiness collaboration solution provides the following
benefits:
COMPREHENSIVE AND ACCESSIBLE. We offer a comprehensive live collaboration
solution, including voice communication over the Internet, or voice-over-IP,
software application sharing, real-time data exchange and shared workspaces. Our
graphical user interface is easy to use. Our solution is scalable and
facilitates a broad range of business interactions, including one-to-one,
one-to-many, and many-to-many collaborations. With the capabilities to perform
well under low-bandwidth constraints and to reach participants through corporate
firewalls, our solution enables access by remote users with 28.8 Kbps modem
connections and by external customers and partners.
STRENGTHENED CUSTOMER AND PARTNER RELATIONSHIPS. As a result of our
solution's highly interactive capabilities and the ease with which people can
convene online using our products, companies can develop stronger business
relationships and loyalty through frequent personal interaction and information
sharing. These capabilities also provide companies with the ability to
strengthen existing and develop new customer relationships in order to increase
revenues and customer loyalty.
IMPROVED UTILIZATION OF INTELLECTUAL CAPITAL. Within most companies, a
limited number of people possess a disproportionate amount of the organization's
collective "knowledge" or intellectual capital. Our solution enables these
companies to utilize these important individuals more efficiently and
effectively. With our solution, experts are no longer limited to interacting in
a particular geographic
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area or constrained by the need to travel. Companies gain opportunities for
wider, more frequent and more cost-effective delivery of knowledge in support of
business processes such as sales, services, marketing, product development and
training.
ENHANCED DISTRIBUTION AND MARKETABILITY OF CONTENT AND SERVICES. Our
solution offers content and service providers a versatile distribution system
for the interactive marketing and delivery of revenue-generating content and
services. For example, content providers and companies offering knowledge-based
services can use our solution to efficiently access potential customers
worldwide. Centra BCN members can leverage the live eBusiness collaboration
capabilities of our solution for the marketing and support of their content and
service offerings.
ENHANCED PRODUCTIVITY AND SIGNIFICANT COST REDUCTIONS. Our solution enables
companies to increase the productivity of their employees while dramatically
reducing travel, facilities and telecommunications costs. By providing a
comprehensive collaboration solution, we enable companies to communicate with
their constituents without the financial and personnel costs associated with
business travel or video or audio conferencing.
OUR STRATEGY
Our goal is to be the leading provider of products and services for live
eBusiness collaboration. Key elements of our strategy to achieve this goal
include:
INCREASE BASE OF WEB-BASED COLLABORATION USERS. We believe that the
dynamics of live eBusiness collaboration will fuel user adoption of our
solution. As our solution is deployed by more organizations, online
collaboration users will invite increasing numbers of customers, partners and
other external users to participate through our CentraNow Web service, which
will, over time, increase awareness of the value of Centra 99's live
collaboration capabilities. We intend to capitalize on this network effect of
Web-based collaboration to expand our base of users and increase the value of
our products and services.
INCREASE ADOPTION OF OUR SOLUTION BY OUR CUSTOMER BASE. We believe that our
existing customers will be a significant source of revenues as they implement
our products across their organizations. We have licensed our products to over
150 customers, many of whom initially implemented our products within specific
departments or for identified business processes, such as sales, services,
marketing and training. As customers continue to use our live eBusiness
collaboration products, we believe they will seek to implement our products and
use our services across additional departments and business processes throughout
the extended enterprise. In addition, as live eBusiness collaboration becomes
increasingly critical to our customers' business processes, we expect that they
will seek to extend the reach of our solution to their customers and partners
using CentraNow and Centra BCN.
CONTINUE TO EXPAND THE COMMUNITY OF CENTRA BCN MEMBERS. We intend to
facilitate the adoption of Centra BCN by strengthening our relationships with
Web destinations, as well as providers of eBusiness applications and
professional consulting and training services. Our network members Ariba and
Rosenbluth International enhance their service offerings with the collaborative
capabilities of CentraNow. We are working with our members to increase the
content and services available to network users and to expand our customer base.
As we add new members to Centra BCN, we believe the value of the network will
increase for all users.
EXTEND TECHNOLOGY LEADERSHIP. We believe that our technology enables us to
offer the most complete and cost-effective solution for live eBusiness
collaboration. Our voice-over-IP conferencing technology and open and scalable
systems architecture were developed to meet companies' demands for a live
collaboration solution with broad reach that can be easily integrated with their
existing computer systems. We have invested over four years in the development
of the collaborative technologies that
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provide the foundation for Centra 99 and CentraNow. We intend to continue to
devote significant resources to the development of new and innovative products
and services for live eBusiness collaboration. We plan to extend our
technological leadership with new features and capabilities based on our proven
systems architecture.
DEVELOP MARKETING RELATIONSHIPS. We are seeking to develop marketing
relationships with other companies to take advantage of the market opportunity
for live eBusiness collaboration. We have already entered into relationships
with companies such as DA Consulting Group, Deloitte Consulting and
PricewaterhouseCoopers in order to increase market awareness of our products and
services and create alternative distribution channels. We intend to enter into
marketing relationships with additional companies in the Web application and
professional services markets.
EXPAND INTERNATIONAL OPERATIONS. We believe that international customers
represent a significant opportunity for our products and services. We have
established European sales operations based in the United Kingdom and have
engaged Macnica to serve as our master distributor in Japan. We intend to
continue to increase our global presence by expanding our worldwide field sales
and services organization and by entering into relationships with distributors.
PRODUCTS AND SERVICES
Our live eBusiness collaboration products and services enable Web-based
interaction with customers, partners and employees in a variety of business
contexts. Unlike other ways people may collaborate, our solution enables groups
of people to assemble, communicate, interact, share content and work together in
real-time over intranets, extranets and the Internet. Our solution integrates
voice conferencing, real-time data exchange and an easy-to-use user interface
delivered through a Web browser. We incorporate a broad range of content by
providing interfaces to enterprise application systems, information repositories
and common file formats like Microsoft PowerPoint. In addition, we operate a
network that supports online business-to-business collaboration.
Our solution consists of three elements: Centra 99, a Web-based
enterprise-class software application; CentraNow, a Web collaboration service;
and Centra BCN, our online network of content and service providers and users.
Centra 99 and related services accounted for all of our revenues in the nine
months ended September 30, 1999. Our products and services create a mutually
reinforcing dynamic, designed to accelerate usage of our products and services
by individual users and content and service providers seeking to collaborate.
This dynamic actively enables and encourages our users to expose other potential
users to the value of our products and services.
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As illustrated below, our three user interfaces--CentraNow, Centra Symposium
and Centra Conference--are accessible over the Internet. For Centra 99, the
management server contains rules to manage an interaction, and the collaboration
servers support collaboration functionalities such as voice-over-IP, real-time
data exchange and shared workspaces. The CentraNow Web service is managed by a
dedicated server, and additional servers may be added to deliver content and
services for Centra BCN members. For Centra 99, toolkits and open application
programming interfaces, or APIs, enable easy integration with e-commerce,
knowledge management and enterprise software applications. Our products and
services are based upon a technological foundation employing Internet standards
and Microsoft platform technologies.
[Description of diagram
Three screens, labeled "CentraNow," "Centra Symposium" and "Centra
Conference," appear across top of diagram. Each of the three screens is
connected to a "cloud" shape, labeled "The Internet," appearing below the
screens. The cloud is connected to eight icons: (1) three icons, all labeled
"Centra BCN Member Channels," and an additional icon labeled "CentraNow
Management Server" rest on a circle labeled "Centra Business Collaboration
Network" and (2) three icons, all labeled "Centra Collaboration Servers," and an
additional icon labeled "Centra Management Server" rest on a circle labeled
"Centra 99." The two circles rest on a square labeled "Toolkits & Open API's,"
which has the subheadings "e-Commerce," "Knowledge Management" and "Enterprise
Applications." The square rests on two rectangles. One rectangle is labeled
"Microsoft Platform," which has the subheadings "Windows OS," "SQL Server" and
"Microsoft Exchange." The other rectangle is labeled "Internet Standards," which
has the subheadings "JAVA," "XML," "HTTP/HTML" and "LDAP Directory Services."]
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CENTRA 99
Centra 99 is a Web-based enterprise software application designed to enable
live eBusiness collaboration over intranets, extranets or the Internet. Centra
99 can support and manage the business interactions of large numbers of users.
Centra 99 provides collaboration capabilities that support a broad range of
business functions, such as sales, customer support, marketing and services. For
a description of several customer applications of Centra 99, see "--Customer
Case Studies."
Key capabilities of Centra 99 include:
USER INTERFACE. Centra 99 supports three application-specific user
interfaces that are intuitive and consistent. These include Centra Conference,
which is designed for one-to-one selling and large-scale Web presentations;
Centra Symposium, which is appropriate for highly interactive events such as
hands-on classes, workshops, coaching and teamwork; and CentraNow, which is
designed for spontaneous meetings and can be easily accessed through Centra 99.
STRUCTURE. Centra 99 uses our proprietary software, Choreography, to apply
structure and control to live eBusiness collaboration and group interaction.
This capability provides a more effective means of orchestrating interaction
between people and content than is typically possible in traditional live
business collaboration.
UNIFIED MANAGEMENT SYSTEM. Centra 99 provides a unified management system
that enables companies to centrally manage multiple collaboration servers, large
numbers of users, system content, and multiple live and recorded business
collaborations.
MAXIMUM REACH. Centra 99 has been designed to enable users to participate
in live events without requiring any change to their computer hardware or
network. Centra 99 enables access by users ranging from mobile professionals
using laptop PCs connected via low-speed 28.8 Kbps modems to corporate users
behind secure network firewalls.
VOICE-OVER-IP. Centra 99 supports voice communication over the Internet as
an integral part of the collaborative experience. The synchronization of voice
and content into one unified communication protocol enhances the quality of the
user experience and enables users to participate in Centra-supported events over
a single network connection. Finally, because voice-over-IP uses the Internet,
users avoid supplemental telephone and conference call charges.
EVENT RECORDING AND PLAYBACK. Centra Symposium events can be recorded in
full fidelity, including audio, software application sharing and user
interactions, for later playback. This feature enables customers to capture
knowledge and publish recorded events for future playback and reuse.
MICROSOFT PLATFORM INTEGRATION. We offer a version of Centra 99 that
integrates with Microsoft Backoffice. This solution enables organizations to
leverage their investments in Microsoft Office, Microsoft SQL Server database
technology and the Microsoft Exchange messaging platform. This integration
offers users enhanced functionality for live eBusiness collaboration and has
increased the attractiveness of Centra 99 to organizations that have
standardized on Microsoft technology.
FLEXIBLE, SCALABLE, EXTENSIBLE AND OPEN SYSTEMS ARCHITECTURE. Centra 99 is
designed to permit the addition of distributed collaboration servers for
increased capacity. This architecture provides customers with a high degree of
flexibility to increase system capacity and optimize network traffic across
distributed organizations. Centra 99 also supports open, published APIs and
Internet standards for integration with other existing computer systems and
eBusiness systems.
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CENTRANOW WEB SERVICE
Based upon Centra 99 technology, CentraNow extends the benefits of live
eBusiness collaboration to individual business professionals. In order to
promote user traffic and familiarity with the benefits of live eBusiness
collaboration, CentraNow offers registered users a free collaboration service
for up to five participants. We intend to extend CentraNow with priced services
offerings and expanded functionality in 2000.
Key capabilities of CentraNow include:
SELF-SERVICE MODEL. CentraNow is an easy-to-use Web service that enables
individuals to schedule a meeting, invite participants by e-mail, and lead a
collaborative session without technical assistance or pre-installed software.
Live technical support is available, if needed, to aid new users.
CONTENT-RICH COLLABORATIVE EXPERIENCE. Participants in CentraNow sessions
can share Microsoft PowerPoint presentations and live software applications with
other participants. Participants can collaboratively mark-up and discuss
content, as well as respond electronically to questions and surveys.
VOICE-OVER-IP. Voice communication among all participants over the Internet
is a standard feature of CentraNow and enhances the live collaboration
experience.
CENTRA BUSINESS COLLABORATION NETWORK
The Centra Business Collaboration Network, or Centra BCN, is a Web-based
service for content and service providers, including Centra 99 users. The online
network enables content aggregation and distribution and live event hosting.
Centra BCN enables content and service providers to add live collaboration and
business interaction to their offerings, while increasing the value of our
service for other businesses and business professionals by providing compelling
collaborative content and events.
Network users will be able to collaborate with other people regarding
content provided by our network members. Each network member will have a channel
on the network dedicated to their collaborative content and events. As more
content is aggregated on Centra BCN, we expect to attract more users. A larger
user base will create a global pool of qualified customers for both members and
network users. Finally, by exposing large business communities to the value of
live eBusiness collaboration through the network, we will increase awareness and
promote the attractiveness of Centra 99 and CentraNow.
PROFESSIONAL SERVICES
We offer comprehensive customer assistance programs, including support
services, education and consulting. Our services organization consisted of 16
employees as of September 30, 1999.
CONSULTING. We offer a wide range of professional consulting services to
customers to facilitate the efficient and cost-effective use of our products and
services. Our consulting group is responsible for the deployment and
implementation of our products. Services include installation, deployment and
implementation, development support and education.
EDUCATION. We provide education programs to assist presenters, content
developers, event managers, systems administrators, help-desk support
professionals, implementation specialists and other professionals in the use of
our products and services. We offer a comprehensive series of online classes
using Centra 99 to provide knowledge and skills to successfully deploy, use and
maintain our products and services. These courses focus on the technical aspects
of our products, as well as business issues and processes related to live
eBusiness collaboration.
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SUPPORT. Our standard maintenance agreement gives customers access to new
software releases and related technical support. Our support team helps resolve
technical inquiries and is available over the Web and by telephone, e-mail and
fax. This group is also responsible for maintaining technical information on our
products.
PRICING
Centra 99 is sold as a Web-based enterprise software product on a rental or
purchase basis. Revenues are derived from server software licenses, user
licenses and software maintenance. A variety of licensing models are used to
support the business needs of different types of customers. These licensing
models include named-user licenses, concurrent-user licenses, time-limited
licenses and revenue-sharing. In addition, we offer our customers hosting
services to outsource the administration of their live eBusiness collaboration
operations. Hosting customers pay a set-up fee and monthly services fees in
addition to license fees for the purchased software. The CentraNow Web service
is currently a free service for registered users. In 2000, we intend to
introduce priced services. We typically provide our professional services on a
time-and-materials basis. Prices for Centra 99 start at $25,000 and increase
based upon both the number of system users and the level of use.
TECHNOLOGY
Our live collaboration technology supports a wide range of business
collaboration events and is designed to deliver high performance and
scalability. The Centra 99 collaboration server software can be deployed on a
single Microsoft Windows NT server and is designed to operate without any
special hardware or network technologies. The system was designed to scale, as
customer usage requires, by adding additional collaboration servers.
We use a broad range of technologies to meet end-user requirements, such as
supporting business contexts ranging from one-on-one meetings to large seminars
and presentations, end-user reach across the enterprise and the Internet, and
easy client deployability. These technologies include Java, C++, JavaScript,
Visual Basic, HTML and XML languages, widely utilized network protocols, leading
directory services such as Lightweight Directory Access Protocol or LDAP, and
Microsoft Internet Explorer and Netscape Navigator Web browsers. The use of Java
as the primary development language has enabled our development of browser-based
user interfaces that reduce the memory space required on a user's hard drive and
are available on demand without prior download or installation.
Our collaboration technology supports network connections as low as 28.8
Kbps and supports user access through corporate network firewalls and Web proxy
servers. The technology was designed to provide high reliability and performance
over low-bandwidth private and public networks. Because all data streams are
combined into a single network connection, our sophisticated connection manager,
known as Adaptive Connectivity, can choose the most reliable method of
connecting a user to a live collaborative event.
A core feature of our technology is voice-over-IP, which provides reliable
and high-quality delivery of audio among all participants. Our voice-over-IP
technology has a unique set of features, including compression, visual feedback
to both speakers and listeners, silence elimination, and timely synchronization
with multimedia content and shared software applications.
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CUSTOMERS
We have targeted and will continue to target Global 2000 companies and other
large organizations in a broad range of industries. The following is a partial
list of our customers:
ENTERPRISE SOFTWARE
Ariba
The Baan Company
i2 Technologies
Manugistics
Open Text
Oracle
The Vantive Corporation
Wall Data
COMPUTERS
Compaq
Data General
Exabyte
Hitachi Data Systems
Sequent
NETWORKING/COMMUNICATIONS
Ascend Communications
Juniper Networks
NEC America
Nortel Networks
Novell
TELECOMMUNICATIONS
Allegiance Telecom
Ameritech Mobile
Communications
AT&T
Bell Canada
MCI WorldCom
Mitel
PSInet
USInternetworking
ENTERTAINMENT AND INFORMATION
Viacom
BROKERAGE AND BANKING
Advanta Mortgage
Advest
American Fidelity Group
INSURANCE
Applied Systems
CCC Information Services
Consumer Insurance Services of
America
Independent Insurance
Agents of America
Nationwide Mutual Insurance
The Standard Insurance
CONSUMER GOODS
Federated Department Stores
Kraft Foods
Sony
PHARMACEUTICAL AND HEALTHCARE
DuPont Pharma Medical
Imaging
Merck
Schering Plough
Shared Medical Systems
INTERNET LEARNING
Health Learning Systems
Kaplan Educational Centers
Ziff-Davis Education
CONSULTING AND SERVICES
Automatic Data Processing
(ADP)
Advanced Manufacturing
Research
DA Consulting Group
First Consulting Group
Mastech
PricewaterhouseCoopers
Science Applications
International Corporation
(SAIC)
MANUFACTURING
Armstrong World Industries
Clarke American
Marshall Industries
O.C. Tanner
Office Furniture USA
GOVERNMENT
Canadian Department of
Agriculture
United States Army
HIGHER EDUCATION
James Madison University
North Carolina A&T
University of Tennessee
Bay Networks, which was subsequently acquired by Nortel Networks, accounted
for 11% of our total revenues in 1998.
CUSTOMER CASE STUDIES
i2 TECHNOLOGIES
i2 Technologies is a leading provider of software solutions for intelligent
eBusiness and supply chain management.
In 1998, i2 undertook an initiative to increase the frequency and
effectiveness of communication between 40 of its satellite offices and its
project teams, as well as to provide a vehicle for improved communication with
customers. i2 required a technology solution that would keep field personnel up
to speed on new projects and marketing initiatives, allow i2 to demonstrate
products away from its headquarters, and give i2 the ability to provide customer
training in an effective, timely and
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cost-effective way using the Internet. This solution needed to be able to reach
both internal and external audiences.
In 1999, i2 deployed Centra 99. Centra 99's application-sharing capabilities
enabled i2 to host product roll-outs at headquarters and simultaneously
demonstrate the new features of a product. Centra 99 allowed i2 employees,
customers and partners to participate in a wide range of events, including
one-to-one and team sales coaching, product introductions, virtual sales calls
and online sales meetings. Centra 99 also allowed i2 to leverage industry
experts for virtual events and cost-efficient lead generation activities. In
2000, i2 plans to use Centra 99 to augment its traditional classroom training
for customers and channel partners with enterprise application support and
certification, customer and partner education, and update training.
CLARKE AMERICAN
Clarke American is a large specialty printer of financial institution checks
in the United States. In 1997, Clarke American began to deploy SAP enterprise
resource planning software, a widely deployed business software application.
While it initially provided two weeks of product training at its corporate
headquarters for existing employees, Clarke American needed a solution for
training subsequently hired employees. With more than 20 remote manufacturing
facilities, Clarke American could not cost-effectively send an SAP expert
on-site each time a new employee was hired or new software was deployed.
With Centra 99, Clarke American's SAP experts are able to remain at
corporate headquarters and to use the corporate intranet and the Internet to
deliver live, hands-on SAP training to employees across the country. Centra 99
allowed Clarke American to increase the productivity of its SAP experts,
eliminate the costs of on-site training sessions, reduce the time spent by
employees in training sessions, and shorten the implementation process.
During its roll-out of SAP, Clarke American discovered that it could also
use Centra 99 to meet the ongoing support requirements of its employees.
Consequently, Clarke American uses Centra 99 to support a series of weekly
online sessions aimed at developing employee skills.
UNIVERSITY OF TENNESSEE
The University of Tennessee offers a program that allows physicians from
across the United States to earn executive MBA degrees over the Internet. While
business expertise is increasingly important in healthcare, many physicians are
unable to interrupt their clinical practices to undertake a business education
program. The University's College of Business Administration has developed a
12-month Physician Executive MBA program that combines innovative delivery tools
with a flexible schedule.
In 1997, the University selected Centra 99 as the collaborative solution to
provide the virtual classroom that supports the entire Physician Executive MBA
program. The University chose Centra 99 because it provided an opportunity to
leverage the Internet for new sources of revenue by extending curriculum to new
audiences, regardless of location.
By leveraging the capabilities of Centra 99, the University has been able to
make the Physician Executive MBA program accessible to a broader group of
physicians. Physicians need to be physically present on campus only for four
one-week sessions during the year. The remainder of the classroom training is
provided in forty three-hour online sessions, which physicians can access from
personal computers at home, at the office or on the road. The University
graduated its first class of 20 students from the program in December 1998 and
expects to graduate an additional 26 students in December 1999.
SALES AND MARKETING
We sell Centra 99 through a direct sales force and through other marketing
relationships. As of September 30, 1999, our direct sales force consisted of 24
sales and pre-sales consulting professionals located in ten domestic locations
and an office in the United Kingdom. Our direct sales force focuses
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on selling Centra 99 to Global 2000 companies and other large organizations. We
utilize sales teams consisting of both sales and technical professionals who
work directly with potential customers to provide proposals, demonstrations and
presentations designed to meet the specific needs of each customer.
We also sell Centra 99 indirectly through a relationship with a distributor.
We have contracted with Macnica to serve as our master distributor in Japan. We
intend to increase our direct sales force, both domestically and abroad, and to
authorize additional distributors and resellers in selected international
markets.
We expect to market our CentraNow Web service and the Centra Business
Collaboration Network primarily by engaging established Web destinations and
content and service providers to be network members. After we introduce priced
CentraNow services in 2000, a sales team will market and sell these services to
registered CentraNow users through Web-based marketing and telesales. We expect
that our telesales team also will work with our direct sales force to convert
subscribers into Centra 99 customers.
We focus our marketing efforts on creating awareness of our solution among
business executives considering enterprise-level live eBusiness collaboration
solutions as well as individual users suitable for the CentraNow Web service. We
conduct a variety of marketing programs worldwide to educate our target market.
We have engaged in marketing activities such as online seminars, direct
marketing, Web marketing, trade shows, press and industry analyst relations, and
users conferences. The marketing organization works closely with our customers
and direct sales organization to capture, organize and prioritize customer
feedback to help guide our product development organization.
We have entered into agreements with eight systems integrators and two
training companies to integrate our products and services into their offerings.
These relationships increase market awareness of our live eBusiness
collaboration solution and assist us with sales lead generation. For example, we
have entered into a relationship with PricewaterhouseCoopers that enables them
to incorporate Centra 99 into their application deployment methodology. In
concert with us, PricewaterhouseCoopers will use Centra 99 to deliver live
interactive training, support, implementation and consulting services to their
customers that are deploying enterprise applications such as Oracle, Peoplesoft,
SAP and Siebel. We have similar relationships with DA Consulting Group, Deloitte
Consulting and Global Knowledge Network that provide additional marketing
resources, awareness and account access to increase our reach into the
marketplace.
PRODUCT DEVELOPMENT
In July 1997, we began commercial shipment of the initial version of our
software product. We have subsequently enhanced the product through several
releases. The CentraNow Web service and Centra BCN began operation in
October 1999, and we will continue to enhance these services.
We continue to devote a substantial portion of our resources to developing
new products and services, and enhancing our existing products and services. Our
product development expenses were $1.6 million in 1996, $3.0 million in 1997,
$3.1 million in 1998 and $3.1 million during the nine months ended
September 30, 1999. As of September 30, 1999, our product development
organization consisted of 35 employees. We believe a technically skilled
development organization is critical to our success. We must attract and retain
highly qualified employees to further our product development efforts.
COMPETITION
The market for live eBusiness collaboration solutions is immature, intensely
competitive, rapidly evolving and subject to rapid technological change. We
expect that the intensity of our competition will increase in the future.
Increased competition is likely to result in price reductions, reduced gross
margins and loss of market share, any one of which could seriously harm our
business. Competitors vary in size and in the scope and breadth of the products
and services offered. We encounter competition with respect to different aspects
of our collaboration solution from a variety of software
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and services vendors including Interwise, LearnLinc, the Lotus division of IBM,
Placeware and WebEx. Siebel has announced that it is extending its enterprise
software application with collaboration features, and other enterprise software
vendors, such as Oracle and SAP, may choose to extend their applications with
similar features in the future. These collaboration features might make it more
difficult for us to sell our products to these vendors' customers. In addition,
bigger companies with more resources than we have could enter our market and
either reduce our sales or require us to lower our prices, or both.
Some of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources than we do. They
have significantly greater name recognition and a larger installed base of
customers. In addition, many of our competitors have well-established
relationships with our current and potential customers. In the past, we have
lost potential customers to competitors for various reasons, including lower
prices and other incentives not matched by us. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
We believe that the principal competitive factors affecting our market
include a significant base of reference customers, the breadth and depth of the
offered solution, distribution breadth, product quality and reliability,
customer and professional services quality, core technology, product features
and price. Although we believe that our solution competes favorably with respect
to these factors, our market is relatively new and is developing rapidly. We may
not be able to maintain our competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, technical and other resources.
INTELLECTUAL PROPERTY RIGHTS
We depend on our ability to develop and maintain the proprietary aspects of
our technology. To protect our proprietary technology, we rely primarily on a
combination of contractual provisions, confidentiality procedures, trade
secrets, and patent, copyright and trademark laws.
We license rather than sell Centra 99 and require our customers to enter
into license agreements, which impose restrictions on their ability to utilize
the software. In addition, we seek to avoid disclosure of our trade secrets
through a number of means, including but not limited to requiring those persons
with access to our proprietary information to execute confidentiality agreements
with us and restricting access to our source code. We seek to protect our
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. We cannot be sure that any
of our proprietary rights with respect to CentraNow or Centra BCN will be viable
or of value in the future since the validity, enforceability and type of
protection of proprietary rights in Internet-related industries are uncertain
and still evolving.
We presently have three U.S. patent applications pending. It is possible
that no patent will be issued from our patent applications or that the patents
that we have applied for, if issued, or any other patents we might obtain in the
future, may be successfully challenged. It is also possible that we may not
develop proprietary products or technologies that are patentable, that any
patent issued to us may not provide us with any competitive advantages, or that
the patents of others will materially adversely affect our business, operating
results and financial condition.
We rely on technology that we license from third parties, including software
that is integrated with our proprietary software and used in Centra 99 to
perform key functions. If we are unable to continue to license any of this
software on commercially reasonable terms, we could face delays in releases of
our software until equivalent technology can be identified, licensed or
developed, and integrated into our current product. These delays could have a
material adverse effect on our business, operating results and financial
condition.
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Centra is a registered trademark in the United States. We also have filed
applications to register the Centra trademark in the European Union and Japan.
In addition, we have filed applications to register CentraNow and Adaptive
Connectivity as trademarks in the United States.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain or use information that
we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around patents issued to us.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible that
in the future third parties may claim that we or our current or potential future
products infringe their intellectual property. We expect that software product
developers and providers of Internet-related solutions will increasingly be
subject to infringement claims as the number of products and competitors in our
industry grows and the functionality of products in different industries
increasingly overlaps. Furthermore, former employers of our current and future
employees may assert that our employees have improperly disclosed confidential
or proprietary information to us. Any such claims, with or without merit, could
be time-consuming to defend, divert management's attention and resources, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements which may not be available on terms acceptable
to us or at all. In addition, parties making these claims may be able to obtain
an injunction, which could prevent us from selling our products in the United
States or abroad. A successful infringement claim against us and our failure or
inability to license the infringed rights or develop or license technology with
comparable functionality could have a material adverse effect on our business,
operating results and financial condition.
EMPLOYEES
As of September 30, 1999, we had a total of 104 employees, including 35 in
product development, 34 in sales and marketing, 16 in customer support,
professional services and training and 19 in administration and finance. Of
these employees, 100 were located in the United States and 4 were located
outside the United States. None of our employees is represented by a collective
bargaining agreement, nor have we experienced any work stoppage. We consider our
relations with our employees to be good.
FACILITIES
Our headquarters occupy approximately 23,000 square feet in Lexington,
Massachusetts, under a lease that expires on August 31, 2001. We have a right to
extend the lease until August 31, 2003. These current facilities are expected to
meet our needs through March 31, 2000, at which time we intend to expand our
facilities by entering into one or more additional leases at our current
location or lease space at another location. In addition, we lease sales and
service offices in the metropolitan areas of Atlanta, Chicago, London,
Philadelphia, San Mateo and Washington, D.C. Each of these offices generally is
leased under an agreement with a remaining term of 12 months or less.
LEGAL PROCEEDINGS
We are not currently subject to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth information with respect to our executive
officers, directors, director-nominees and key employees as of October 25, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ---------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS, DIRECTORS AND
DIRECTOR-NOMINEE
Leon Navickas........................... 43 Chief Executive Officer and Chairman
Anthony J. Mark......................... 52 President and Chief Operating Officer
Stephen A. Johnson...................... 44 Chief Financial Officer, Treasurer and Secretary
Joseph M. Gruttadauria.................. 40 Vice President, Professional Services
Steven N. Lesser........................ 43 Vice President, Worldwide Sales
Richard D'Amore(1)...................... 46 Director
Jonathan Flint(1)....................... 48 Director
David Barrett(2)........................ 43 Director-Nominee
KEY EMPLOYEES
Michael Hackney......................... 40 Chief Technology Officer
Lisa LeBlanc............................ 34 Vice President, Corporate Marketing
Michael Tupanjanin...................... 39 Vice President, Business Development
Christopher Reed........................ 44 Vice President, Product Marketing
Lawrence Whittle........................ 34 Vice President, European Sales
</TABLE>
- ------------------------
(1) Member of the audit and compensation committees.
(2) To become member of compensation committee upon joining board after
completion of this offering.
LEON NAVICKAS founded Centra and has served as our Chief Executive Officer
and Chairman of the Board since our incorporation in April 1995. He also served
as our President from our incorporation until January 1999. From May 1983 until
April 1995, Mr. Navickas served as General Manager of Research and Development,
Notes Division for Lotus Development Corp.
ANTHONY J. MARK has served as our President and Chief Operating Officer
since January 1999 and as our Chief Operating Officer since October 1997. From
March 1997 until October 1997, Mr. Mark served as our Vice President, Product
Development. From May 1995 until March 1997, he performed consulting services
for a number of private companies. From May 1993 until May 1995, Mr. Mark served
as Vice President and General Manager, Broadcast Products Division for Avid
Technology, Inc., a software development company.
STEPHEN A. JOHNSON has served as our Chief Financial Officer since
November 1998. Since June 1999, Mr. Johnson has served as our Chief Financial
Officer, as well as Treasurer and Secretary. From May 1997 until November 1998,
Mr. Johnson served as our Director of Finance and Administration. From
March 1997 until May 1997, he served as a consultant to Centra. From
October 1991 until March 1997, Mr. Johnson served in a number of positions at
Avid Technology, Inc., including Controller from October 1991 until
August 1995; Finance Manager, Desktop Products Division from August 1995 until
February 1996; and Director of Finance, Worldwide Field Operations from
February 1996 until March 1997.
JOSEPH M. GRUTTADAURIA has served as our Vice President, Professional
Services since March 1997. From March 1996 until March 1997, Mr. Gruttadauria
served as the Vice President of Sales and Services and Chief Information Officer
for OneWave, Inc., a consulting company. From December 1994
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until March 1996, he served as Director, Customer Service for SAP Americas, a
software company. From June 1994 until December 1994 Mr. Gruttadauria served as
Vice President, Services and Manufacturing for the Softswitch Business Unit of
Lotus Development Corp. From December 1989 until June 1994 Mr. Gruttadauria
served as Vice President, Service and Manufacturing for Softswitch, Inc. a
software development company.
STEVEN N. LESSER has served as our Vice President, Worldwide Sales since
January 1999. From July 1997 to August 1998, Mr. Lesser served as Vice
President, North American Sales for Marcam Corporation, a software development
company. From March 1993 until July 1997, he served as Vice President, North
America Sales for MAPICS Business Group of Marcam Corporation.
RICHARD D'AMORE has served as one of our directors since April 1995. Since
March 1994, Mr. D'Amore has been a General Partner of North Bridge Venture
Partners, L.P., a venture capital investing firm. Mr. D'Amore also serves as a
director of Veeco Instruments, Inc., Silverstream Software, Inc., and Solectron
Corporation.
JONATHAN FLINT has served as one of our directors since April 1995.
Mr. Flint has been a member of Polaris Venture Management Co., LLC, the general
partner of Polaris Venture Partners and Polaris Venture Founders' Fund, entities
since June 1996. Mr. Flint is also a General Partner of Alta V Management
Partners, L.P., the General Partner of Alta V Limited Partnership. Mr. Flint
also serves as a director of Allaire Corporation.
DAVID BARRETT has been nominated to serve as one of our directors upon
completion of this offering. Mr. Barrett has served as a member of our Advisory
Group since March 1998. Since February 1998, Mr. Barrett has served in a number
of roles at Calico Commerce, Inc., a provider of software and services that
enable customers to sell complex products and services over the Internet,
including Executive Vice President, Business Operation from February 1998 to
May 1999 and Executive Vice President and Chief Operating Officer from May 1999
to date. From December 1996 until February 1998, Mr. Barrett served as Senior
Vice President, Worldwide Sales and Customer Services at Pure Atria/Rational
Software Corporation, an enterprise software development automation company.
From March 1996 to December 1996, Mr. Barrett served as Vice President, Sales,
Marketing and Services at Nets, Inc., an eCommerce company. From July 1994 until
March 1996, Mr. Barrett served as Vice President, Field Sales and Services for
Lotus Development Corporation.
MICHAEL HACKNEY has served as our Chief Technology Officer since
February 1998. From September 1996 until February 1998, he served as our
Director of Development. From February 1996 until September 1996, he served as
our Senior Architect. From February 1994 until February 1996, Mr. Hackney was a
member of Ascom Nexion's technology group. From April 1992 until February 1994,
he was also a member of the technology staff at GTE Laboratories.
LISA LEBLANC has served as our Vice President, Corporate Marketing since
October 1999. From August 1996 until October 1999, she served as our Director,
Corporate Marketing. From June 1996 until August 1996, Ms. LeBlanc served as
Director, Marketing North America and Asia Pacific for Avid Technology, Inc., a
software development company. From January 1994 until June 1996, Ms. LeBlanc
served as the North American Field Marketing Manager at Avid Technology, Inc.
MICHAEL TUPANJANIN has served as our Vice President, Business Development
since June 1999. From May 1998 until June 1999, Mr. Tupanjanin served as
Publishing Director, New Ventures for CMP Media, Inc. From January 1996 until
April 1998, he served as Publisher of CMP Media's ChannelWeb.com business unit.
From November 1994 until January 1996, Mr. Tupanjanin served as Director of
National Accounts for CMP Media, Inc.
CHRISTOPHER REED has served as our Vice President, Product Marketing since
March 1998. From April 1997 until March 1998, he served as Principal of
ParaTechnology, Inc., a consulting firm. From August 1996 until April 1997,
Mr. Reed served as an independent marketing consultant. From
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March 1995 until August 1996, he served as Vice President, Marketing for
NetSuite Development, Inc., a software company. From March 1993 until
March 1995, Mr. Reed served as Director, Solutions Marketing for Lotus
Development Corporation.
LAWRENCE WHITTLE has served as our Vice President, European Sales since
March 1999. From May 1997 until February 1999, Mr. Whittle served as Vice
President, European and Middle East Sales for Marcam Corporation, a software
development company. From May 1996 to May 1997 he served as Central European
Regional Sales Manager for Marcam Corporation. From October 1994 until May 1996
he served as European Major Accounts Manager for Marcam Corporation.
BOARD COMPOSITION
Following this offering, the board of directors will be divided into three
staggered classes and each of the directors, other than the initial Class I and
II directors, will serve a three-year term. Immediately after the completion of
this offering:
- Richard D'Amore will be the sole Class I director and will serve until our
annual stockholders' meeting in 2000;
- David Barrett and Jonathan Flint will be the Class II directors and will
serve until our annual stockholders' meeting in 2001; and
- Leon Navickas will be the sole Class III director and will serve until our
annual stockholders' meeting in 2002.
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.
Two of our current directors, Richard D'Amore and Jonathan Flint, originally
were elected as directors pursuant to provisions of an investors' rights
agreement that will terminate upon the completion of this offering.
Each executive officer serves at the discretion of the board of directors
and holds office until his successor is elected and qualified or until his
earlier resignation or removal. There are no family relationships among any of
our directors and executive officers.
BOARD COMMITTEES
The board of directors established an audit committee in October 1999. The
audit committee consists of Richard D'Amore and Jonathan Flint. The audit
committee reviews our internal accounting procedures, evaluates our audit and
control functions, and reviews the results and scope of the audit and other
services provided by our independent public accountants.
The board of directors elected a new compensation committee in
October 1999. Immediately after this offering, the compensation committee will
consist of Richard D'Amore, Jonathan Flint and David Barrett. The compensation
committee reviews and recommends to the board of directors the compensation and
benefits of our officers and directors, including administering and granting
options under our stock option plans. The compensation committee also
establishes and reviews general policies relating to the compensation and
benefits of our employees.
The board has not established a standing nominating committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the board of directors or the compensation committee serves as
a member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or compensation committee. Prior to October 1999,
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Leon Navickas participated in discussions of the board of directors regarding
executive officer compensation, except with respect to his own compensation.
DIRECTOR COMPENSATION
We do not currently compensate directors for their services as members of
the board of directors or any committee of the board. We reimburse directors for
out-of-pocket expenses incurred in attending board and committee meetings.
In October 1999 the board of directors voted to grant to David Barrett, upon
his joining the board immediately after the closing of this offering, options to
purchase 22,500 shares of common stock at a price of $5.00 per share. They will
vest over a 4-year period with 25% vesting at the first anniversary of the grant
date and 6.25% each quarter thereafter.
LIABILITY LIMITATIONS AND INDEMNIFICATION
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
- any breach of their duty of loyalty to the corporation or its
stockholders;
- acts of omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law;
- unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
- any transaction from which the director derived an improper personal
benefit.
The limitations do not apply to liabilities arising under the federal securities
laws and do not affect the availability of equitable remedies, including
injunctive relief or rescission.
Our certificate of incorporation and by-laws provide that we will indemnify
our directors and officers, and may indemnify other employees and agents, to the
maximum extent permitted by law. We believe that indemnification under our
by-laws covers at least negligence and gross negligence on the part of
indemnified parties. Our by-laws also permit us to secure insurance on behalf of
any officer, director, employee or agent for any liability arising out of his or
her actions in their capacity as an officer, director, employee or agent,
regardless of whether the by-laws would permit indemnification. We intend to
obtain an insurance policy that insures our directors and officers against
losses, above a deductible amount, from specified types of claims.
We intend to enter into agreements to indemnify our directors and executive
officers, in addition to the indemnification rights provided in our by-laws.
Under these agreements we will indemnify our directors and executive officers
for judgments, fines, settlement amounts and expenses, including attorneys'
fees, incurred by a director or executive officer in an action or proceeding,
including an action by or in the right of Centra, arising out of the person's
services as a director or executive officer of Centra or any subsidiary of
Centra or any other company or enterprise to which the person provides services
at our request. We believe that these provisions and agreements are desirable to
help us attract and retain qualified persons as directors and executive
officers.
The limited liability and indemnification provisions in our certificate of
incorporation, by-laws and indemnification agreements may discourage
stockholders from bringing a lawsuit against our directors for breach of their
fiduciary duty and may reduce the likelihood of derivative litigation against
our directors and officers, even though a derivative action, if successful,
might otherwise benefit us and our stockholders. A stockholder's investment in
us may be adversely affected to the extent we pay the costs
46
<PAGE>
of settlement or damage awards against our directors and officers under these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees in which indemnification is sought, nor are
we aware of any threatened litigation that may result in claims for
indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons under our
certificate of incorporation or by-laws or the agreements described above, we
have been advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
EXECUTIVE COMPENSATION
COMPENSATION EARNED
The following table sets forth the compensation earned during the year ended
December 31, 1998 by our named executive officers, who consist of our chief
executive officer and our three other executive officers who earned more than
$100,000 in salary and bonus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRESENT PRINCIPAL POSITION(S) SALARY($) OPTIONS(#)
- -------------------------------------- ------------ ------------
<S> <C> <C>
Leon Navickas .............................................. $150,000 --
Chief Executive Officer
Anthony J. Mark ............................................ 150,000 52,500
President and Chief Operating Officer
Stephen A. Johnson ......................................... 117,000 30,000
Chief Financial Officer, Treasurer and Secretary
Joseph M. Gruttadauria ..................................... 157,000 52,500
Vice President, Professional Services
</TABLE>
OPTION GRANTS
The following table sets forth information regarding stock options granted
to the named executive officers during the year ended December 31, 1998.
OPTION GRANTS IN FISCAL 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR SHARE($/SH) DATE 5%($) 10%($)
- ---- ---------- ------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leon Navickas......................... -- -- -- -- -- --
Anthony J. Mark....................... 52,500 6.2% $0.27 1/08/08 $23,100 $36,800
Stephen A. Johnson.................... 30,000 3.6 0.27 3/31/08 13,200 21,000
Joseph M. Gruttadauria................ 52,500 6.2 0.27 3/31/08 23,100 36,800
</TABLE>
47
<PAGE>
The potential realizable values are based on the assumption that our common
stock appreciates at the annual rate shown, compounded annually, from the date
of grant until the expiration of the ten-year term. These numbers are calculated
based on SEC requirements and do not reflect projections or estimates of future
stock price growth. Actual gains, if any, on stock option exercises will depend
on the future performance of the common stock.
The percentage of total options is based on an aggregate of 840,450 options
granted by us during the year ended December 31, 1998 to our employees,
including the named executive officers. Options were granted with an exercise
price equal to the fair market value of our common stock, as determined in good
faith by our board of directors. All of the options were granted for a term of
10 years, subject to earlier termination in the event of a termination of
employment. The exercise price for all options may be paid in cash, shares of
common stock, or a combination of cash and shares. Under the terms of our 1995
stock option plan, the board of directors retains discretion, subject to
limitations set forth in the plan, to modify the terms of outstanding options.
OPTION EXERCISES; OPTION AND RESTRICTED STOCK HOLDINGS
The following table sets forth information regarding exercises of stock
options during the year ended December 31, 1998 and exercisable and
unexercisable options held as of December 31, 1998 by each of the named
executive officers.
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Leon Navickas.................... -- -- -- -- -- --
Anthony J. Mark.................. 52,500 -- -- -- -- --
Stephen A. Johnson............... 30,000 -- 22,500 37,500 $2,200 $3,800
Joseph M. Gruttadauria........... 52,500 -- -- -- -- --
</TABLE>
All of these options were granted under our 1995 stock option plan. They
vested over a 4-year period with 25% vesting at the first anniversary of the
grant date and 6.25% each quarter thereafter.
The value of unexercised in-the-money options is based on a price of $0.27
per share, the fair market value of our stock on December 31, 1998 as determined
by our board of directors, minus the per share exercise price, multiplied by the
number of shares underlying the option.
We agreed that each of the named executive officers granted options in 1998
could exercise those options immediately. We entered into similar agreements in
prior years. The shares received upon exercise are subject to repurchase by us
at the original option exercise price, subject to vesting at the same rates as
provided in the original options. The following table sets forth information
regarding this vested and unvested "restricted" common stock held as of
December 31, 1998 by each of the named executive officers. The value of the
restricted stock is based on a price of $0.27 per share, the fair
48
<PAGE>
market value of our stock on December 31, 1998 as determined by our board of
directors, minus the aggregate exercise price paid to acquire the restricted
stock.
<TABLE>
<CAPTION>
SHARES OF VALUE OF IN-THE-MONEY
RESTRICTED STOCK RESTRICTED STOCK
AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
--------------------- ---------------------
NAME VESTED UNVESTED VESTED UNVESTED
- ---- -------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Leon Navickas....................................... -- -- -- --
Anthony J. Mark..................................... 108,281 191,719 $10,800 $13,900
Stephen A. Johnson.................................. -- 30,000 -- --
Joseph M. Gruttadauria.............................. 98,438 179,062 9,800 12,700
</TABLE>
INCENTIVE STOCK PLANS
1995 STOCK OPTION PLAN
In 1995, the board of directors adopted and our stockholders approved the
1995 stock option plan. As of October 25, 1999, options to purchase a total of
1,906,500 shares of common stock were outstanding under the 1995 plan. These
options had a weighted average exercise price of $0.78 per share. In connection
with the adoption of the 1999 stock incentive plan described below, the board
terminated further issuances of options under the 1995 plan.
The 1995 plan authorizes the grant of options to purchase common stock
intended to qualify as incentive stock options, as defined in Section 422 of the
Internal Revenue Code, and the grant of options that do not so qualify. The
exercise price of incentive options granted under the 1995 plan must be at least
equal to the fair market value of the common stock on the date of grant. The
exercise price of incentive options granted to an optionee who owns stock
possessing more than 10% of the voting power of our outstanding capital stock
must be at least equal to 110% of the fair market value of the common stock on
the date of grant, and the optionee must exercise his or her option within five
years from the date of the grant of such option.
The 1995 plan provides that, upon a merger or consolidation, our board may
provide that:
- some or all outstanding options must be assumed or substituted for with
similar options of the corporation surviving any such merger or
consolidation;
- any unexercised options shall terminate immediately prior to the
consummation of the transaction unless exercised by the optionee within a
specified period of time;
- holders of options receive a cash payment in the event of a merger under
terms where holders of our common stock receive a cash payment for each
share surrendered in the merger; or
- provide that all or any outstanding options shall become immediately
exercisable in full.
The 1995 plan is administered by the compensation committee of the board of
directors.
1999 STOCK INCENTIVE PLAN
The 1999 stock incentive plan was adopted by the board of directors in
October 1999 and approved by our stockholders in November 1999. We have reserved
a total of 3,500,000 shares of common stock for issuance under the 1999 plan. As
of October 25, 1999, no options had been granted under the 1999 plan.
The 1999 plan authorizes the grant of incentive options and nonqualified
options. The 1999 plan also provides for awards of stock appreciation rights,
performance shares, restricted stock and other stock-based awards.
49
<PAGE>
Incentive options may be granted under the 1999 plan to our key employees
and our affiliates within the meaning of the Internal Revenue Code, including
our officers and directors as well as officers and directors of our affiliates
who are also employees. The exercise price of incentive options granted under
the 1999 plan must be at least equal to the fair market value of our common
stock on the date of grant. The exercise price of incentive options granted to
an optionee who owns stock possessing more than 10% of the voting power of our
outstanding capital stock must be at least equal to 110% of the fair market
value of the common stock on the date of grant, and such optionee must exercise
his or her option within five years from the date of the grant of such option.
Under the terms of the 1999 plan, we may grant nonqualified options to our
officers and other employees, our directors, and other individuals providing
services to us. There are no limits on the exercise price of nonqualified
options granted under the 1999 plan.
The 1999 plan provides that, upon a change of control, all outstanding plan
options and other awards may be:
- exchanged for similar options or awards of the corporation surviving the
change of control;
- made immediately exercisable in full; or
- terminated as of the effective date of such change of control, provided
that the holders have the right to exercise the options or awards to the
extent then vested.
For these purposes, a "change of control" means the occurrence of any of the
following:
- any person becomes a beneficial owner, directly or indirectly of 50% or
more of the combined voting power of our outstanding shares;
- any merger or consolidation of Centra with another company, other than a
merger or consolidation which results in our voting shares outstanding
immediately prior to the merger or consolidation, representing more than
65% of the combined voting power of the voting shares of the surviving
entity; or
- the liquidation, sale or disposition of all or substantially all of our
assets.
The 1999 plan is administered by the compensation committee of the board of
directors. The compensation committee selects the individuals to whom options
will be granted and determines the option exercise price and other terms of each
award, subject to the provisions of the 1999 plan.
1999 DIRECTOR OPTION PLAN
The 1999 director option plan was adopted by the board of directors in
October 1999 and approved by our stockholders in November 1999. The director
plan provides for the grant of stock options to those of our directors who are
not full-time employees of Centra or our subsidiary. Only non-statutory options
may be granted under the director plan. The maximum number of shares of Common
Stock as to which options may be granted under the Plan is 200,000. As of
October 25, 1999, no options had been granted under the director plan.
The director plan is administered by the board of directors. The option
exercise price for each option granted under the director plan is the fair
market value of the common stock as of the date of grant. Payment of the option
exercise price is to be made in cash for the full exercise price of the options.
Options are not assignable or transferrable except by will or the laws of
descent and distribution. They terminate on the earlier of ten years after the
date of grant or sixty days after the optionee ceases to serve as a director,
except in the event of death or disability.
50
<PAGE>
1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 employee stock purchase plan was adopted by the board of directors
in October 1999 and approved by our stockholders in November 1999. We have
reserved 1,500,000 shares of common stock for issuance under the stock purchase
plan. As of December 31 each year, we will increase the number of shares we
reserve for issuance under the stock purchase plan automatically by 2% of the
total number of shares of our common stock then outstanding or, if less, 300,000
shares.
Under the terms of the stock purchase plan, all of our employees who have
completed three months of employment and whose customary employment is more than
20 hours per week and more than five months in the calendar year, are eligible
to participate in the stock purchase plan. Employees who own stock and hold
outstanding options to purchase stock representing five percent or more of the
total combined voting power or value of all classes of our stock are not
eligible to participate in the stock purchase plan.
The right to purchase common stock under the stock purchase plan is made
available through a series of offerings. On the first day of an offering period,
we will grant to each eligible employee who has elected in writing to
participate in the stock purchase plan an option to purchase shares of common
stock. The employee is required to authorize an amount, between 1% and 10% of
the employee's compensation, to be deducted from the employee's pay during the
offering period. On the last day of the offering period, the employee will be
deemed to have exercised the option, at the option exercise price, to the extent
of accumulated payroll deductions. Under the terms of the stock purchase plan,
the option exercise price is an amount equal to 85% of the closing market price
of our common stock on either the first or last day of the offering period,
whichever is lower. In the event of a change in control of Centra, the stock
purchase plan will terminate and shares will be purchased with the payroll
deductions accumulated to date by participating employees.
No employee may be granted an option that would permit the employee's rights
to purchase common stock to accrue at a rate in excess of $25,000 of the fair
market value of the common stock, determined as of the date the option is
granted, in any calendar year.
The stock purchase plan is administered by the compensation committee of the
board of directors.
401(k) PLAN
Effective August 1996, we established a 401(k) defined contribution
retirement plan covering all employees who are at least 21 years of age. The
retirement plan provides for voluntary employee contributions in amounts
determined by the employees, subject to a maximum limit allowed by Internal
Revenue Service guidelines. For 1999, this limit is $10,000. We may contribute
these amounts to the accounts of participants in the retirement plan as
determined by the board of directors, subject to any applicable legal
requirements. To date, we have not made any contribution to the retirement plan,
and we do not anticipate making any contribution to the retirement plan in the
foreseeable future.
SEVERANCE AGREEMENTS
We have entered into severance agreements with Leon Navickas, our Chief
Executive Officer; Anthony J. Mark, our President and Chief Operating Officer;
Stephen A. Johnson, our Chief Financial Officer, Treasurer and Secretary; Steven
N. Lesser, our Vice President, Worldwide Sales; and Joseph M. Gruttadauria, our
Vice President, Professional Services. Under these agreements, if the executive
officer is terminated without cause, he will be entitled to continue to receive
base salary and benefits for a period ending on the earliest of (a) 181 days
from the date of termination, (b) the date on which
51
<PAGE>
he begins new employment and (c) the date on which he materially breaches any
written agreement with us. For these purposes, "cause" means:
- an act of personal dishonesty committed in connection with
responsibilities as an employee and intended to result in substantial
personal enrichment;
- a felony conviction;
- a willful act that constitutes gross misconduct and that is injurious to
Centra; or
- continued, intentional violations of employment obligations after written
notice from Centra.
None of our executive officers has an employment agreement with us. Our
executive officers may resign and we may terminate their employment at any time,
subject to the provisions of their severance agreements.
CHANGE OF CONTROL ARRANGEMENTS
We have entered into change of control agreements with each of Leon
Navickas, our Chief Executive Officer; Anthony J. Mark, our President and Chief
Operating Officer; Stephen A. Johnson, our Chief Financial Officer, Treasurer
and Secretary; Steven N. Lesser, our Vice President, Worldwide Sales; and Joseph
M. Gruttadauria, our Vice President, Professional Services. Each agreement
provides that upon a change of control, 50% of the executive's unvested options
will vest and become immediately exercisable and 50% of our right to repurchase
the executive's unvested options will terminate. A "change of control" means:
- any merger or consolidation which results in the voting shares outstanding
immediately prior to the merger or consolidation, representing immediately
after the merger or consolidation, less than 50% of the voting power of
the surviving entity;
- a sale of all or substantially all of our assets; or
- the sale of our shares in a single transaction or a series of related
transactions, representing at least 80% of the voting power of our voting
shares.
These change of control provisions apply to previous grants of restricted stock
and options and to any future grants of restricted stock and options. The change
of control provisions shall not apply to a proposed merger or consolidation if
(1) our independent accountants determine that enforcement of the change of
control provision would preclude the proposed merger or consolidation as a
pooling of interests and (2) we intended to enter into the proposed merger or
consolidation but for the preclusion of polling of interest accounting
treatment.
The compensation committee of the board of directors, as administrator of
the 1995 stock option plan and the 1999 stock incentive plan, can provide for
accelerated vesting of the shares of common stock subject to outstanding options
held by any of our executive officers or directors in connection with specified
changes of control of Centra. The accelerated vesting may be conditioned on the
termination of the individual's employment following the change of control.
52
<PAGE>
TRANSACTIONS WITH RELATED PARTIES
SALES OF PREFERRED STOCK
In May and June 1996, we sold 1,416,490 shares of series B convertible
preferred stock at a price of $2.25 per share, for gross proceeds of $3,187,000.
- We sold 549,777 of the shares to Alta V Limited Partnership for a total
price of $1,237,000. Jonathan Flint, one of our directors, is affiliated
with Alta V Limited Partnership.
- We sold 333,334 of the shares to North Bridge Venture Partners, L.P. for a
total price of $750,000. Richard D'Amore, one of our directors, is
affiliated with North Bridge Venture Partners, L.P.
In March 1997, we sold 1,670,000 shares of series C convertible preferred
stock at a price of $2.50 per share, for gross proceeds of $4,175,000.
- We sold 316,672 of the shares to Alta V Limited Partnership for a total
price of $792,000. Jonathan Flint, one of our directors, is affiliated
with Alta V Limited Partnership.
- We sold 200,000 of the shares to Commonwealth Capital Ventures, L.P. for a
total purchase price of $500,000. Commonwealth Capital Ventures, L.P. is a
5% stockholder of Centra.
- We sold 280,000 of the shares to North Bridge Venture Partners, L.P. for a
total price of $700,000. Richard D'Amore, one of our directors, is
affiliated with North Bridge Venture Partners, L.P.
- We sold 40,000 shares to Leon Navickas, our Chief Executive Officer and
Chairman, for a total price of $100,000.
- We sold 20,000 of the shares to TM Partners for a total of $50,000.
Anthony J. Mark, our President and Chief Operating Officer, is affiliated
with TM Partners.
In December 1997, we sold 2,250,000 shares of series D convertible preferred
stock at a price of $4.00 per share, for gross proceeds of $9,000,000.
- We sold 503,459 of the shares to Alta V Limited Partnership for a total
price of $2,014,000. Jonathan Flint, one of our directors, is affiliated
with Alta V Limited Partnership.
- We sold 250,000 of the shares to Commonwealth Capital Ventures, L.P. for a
total purchase price of $1,000,000. Commonwealth Capital Ventures, L.P. is
a 5% stockholder of Centra.
- We sold 707,662 of the shares to Polaris Venture Partners, L.P. for a
total price of $2,831,000, and 42,338 of the shares to Polaris Venture
Partners Founders' Fund, L.P. for a total price of $169,000. Jonathan
Flint, one of our directors, is affiliated with Polaris Venture Partners,
L.P. and Polaris Venture Partners Founders' Fund, L.P.
- We sold 400,000 of the shares to North Bridge Venture Partners, L.P. for a
total price of $1,600,000. Richard D'Amore, one of our directors, is
affiliated with North Bridge Venture Partners, L.P.
- We sold 325,000 shares to Scripps Ventures, LLC for a total purchase price
of $1,300,000. Scripps Ventures, LLC is a 5% stockholder of Centra.
- We sold 12,500 shares to TM Partners for a total purchase price of
$50,000. Anthony J. Mark, our President and Chief Operating Officer, is
affiliated with TM Partners.
In April 1999, we sold 2,695,000 shares of series E convertible preferred
stock at a price of $5.00 per share, for gross proceeds of $13,475,000.
53
<PAGE>
- We sold 158,336 of the shares to Alta V Limited Partnership for a total
price of $792,000. Jonathan Flint, one of our directors, is affiliated
with Alta V Limited Partnership.
- We sold 100,000 shares to Commonwealth Capital Ventures, LLC for a total
purchase price of $500,000. Commonwealth Capital Ventures, L.P. is a 5%
stockholder of Centra.
- We sold 84,920 of the shares to Polaris Venture Partners, L.P. for a total
price of $425,000, and 5,080 of the shares to Polaris Venture Partners
Founders' Fund, L.P. for a total price of $25,000. Jonathan Flint, one of
our directors, is affiliated with Polaris Venture Partners, L.P. and
Polaris Venture Partners Founders' Fund, L.P.
- We sold 200,000 of the shares North Bridge Venture Partners, L.P. for a
total price of $1,000,000. Richard D'Amore, one of our directors, is
affiliated with North Bridge Venture Partners, L.P.
- We sold 70,000 shares to Scripps Ventures, LLC for a total purchase price
of $350,000. Scripps Ventures, LLC is a 5% stockholder of Centra.
- We sold 65,000 shares to SL Partners for a total purchase price of
$325,000. Steven N. Lesser, our Vice President, Sales, is affiliated with
SL Partners.
- We sold 10,000 shares to TM Partners for a total purchase price of
$50,000. Anthony J. Mark, our President and Chief Operating Officer, is
affiliated with TM Partners.
REGISTRATION RIGHTS
The holders of 13,746,735 shares of common stock are entitled to rights to
register their shares under the Securities Act. These rights are provided under
the terms of an agreement between us and the holders of registrable securities,
who are former holders of our preferred stock. These holders include:
- Leon Navickas, our Chief Executive Officer and Chairman, who has
registration rights covering 210,000 shares of common stock;
- venture capital firms affiliated with Richard D'Amore, one of our
directors, which have registration rights covering 2,570,001 shares of
common stock; and
- venture capital firms affiliated with Jonathan Flint, one of our
directors, which have registration rights covering 4,294,566 shares of
common stock.
The registration rights:
- are held by all persons and entities that participated in our preferred
stock financings;
- allow holders to require us to register their shares under the Securities
Act; and
- allow holders to include their shares in registration statements filed by
us.
For a more detailed description of the registration rights, see "Description
of Capital Stock--Registration Rights."
INDEMNIFICATION AGREEMENTS
We intend to enter into indemnification agreements with our executive
officers and directors. Under these agreements, we will agree:
- to indemnify, to the fullest extent allowed by Delaware law, the executive
officers and directors against certain liabilities related to their
service or status as officers or directors; and
- in any proceeding in which they could be indemnified, to advance to the
executive officers and directors the expenses they incur in those
proceedings.
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<PAGE>
We also intend to execute similar indemnification agreements with our future
directors, including our current director--nominees, and executive officers. For
a more detailed description of the indemnification agreements, see
"Management--Liability Limitations and Indemnification."
PAYMENT TO PREFERRED STOCKHOLDERS UPON COMPLETION OF THIS OFFERING
Upon the closing of this offering, we will pay $6,480,000 to holders of
series A and series B convertible preferred stock according to the terms of our
certificate of incorporation.
- We will pay $2,598,000 to Alta V Limited Partnership. Jonathan Flint, one
of our directors, is affiliated with Alta V Limited Partnership.
- We will pay $1,875,000 to North Bridge Venture Partners, L.P. Richard
D'Amore, one of our directors, is affiliated with North Bridge Venture
Partners, L.P.
- We will pay $150,000 to Leon Navickas, our Chief Executive Officer and
Chairman.
Please see "Use of Proceeds" for further information.
TERMS OF TRANSACTIONS
We believe that all of the transactions described above were made on terms
no less favorable to us than would have been obtained from unaffiliated third
parties. We have adopted a policy under which all future transactions between us
and any of our directors or executive officers must be on terms no less
favorable to us than would have been obtained from unaffiliated third parties
and must be approved by a majority of the disinterested members of the board of
directors.
55
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information about the beneficial ownership of
our outstanding common stock on October 25, 1999, by:
- each person or entity who is known by us to own beneficially more than
five percent of our common stock;
- each of the named executive officers;
- each of our directors and our director-nominee; and
- all of our executive officers and directors and our director-nominee as a
group.
In accordance with SEC rules, beneficial ownership includes any shares as to
which a person or entity has sole or shared voting power or investment power and
any shares as to which the person or entity has the right to acquire beneficial
ownership within 60 days after September 30, 1999 through the exercise of any
stock option. Except as noted below, we believe that the persons named in the
table have sole voting and investment power with respect to the shares of common
stock set forth opposite their names. Percentage of beneficial ownership is
based on 17,676,837 shares of common stock outstanding as of September 30, 1999,
including shares into which our outstanding preferred stock will convert upon
completion of this offering, and 22,676,837 shares of common stock that will be
outstanding after completion of this offering. All shares included below under
"Right to Acquire" represent shares subject to outstanding stock options. The
address of our executive officers, directors and director-nominee is in care of
Centra Software, Inc., 430 Bedford Street, Lexington, Massachusetts 02420.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Jonathan Flint(1).................................. 4,326,457 -- 4,326,457 24.5% 19.1%
Entities affiliated with Burr, Egan, Deleage & 3,066,457 -- 3,066,457 17.3 13.5
Co.(2)...........................................
One Post Office Square
Suite 3800
Boston, MA 02109
North Bridge Venture Partners, L.P. ............... 2,570,001 -- 2,570,001 14.5 11.3
950 Winter Street
Suite 4600
Waltham, MA 02451
Richard D'Amore(3)................................. 2,570,001 -- 2,570,001 14.5 11.3
Leon Navickas(4)................................... 2,010,000 -- 2,010,000 11.4 8.9
Scripps Ventures, LLC.............................. 1,792,500 -- 1,792,500 10.1 7.9
200 Madison Avenue
New York, NY 10016
Entities affiliated with The Goldman Sachs Group, 1,500,000 -- 1,500,000 8.5 6.6
Inc.(5)..........................................
85 Broad Street, Tenth Floor
New York, New York 10004
HarbourVest Partners V--Direct Fund L.P. .......... 1,500,000 -- 1,500,000 8.5 6.6
1 Financial Center
Boston, MA 02111
Commonwealth Capital Ventures, L.P. ............... 1,491,667 -- 1,491,667 8.4 6.6
20 William Street
Wellesley, MA 02481
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
----------------------------------- -------------------
OUTSTANDING RIGHT TO TOTAL BEFORE AFTER
SHARES ACQUIRE NUMBER OFFERING OFFERING
----------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Entities affiliated with Polaris Venture Management 1,260,000 -- 1,260,000 7.1 5.6
Co., LLC(6)......................................
1000 Winter Street
Suite 3350
Waltham, MA 02541
Anthony J. Mark.................................... 600,000 -- 600,000 3.4 2.6
Joseph M. Gruttadauria............................. 315,000 -- 315,000 1.8 1.4
Stephen A. Johnson................................. 75,000 37,500 112,500 * *
David Barrett...................................... 22,500 -- 22,500 * *
All current executive officers and directors and
director-nominee, as a group (eight persons)..... 10,293,110 37,500 10,330,610 58.3 45.6
</TABLE>
- --------------------------
* Less than one percent.
(1) Represents 3,034,566 shares held of record by Alta V Limited Partnership;
31,891 shares held of record by Customs House Partners; 71,127 shares held
of record by Polaris Venture Partners Founders' Fund, L.P.; and 1,188,873
shares held of record by Polaris Venture Partners, L.P. Mr. Flint is a
General Partner of Polaris Venture Management, Co., LLC. Mr. Flint is a
General Partner of the entity that manages Alta V Limited Partnership and
Customs House Partners. Mr. Flint disclaims beneficial ownership of all of
these shares, except to the extent of his pecuniary interest, if any.
(2) Represents 3,034,566 shares held of record by Alta V Limited Partnership and
31,891 shares held of record by Customs House Partners.
(3) Represents 2,570,001 shares held of record by North Bridge Venture Partners,
L.P. Mr. D'Amore is a General Partner of North Bridge Venture Partners, L.P.
Mr. D'Amore disclaims beneficial ownership of all of these shares, except to
the extent of his pecuniary interest, if any.
(4) Includes 45,000 shares held of record by Trustees of the Navickas Education
Trust 1997.
(5) Represents 1,350,000 shares held of record by The Goldman Sachs Group, L.P.
and 150,000 shares held of record by Stone Street Fund, 1999, L.P.
(6) Represents 71,127 shares held of record by Polaris Venture Founders' Fund,
L.P. and 1,188,873 shares held of record by Polaris Venture Partners, L.P.
57
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon completion of this offering, we will be authorized to issue 100,000,000
shares of common stock, $0.001 par value, and 10,000,000 shares of undesignated
preferred stock, $0.001 par value. The following contains a summary of all of
the material terms of our capital stock.
COMMON STOCK
As of September 30, 1999, there were 17,676,837 shares of common stock
outstanding, as adjusted to reflect the conversion of all outstanding preferred
stock upon completion of this offering. The shares were held of record by 55
stockholders.
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by the stockholders. Holders of common stock are entitled to
receive their proportionate share of dividends, if any, declared from time to
time by the board of directors out of funds legally available for that purpose.
See "Dividend Policy." In the event of our liquidation, dissolution or winding
up, holders of common stock are entitled to their proportionate share of all
assets remaining after payment of liabilities, after taking into consideration
the prior distribution rights of any preferred stock then outstanding. Common
stock has no preemptive or conversion rights or other subscription rights. No
redemption or sinking fund provisions apply to the common stock. All outstanding
shares of common stock are fully paid and nonassessable, and the shares of
common stock being offered by us will be fully paid and nonassessable as of the
completion of this offering.
PREFERRED STOCK
Immediately prior to this offering, our certificate of incorporation
provided for five series of preferred stock:
- Series A redeemable convertible participating preferred stock, of which
1,133,000 shares were issued and outstanding;
- Series B redeemable convertible participating preferred stock, of which
1,416,490 shares were issued and outstanding;
- Series C redeemable convertible preferred stock, of which 1,670,000 shares
were issued and outstanding;
- Series D redeemable convertible preferred stock, of which 2,250,000 shares
were issued and outstanding; and
- Series E redeemable convertible preferred stock, of which 2,695,000 shares
were issued and outstanding.
Upon the completion of this offering, each outstanding share of preferred stock
will convert automatically into 1.5 shares of common stock.
Upon the completion of this offering, the board of directors will be
authorized, without stockholder approval, from time to time to issue up to an
aggregate of 10,000,000 shares of preferred stock, $0.001 par value per share,
in one or more series, each of the series to have such rights and preferences,
including voting rights, dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be determined by the board of
directors. The rights of the holders of common stock will be affected by, and
may be adversely affected by, the rights of holders of any preferred stock that
may be issued in the future. 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 others
to acquire, or of discouraging others from attempting to acquire,
58
<PAGE>
a majority of our outstanding voting stock. We have no current plans to issue
any shares of preferred stock.
REGISTRATION RIGHTS
The holders of 13,746,735 shares of common stock are entitled to rights to
register their shares under the Securities Act at any time after the completion
of this offering. These rights are provided under the terms of an agreement
between us and the holders of registrable securities, who are former holders of
our preferred stock. If we register any of our securities either for our own
account or for the account of other security holders, the holders of registrable
securities will be entitled to include their shares of common stock in the
registration, subject to the ability of the underwriters to limit the number of
shares included in the offering. The holders of registrable securities may also
require us to use our best efforts to register all or a portion of their
registrable securities on Form S-3 when use of the form becomes available to us,
provided that the proposed aggregate offering price, based on the then-current
public market price, is at least $500,000. All registration expenses must be
borne by us and all selling expenses relating to registrable securities must be
borne by the holders of the securities being registered.
ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND OUR CHARTER AND BY-LAWS
Delaware law and our certificate of incorporation and by-laws could make it
more difficult to acquire us by means of a tender offer, a proxy contest, open
market purchases, removal of incumbent directors and otherwise. These
provisions, summarized below, are expected to discourage types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of us to first negotiate with us. We believe that the
benefits of increased protection of our potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure us
outweigh the disadvantages of discouraging takeover or acquisition proposals
because negotiation of these proposals could result in an improvement of their
terms.
We must comply with Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless the business combination or the transaction in
which the person became an interested stockholder is approved in a prescribed
manner. Generally, a "business combination" includes a merger, asset or stock
sale, or other transaction resulting in a financial benefit to an interested
stockholder. An "interested stockholder" includes a person who, together with
affiliates and associates, owns, or did own within three years prior to the
determination of interested stockholder status, 15% or more of the corporation's
voting stock. The existence of this provision generally will have an
anti-takeover effect for transactions not approved in advance by the board of
directors, including discouraging attempts that might result in a premium over
the market price for the shares of common stock held by stockholders.
Upon the closing of this offering, our certificate of incorporation and
by-laws will require that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition, upon
the completion of this offering, special meetings of our stockholders may be
called only by the board of directors or some of our officers. Our certificate
of incorporation and by-laws also provide that, effective upon the completion of
this offering, our board of directors will be divided into three classes, with
each class serving staggered three-year terms. These provisions may have the
effect of deterring hostile takeovers or delaying changes in our control or
management.
59
<PAGE>
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering, there has been no market for our common stock. We
cannot predict the effect, if any, that sales of shares of common stock to the
public or the availability of shares for sale to the public will have on the
market price of the common stock prevailing from time to time. Nevertheless, if
a significant number of shares of common stock are sold in the public market, or
if people believe that such sales may occur, the prevailing market price of our
common stock could decline and could impair our future ability to raise capital
through the sale of our equity securities.
Upon completion of this offering we will have outstanding 22,676,837 shares
of common stock, assuming no exercise of outstanding options after October 25,
1999. Of these shares, the 5,000,000 shares sold in this offering will be freely
tradable without restriction under the Securities Act except for any shares
purchased by "affiliates" of Centra as that term is defined in Rule 144 under
the Securities Act.
The remaining 17,676,837 shares of common stock were issued and sold by us
in reliance on exemptions from the registration requirements of the Securities
Act. A total of shares eligible for sale under Rule 144 are subject to
lock-up agreements with the underwriters that provide that we and those holders
of stock and options may not dispose of or hedge any common stock or securities
convertible into or exchangeable for shares of common stock. These restrictions
will be in effect for a period of 180 days after the date of this prospectus. At
any time and without notice, BancBoston Robertson Stephens Inc. may, in its sole
discretion, release all or some of the securities from these lock-up agreements.
In addition, holders of stock options could exercise these options and sell some
of the shares issued upon exercise as described below.
<TABLE>
<CAPTION>
NUMBER OF SHARES
RELEVANT DATES ELIGIBLE FOR FUTURE SALE COMMENT
- ----------------------------------- ------------------------ -----------------------------------
<S> <C> <C>
On effective date.................. Shares sold in this offering and
eligible for sale under Rule 144(k)
90 days after effective date....... Additional shares eligible for sale
under Rules 144 and 701
180 days after effective date...... All shares subject to lock-up
released; additional shares
eligible for sale under Rules 144
and 701
More than 181 days after Additional shares becoming eligible
effective date................... for sale under Rule 144 more than
180 days after the effective date
</TABLE>
In addition, as of October 25, 1999, there were outstanding options to
purchase 1,906,500 shares of common stock. A total of of these options are
subject to lock-up agreements.
60
<PAGE>
RULE 144
In general, under Rule 144, an affiliate of Centra, or person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of:
- one percent of the then-outstanding shares of common stock (approximately
226,768 shares immediately after this offering), or
- the average weekly trading volume during the four calendar weeks preceding
the date on which notice of the sale is filed with the SEC.
Sales under Rule 144 must also comply with manner of sale provisions and
notice requirements and are subject to the availability of public information
about us. We are unable to estimate the number of shares that will be sold under
Rule 144, as this will depend on the market price for the common stock, the
personal circumstances of the sellers and other factors.
RULE 144(k)
Under Rule 144(k), a person who is not considered to have been one of our
"affiliates" at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an "affiliate," is
entitled to sell these shares without complying with the manner of sale, notice
filing, volume limitation or public information provisions of Rule 144.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
upon the completion of this offering.
RULE 701
Any of our employees, officers, directors or consultants who purchased
shares pursuant to a written compensatory plan or contract may be entitled to
rely on the resale provision of Rule 701. Rule 701 permits affiliates to sell
their Rule 701 shares under Rule 144 without complying with the holding period
requirements of Rule 144. Rule 701 further provides that non-affiliates may sell
these shares in reliance on Rule 144 without having to comply with the holding
period, public information, volume limitation or notice provisions of Rule 144.
All holders of Rule 701 shares are required to wait until 90 days after the date
of this prospectus before selling those shares. A total of of the
Rule 701 shares are subject to lock-up agreements and will only become eligible
for sale at the earlier of (a) the expiration of the 180-day lock-up agreements
and (b) no sooner than 90 days after the offering upon obtaining the prior
written consent of BancBoston Robertson Stephens Inc.
Upon the completion of this offering, we intend to file a registration
statement on Form S-8 under the Securities Act covering, among other things,
shares of common stock covered by outstanding options under the 1995 stock plan,
the 1999 stock incentive plan, the 1999 director option plan and the 1999
employee stock purchase plan. Based on the number of shares covered by
outstanding options as of October 25, 1999 and currently reserved for issuance
under the incentive plans, the registration statement would cover a total of
7,106,500 shares. The registration statement will become effective upon filing.
Accordingly, shares registered under the registration statement will be
available for sale in the open market immediately, after complying with
Rule 144 volume limitations applicable to affiliates, and with applicable
180-day lock-up agreements.
REGISTRATION RIGHTS
After the completion of this offering, holders of 13,746,735 shares of
common stock will be entitled to specific rights to register those shares for
sale in the public market. See "Description of Capital Stock--Registration
Rights." Registration of these shares under the Securities Act would result in
the shares becoming freely tradable without restriction under the Securities
Act, except for shares purchased by affiliates, immediately upon the
effectiveness of the registration.
61
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated, have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the numbers of shares of common stock set forth opposite their
names below. The underwriters are committed to purchase and pay for all of the
shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc...........................
Hambrecht & Quist LLC.......................................
Dain Rauscher Wessels.......................................
---------
Total................................................... 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the representatives. No reduction in
this price will change the amount of proceeds to be received by us as indicated
on the cover page of this prospectus.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the same price per
share as we will receive for the 5,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 5,000,000 shares offered by this prospectus. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
5,000,000 shares are being sold. We will be obligated, under this option, to
sell shares to the extent the option is exercised. The underwriters may exercise
the option only to cover over-allotments made in connection with the sale of the
5,000,000 shares of common stock offered by this prospectus.
UNDERWRITING DISCOUNTS AND COMMISSIONS. The underwriting discounts and
commissions will be an amount equal to the public offering price per share, less
the amount paid per share by the underwriters to us. We currently expect that
the underwriting discounts and commissions will equal 7% of the public offering
price. The following table shows the estimated per share and total underwriting
discounts and commissions to be paid by us to the underwriters. This information
is presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price.............. $9.00 $45,000,000 $51,750,000
Estimated underwriting discounts and
commissions.............................. 0.63 3,150,000 3,622,500
Estimated proceeds, before expenses, to
us....................................... 8.37 41,850,000 48,127,500
</TABLE>
62
<PAGE>
The expenses of the offering payable by us are estimated at $900,000.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 2000.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against civil liabilities, including liabilities under
the Securities Act and liabilities arising from breaches of representation and
warranties contained in the underwriting agreement.
FUTURE SALES. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of common stock, any options or warrants to purchase
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or acquired
directly from us by these holders or with respect to which they have or may
acquire the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc.
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to lock-up agreements. In addition, we have
agreed that during the 180 days after the date of this prospectus we will not,
without the prior written consent of BancBoston Robertson Stephens Inc.,
(1) consent to the disposition of any shares held by stockholders subject to
lock-up agreements prior to the expiration of the lock-up period or (2) issue,
sell, contract to sell, or otherwise dispose of, any shares of common stock, any
options to purchase any shares of common stock or any securities convertible
into, exercisable for or exchangeable for shares of common stock other than
(a) our sale of shares in this offering, (b) the issuance of common stock upon
the exercise of outstanding options and the issuance of options under existing
stock option and incentive plans, provided such common stock and the common
stock issuable upon the exercise of such options cannot be transferred prior to
the expiration of the lock-up period and (c) the issuance of shares in
connection with certain acquisitions that cannot be sold on the public market
during the lock-up period. Please see "Shares Eligible for Future Sale."
DIRECTED SHARES. At our request, the underwriters have reserved up to 5% of
the shares of the common stock offered by this prospectus for sale to our
officers, directors, employees and their family members and to our business
associates at the public offering price set forth on the cover page of this
prospectus. These business associates are current and former clients, vendors,
suppliers and other individuals who, in the judgment of our management, have
contributed to our success. These persons must commit to purchase no later than
the close of business on the day following the date of this prospectus. The
number of shares available for sale to the general public will be reduced to the
extent these persons purchase the reserved shares. Sales of these reserved
shares will be effected through E*OFFERING Corp. and E*TRADE Securities, Inc. A
copy of the prospectus in electronic format will be made available on the Web
site hosted by E*OFFERING Corp. and E*TRADE Securities, Inc.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
STABILIZATION. The representatives have advised us that, under
Regulation M under the Securities Exchange Act, some participants in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in
63
<PAGE>
the open market. A "stabilizing bid" is a bid for or the purchase of the common
stock on behalf of the underwriters for the purpose of fixing or maintaining the
price of the common stock. A "syndicate covering transaction" is the bid for or
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by the
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed by
the underwriter or syndicate member. The representatives have advised us that
these transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
LEGAL MATTERS
The validity of the shares offered by this prospectus will be passed upon
for us by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Legal matters will be
passed upon for the underwriters by Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus and the registration statement relating to this prospectus have been
audited by Arthur Andersen LLP, as independent public accountants, as indicated
in their report with respect thereto, and are included herein in reliance upon
the authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC for our
common stock offered hereby. This prospectus does not contain all of the
information set forth in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for the copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.
You can read our SEC filings, including the registration statement, over the
Internet at the SEC's Web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; Suite
1400, 500 West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center,
Thirteenth Floor, New York, New York 10048. You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the
SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference facilities.
We intend to send our stockholders annual reports containing audited
consolidated financial statements and quarterly reports containing unaudited
consolidated financial statements for the first three quarters of each fiscal
year.
64
<PAGE>
CENTRA SOFTWARE, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998
and September 30, 1999 (unaudited) and Pro Forma September
30, 1999 (unaudited)...................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996,
1997 and 1998, and for the Nine Months Ended September 30,
1998 and 1999 (unaudited)................................. F-4
Consolidated Statements of Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit) for the Years
Ended December 31, 1996, 1997 and 1998, and for the Nine
Months Ended September 30, 1999 (unaudited) and Pro Forma
September 30, 1999 (unaudited)............................ F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and for the Nine Months
Ended September 30, 1998 and 1999 (unaudited)............. F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Centra Software, Inc.:
We have audited the accompanying consolidated balance sheets of Centra
Software, Inc. (a Delaware corporation) and subsidiary as of December 31, 1997
and 1998, and the related consolidated statements of operations, redeemable
convertible preferred stock and stockholders' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Centra Software, Inc. and
subsidiary as of December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 2, 1999 (except with respect to
matters discussed in Note 8(b) and 8(e) as to
which the date is October 27, 1999)
F-2
<PAGE>
CENTRA SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
----------- ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 8,009,000 $ 1,979,000 $ 3,893,000 $ 3,893,000
Short-term investments.................................... 70,000 -- 5,759,000 5,759,000
Accounts receivable, net of reserves of approximately
$50,000, $100,000 and $219,000 at December 31, 1997,
1998 and September 30, 1999, respectively............... 150,000 1,769,000 2,528,000 2,528,000
Prepaid expenses and other current assets................. 77,000 190,000 401,000 401,000
----------- ------------ ------------ ------------
Total current assets.................................. 8,306,000 3,938,000 12,581,000 12,581,000
----------- ------------ ------------ ------------
Property and Equipment, at cost:
Computers and equipment................................... 795,000 1,187,000 1,758,000 1,758,000
Furniture and fixtures.................................... 160,000 204,000 182,000 182,000
Leasehold improvements.................................... 29,000 66,000 72,000 72,000
----------- ------------ ------------ ------------
984,000 1,457,000 2,012,000 2,012,000
Less--Accumulated depreciation and amortization........... 295,000 660,000 1,079,000 1,079,000
----------- ------------ ------------ ------------
689,000 797,000 933,000 933,000
----------- ------------ ------------ ------------
Restricted Cash........................................... 211,000 -- -- --
----------- ------------ ------------ ------------
Other Assets.............................................. 32,000 18,000 106,000 106,000
----------- ------------ ------------ ------------
$ 9,238,000 $ 4,753,000 $ 13,620,000 $ 13,620,000
=========== ============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of term loan........................... $ 130,000 $ 325,000 $ 338,000 $ 338,000
Accounts payable.......................................... 526,000 416,000 227,000 227,000
Accrued expenses.......................................... 345,000 931,000 1,137,000 1,137,000
Accrued dividends payable................................. -- -- -- 6,480,000
Deferred revenue.......................................... 64,000 725,000 1,331,000 1,331,000
----------- ------------ ------------ ------------
Total current liabilities............................. 1,065,000 2,397,000 3,033,000 9,513,000
----------- ------------ ------------ ------------
Term loan, net of current maturities........................ 158,000 530,000 455,000 455,000
----------- ------------ ------------ ------------
Commitments (Note 6)
Redeemable convertible preferred stock, $0.001 par value--
Authorized--9,164,490 shares; no shares pro forma
Issued and outstanding--6,469,490 shares, 6,469,490
shares, 9,164,490 shares, and no shares as of December
31, 1997 and 1998, September 30, 1999 and pro forma
September 30, 1999, respectively, at carrying value..... 17,992,000 18,498,000 32,353,000 --
----------- ------------ ------------ ------------
Stockholders' equity (deficit):
Preferred stock (undesignated), $0.001 par value--
Authorized--no shares; actual 10,000,000 shares pro forma
Issued and outstanding--none; actual and pro forma
Common stock, $0.001 par value--
Authorized--25,000,000 shares; actual; 100,000,000 shares
pro forma
Issued--3,534,375 shares, 3,742,689 shares, 4,572,003
shares and 18,318,738 shares at December 31, 1997, 1998,
September 30, 1999 and pro forma September 30, 1999,
respectively............................................ 3,000 3,000 4,000 18,000
Additional paid-in capital.................................. 636,000 693,000 2,709,000 29,345,000
Accumulated deficit......................................... (10,595,000) (17,354,000) (23,325,000) (24,102,000)
Deferred compensation....................................... -- -- (1,561,000) (1,561,000)
Stock subscription receivable............................... (8,000) -- (11,000) (11,000)
Treasury stock (447,089 shares, 455,339 shares 641,901
shares and 641,901 shares of common stock at December 31,
1997, 1998 and September 30, 1999 and pro forma September
30, 1999, respectively, at cost).......................... (13,000) (14,000) (37,000) (37,000)
----------- ------------ ------------ ------------
Total stockholders' equity (deficit).................. (9,977,000) (16,672,000) (22,221,000) 3,652,000
----------- ------------ ------------ ------------
$ 9,238,000 $ 4,753,000 $ 13,620,000 $ 13,620,000
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
CENTRA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
License..................... $ -- $ 234,000 $ 3,356,000 $ 2,117,000 $ 4,534,000
Service..................... -- 55,000 870,000 599,000 1,048,000
----------- ----------- ----------- ----------- -----------
Total revenues.......... -- 289,000 4,226,000 2,716,000 5,582,000
----------- ----------- ----------- ----------- -----------
Cost of Revenues:
License..................... -- 75,000 185,000 120,000 138,000
Service..................... -- 130,000 919,000 684,000 1,058,000
----------- ----------- ----------- ----------- -----------
Total cost of
revenues.............. -- 205,000 1,104,000 804,000 1,196,000
----------- ----------- ----------- ----------- -----------
Gross profit............ -- 84,000 3,122,000 1,912,000 4,386,000
----------- ----------- ----------- ----------- -----------
Operating Expenses:
Sales and marketing(1)...... 607,000 2,465,000 5,066,000 3,534,000 5,218,000
Product development(1)...... 1,564,000 3,042,000 3,078,000 2,035,000 3,138,000
General and
administrative(1)......... 463,000 983,000 1,442,000 1,064,000 1,544,000
Compensation charge for
issuance of stock options
(Note 8e)................. -- -- -- -- 236,000
----------- ----------- ----------- ----------- -----------
Total operating
expenses.............. 2,634,000 6,490,000 9,586,000 6,633,000 10,136,000
----------- ----------- ----------- ----------- -----------
Operating Loss.............. (2,634,000) (6,406,000) (6,464,000) (4,721,000) (5,750,000)
Interest Income............... 74,000 69,000 244,000 214,000 259,000
Interest Expense.............. (9,000) (34,000) (33,000) (21,000) (48,000)
----------- ----------- ----------- ----------- -----------
Net loss.................... (2,569,000) (6,371,000) (6,253,000) (4,528,000) (5,539,000)
Accretion of discount on
preferred stock............. 373,000 506,000 506,000 380,000 380,000
----------- ----------- ----------- ----------- -----------
Net loss attributable to
common stockholders......... $(2,942,000) $(6,877,000) $(6,759,000) $(4,908,000) $(5,919,000)
=========== =========== =========== =========== ===========
Basic and diluted net loss per
common share................ $ (0.75) $ (1.33) $ (1.16) $ (0.86) $ (0.92)
=========== =========== =========== =========== ===========
Pro forma basic and diluted
net loss per common share... $ (0.68) $ (0.45)
=========== ===========
Weighted average common shares
outstanding:
Basic and diluted........... 3,935,000 5,156,000 5,845,000 5,706,000 6,457,000
=========== =========== =========== =========== ===========
Pro forma basic and
diluted................... 11,725,000 14,736,000
=========== ===========
</TABLE>
- ------------------------
(1) Excludes compensation charge for issuance of stock options.
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
CENTRA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 1998
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE STOCKHOLDERS' DEFICIT
PREFERRED STOCK -----------------------------------------------
-------------------------- COMMON STOCK
CARRYING ----------------------------- ADDITIONAL
SHARES VALUE SHARES $0.001 PAR VALUE PAID-IN CAPITAL
---------- ------------- ---------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........................ 1,133,000 $ 1,105,000 2,248,500 $ 2,000 $ 117,000
Sale of series B redeemable convertible
preferred stock, net of issuance costs of
$14,000....................................... 1,416,490 2,833,000 -- -- 354,000
Accretion of series A and B redeemable
convertible preferred stock discount.......... -- 373,000 -- -- --
Sale of common stock............................ -- -- 481,500 -- 32,000
Repurchase of common stock...................... -- -- -- -- --
Net loss........................................ -- -- -- -- --
---------- ----------- ---------- ------- -----------
BALANCE, DECEMBER 31, 1996........................ 2,549,490 4,311,000 2,730,000 2,000 503,000
Sale of series C redeemable convertible
preferred stock, net of issuance costs of
$27,000....................................... 1,670,000 4,175,000 -- -- --
Sale of series D redeemable convertible
preferred stock, net of issuance costs of
$20,000....................................... 2,250,000 9,000,000 -- -- --
Accretion of series A and B redeemable
convertible preferred stock discount.......... -- 506,000 -- -- --
Sale of common stock............................ -- -- 804,375 1,000 133,000
Repurchase of common stock...................... -- -- -- -- --
Net loss........................................ -- -- -- -- --
---------- ----------- ---------- ------- -----------
BALANCE, DECEMBER 31, 1997........................ 6,469,490 17,992,000 3,534,375 3,000 636,000
Accretion of series A and B redeemable
convertible preferred stock discount.......... -- 506,000 -- -- --
Sale of common stock............................ -- -- 208,314 -- 57,000
Repurchase of common stock...................... -- -- -- -- --
Net loss........................................ -- -- -- -- --
---------- ----------- ---------- ------- -----------
BALANCE, DECEMBER 31, 1998........................ 6,469,490 18,498,000 3,742,689 3,000 693,000
Sales of series E redeemable convertible
preferred stock, net of issuance costs of
$52,000....................................... 2,695,000 13,475,000 -- -- --
Deferred compensation related to grants of
common stock options.......................... -- -- -- -- 1,797,000
Amortization of deferred compensation........... -- -- -- -- --
Accretion of series A and B redeemable
convertible preferred stock discount.......... -- 380,000 -- -- --
Sale of common stock............................ -- -- 829,314 1,000 219,000
Repurchase of common stock...................... -- -- -- -- --
Net loss........................................ -- -- -- -- --
---------- ----------- ---------- ------- -----------
BALANCE, SEPTEMBER 30, 1999 (UNAUDITED)........... 9,164,490 32,353,000 4,572,003 4,000 2,709,000
Accretion of series A and B redeemable
convertible preferred stock discount
(unaudited)................................... -- 777,000 -- -- --
Conversion of redeemable convertible preferred
stock into common stock (unaudited)........... (9,164,490) (26,650,000) 13,746,735 14,000 26,636,000
---------- ----------- ---------- ------- -----------
Accrual of dividends payable on series A and B
redeemable convertible preferred stock
(unaudited)................................... -- (6,480,000) -- -- --
PRO FORMA BALANCE, SEPTEMBER 30, 1999
(UNAUDITED)....................................... -- -- 18,318,738 $18,000 $29,345,000
========== =========== ========== ======= ===========
<CAPTION>
STOCKHOLDERS' DEFICIT
--------------------------------------------------------------------
STOCK TREASURY STOCK
ACCUMULATED DEFERRED SUBSCRIPTION -------------------
DEFICIT COMPENSATION RECEIVABLE SHARES COST
------------ ------------ ---------------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995........................ $ (715,000) $ -- $ -- 105,000 $ --
Sale of series B redeemable convertible
preferred stock, net of issuance costs of
$14,000....................................... (14,000) -- -- -- --
Accretion of series A and B redeemable
convertible preferred stock discount.......... (373,000) -- -- -- --
Sale of common stock............................ -- -- -- -- --
Repurchase of common stock...................... -- -- -- 290,433 (10,000)
Net loss........................................ (2,569,000) -- -- -- --
------------ ----------- -------- ------- --------
BALANCE, DECEMBER 31, 1996........................ (3,671,000) -- -- 395,433 (10,000)
Sale of series C redeemable convertible
preferred stock, net of issuance costs of
$27,000....................................... (27,000) -- -- -- --
Sale of series D redeemable convertible
preferred stock, net of issuance costs of
$20,000....................................... (20,000) -- -- -- --
Accretion of series A and B redeemable
convertible preferred stock discount.......... (506,000) -- -- -- --
Sale of common stock............................ -- -- (8,000) -- --
Repurchase of common stock...................... -- -- -- 51,656 (3,000)
Net loss........................................ (6,371,000) -- -- -- --
------------ ----------- -------- ------- --------
BALANCE, DECEMBER 31, 1997........................ (10,595,000) -- (8,000) 447,089 (13,000)
Accretion of series A and B redeemable
convertible preferred stock discount.......... (506,000) -- -- -- --
Sale of common stock............................ -- -- 8,000 -- --
Repurchase of common stock...................... -- -- -- 8,250 (1,000)
Net loss........................................ (6,253,000) -- -- -- --
------------ ----------- -------- ------- --------
BALANCE, DECEMBER 31, 1998........................ (17,354,000) -- -- 455,339 (14,000)
Sales of series E redeemable convertible
preferred stock, net of issuance costs of
$52,000....................................... (52,000) -- -- -- --
Deferred compensation related to grants of
common stock options.......................... -- (1,797,000) -- -- --
Amortization of deferred compensation........... -- 236,000 -- -- --
Accretion of series A and B redeemable
convertible preferred stock discount.......... (380,000) -- -- -- --
Sale of common stock............................ -- -- (11,000) -- --
Repurchase of common stock...................... -- -- -- 186,562 (23,000)
Net loss........................................ (5,539,000) -- -- -- --
------------ ----------- -------- ------- --------
BALANCE, SEPTEMBER 30, 1999 (UNAUDITED)........... (23,325,000) (1,561,000) (11,000) 641,901 (37,000)
Accretion of series A and B redeemable
convertible preferred stock discount
(unaudited)................................... (777,000) -- -- -- --
Conversion of redeemable convertible preferred
stock into common stock (unaudited)........... -- -- -- -- --
------------ ----------- -------- ------- --------
Accrual of dividends payable on series A and B
redeemable convertible preferred stock
(unaudited)................................... -- -- -- -- --
PRO FORMA BALANCE, SEPTEMBER 30, 1999
(UNAUDITED)....................................... $(24,102,000) $(1,561,000) $(11,000) 641,901 $(37,000)
============ =========== ======== ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY (DEFICIT)
----------------
<S> <C>
BALANCE, DECEMBER 31, 1995........................ $ (596,000)
Sale of series B redeemable convertible
preferred stock, net of issuance costs of
$14,000....................................... 340,000
Accretion of series A and B redeemable
convertible preferred stock discount.......... (373,000)
Sale of common stock............................ 32,000
Repurchase of common stock...................... (10,000)
Net loss........................................ (2,569,000)
------------
BALANCE, DECEMBER 31, 1996........................ (3,176,000)
Sale of series C redeemable convertible
preferred stock, net of issuance costs of
$27,000....................................... (27,000)
Sale of series D redeemable convertible
preferred stock, net of issuance costs of
$20,000....................................... (20,000)
Accretion of series A and B redeemable
convertible preferred stock discount.......... (506,000)
Sale of common stock............................ 126,000
Repurchase of common stock...................... (3,000)
Net loss........................................ (6,371,000)
------------
BALANCE, DECEMBER 31, 1997........................ (9,977,000)
Accretion of series A and B redeemable
convertible preferred stock discount.......... (506,000)
Sale of common stock............................ 65,000
Repurchase of common stock...................... (1,000)
Net loss........................................ (6,253,000)
------------
BALANCE, DECEMBER 31, 1998........................ (16,672,000)
Sales of series E redeemable convertible
preferred stock, net of issuance costs of
$52,000....................................... (52,000)
Deferred compensation related to grants of
common stock options.......................... --
Amortization of deferred compensation........... 236,000
Accretion of series A and B redeemable
convertible preferred stock discount.......... (380,000)
Sale of common stock............................ 209,000
Repurchase of common stock...................... (23,000)
Net loss........................................ (5,539,000)
------------
BALANCE, SEPTEMBER 30, 1999 (UNAUDITED)........... (22,221,000)
Accretion of series A and B redeemable
convertible preferred stock discount
(unaudited)................................... (777,000)
Conversion of redeemable convertible preferred
stock into common stock (unaudited)........... 26,650,000
------------
Accrual of dividends payable on series A and B
redeemable convertible preferred stock
(unaudited)................................... --
PRO FORMA BALANCE, SEPTEMBER 30, 1999
(UNAUDITED)....................................... $ 3,652,000
============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
CENTRA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss................................................ $(2,569,000) $(6,371,000) $(6,253,000) $(4,528,000) $(5,539,000)
Adjustments to reconcile net loss to net cash used in
operating activities--
Depreciation and amortization......................... 100,000 227,000 369,000 255,000 421,000
Compensation charge for issuance of stock options..... -- -- -- -- 236,000
Loss on disposal of fixed assets...................... -- 51,000 -- -- --
Changes in current assets and liabilities--
Accounts receivable................................. -- (149,000) (1,619,000) (788,000) (759,000)
Prepaid expenses and other current assets........... (30,000) (46,000) (113,000) (105,000) (211,000)
Accounts payable.................................... (12,000) 445,000 (110,000) (263,000) (189,000)
Accrued expenses.................................... 179,000 165,000 585,000 214,000 205,000
Deferred revenue.................................... -- 64,000 660,000 434,000 606,000
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities............. (2,332,000) (5,614,000) (6,481,000) (4,781,000) (5,230,000)
----------- ----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment, net................. (315,000) (543,000) (472,000) (362,000) (557,000)
Purchases of short-term investments..................... -- (70,000) -- -- (5,759,000)
Sale of short-term investments.......................... 499,000 -- 70,000 70,000 --
(Increase) decrease in other assets..................... (133,000) 113,000 10,000 9,000 (88,000)
(Increase) decrease in restricted cash.................. -- (161,000) 211,000 211,000 --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities...................................... 51,000 (661,000) (181,000) (72,000) (6,404,000)
----------- ----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from sale of preferred stock, net.............. 3,173,000 13,128,000 -- -- 13,423,000
Proceeds from sale of common stock...................... 32,000 126,000 65,000 59,000 209,000
Purchase of treasury stock.............................. (10,000) (3,000) (1,000) (1,000) (23,000)
Proceeds from term loan................................. 81,000 159,000 713,000 321,000 209,000
Payments on term loan................................... (47,000) (88,000) (120,000) (89,000) (245,000)
Payments on capital lease obligations................... -- (2,000) (25,000) (21,000) (25,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities......... 3,229,000 13,320,000 632,000 269,000 13,548,000
----------- ----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents...... 948,000 7,045,000 (6,030,000) (4,584,000) 1,914,000
Cash and Cash Equivalents, beginning of period............ 16,000 964,000 8,009,000 8,009,000 1,979,000
----------- ----------- ----------- ----------- -----------
Cash and Cash Equivalents, end of period.................. $ 964,000 $ 8,009,000 $ 1,979,000 $ 3,425,000 $ 3,893,000
=========== =========== =========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest................ $ 9,000 $ 34,000 $ 37,000 $ 23,000 $ 50,000
=========== =========== =========== =========== ===========
Supplemental Disclosure of Noncash Financing Activities:
Accretion of discount on series A and series B
redeemable convertible preferred stock................ $ 373,000 $ 506,000 $ 506,000 $ 380,000 $ 380,000
=========== =========== =========== =========== ===========
Property and equipment acquired under capital lease..... $ -- $ 111,000 $ -- $ -- $ --
=========== =========== =========== =========== ===========
Issuance of common stock and stock subscription
receivable............................................ $ -- $ 8,000 $ -- $ -- $ 11,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Centra Software, Inc. (Centra) was incorporated as a Delaware corporation on
April 4, 1995. From incorporation in April 1995 through June 1997, Centra was in
the development stage, engaged primarily in development of its initial products.
In July 1997, Centra began commercial shipment of its initial product. Centra is
a provider of software and services that support live eBusiness collaboration,
collaborative commerce, and corporate learning and training.
Centra is subject to certain business risks that could affect future
operations and financial performance. These risks include, but are not limited
to, rapid technological changes, significant competition, dependence on key
individuals, quarterly performance fluctuations, ability to enhance existing
products and services and the need to obtain adequate financing to fund these
enhancements and for the development of new products.
The accompanying consolidated financial statements reflect the application
of certain accounting polices, as described in this note and elsewhere in the
notes to consolidated financial statements.
(A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Centra and its
wholly-owned subsidiary, Centra Software Europe Limited, which was incorporated
in the United Kingdom on June 25, 1999. All significant intercompany
transactions and balances have been eliminated in consolidation.
(B) INTERIM FINANCIAL INFORMATION
The financial information as of September 30, 1999, and for the nine months
ended September 30, 1998 and 1999 is unaudited but includes all adjustments,
consisting of only normal recurring adjustments, that in the opinion of
management are necessary for a fair presentation of Centra's financial position,
operating result, and cash flows for such periods. Operating results for the
nine month period ended September 30, 1999 are not necessarily indicative of
results to be expected for the full year of 1999 or any future period.
(C) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from those estimates.
(D) REVENUE RECOGNITION
Centra recognizes revenue in accordance with the American Institute of
Certified Public Accountants' (AICPA) Statement of Position 97-2, SOFTWARE
REVENUE RECOGNITION (SOP 97-2), as amended by Statement of Position 98-4,
DEFERRAL OF THE EFFECTIVE DATE OF A PROVISION of SOP 97-2 (SOP 98-4). Centra
derives substantially all of its revenue from the sale of software licenses,
post-contract support (maintenance), and other services. Maintenance includes
telephone technical support, bug fixes and rights to upgrades and enhancements
on a when-and-if available basis. Professional services include training and
basic implementation consulting to meet specific customer needs.
F-7
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue from license fees is recognized when persuasive evidence of an
agreement exists, delivery of the product has occurred, the fee is fixed or
determinable and collectability is probable. Advance payments are recorded as
deferred revenue until the products are shipped, services are delivered or
obligations are met. Centra's products do not require significant customization.
Revenue related to maintenance and hosting services are recognized on a
straight-line basis over the period that the maintenance and hosting services
are provided and revenue allocable to implementation, consulting and training
services is recognized as the services are performed.
In December 1998, the AICPA issued Statement of Position 98-9, MODIFICATION
OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN TRANSACTIONS
(SOP 98-9). SOP 98-9 requires use of the residual method for recognition of
revenue when vendor-specific objective evidence exists for undelivered elements
but does not exist for delivered elements of a software arrangement. Centra will
be required to comply with the provisions of SOP 98-9 for transactions entered
into beginning January 1, 2000. Centra does not expect that the adoption of SOP
98-9 will have a material effect on the financial position or results of
operations.
(E) CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Centra considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Investments with
maturities greater than three months and less than 12 months are classified as
short-term investments.
Centra accounts for cash equivalents and short-term investments in
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. At
December 31, 1997, Centra's cash equivalents and short-term investments
consisted of money market accounts and certificates of deposit, respectively. At
December 31, 1998, Centra's cash equivalents consisted of money market accounts
and highly rated commercial paper. At September 30, 1999, Centra's cash
equivalents and short-term investments consisted of money market accounts and
highly rated corporate bonds, respectively. The average maturity of Centra's
short-term investments is approximately three months at September 30, 1999. All
cash equivalents and short-term investments are classified as held-to-maturity
and are recorded at their amortized cost, which approximates market. To date,
Centra has not recorded any realized gains or losses on the sale of short-term
investments.
(F) DEPRECIATION AND AMORTIZATION
Centra provides for depreciation and amortization of property and equipment
using the straight-line method by charges to operations in amounts to allocate
the cost of assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -------------
<S> <C>
Computers and equipment..................................... 3 years
Furniture and fixtures...................................... 3 years
Leasehold improvements...................................... Life of lease
</TABLE>
F-8
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In accordance with SFAS No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED
ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, Centra reviews its
long-lived assets (which consists of property and equipment) for impairment as
events and circumstances indicate the carrying amount of an asset may not be
recoverable. Centra evaluates the realizability of its long-lived assets based
on profitability and cash flow expectations for the related asset. Management
believes that, as of each of the balance sheet dates presented, none of Centra's
long-lived assets were impaired.
(G) PRODUCT DEVELOPMENT COSTS
SFAS No. 86, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD,
LEASED OR OTHERWISE MARKETED, requires capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
Based upon Centra's product development process, technological feasibility is
established upon completion of a working model. Costs incurred by Centra between
the establishment of technological feasibility and the point at which the
product is ready for general release has not been significant. Accordingly,
Centra has charged all such costs to product development expenses in the
accompanying consolidated statements of operations.
(H) DISCLOSURE OF FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF
CREDIT RISK
Financial instruments that potentially expose Centra to concentrations of
credit risk consist mainly of cash and cash equivalents, short-term investments
and accounts receivable. Centra maintains its cash and cash equivalents
principally in domestic financial institutions of high credit standing and its
short-term investments in highly rated corporate bonds. Centra's accounts
receivable are derived primarily from sales of software products and services.
Centra performs credit evaluations of its customers and generally does not
require collateral. Centra does not believe that significant credit risk exists
at December 31, 1997 and 1998 and September 30, 1999. The carrying amounts of
Centra's financial instruments approximate fair market value.
During the year ended December 31, 1998 and nine months ended September 30,
1998, Centra had one customer for each period who accounted for 11% and 13%,
respectively, of revenues. No customer accounted for greater than 10% of
revenues for the year ended December 31, 1997 or the nine months ended
September 30, 1999. Centra had no revenues during the year ended December 31,
1996. Centra had five customers who accounted for 11%, 12%, 12%, 14% and 16% of
accounts receivable, respectively, at December 31, 1997. As of December 31,
1998, Centra had one customer who accounted for 17% of accounts receivable. As
of September 30, 1999, Centra had two customers who accounted for 15% and 10% of
accounts receivables, respectively.
(I) FOREIGN CURRENCY TRANSLATION
The financial statements of Centra's non-US subsidiary are translated in
accordance with SFAS No. 52 FOREIGN CURRENCY TRANSLATION. The functional
currency of Centra's foreign subsidiary is the US dollar, accordingly, all
assets and liabilities of the foreign subsidiary are translated using the
exchange rate at the balance sheet date except for property and equipment and
stockholders' deficit, which are translated at historical rates. Revenues and
expenses are translated at average rates during the period, except for
depreciation and amortization, which are translated at historical rates.
Transaction and translation gains and losses are included in the accompanying
consolidated statement of operations for
F-9
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the nine months ended September 30, 1999 and were not material to the financial
statements taken as a whole.
(J) COMPREHENSIVE INCOME (LOSS)
As of January 1, 1998, Centra adopted SFAS No. 130, REPORTING COMPREHENSIVE
INCOME. SFAS No. 130 requires disclosure of all components of comprehensive
income (loss) on an annual and interim basis. Comprehensive income (loss) is
defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. Centra's
comprehensive loss is equal to net loss for all periods presented.
(K) NET LOSS PER SHARE
Basic and diluted net loss per share are presented in conformity with SFAS
No. 128, EARNING PER SHARE (SFAS No. 128) for all periods presented. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 98, common
stock and redeemable convertible preferred stock issued or granted for nominal
consideration prior to the anticipated effective date of Centra's initial public
offering must be included in the calculation of basic and diluted net loss per
share as if they had been outstanding for all periods presented. The common
shares to be issued for the series A and series B preferred stock upon
conversion, redemption or liquidation will be for nominal consideration due to
the liquidation premium payable to the holders of series A and series B.
Accordingly, the shares to be issued at the time the series A and series B
preferred stock converts to common stock have been included in the calculation
of basic and diluted net loss per share from date of issuance. In accordance
with SFAS No. 128, basic and diluted net loss per share has been computed by
dividing the weighted-average number of shares of common stock outstanding
during the period, less shares subject to repurchase into the net loss
attributable to common stockholders which includes both the accretion of the
discount and the liquidation premium on the series A and series B preferred
stock.
(L) PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share has been computed as described above and also
gives effect to the conversion of redeemable convertible preferred stock not
included in the computation of basic and diluted net loss per share that will
automatically convert upon the completion of Centra's proposed initial public
offering (using the if-converted method) from the original date of issuance.
Upon consummation of the proposed initial public offering, all of the redeemable
convertible preferred stock outstanding as of September 30, 1999 will be
converted into an aggregate of 13,746,735 shares of common stock.
F-10
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Historical and pro forma basic and diluted net loss per share are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Net loss attributable to
common stockholders......... $(2,942,000) $(6,877,000) $(6,759,000) $(4,908,000) $(5,919,000)
=========== =========== =========== =========== ===========
Basic and diluted shares:
Weighted-average shares of
common stock outstanding.... 5,485,000 6,684,000 7,028,000 7,001,000 7,478,000
Less: weighted-average shares
subject to repurchase....... (1,550,000) (1,528,000) (1,183,000) (1,295,000) (1,021,000)
Weighted-average shares of
common stock outstanding
used in computing basic and
diluted net loss per
share....................... 3,935,000 5,156,000 5,845,000 5,706,000 6,457,000
----------- ----------- ----------- ----------- -----------
Basic and diluted net loss per
share....................... $ (0.75) $ (1.33) $ (1.16) $ (0.86) $ (0.92)
=========== =========== =========== =========== ===========
PRO FORMA:
Net loss attributable to
common stockholders......... $(6,759,000) $(5,919,000)
Less: Accretion of unamortized
discount on series A and B
preferred stock............. 1,157,000 777,000
----------- -----------
Net loss $(7,916,000) $(6,696,000)
=========== ===========
Weighted-average shares of
common stock outstanding
used in computing basic and
diluted net loss per
share....................... 5,845,000 6,457,000
Adjusted to reflect the
assumed conversion of
convertible preferred stock
from the date of issuance... 5,880,000 8,279,000
----------- -----------
Weighted-average shares of
common stock used in
computing pro forma basic
and diluted net loss per
share 11,725,000 14,736,000
=========== ===========
Pro forma basic and diluted
net loss per share.......... $ (0.68) $ (0.45)
=========== ===========
</TABLE>
F-11
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Options to purchase a total of 319,406, 641,513, 1,092,920, 1,060,670 and
1,695,525 common shares have not been included in the computation of dilutive
EPS above for the years ended December 31, 1996, 1997 and 1998 and for the nine
months ended September 30, 1998 and 1999, respectively. These shares are
considered antidilutive as Centra has recorded a loss for all periods presented.
(M) SEGMENT INFORMATION
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
(SFAS No. 131). As of September 30, 1999, Centra operates solely in one segment,
the development and marketing of software products and related services, and
therefore there is no impact to Centra's financial statements of adopting SFAS
No. 131. Centra's revenue from customers outside of the United States was
approximately $13,000, $585,000, $372,000 and $435,000 in the years ended
December 31, 1997 and 1998, and the nine months ended September 30, 1998 and
1999, respectively.
(N) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR
OBTAINED FOR INTERNAL USE (SOP 98-1). SOP 98-1 requires companies to capitalize
certain qualifying computer software costs that are incurred during the
application development stage and amortize them over the software's estimated
useful life. Centra adopted SOP 98-1 effective January 1, 1999. The adoption of
SOP 98-1 did not have a material effect on Centra's consolidated financial
position, results of operations or cash flows.
In April 1998, the AICPA issued SOP 98-5, REPORTING THE COSTS OF START-UP
ACTIVITIES (SOP 98-5). SOP 98-5 is effective beginning on January 1, 1999, and
requires that start-up costs, capitalized prior to January 1, 1999, be written
off and any future start-up costs be expensed as incurred. The adoption of SOP
98-5 did not have a material impact on Centra's financial position, results of
operations, or cash flows.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES (SFAS No. 133). SFAS No. 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities.
Centra will be required to adopt SFAS No. 133 for its year ending December 31,
2001. However, because Centra does not currently utilize derivative financial
instruments, Centra does not believe the impact of SFAS No. 133 will be material
to its financial position, results of operations, or cash flows.
F-12
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(O) ACCRUED EXPENSES
Accrued expenses at December 31, 1997 and 1998 and September 30, 1999
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
-------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Payroll and payroll-related
costs........................ $231,000 $472,000 $ 545,000 $ 545,000
Other accrued expenses......... 114,000 459,000 592,000 592,000
-------- -------- ---------- ----------
$345,000 $931,000 $1,137,000 $1,137,000
======== ======== ========== ==========
</TABLE>
(2) INCOME TAXES
Centra provides for federal and state income taxes in accordance with SFAS
No. 109, ACCOUNTING FOR INCOME TAXES. Under the liability method specified by
SFAS No. 109, a deferred tax asset or liability is determined based on the
difference between the financial statement and tax bases of assets and
liabilities, as measured by the enacted tax rates. The components of Centra's
net deferred tax assets are approximately as follows at December 31, 1997 and
1998:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforwards................... $ 2,480,000 $ 5,821,000
Tax credit carryforwards........................... 285,000 406,000
Other temporary differences........................ 1,300,000 465,000
----------- -----------
4,065,000 6,692,000
Valuation allowance................................ (4,065,000) (6,692,000)
----------- -----------
Net deferred tax asset....................... $ -- $ --
=========== ===========
</TABLE>
A valuation allowance has been recorded in the accompanying financial
statements to offset this benefit, because of the uncertainty of realization.
As of December 31, 1998, Centra had federal tax net operating loss
carryforwards available to offset future taxable income, if any, of
approximately $14,617,000. These carryforwards expire through 2018 and are
subject to review and possible adjustment by the Internal Revenue Service.
The U.S. Internal Revenue Code of 1986, as amended (the Code), contains
provisions that may limit the net operating loss and tax credit carryforwards
available to be used in any given year upon the occurrence of certain events,
including changes in the ownership interests of significant stockholders. In the
event of a cumulative change in ownership in excess of 50% over a three-year
period, the amount of the net operating loss carryforwards and tax credit
carryforwards that Centra can utilize in any one year may be limited. In the
event of a change in ownership, as defined, the annual limitation on the use of
the existing net operating loss carryforwards is equal to an amount determined
by multiplying the value of Centra at the time of the ownership change by the
U.S. federal applicable rate of interest, as determined by the U.S. Internal
Revenue Service. Centra has completed several financings since its
F-13
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(2) INCOME TAXES (CONTINUED)
inception and has not determined if its net operating losses and tax credit
carryforwards have been limited by these financings.
A reconciliation of the federal statutory rate to Centra's effective tax
rate is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income tax provision at federal statutory rate.............. (34.0)% (34.0)% (34.0)%
Increase (decrease) in tax resulting from--
State tax provision, net of federal benefit................. (6.0) (6.0) (6.0)
Increase in valuation allowance............................. 40.0 40.0 40.0
----- ----- -----
Effective tax rate.......................................... --% --% --%
===== ===== =====
</TABLE>
(3) REVOLVING LINE OF CREDIT
Centra has a $750,000 revolving line of credit with a bank, which expires on
December 30, 1999. Borrowings under the revolving line of credit bear interest
at the bank's prime rate (8.25% at September 30, 1999) plus .50% and are secured
by substantially all assets of Centra. As of December 31, 1997 and 1998 and
September 30, 1999, no amounts were outstanding under the revolving line of
credit. In connection with the revolving line of credit, Centra is required to
comply with certain restrictive covenants which include minimum adjusted quick
ratio and minimum tangible net worth. As of September 30, 1999, Centra was in
compliance with these covenants.
(4) TERM LOAN FACILITY AND CAPITAL LEASES
Centra had a fixed asset line of credit/term loan facility, with a bank. On
September 30, 1999, all advances under the original fixed asset line of credit
had converted to a $480,000 term loan. Drawings under the original fixed asset
line of credit were permitted through June 30, 1998, at which time each drawing
under the line was converted to a term loan. In December 1998, Centra amended
the fixed asset line of credit to allow for an additional $600,000 fixed asset
line of credit. Advances under the amended line were permitted through
September 30, 1999. Principal repayments are due monthly for each advance in 36
equal installments upon the conversion. Total borrowings outstanding under the
term loans as of December 31, 1997 and 1998 and September 30, 1999 amounted to
$178,000, $771,000 and $734,000, respectively, and are secured by substantially
all assets of Centra. Of the outstanding amounts under the term loans at
September 30, 1999, $525,000 bear interest at 8.75% per annum and $209,000 bear
interest at 9.25% per annum.
In addition to the above fixed asset line of credit/term loan facility,
Centra also has two capital leases. These leases bear interest at rate of 10.5%
per annum and are payable through June 2002. As of December 31, 1997 and 1998
and September 30, 1999 obligations under these capital leases amounted to
$110,000, $84,000 and $59,000, respectively.
F-14
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) TERM LOAN FACILITY AND CAPITAL LEASES (CONTINUED)
Future principal maturities of Centra's long-term obligations as of
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
YEAR
- ----
<S> <C>
1999.............................................. $324,000
2000.............................................. 278,000
2001.............................................. 250,000
2002.............................................. 3,000
--------
$855,000
========
</TABLE>
(5) LETTER OF CREDIT
In January 1997, Centra entered into an irrevocable standby letter of credit
of approximately $211,000, which was payable upon default of Centra's
noncancelable facility lease entered into in January 1997. This letter of credit
was collateralized by cash, which is classified as restricted cash on the
accompanying consolidated balance sheet as of December 31, 1997. This letter of
credit expired on January 12, 1998.
(6) COMMITMENTS
Centra conducts its operations in leased facilities and is obligated to pay
monthly rent through July 31, 2001. As of December 31, 1998, the minimum future
rental payments under the operating lease agreements, which includes two
noncancelable facility subleases entered into during 1997 and 1998, are
approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
1999........................................................ $488,000
2000........................................................ 233,000
2001........................................................ 123,000
--------
$844,000
========
</TABLE>
Rent expense charged to operations was approximately $82,000, $257,000,
$362,000, $319,000 and $397,000, for the years ended December 31, 1996, 1997 and
1998 and for the nine-month periods ended September 30, 1998 and 1999,
respectively.
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK
Centra has 9,169,490 authorized shares of preferred stock, of which
1,133,000, 1,416,490, 1,670,000, 2,250,000 and 2,695,000 have been designated as
series A redeemable convertible participating preferred stock (series A
preferred stock), series B redeemable convertible participating preferred stock
(series B preferred stock), series C redeemable convertible preferred stock
(series C preferred stock) and series D redeemable convertible preferred stock
(series D preferred stock) and series E redeemable convertible preferred stock
(series E preferred stock), respectively. During 1995, Centra sold 1,133,000
shares of series A preferred stock for $1.00 per share. During 1996, Centra sold
F-15
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
1,416,490 shares of series B preferred stock at $2.25 per share for gross
proceeds of $3,187,000. During 1997, Centra sold 1,670,000 shares of series C
preferred stock for $2.50 per share for gross proceeds of $4,175,000 and
2,250,000 shares of series D preferred stock for $4.00 per share for gross
proceeds of $9,000,000. During 1999, Centra sold 2,695,000 shares of series E
preferred stock for $5.00 per share for gross proceeds of $13,475,000.
Series A and series B preferred stockholders have participation rights that
allow them to receive a cash payment equal to 150% of their original investment
upon redemption, liquidation, and automatic conversion plus the common shares
into which the series A and the series B preferred stock converts. Centra has
attributed $113,000 and $354,000 of value to these participating rights of the
series A and series B preferred stock, respectively, by decreasing the carrying
value of preferred stock and increasing additional paid-in capital in equal
amounts at the date of issuance. Centra is increasing ratably over the
redemption period the carrying value of series A and series B preferred stock by
accreting the discount and the liquidation premium. For the years ended
December 31, 1996, 1997, and 1998 Centra recorded $373,000, $506,000 and
$506,000, respectively of accretion and, for both of the nine month periods
ended September 30, 1998 and 1999, Centra recorded $380,000 of accretion.
The rights, preferences and privileges of the series A, series B, series C,
series D and series E preferred stock are listed as follows:
CONVERSION
The series A, series B, series C, series D and series E preferred stock are
convertible into common stock at the rate of 1 1/2 shares of common stock for
each share of preferred stock, adjusted for certain dilutive events. Conversion
is automatic immediately prior to the closing of an initial public offering of
common stock at a per share price of at least $7.50 for the series A, series B,
series C and series D preferred stock and $10.00 for the series E preferred
stock, and resulting in aggregate proceeds to Centra of at least $10,000,000.
Upon conversion, series A and series B preferred stockholders are also entitled
to receive a liquidation premium as a cash payment equal to 150% of their
original investment ($1,699,500 and $4,780,500, respectively, at September 30,
1999). As of September 30, 1999, all series of redeemable convertible preferred
stock would convert to 13,746,735 shares of common stock. Pro forma
stockholders' equity at September 30, 1999, as adjusted for the conversion of
the redeemable convertible preferred stock is disclosed in the accompanying pro
forma consolidated balance sheet.
DIVIDENDS
The holders of the series A, series B, series C, series D and series E
preferred stock are entitled to receive dividends, if and when declared, at the
same rate as dividends to the common stockholders, based on the number of common
shares into which the series A, series B, series C, series D and series E
preferred stock are convertible.
REDEMPTION
The series A, series B, series C, series D and series E preferred
stockholders have a redemption right that requires Centra to repurchase
outstanding shares of the series A, series B, series C, series D and series E
preferred stock. Upon a majority vote, the series A, series B, series C,
series D and
F-16
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
series E preferred stockholders may require the Company to repurchase shares of
the series A, series B, series C, series D and series E preferred stock, with
cash consideration of $1,699,500, $4,780,500, $4,175,000, $9,000,000 and
$13,475,000, respectively, at September 30, 1999. These amounts are equal to the
respective liquidation preferences as of September 30, 1999. For series A and
series B preferred stock, the Company must issue, as additional consideration,
the number of shares of common stock into which the series A and series B
preferred stock would convert. The series A, series B, series C, series D and
series E preferred stock are redeemable, beginning on December 31, 2002 at a
rate of 33 1/3% of the shares then outstanding. On December 31, 2003 and 2004,
50% and 100%, respectively, of the series A, series B, series C, series D and
series E preferred stock then outstanding are redeemable.
VOTING
The series A, series B, series C, series D and series E preferred
stockholders are entitled to vote on all matters with the common stockholders as
if they were one class of stock. The series A, series B, series C, series D and
series E preferred stockholders are entitled to the number of votes equal to the
number of shares of common stock into which each share of the series A,
series B, series C, series D and series E preferred stock is then convertible.
MERGERS AND OTHER REORGANIZATIONS
Upon a merger or capital reorganization, as defined, the holders of the
series A, series B, series C, series D and series E preferred stock shall be
entitled to receive upon conversion of the preferred stock the number of shares
of stock to which a holder of common stock would have been entitled in such a
merger or capital reorganization. In addition, the series A and series B
preferred stockholders will receive a liquidation premium as a cash payment
equal to 150% of their original investment amount plus the same consideration
available to the common stockholders.
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(A) AUTHORIZED SHARES
On April 21, 1999, Centra amended its certificate of incorporation to, among
other things, increased its authorized capital stock to 25,000,000 shares of
which 15,835,510 are $0.001 par value common stock and 9,164,490 shares of
$0.001 par value redeemable convertible preferred stock.
(B) RECAPITALIZATION
On October 14, 1999, Centra's Board of Directors approved a 3-for-2 stock
split of its common stock. The stock split was effective on October 27, 1999.
All shares and per share amounts of common stock for all periods have been
retroactively adjusted to reflect the stock split. Upon the closing of Centra's
proposed initial public offering, its certificate of incorporation will be
amended and restated to change its authorized capital stock to 100,000,000
shares of $0.001 par value common stock and 10,000,000 shares of $0.001 par
value preferred stock.
F-17
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
(C) RESERVED SHARES
Centra has reserved the following number of shares of common stock for the
conversion of preferred stock and issuance of stock option and restricted stock:
<TABLE>
<S> <C>
Series A preferred stock.................................... 1,699,500
Series B preferred stock.................................... 2,124,735
Series C preferred stock.................................... 2,505,000
Series D preferred stock.................................... 3,375,000
Series E preferred stock.................................... 4,042,500
Stock options and restricted stock.......................... 4,237,500
----------
17,984,235
==========
</TABLE>
(D) RESTRICTED STOCK AGREEMENTS
Centra has entered into stock repurchase agreements with the stockholders of
all outstanding shares of restricted common stock. The agreements provide that
in the event that the stockholders are no longer employed by Centra, Centra has
the right to repurchase any unvested shares from the stockholders at the
original issuance prices of $0.001 to $0.33 per share. The repurchase option on
the 2,056,599 shares of restricted common stock oustanding at September 30, 1999
lapse as follows: 25% on the one-year anniversary date from issuance and then
6.25% on each subsequent quarter over the next three years. As of September 30,
1999, 912,290 shares of common stock were vested and 1,144,309 shares of common
stock are subject to repurchase rights. During the years ended December 31,
1996, 1997 and 1998, and the nine months ended September 30, 1999, Centra
exercised its rights under the stock repurchase agreements and repurchased
290,433, 51,656, 8,250 and 186,562 shares, respectively. These shares were
repurchased at original issuance price.
(E) STOCK OPTION AND STOCK PURCHASE PLANS
In 1995, Centra adopted the 1995 Stock Plan (the 1995 Plan), which provides
for the granting of incentive stock options to employees of Centra and
nonqualified stock options to any directors, officers, employees or consultants
of Centra. Options to purchase 3,852,000 shares of common stock may be issued
pursuant to the 1995 Plan, plus an additional 385,500 shares, as defined under
the 1995 Plan. Option and stock pricing is determined by Centra's Board of
Directors and all options to date have been granted at the fair market value
determined by the Board of Directors. Options and stock granted under the 1995
Plan vest as follows: 25% on the one-year anniversary date and then 6.25% on
each subsequent quarter over the next three years, and expire no later than
10 years from the date of grant. Options to purchase 485,376 shares of common
stock were available for grant at September 30, 1999.
Centra allowed for the immediate exercise of certain stock options granted
under the 1995 Plan. The shares received upon exercise are subject to repurchase
by Centra at the original option exercise price, subject to vesting at the same
rates as provided in the original option agreements.
F-18
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following is a summary of common stock option and restricted stock
activity under the 1995 Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE EXERCISE PRICE
---------------- ------------------- ----------------
<S> <C> <C> <C>
Outstanding, December 31, 1995.................... -- $ -- $ --
Granted......................................... 850,125 0.07--0.17 0.10
Exercised....................................... (481,500) 0.07--0.17 0.07
Canceled........................................ (49,219) 0.07--0.17 0.16
---------- ------------------- ------
Outstanding, December 31, 1996.................... 319,406 0.07--0.17 0.15
Granted......................................... 1,305,825 0.17 0.17
Exercised....................................... (804,375) 0.07--0.17 0.17
Canceled........................................ (179,343) 0.07--0.17 0.16
---------- ------------------- ------
Outstanding, December 31, 1997.................... 641,513 0.07--0.17 0.16
Granted......................................... 840,450 0.27 0.27
Exercised....................................... (208,314) 0.17--0.27 0.26
Canceled........................................ (180,729) 0.17--0.27 0.17
---------- ------------------- ------
Outstanding, December 31, 1998.................... 1,092,920 0.07--0.27 0.21
Granted......................................... 1,510,200 0.27--0.67 0.29
Exercised....................................... (829,314) 0.17--0.33 0.27
Canceled........................................ (78,281) 0.17--0.33 0.25
---------- ------------------- ------
Outstanding, September 30, 1999 (unaudited)....... 1,695,525 $ 0.07--0.67 $ 0.26
========== =================== ======
Exercisable common stock options,
September 30, 1999 (unaudited).................. 502,981 $ 0.07--0.33 $ 0.20
========== =================== ======
Exercisable common stock options, December 31,
1998............................................ 291,246 $ 0.07--0.27 $ 0.17
========== =================== ======
Exercisable common stock options, December 31,
1997............................................ 84,092 $ 0.07--0.17 $ 0.16
========== =================== ======
Exercisable common stock options, December 31,
1996............................................ 1,406 $ 0.07 $ 0.07
========== =================== ======
</TABLE>
The range of exercise price for common stock options outstanding and options
exercisable at September 30, 1999, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------ ----------------------------
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE OPTIONS CONTRACTUAL AVERAGE OPTIONS AVERAGE
PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 0.07 15,000 7.3 years $0.07 12,188 $0.07
0.17 492,750 7.4 years 0.17 313,691 0.17
0.27--0.33 1,148,700 9.1 years 0.28 177,102 0.28
0.67 39,075 9.9 years 0.67 -- 0.67
------------------ --------- --------- ----- ------- -----
$ 0.07--0.67 1,695,525 8.6 years $0.26 502,981 $0.20
================== ========= ========= ===== ======= =====
</TABLE>
F-19
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
In connection with stock options grants to employees and non-employees
during the nine months ended September 30, 1999, Centra recorded deferred
compensation of $1,797,000, which represents the aggregate difference between
the option exercise price and the deemed fair market value of the common stock
determined for financial reporting purposes for grants to employees and the fair
market value of the options for the non-employees. During the nine months ended
September 30, 1999, all option grants were at less than the deemed fair market
value for financial reporting purposes and resulted in a compensation charge.
All options granted prior to 1999 were at fair market value and therefore did
not result in a compensation charge. The deferred compensation will be
recognized as an expense over the vesting period of the underlying stock
options. Centra recorded compensation expense of $236,000 in the nine months
ended September 30, 1999, related to these options as a compensation charge for
issuances of stock options. If Centra allocated this expense to each operating
expense category, sales and marketing, product development and general and
administrative expenses would have increased by $106,000, $42,000 and $88,000,
respectively. On October 14, 1999, Centra granted to employees options to
purchase 255,975 common shares at $5.00 per share and will record additional
deferred compensation of $768,000 related to these grants.
In October 1995, the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which requires the measurement of the fair value of stock options
to be included in the statements of operations or disclosed in the notes to the
financial statements. Centra has determined that it will continue to account for
stock-based compensation for employees and directors under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS
No. 123. Centra records the fair market value of stock options granted to
nonemployees in the consolidated statement of operations. The Company has
computed the pro forma disclosures required under SFAS No. 123 for stock options
granted to employees and directors using the Black-Scholes option pricing model.
The assumptions used are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Risk-free interest
rate................. 6.2%-6.8% 5.7%-6.9% 4.5%-5.7% 4.5%-5.7% 4.7%-6.1%
Expected dividend
yield................ -- -- -- -- --
Expected lives......... 7.5 years 7.5 years 7.5 years 7.5 years 7.5 years
Expected volatility.... 60% 60% 100% 100% 85%
</TABLE>
The expected volatility factor was based on actual volatility factors for
comparable public software companies. The weighted average fair value of grants
during the years ended December 31, 1996, 1997, 1998 and for the nine months
ended September 30, 1998 and 1999 was $0.09, $0.14, $0.27, $0.27 and $2.58 per
share, respectively.
F-20
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The pro forma effects of applying SFAS No. 123, if Centra elected to do so,
are as follows for the years ended December 31, 1996, 1997 and 1998 and the nine
months ended September 30, 1998 and 1999:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net loss attributable to common
stockholders--
As reported.................. $(2,942,000) $(6,877,000) $(6,759,000) $(4,908,000) $(5,919,000)
Pro forma.................... $(2,945,000) $(6,894,000) $(6,823,000) $(4,957,000) $(5,998,000)
EPS
As reported.................. $ (0.75) $ (1.33) $ (1.16) $ (0.86) $ (0.92)
Pro forma.................... $ (0.75) $ (1.34) $ (1.17) $ (0.87) $ (0.93)
</TABLE>
The Black-Scholes option pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions, including expected stock price volatility. Because
Centra's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
1999 STOCK INCENTIVE PLAN
In October 1999, the board of directors adopted the 1999 stock incentive
plan (the 1999 Plan). The 1999 Plan will be submitted for stockholder approval
in November 1999. A total of 3,500,000 shares of common stock have been reserved
for issuance under the 1999 Plan. As of October 25, 1999, no options had been
granted under the 1999 Plan.
The 1999 Plan authorizes the grant of incentive options and nonqualified
options. The 1999 Plan also provides for awards of stock appreciation rights,
performance shares, restricted stock and other stock-based awards.
Incentive options may be granted under the 1999 Plan to key employees and
affiliates within the meaning of the Internal Revenue Code, including officers
and directors as well as officers and directors of affiliates who are also
employees. The exercise price of incentive options granted under the 1999 Plan
must be at least equal to the fair market value of our common stock on the date
of grant. The exercise price of incentive options granted to an optionee who
owns stock possessing more than 10% of the voting power of the outstanding
capital stock must be at least equal to 110% of the fair market value of the
common stock on the date of grant, and such optionee must exercise his or her
option within five years from the date of the grant of such option.
Under the terms of the 1999 Plan, Centra may grant nonqualified options to
officers and other employees, directors, and other individuals providing
services. There are no limits on the exercise price of nonqualified options
granted under the 1999 Plan.
F-21
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The 1999 Plan is administered by the compensation committee of the board of
directors. The compensation committee selects the individuals to whom options
will be granted and determines the option exercise price and other terms of each
award, subject to the provisions of the 1999 Plan.
1999 DIRECTOR OPTION PLAN
In October 1999, the board of directors adopted the 1999 director option
plan (Director Plan). The Director Plan will be submitted for stockholder
approval in November 1999. The Director Plan, adopted in October 1999, provides
for the grant of stock options to those directors who are not full-time
employees of Centra or its subsidiary. Only non-statutory options may be granted
under the Director Plan. The maximum number of shares of common stock as to
which options may be granted under the Plan is 200,000. As of October 25, 1999,
no options had been granted under the director plan.
The Director Plan is administered by the board of directors. The option
exercise price for each option granted under the Director Plan is the fair
market value of the common stock as of the date of grant. Payment of the option
exercise price is to be made in cash for the full exercise price of the options.
Options are not assignable or transferrable except by will or the laws of
descent and distribution. They terminate on the earlier of ten years after the
date of grant or sixty days after the optionee ceases to serve as a director,
except in the event of death or disability.
1999 EMPLOYEE STOCK PURCHASE PLAN
In October 1999, the board of directors adopted the 1999 employee stock
purchase plan (the Stock Purchase Plan). The Stock Purchase Plan will be
submitted for stockholder approval in November 1999. The Stock Purchase Plan
authorizes the issuance of up to a total of 1,500,000 shares of Centra's common
stock to participating employees. As of December 31 of each year, we will
increase the number of shares we reserve for issuance under the Stock Purchase
Plan automatically by 2% of the total number of shares of our common stock then
outstanding or, if less, 300,000 shares.
Under the terms of the Stock Purchase Plan, all employees who have completed
three months of employment and whose customary employment is more than 20 hours
per week and more than five months in the calendar year, are eligible to
participate in the Stock Purchase Plan. Employees who own stock and hold
outstanding options to purchase stock representing five percent or more of the
total combined voting power or value of all classes of our stock are not
eligible to participate in the Stock Purchase Plan.
The right to purchase common stock under the Stock Purchase Plan is made
available through a series of offerings. On the first day of an offering period,
Centra will grant to each eligible employee who has elected in writing to
participate in the Stock Purchase Plan an option to purchase shares of common
stock. The employee is required to authorize an amount, between 1% and 10% of
the employee's compensation, to be deducted from the employee's pay during the
offering period. On the last day of the offering period, the employee will be
deemed to have exercised the option, at the option exercise price, to the extent
of accumulated payroll deductions. Under the terms of the Stock Purchase Plan,
the option exercise price is an amount equal to 85% of the fair market value of
one share of common stock on either the first or last day of the offering
period, whichever is lower. In the event of
F-22
<PAGE>
CENTRA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
a change in control of Centra, the Stock Purchase Plan will terminate and shares
will be purchased with the payroll deductions accumulated to date by
participating employees.
No employee may be granted an option that would permit the employee's rights
to purchase common stock to accrue at a rate in excess of $25,000 of the fair
market value of the common stock, determined as of the date the option is
granted, in any calendar year.
The stock purchase plan is administered by the compensation committee of the
board of directors.
(9) EMPLOYEE BENEFIT PLAN
Centra has adopted an employee benefit plan (the 401(k) Plan) under
Section 401(k) of the Internal Revenue Code. The 401(k) Plan allows employees to
make pretax contributions up to the maximum allowable amount set by the Internal
Revenue Service. Under the 401(k) Plan, Centra may match a portion of the
employee contribution up to a defined maximum and provide profit sharing to
employees at its discretion. Centra made no contributions to the 401(k) Plan for
the years ended December 31, 1996, 1997 and 1998 and the nine months ended
September 30, 1998 and 1999.
F-23
<PAGE>
[Description of inside back cover artwork
The heading "Consistent, Easy to Use Collaboration Interfaces" appears at the
top of the page, above the following sentence: "Centra 99 is an
enterprise-class live eBusiness collaboration system that supports three
application-specific user interfaces." The following product descriptions
appear on the left side of the page:
"SYMPOSIUM
Centra Symposium is appropriate for highly interactive events such as
hands-on classes, workshops, coaching, and teamwork."
"CONFERENCE
Centra Conference is designed for one-to-one selling and large-scale
Web presentations."
"CentraNow
CentraNow is a self-service Web destination that can be accessed through
Centra 99 and is designed for spontaneous meetings."
A separate illustrative screen shot appears to the right of each of the
product descriptions described above.]
<PAGE>
[LOGO]
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 3, 1999
[LOGO]
5,000,000 SHARES
COMMON STOCK
Centra Software, Inc. is offering 5,000,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied to have the shares being offered approved for quotation
on the Nasdaq National Market under the symbol "CTRA." We anticipate that the
initial public offering price will be between $8.00 and $10.00 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public Offering Price..................................... $ $
Underwriting Discounts and Commissions.................... $ $
Proceeds to Centra........................................ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments.
------------------------
ROBERTSON STEPHENS INTERNATIONAL
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson
Stephens Inc., Hambrecht & Quist LLC and Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, have severally agreed with us, subject to the terms
and conditions of the underwriting agreement, to purchase from us the numbers of
shares of common stock set forth opposite their names below. The underwriters
are committed to purchase and pay for all of the shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
OF SHARES
---------
<S> <C>
U.S. UNDERWRITERS
- ------------------------------------------------------------
BancBoston Robertson Stephens Inc...........................
Hambrecht & Quist LLC.......................................
Dain Rauscher Wessels.......................................
INTERNATIONAL UNDERWRITERS
- ------------------------------------------------------------
BancBoston Robertson Stephens International Limited.........
Hambrecht & Quist LLC.......................................
Dain Rauscher Wessels.......................................
---------
Total................................................. 5,000,000
=========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price located on the cover
page of this prospectus and to dealers at that price less a concession of not in
excess of $ per share, of which $ may be reallowed to other
dealers. After the initial public offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
reduction in this price will change the amount of proceeds to be received by us
as indicated on the cover page of this prospectus.
OVER-ALLOTMENT OPTION. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the same price per
share as we will receive for the 5,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of additional shares that the number of shares of common
stock to be purchased by it shown in the above table represents as a percentage
of the 5,000,000 shares offered by this prospectus. If purchased, the additional
shares will be sold by the underwriters on the same terms as those on which the
5,000,000 shares are being sold. We will be obligated, under this option, to
sell shares to the extent the option is exercised. The underwriters may
62
<PAGE>
exercise the option only to cover over-allotments made in connection with the
sale of the 5,000,000 shares of common stock offered by this prospectus.
UNDERWRITING DISCOUNTS AND COMMISSIONS. The underwriting discounts and
commissions will be an amount equal to the public offering price per share, less
the amount paid per share by the underwriters to us. We currently expect that
the underwriting discounts and commissions will equal 7% of the public offering
price. The following table shows the estimated per share and total underwriting
discounts and commissions to be paid by us to the underwriters. This information
is presented assuming either no exercise or full exercise by the underwriters of
their over-allotment option.
<TABLE>
<CAPTION>
WITHOUT WITH
PER OVER-ALLOTMENT OVER-ALLOTMENT
SHARE OPTION OPTION
-------- -------------- --------------
<S> <C> <C> <C>
Assumed public offering price.............. $9.00 $45,000,000 $51,750,000
Estimated underwriting discounts and
commissions.............................. 0.63 3,150,000 3,622,500
Estimated proceeds, before expenses, to
us....................................... 8.37 41,850,000 48,127,500
</TABLE>
The expenses of the offering payable by us are estimated at $900,000.
BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock
to purchasers on , 2000.
INDEMNITY. The underwriting agreement contains covenants of indemnity among
the underwriters and us against civil liabilities, including liabilities under
the Securities Act and liabilities arising from breaches of representation and
warranties contained in the underwriting agreement.
FUTURE SALES. Each of our executive officers, directors and other
significant stockholders of record has agreed with the representatives, for a
period of 180 days after the date of this prospectus, not to offer to sell,
contract to sell or otherwise sell, dispose of, loan, pledge or grant any rights
with respect to any shares of common stock, any options or warrants to purchase
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock owned as of the date of this prospectus or acquired
directly from us by these holders or with respect to which they have or may
acquire the power of disposition, without the prior written consent of
BancBoston Robertson Stephens Inc. However,
BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. In addition, we have agreed that during the 180 days after the date
of this prospectus we will not, without the prior written consent of BancBoston
Robertson Stephens Inc., (1) consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the
lock-up period or (2) issue, sell, contract to sell, or otherwise dispose of,
any shares of common stock, any options to purchase any shares of common stock
or any securities convertible into, exercisable for or exchangeable for shares
of common stock other than (a) our sale of shares in this offering, (b) the
issuance of common stock upon the exercise of outstanding options and the
issuance of options under existing stock option and incentive plans, provided
such common stock and the common stock issuable upon the exercise of such
options cannot be transferred prior to the expiration of the lock-up period and
(c) the issuance of shares in connection with certain acquisitions that cannot
be sold on the public market during the lock-up period. Please see "Shares
Eligible for Future Sale."
DIRECTED SHARES. At our request, the underwriters have reserved up to 5% of
the shares of the common stock offered by this prospectus for sale to our
officers, directors, employees and their family members and to our business
associates at the public offering price set forth on the cover page of this
prospectus. These business associates are current and former clients, vendors,
suppliers and other individuals who, in the judgment of our management, have
contributed to our success. These persons must commit to purchase no later than
the close of business on the day following the date of this prospectus. The
number of shares available for sale to the general public will be reduced to the
extent these persons
63
<PAGE>
purchase the reserved shares. Sales of these reserved shares will be effected
through E*OFFERING Corp. and E*TRADE Securities, Inc. A copy of the prospectus
in electronic format will be made available on the Web site hosted by E*OFFERING
Corp. and E*TRADE Securities, Inc.
The underwriters have informed us that they do not intend to confirm sales
to any accounts over which they exercise discretionary authority.
NO PRIOR PUBLIC MARKET. Prior to this offering, there has been no public
market for the common stock. Consequently, the initial public offering price for
the common stock offered by this prospectus will be determined through
negotiations between us and the representatives. Among the factors to be
considered in these negotiations are prevailing market conditions, our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
STABILIZATION. The representatives have advised us that, under
Regulation M under the Securities Exchange Act, some participants in the
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or purchase of
the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A "penalty bid" is
an arrangement permitting the representatives to reclaim the selling concession
otherwise accruing to an underwriter or syndicate member in connection with the
offering if the common stock originally sold by the underwriter or syndicate
member is purchased by the representatives in a syndicate covering transaction
and has therefore not been effectively placed by the underwriter or syndicate
member. The representatives have advised us that these transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
64
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by us in connection with
the sale of the common stock being registered, other than the underwriting
discounts and commissions. All amounts are estimates except the SEC registration
fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 15,985
NASD filing fee............................................. 6,250
Nasdaq National Market listing fee.......................... 95,000
Accounting fees and expenses................................ 175,000
Legal fees and expenses..................................... 400,000
Blue Sky fees and expenses.................................. 10,000
Transfer agent fees......................................... 15,000
Printing and engraving expenses............................. 125,000
Miscellaneous............................................... 57,765
--------
Total................................................... $900,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify its present and former directors and officers under
certain conditions. Article Sixth of our certificate of incorporation provides
that we shall indemnify each person who at any time is, or shall have been, one
of our directors or officers and 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 or she is or was one of our directors or officers, or is or was serving
at our request as a director, officer, trustee of, or in similar capacity with,
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement incurred in connection with any such action, suit or proceeding,
to the maximum extent permitted by the Delaware General Corporation Law, as
currently in effect or amended in the future. No amendment to or repeal of the
provisions of Article Sixth of our certificate of incorporation shall deprive a
director or officer of the benefit of those Articles with respect to any act or
failure occurring prior to such amendment or repeal.
Section 102(b)(7) of the Delaware General Corporation Law empowers a
Delaware corporation to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that the provision may not
eliminate or limit the liability of directors for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- any payment of a dividend or approval of a stock purchase that is illegal
under Section 174 of the Delaware General Corporation Law; or
- any transaction from which the director derived an improper personal
benefit.
Article Seventh of our certificate of incorporation provides that, to the
maximum extent permitted by the Delaware General Corporation Law, none of our
directors shall be personally liable to us or to any of our stockholders for
monetary damages arising out of that director's breach of fiduciary duty as one
of our directors. No amendment to or repeal of the provisions of Article Seventh
shall apply to or
II-1
<PAGE>
have any effect on the liability or the alleged liability of any of our
directors with respect to any act or failure to act of that director occurring
before the amendment or repeal. A principal effect of Article Seventh is to
limit or eliminate the potential liability of our directors for monetary damages
arising from breaches of their duty of care, unless the breach involves one of
the four exceptions described above.
Section 145 of the Delaware General Corporation Law also empowers a Delaware
corporation to obtain insurance on behalf of its directors and officers against
liabilities incurred by them in those capacities. We intend to procure a
directors' and officers' liability and company reimbursement liability insurance
policy that insures (a) our directors and officers against losses, above a
deductible amount, arising from specified types of claims made against them by
reason of enumerated acts done or attempted by our directors or officers and
(b) us against losses, above a deductible amount, arising from any of the
specified types of claims, but only if we are required or permitted to indemnify
our directors or officers for those losses under statutory or common law or
under provisions of our certificate of incorporation or by-laws.
The preceding discussion gives effect to amendments of our certificate of
incorporation and by-laws that will become effective upon completion of the
offering contemplated by this Registration Statement.
Please also see section 7 of the underwriting agreement relating to the
offering, filed as Exhibit 1.1 to this Registration Statement, for
indemnification arrangements between the underwriters and us.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since October 27, 1996, we have issued and sold unregistered securities as
described below.
COMMON STOCK
We have issued and sold shares of common stock to our employees, directors
and advisers as set forth in the following table. The notes to the table provide
additional information regarding sales made to executive officers and directors.
The issuances described below were made in reliance upon the exemption from
registration set forth in either Section 4(2) of the Securities Act or Rule 701
under the Securities Act. None of the transactions described below involved a
distribution or public offering. No underwriters were engaged in connection with
the issuances described below, and no underwriting commissions or discounts were
paid.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF AGGREGATE PURCHASE PRICE
DATE OF SALE SHARES SOLD PURCHASERS PURCHASE PRICE PER SHARE
- ------------ ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
April 24, 1997(1)............................ 667,500 3 $111,250 $0.17
May 7, 1997.................................. 24,000 1 4,000 0.17
May 8, 1997.................................. 52,500 1 8,750 0.17
September 16, 1997........................... 45,000 2 7,500 0.17
April 15, 1998(2)............................ 105,000 3 28,000 0.27
July 10, 1998................................ 22,500 1 6,000 0.27
July 24, 1998(3)............................. 52,500 1 14,000 0.27
April 12, 1999(4)............................ 417,000 3 111,200 0.27
April 26, 1999(5)............................ 345,000 2 92,000 0.27
April 30, 1999............................... 30,000 1 8,000 0.27
June 11, 1999................................ 7,500 1 2,500 0.33
</TABLE>
- ------------------------
(1) 225,000 shares were sold to Joseph M. Gruttadauria, our Vice President,
Professional Services, and 247,500 shares were sold to Anthony J. Mark, our
President and Chief Operating Officer.
II-2
<PAGE>
(2) 52,500 shares were sold to Mr. Mark, 30,000 shares were sold to Stephen A.
Johnson, our Chief Financial Officer, Treasurer and Secretary, and 22,500
shares were sold to David Barrett, our Director--Nominee.
(3) All 52,500 shares were sold to Mr. Gruttadauria.
(4) 364,500 shares were sold to Steven N. Lesser, our Vice President, Worldwide
Sales, and 37,500 shares were sold to Mr. Gruttadauria.
(5) 45,000 shares were sold to Mr. Johnson, and 300,000 shares were sold to
Mr. Mark.
CONVERTIBLE PREFERRED STOCK
The issuances described below were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act relating to sales
by an issuer not involving a public offering. None of the transactions described
below involved a distribution or public offering. No underwriters were engaged
in connection with the issuances described below, and no underwriting
commissions or discounts were paid.
SERIES B. In May and June 1996, we sold 1,416,490 shares of series B
convertible preferred stock for $3,187,102, or $2.25 per share, as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES SOLD AGGREGATE PURCHASE PRICE
- ---- --------------------- ------------------------
<S> <C> <C>
Alta V Limited Partnership(1)....................... 549,777 $1,236,998
Customs House Partners.............................. 5,778 13,001
North Bridge Venture Partners, L.P.(2).............. 333,334 750,001
Commonwealth Capital Ventures L.P................... 444,445 1,000,001
Edward Tackas....................................... 15,600 35,100
The Career Group, Ltd............................... 7,111 16,000
Bill Gross's idealab!............................... 44,445 100,001
Rubin Gruber........................................ 16,000 36,000
</TABLE>
- ------------------------
(1) Affiliate of Jonathan Flint, one of our directors.
(2) Affiliate of Richard D'Amore, one of our directors.
SERIES C. In March 1997, we sold 1,670,000 shares of series C convertible
preferred stock for $4,175,000, or $2.50 per share, as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES SOLD AGGREGATE PURCHASE PRICE
- ---- --------------------- ------------------------
<S> <C> <C>
Alta V Limited Partnership(1)....................... 316,672 $ 791,680
Customs House Partners.............................. 3,328 8,320
North Bridge Venture Partners, L.P.(2).............. 280,000 700,000
Commonwealth Capital Ventures L.P................... 200,000 500,000
Scripps Ventures, LLC............................... 800,000 2,000,000
Leon Navickas(3).................................... 40,000 100,000
TM Partners(4)...................................... 20,000 50,000
Rubin Gruber........................................ 10,000 25,000
</TABLE>
- ------------------------
(1) Affiliate of Jonathan Flint, one of our directors.
(2) Affiliate of Richard D'Amore, one of our directors.
(3) Our Chief Executive Officer and Chairman.
(4) Affiliate of Anthony J. Mark, our President and Chief Operating Officer.
II-3
<PAGE>
SERIES D. In December 1997, we sold 2,250,000 shares of series D
convertible preferred stock for proceeds of $9,000,000, or $4.00 per share, as
follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES SOLD AGGREGATE PURCHASE PRICE
- ---- --------------------- ------------------------
<S> <C> <C>
Alta V Limited Partnership(1)....................... 503,459 $2,013,836
Customs House Partners.............................. 5,291 21,164
North Bridge Venture Partners, L.P.(2).............. 400,000 1,600,000
Commonwealth Capital Ventures L.P................... 250,000 1,000,000
Scripps Ventures, LLC............................... 325,000 1,300,000
Polaris Venture Partners, L.P.(3)................... 707,662 2,830,648
Polaris Venture Partners Founders' Fund, L.P.(3).... 42,338 169,352
TM Partners(4)...................................... 12,500 50,000
Rubin Gruber........................................ 3,750 15,000
</TABLE>
- ------------------------
(1) Affiliate of Jonathan Flint, one of our directors.
(2) Affiliate of Richard D'Amore, one of our directors.
(3) Affiliate of Mr. Flint.
(4) Affiliate of Anthony J. Mark, our President and Chief Operating Officer.
SERIES E. In April 1999, we sold 2,695,000 shares of series E convertible
preferred stock for proceeds of $13,475,000, or $5.00 per share, as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES SOLD AGGREGATE PURCHASE PRICE
- ---- --------------------- ------------------------
<S> <C> <C>
Alta V Limited Partnership(1)....................... 158,336 $ 791,680
Bridge Street Fund 1999, L.P........................ 24,240 121,200
Customs House Partners.............................. 1,664 8,320
North Bridge Venture Partners, L.P.(2).............. 200,000 1,000,000
Commonwealth Capital Ventures L.P................... 100,000 500,000
Scripps Ventures, LLC............................... 70,000 350,000
Polaris Venture Partners, L.P.(3)................... 84,920 424,600
Polaris Venture Partners Founders' Fund, L.P.(3).... 5,080 25,400
The Goldman Sachs Group, L.P........................ 900,000 4,500,000
HarbourVest Partners V-Direct Fund L.P.............. 1,000,000 5,000,000
TM Partners(4)...................................... 10,000 50,000
SL Partners(5)...................................... 65,000 325,000
Stone Street Fund 1999, L.P......................... 75,760 378,800
</TABLE>
- ------------------------
(1) Affiliate of Jonathan Flint, one of our directors.
(2) Affiliate of Richard D'Amore, one of our directors.
(3) Affiliate of Mr. Flint.
(4) Affiliate of Anthony J. Mark, our President and Chief Operating Officer.
(5) Affiliate of Steven N. Lesser, our Vice President, Worldwide Sales.
II-4
<PAGE>
STOCK OPTIONS
The options described below were granted to employees or consultants in
reliance upon the exemptions from registration set forth in either Section 4(2)
of the Securities Act or Rule 701 under the Securities Act.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF EXERCISE PRICE
DATE OF GRANT OPTION SHARES OPTIONEES PER SHARE
- ------------- ------------- --------- --------------
<S> <C> <C> <C>
December 5, 1996......................................... 57,375 7 $0.17
January 28, 1997......................................... 215,100 15 0.17
July 23, 1997............................................ 238,725 17 0.17
September 30, 1997....................................... 63,000 10 0.17
January 1, 1998.......................................... 206,250 16 0.27
March 31, 1998........................................... 309,000 22 0.27
July 9, 1998............................................. 82,950 20 0.27
October 7, 1998.......................................... 62,250 20 0.27
January 12, 1999......................................... 90,375 13 0.27
April 9, 1999............................................ 314,250 42 0.27
June 11, 1999............................................ 267,000 22 0.33
August 5, 1999........................................... 39,075 15 0.67
October 14, 1999......................................... 210,975 67 5.00
</TABLE>
II-5
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL SCHEDULES.
(A) EXHIBITS
<TABLE>
<C> <S>
+1.1 Underwriting Agreement
3.1 Certificate of Incorporation of Centra Software, Inc., as
amended
+3.2 Proposed form of Amended and Restated Certificate of
Incorporation of Centra Software, Inc. (to become effective
as of the closing of the offering)
+3.3 By-Laws of Centra Software, Inc.
+3.4 Proposed form of Amended and Restated By-Laws of Centra
Software, Inc. (to become effective as of the closing of the
Offering)
+4.1 Specimen certificate for common stock of Centra Software,
Inc.
*5.1 Opinion of Foley, Hoag & Eliot LLP
+10.1 Centra Software, Inc. 1995 Stock Plan, as amended
+10.2 Centra Software, Inc. 1999 Stock Incentive Plan
+10.3 Centra Software, Inc. 1999 Employee Stock Purchase Plan
10.4 Centra Software, Inc. 1999 Director Stock Option Plan
+10.5 Amendments of Incentive Stock Option and/or Stock
Restriction Agreements ("Change of Control Agreement")
between Centra Software, Inc. and the following:
(a) Joseph Gruttadauria, dated April 25, 1997
(b) Joseph Gruttadauria, dated May 8, 1997
(c) Stephen A. Johnson, dated May 27, 1999
(d) Steven Lesser, dated May 27, 1999
(e) Anthony Mark, dated April 25, 1997
(f) Leon Navickas, dated March 10, 1997
(g) Leon Navickas, dated May 8, 1997
+10.6 Severance Agreements between Centra Software, Inc. and the
following:
(a) Joseph Gruttadauria, dated March 24, 1997
(b) Stephen A. Johnson, dated May 27, 1999
(c) Steven Lesser, dated May 27, 1999
(d) Anthony Mark, dated March 10, 1997
(e) Leon Navickas, dated May 8, 1997
*10.7 Indemnity Agreements between Centra Software, Inc. and the
following:
(a) David Barrett (to be executed after closing of the
offering)
(b) Richard D'Amore
(c) Jonathan Flint
(d) Joseph Gruttadauria
(e) Stephen A. Johnson
(f) Steven Lesser
(g) Anthony J. Mark
(h) Leon Navickas
10.8 Lease dated July 21, 1999 between Centra Software, Inc. and
Trustees of Elandzee Trust, as amended
+10.9 Sublease dated May 13, 1997 between Centra Software, Inc.
and Robert Half International, Inc.
+10.10 Sublease dated December 31, 1996 between Centra Software,
Inc. and C.P. Clare
+10.11 Loan and Security Agreement, dated November 5, 1997 between
Centra Software, Inc. and Silicon Valley Bank, as amended
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
+10.12 Fourth Amended and Restated Investors' Rights Agreement,
dated April 21, 1999, by and among Centra Software, Inc.,
Leon Navickas and the persons and entities listed therein,
as amended
23.1 Consent of Arthur Andersen LLP
+23.2 Consent of Director-Nominee David Barrett, dated October 25,
1999
*23.3 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
+24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants on Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts for the Years Ended
December 31, 1996, 1997 and 1998
All other schedules are omitted because they are not applicable or the
required information is shown in our consolidated financial statements and
related notes.
ITEM 17. UNDERTAKINGS.
We undertake to provide to the underwriters at the closing specified in the
underwriting agreement, certificates in denominations and registered in names as
required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the SEC that indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against those liabilities (other than our payment of expenses
incurred or paid by one of our directors, officers or controlling persons of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by our directors, officers or controlling persons in connection with
the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether that indemnification by us is
against public policy as expressed in the Securities Act and we will be governed
by the final adjudication of such issue.
We undertake that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus we filed 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 those securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Centra
Software, Inc. has duly caused this Amendent No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
Town of Lexington, Massachusetts, as of December 3, 1999.
<TABLE>
<S> <C> <C>
CENTRA SOFTWARE, INC.
By: /s/ LEON NAVICKAS
-----------------------------------------
Chief Executive Officer
</TABLE>
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the indicated capacities as of December 3, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ LEON NAVICKAS
------------------------------------------- Chief Executive Officer and Chairman
Leon Navickas (PRINCIPAL EXECUTIVE OFFICER)
/s/ STEPHEN A. JOHNSON Chief Financial Officer, Treasurer and
------------------------------------------- Secretary
Stephen A. Johnson (PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER)
*
------------------------------------------- Director
Richard D'Amore
*
------------------------------------------- Director
Jonathan Flint
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ STEPHEN A. JOHNSON
--------------------------------------
Stephen A. Johnson
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Centra Software, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Centra Software, Inc. included in this
registration statement, and have issued our report thereon dated March 2, 1999
(except with respect to the matters discussed in Notes 8(b) and 8(e) as to which
the date is October 27, 1999). Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedule
listed in the index of this registration statement is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and regulations and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth herein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Boston, Massachusetts
March 2, 1999
<PAGE>
SCHEDULE II
CENTRA SOFWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
<TABLE>
<CAPTION>
BALANCE
BEGINNING OF CHARGED TO BALANCE
ALLOWANCE FOR DOUBTFUL ACCOUNTS: YEAR EXPENSE WRITE-OFFS END OF YEAR
- -------------------------------- ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996................................. $ -- $ -- $ -- $ --
December 31, 1997................................. -- 50,000 -- 50,000
December 31, 1998................................. 50,000 99,000 49,000 100,000
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
+1.1 Underwriting Agreement
3.1 Certificate of Incorporation of Centra Software, Inc., as
amended
+3.2 Proposed form of Amended and Restated Certificate of
Incorporation of Centra Software, Inc. (to become effective
as of the closing of the offering)
+3.3 By-Laws of Centra Software, Inc.
+3.4 Proposed form of Amended and Restated By-Laws of Centra
Software, Inc. (to become effective as of the closing of the
Offering)
+4.1 Specimen certificate for common stock of Centra Software,
Inc.
*5.1 Opinion of Foley, Hoag & Eliot LLP
+10.1 Centra Software, Inc. 1995 Stock Plan, as amended
+10.2 Centra Software, Inc. 1999 Stock Incentive Plan
+10.3 Centra Software, Inc. 1999 Employee Stock Purchase Plan
10.4 Centra Software, Inc. 1999 Director Stock Option Plan
+10.5 Amendments of Incentive Stock Option and/or Stock
Restriction Agreements ("Change of Control Agreement")
between Centra Software, Inc. and the following:
(a) Joseph Gruttadauria, dated April 25, 1997
(b) Joseph Gruttadauria, dated May 8, 1997
(c) Stephen A. Johnson, dated May 27, 1999
(d) Steven Lesser, dated May 27, 1999
(e) Anthony Mark, dated April 25, 1997
(f) Leon Navickas, dated March 10, 1997
(g) Leon Navickas, dated May 8, 1997
+10.6 Severance Agreements between Centra Software, Inc. and the
following:
(a) Joseph Gruttadauria, dated March 24, 1997
(b) Stephen A. Johnson, dated May 27, 1999
(c) Steven Lesser, dated May 27, 1999
(d) Anthony Mark, dated March 10, 1997
(e) Leon Navickas, dated May 8, 1997
*10.7 Indemnity Agreements between Centra Software, Inc. and the
following:
(a) David Barrett (to be executed after closing of the
offering)
(b) Richard D'Amore
(c) Jonathan Flint
(d) Joseph Gruttadauria
(e) Stephen A. Johnson
(f) Steven Lesser
(g) Anthony J. Mark
(h) Leon Navickas
10.8 Lease dated July 21, 1999 between Centra Software, Inc. and
Trustees of Elandzee Trust, as amended
+10.9 Sublease dated May 13, 1997 between Centra Software, Inc.
and Robert Half International, Inc.
+10.10 Sublease dated December 31, 1996 between Centra Software,
Inc. and C.P. Clare
+10.11 Loan and Security Agreement, dated November 5, 1997 between
Centra Software, Inc. and Silicon Valley Bank, as amended
</TABLE>
<PAGE>
<TABLE>
<C> <S>
+10.12 Fourth Amended and Restated Investors' Rights Agreement,
dated April 21, 1999, by and among Centra Software, Inc.,
Leon Navickas and the persons and entities listed therein,
as amended
23.1 Consent of Arthur Andersen LLP
+23.2 Consent of Director-Nominee David Barrett, dated October 25,
1999
*23.3 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
+24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Previously filed.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
FIRST: The name of the corporation (the "Corporation") is Centra
Software, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New
Castle, and the name of its registered agent at such address is Corporation
Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is 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 capital stock that the
Corporation shall have the authority to issue shall be 4,000,000 shares of
common stock, each of which shall have a par value of $.001, amounting to an
aggregate par value of $4,000.00.
FIFTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) Subject to the limitations and exceptions, if any,
contained in the by-laws of the Corporation, the by-laws may be adopted, amended
or repealed by the Board of Directors of the Corporation; and
(b) Elections of directors need not be by written ballot
unless, and only to the extent, otherwise provided in the by-laws; and
(c) Subject to any applicable requirements of law, the books
of the Corporation may be kept outside the State of Delaware at such locations
as may be designated by the Board of Directors or in the by-laws of the
Corporation; and
(d) Except as provided to the contrary in the provisions
establishing a class of stock, the number of authorized shares of such class may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of a majority of the stock of the
Corporation entitled to vote, voting as a single class.
SIXTH: The Corporation shall indemnify each person who at any time is,
or shall have been, a director or officer of the Corporation and was or is a
party or is threatened to
<PAGE>
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 or she is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement incurred in connection with any such action, suit
or proceeding, to the maximum extent permitted by the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended. The
foregoing right of indemnification shall in no way be exclusive of any other
rights of indemnification to which any such director or officer may be entitled,
under any by-law, agreement, vote of directors or stockholders or otherwise. No
amendment to or repeal of the provisions of this Article SIXTH shall deprive a
director or officer of the benefit hereof with respect to any act or failure to
act occurring prior to such amendment or repeal.
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 a 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: No director of the Corporation shall be personally liable to
the Corporation or to any of its stockholders for monetary damages arising out
of such director's breach of fiduciary duty as a director of the Corporation,
except to the extent that the elimination or limitation of such liability is not
permitted by the General Corporation Law of the State of Delaware, as the same
exists or may hereafter be amended. No amendment to or repeal of the provisions
of this Article EIGHTH shall deprive any director of the Corporation of the
benefit hereof with respect to any act or failure to act of such director
occurring prior to such amendment or repeal.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any
-2-
<PAGE>
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
TENTH: The name and the mailing address of the sole incorporator of the
Corporation is:
NAME MAILING ADDRESS
Robert L. Birnbaum c/o Foley, Hoag & Eliot
One Post Office Square
Boston, Massachusetts 02109
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of April,
1995.
------------------------------------------
Robert L. Birnbaum, Sole Incorporator
-3-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
--------------------------------
Centra 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 written action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 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 Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH 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 (1) 4,000,000 shares of Common
Stock, $.001 par value per share (the "Common Stock"), and (ii) 1,133,000 shares
of Series A Convertible Participating Preferred Stock, $.001 par value per share
(the "Preferred Stock").
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations or
restrictions in respect of each class of capital stock of the Corporation.
<PAGE>
A. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to, and qualified by, the rights of the
holders of the Preferred Stock of any series as may be designated by the Board
of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one
vote for each share held at all meetings of stockholders (and written actions in
lieu of meetings). There shall be no cumulative voting.
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. No dividends shall be declared on the Common Stock
unless dividends are at the same time declared on the Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to share in the assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. AMENDMENTS. No provision of these terms of the Common Stock
may be amended, modified or waived without the written consent or affirmative
vote of the holders of at least a majority of the then outstanding shares of
Common Stock.
B. PREFERRED STOCK
SECTION 1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock into
which each such share of Preferred Stock could be converted pursuant to the
provisions of Section 4 hereof with such number determined as of the record date
for the determination of holders of Common Stock entitled to receive such
dividends). Any dividends so declared shall be paid in full to the holders of
the Preferred Stock prior to any payment of dividends to holders of Common
Stock.
SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) GENERAL. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, each holder of
outstanding shares of Preferred Stock and Common Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus or earnings as follows:
(i) First, the holders of the outstanding shares of Preferred Stock shall
receive an amount in cash equal to $1.00 per share (adjusted appropriately for
stock splits, stock dividends and the
2
<PAGE>
like) together with (A) any declared but unpaid dividends and (B) all accrued
but unpaid interest to which the holders of outstanding shares of Preferred
Stock are entitled pursuant to Sections 1 and 5(c) hereof (collectively, the
"Liquidation Amount"), before any payment shall be made to the holders of any
class of Common Stock or of any other stock ranking on liquidation junior to the
Preferred Stock, provided, however, that if, upon any liquidation, dissolution
or winding up of the Corporation, the amounts payable with respect to the
Preferred Stock and any other stock ranking as to any such distribution on a
parity with the Preferred Stock are not paid in full, the holders of the
Preferred Stock and such other stock shall share ratably in any distribution of
assets in proportion to the full respective preferential amounts to which they
are entitled; and (ii) Second, the holders of the outstanding shares of
Preferred Stock shall share ratably with the holders of the outstanding shares
of Common Stock in the distribution, in cash, of the assets of the Corporation
remaining for distribution to stockholders, whether such assets are capital,
surplus or earnings, as if each share of Preferred Stock had been converted into
the number of shares of Common Stock issuable upon the conversion of a share of
Preferred Stock immediately prior to any such liquidation, dissolution or
winding up of the Corporation.
(b) CONSOLIDATION OR MERGER AS A LIQUIDATION. A consolidation
or merger of the Corporation (except (i) into or with a wholly-owned subsidiary
of the Corporation with requisite stockholder approval or (ii) a merger in which
the beneficial owners of the Corporation's capital stock immediately prior to
such transaction hold no less than fifty-one percent (51%) of the voting power
in the resulting entity) or a sale of all or substantially all or any
substantial portion of the assets of the Corporation shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 2; provided, however, that each holder of the
Preferred Stock shall have the right to elect the benefits of the provisions of
Section 4(h) hereof in lieu of receiving payment in liquidation, dissolution or
winding up of the Corporation pursuant to this Section 2.
SECTION 3. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Preferred Stock shall be
entitled to vote on all matters. Each share of Preferred Stock shall entitle the
holder thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which each share of Preferred Stock is then
convertible. Except as otherwise expressly provided herein (including without
limitation the provisions of Section 6 hereof) or as required by law, the
holders of shares of the Preferred Stock and the Common Stock shall vote
together as a single class on all matters.
(b) ADDITIONAL VOTING RIGHTS UPON CERTAIN DEFAULTS.
(I) RIGHT TO ELECT BOARD OF DIRECTORS. In the
event that the Corporation shall default in its payment of the Redemption Price
(as defined in Section 5(b) below) or if it shall have insufficient funds
legally available to pay the Cash Redemption Price (as defined in Section 5(b)
below) under Section 5(c), the Corporation shall promptly give written notice
thereof to each holder of Preferred Stock. If such payment is not made within 70
days of the Redemption Date (as defined in Section 5(a) below), the holders of
Preferred Stock shall, upon the giving of written notice to the Corporation by
the holders of at least 50% of the outstanding shares of Preferred Stock, be
entitled, pursuant to the terms of Section 3(b)(II)
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below, to elect the smallest number of directors which shall constitute a
majority of the authorized number of directors of the Corporation, with the
holders of the Preferred Stock voting as a separate class, and the remaining
members of the Board of Directors shall be such persons, if any, who have
received a majority vote of the holders of the Common Stock and Preferred Stock,
voting together as a single class.
(II) MECHANICS OF ELECTION. Whenever under the
provisions of Section 3(b)(I) above the right shall have accrued to the holders
of the shares of Preferred Stock as a class to elect directors, the Board of
Directors shall, within ten days after delivery to the Corporation at its
principal office of a request to such effect by the holders of at least 50% of
the then outstanding shares of Preferred Stock, call a special meeting of the
stockholders for the election of directors, to be held upon not less than 20 nor
more than 30 days' notice to such holders. If such notice of meeting is not
given within the ten days required above, the holders of Preferred Stock
requesting the calling of such meeting may also call such meeting and shall have
access to the stock books and records of the Corporation for such purpose. At
any meeting so called or at any other meeting held while the holders of the
outstanding shares of Preferred Stock shall have the voting power provided in
Section 3(b)(I) above, the holders of a majority of the then outstanding shares
of Preferred Stock, present in person or by proxy, shall be sufficient to
constitute a quorum for the election of directors as herein provided. upon the
election of the directors at such meeting, the terms of office of all persons
who were previously directors of the Corporation and not elected pursuant to
Section 3(b)(I) above shall immediately terminate, whether or not the holders of
the shares of Common Stock and of any other class or series of voting stock
shall then have elected the remaining directors of the Corporation.
(III) VACANCIES. In the case of any vacancy in the
office of a director occurring among the directors elected by the holders of the
shares of Preferred Stock as a class, pursuant to the foregoing provisions of
Section 3(b)(II) hereof, the remaining directors elected by the holders of the
Preferred Stock, by affirmative vote of a majority thereof, or the remaining
director so elected if there be but one, may, if permitted by law and subject to
the provisions of Section 3(b)(IV) hereof, elect a successor or successors to
hold office for the unexpired terms of the director or directors whose place or
places shall be vacant. In case of any vacancy in the office of a director
occurring among the directors elected by the holders of Common Stock, Preferred
Stock and of any other class or series of voting stock as a class, the remaining
directors elected by the holders of Common Stock, Preferred Stock and of any
other class or series of voting stock by affirmative vote of a majority thereof,
or the remaining director so elected if there be but one, may, if permitted by
law, elect a successor or successors to hold office for the unexpired term of
the director or directors whose place or places shall be vacant. Any director
who shall have been elected by the holders of the Preferred Stock (or by any
directors so elected by directors elected by the holders of the Preferred Stock
as provided in this Section 3(b)(III)) may be removed during his term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of at least 67% of the then outstanding shares of Preferred Stock, cast
at a special meeting of such stockholders duly called for that purpose.
(IV) TERMINATION OF VOTING RIGHTS. If and when all breaches referred to
in Section 3(b)(I) above have been fully remedied, then the holders of the
shares of Preferred Stock shall be divested of all of the voting rights
specified in Section 3(b)(I) above, but always subject to the same provisions
vesting such voting rights in the holders of the shares of Preferred
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Stock in case of similar future defaults as provided in Section 3(b)(I). Upon
the termination of any such voting rights as provided above, the Board of
Directors shall call a special meeting of stockholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Corporation shall terminate immediately upon the election of their
successors.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall have
the following conversion rights:
(a) AUTOMATIC CONVERSION. Each share of Preferred Stock
outstanding shall automatically be converted into one or more shares of Common
Stock at an initial conversion ratio of one share of Common Stock for each share
of Preferred Stock (the "Conversion Ratio") and, in connection therewith, the
right to receive from the Corporation an amount in cash equal to the Liquidation
Amount per share of Preferred Stock computed to the conversion date (the
"Conversion Payment"), immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of Common Stock of
the Corporation to the public in which (i) the aggregate price paid for such
shares by the public shall be at least $10,000,000, and (ii) the price paid by
the public for such shares shall be at least $5.00 per share (appropriately
adjusted to reflect the occurrence of any event described in Section 4(e) (a
"Qualified Public Offering")).
(b) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Preferred Stock into
Common Stock pursuant to Section 4(a) hereof shall not be deemed to be effective
until immediately prior to the closing of the Qualified Public Offering. On and
after the effective date of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
(c) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Preferred Stock, but in lieu thereof may
make a cash payment in respect thereof in any manner permitted by law.
(d) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Preferred Stock then outstanding provided that the shares
of Common Stock so reserved shall not be reduced or affected in any manner
whatsoever so long as any Preferred Stock are outstanding. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Preferred Stock then outstanding and convertible into
shares of Common Stock.
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(e) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio in
effect from time to time shall be subject to adjustment as follows:
(I) STOCK DIVIDENDS, SUBDIVISIONS AND
COMBINATIONS. Upon the issuance of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or the combination of outstanding shares of Common Stock into a smaller
number of shares of the Common Stock, the Conversion Ratio shall, simultaneously
with the happening of such dividend, subdivision or split be adjusted by
multiplying the then effective Conversion Ratio by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after such event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event. An adjustment made
pursuant to this Section 4(e)(I) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis) and in the case of a subdivision or combination shall become effective
immediately as of the effective date thereof.
(II) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock (including
shares held in the Corporation's treasury but excluding (i) up to 743,000 shares
of Common Stock issued to officers, directors, employees, consultants or agents
of the Corporation pursuant to the Corporation's 1995 Stock Plan or upon the
exercise of options issued pursuant to such 1995 Stock Plan and (ii) shares as
to which an adjustment to the Conversion Ratio has been made in accordance with
Section 4(e)(I) above (the "Excluded Shares")), for a consideration per share
less than $1.00 (the "Conversion Price") then, and thereafter successively upon
each such issuance, sale or exchange, the Conversion Ratio in effect immediately
prior to the issuance, sale or exchange of such shares shall forthwith be
increased to an amount determined by multiplying the Conversion Ratio by a
fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of such additional
shares of Common Stock so issued; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares
but including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of shares of Common
Stock which the net aggregate consideration received by the Corporation
for the total number of such additional shares of Common Stock so
issued would purchase at the Conversion Price per share.
(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Preferred Stock is outstanding, issue
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options, warrants or rights to subscribe for shares of Common Stock (other than
any options for Excluded Shares granted to officers, directors, employees,
consultants or agents of the Corporation pursuant to the Corporation's 1995
Stock Plan), or issue any securities convertible into or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price per share, the
Conversion Ratio in effect immediately prior to the issuance of such options,
warrants or rights or securities shall be increased to an amount determined by
multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to
the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior
to the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the number of shares of Common Stock which the total amount
of consideration received by the Corporation for the issuance of such
options, warrants, rights or convertible securities plus the minimum
amount set forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net Aggregate
Consideration") would purchase at the Conversion Price per share.
(IV) EXPIRATION OR CHANGE IN RATIO. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible into
shares of Common Stock changes at any time, the Conversion Ratio in effect at
the time of such change shall be readjusted to the Conversion Ratio which would
have been in effect at such time had such options or convertible securities
provided for such changed consideration per share (determined as provided in
Section 4(e) (III) hereof), at the time initially granted, issued or sold;
provided, that such adjustment of the Conversion Ratio will be made only as and
to the extent that the Conversion Ratio effective upon such adjustment remains
greater than or equal to the Conversion Ratio that would be in effect if such
options, rights or securities had not been issued. No adjustment of the
Conversion Ratio shall be made under this Section 4 upon the issuance of any
additional shares of Common Stock which are issued pursuant to the exercise of
any warrants, options or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any convertible securities
if an adjustment shall previously have been made upon the issuance of such
warrants, options or other rights. Any adjustment of the Conversion Ratio shall
be disregarded if, as and when the rights to acquire shares of Common Stock upon
exercise or conversion of the warrants, options, rights or convertible
securities which gave rise to such adjustment expire or are cancelled without
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having been exercised, so that the Conversion Ratio effective immediately upon
such cancellation or expiration shall be equal to the Conversion Ratio in effect
at the time of the issuance of the expired or cancelled warrants, options,
rights or convertible securities, with such additional adjustments as would have
been made to that Conversion Ratio had the expired or cancelled warrants,
options, rights or convertible securities, not been issued.
(V) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or options, warrants or rights to subscribe for shares of Common
Stock shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any shares of Common Stock or options, warrants or rights to subscribe for
shares of Common Stock shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the corporation in connection therewith. In case
any options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such options by the parties
thereto, such options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
(f) HOLDERS NOT ENTITLED TO ANTI-DILUTION PROTECTION.
Notwithstanding anything contained in Section 4(e) to the contrary, a holder of
any shares of Preferred Stock shall not be entitled to the benefits of Section
4(e) with respect to an issuance, sale or exchange of any shares of Common Stock
pursuant to the provisions of Subsection 4(e)(II), or an issuance of options,
warrants or rights to subscribe for shares of Common Stock or an issuance of any
securities convertible into or exchangeable for shares of Common Stock pursuant
to the provisions of Section 4(e)(III) (each a "Dilutive Issuance") if (I) the
Corporation has offered such holder the opportunity, exercisable over a period
of not less than 30 days, to purchase securities in such Dilutive Issuance at a
price and on terms no less favorable to such holder than those generally offered
to other persons participating in such Dilutive Issuance, and (II) such holder
has failed to participate in such Dilutive Issuance by acquiring in such
Dilutive Issuance such number of securities as shall at least equal the lesser
of (x) such holder's pro rata share of such Dilutive Issuance (as determined by
dividing the number of shares of Preferred Stock held by such holder immediately
prior to such Dilutive Issuance, by the total number of shares of Preferred
Stock outstanding immediately prior to such Dilutive Issuance) or (y) the
maximum amount which such holder was offered the opportunity to purchase.
(g) OTHER ADJUSTMENTS. In the event the Corporation 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
lawful and adequate provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their 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
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and including the Conversion Date (as that term is hereafter defined), retained
such securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
4 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by 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
elsewhere in Section 2(b) or in this Section 4), then and in each such event the
holder of each share of 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 Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation or sale plus the Conversion Payment
payable upon conversion. In any such case, appropriate provisions shall be made
with respect to the rights of the holders of the Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 4 (including, without limitation provisions for adjustment of the
Conversion Ratio and the number of shares receivable upon conversion of the
Preferred Stock) shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be deliverable upon the
conversion of the Preferred Stock.
Each holder of Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation or the sale
of all or substantially all of its assets and properties, as such events are
more fully set forth in the first paragraph of this Section 4(h), shall have the
option of electing treatment of his shares of Preferred Stock under either this
Section 4(h) or Section 2(b) hereof, notice of which election shall be submitted
in writing to the Corporation at its principal offices no later than ten (10)
days before the effective date of such event, provided that any such notice
shall be effective if given not later than fifteen (15) days after the date of
the Corporation's notice, pursuant to Section 8, with respect to such event.
(i) CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment or readjustment of the Conversion Ratio, the Corporation at its
expense will furnish each holder of Preferred Stock with a certificate, prepared
by the chief financial officer of the Corporation, showing such adjustment or
readjustment in accordance with the terms hereof, and stating in
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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
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Ratio at the time in effect, and (iii) the number of shares of Common
Stock, the Liquidation Amount and the amount, if any, of other property which at
the time would be received upon the conversion of Preferred Stock.
(j) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
SECTION 5. MANDATORY REDEMPTION. The shares of Preferred Stock shall be
redeemed as follows:
(a) AT ELECTION OF HOLDERS. On April 11, 2001, and on each of
the next two anniversaries of such date thereafter (the "Redemption Dates", and
each a "Redemption Date"), the Corporation shall, at the written request of the
holders of a majority of the then outstanding shares of Preferred Stock made at
least 90 days prior to each of such Redemption Dates, redeem any outstanding
shares of Preferred Stock according to the percentages listed below:
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
April 11, 2001 33-1/3% of all the shares of
Preferred Stock outstanding on
such date
April 11, 2002 50% of all the shares of
Preferred Stock outstanding on
such date
April 11, 2003 100% of all the shares of
Preferred Stock outstanding on
such date
(b) REDEMPTION PRICE AND PAYMENT. The Preferred Stock to be
redeemed on each Redemption Date shall be redeemed by paying for each share (i)
in cash an amount equal to
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the Liquidation Amount per share of Preferred Stock computed to the Redemption
Date (the "Cash Redemption Price") and (ii) the number of shares of Common Stock
which such share is then convertible upon a conversion pursuant to Subsection
4(a) hereof (the "Stock Redemption Price") (the Cash Redemption Price and Stock
Redemption Price are herein referred to collectively as the "Redemption Price").
Such payment shall be made in full on the Redemption Date to the holders
entitled thereto.
(c) REDEMPTION MECHANICS. In the event that the Corporation
has received a written request pursuant to Section 5(a), at least 20 but not
more than 30 days prior to each such Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by delivery in person,
certified or registered mail, return receipt requested, telecopier or telex, to
each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
Redemption Price, the Redemption Date and the place where said Redemption Price
shall be payable. The Redemption Notice shall be addressed to each holder at his
address as shown by the records of the Corporation. From and after the close of
business on the Redemption Date, unless there shall have been a default in the
payment of the Redemption Price, all rights of holders of the shares of
Preferred Stock to be redeemed on such Redemption Date (except the right to
receive the Redemption Price) shall cease with respect to such shares, and such
shares shall not thereafter be transferred on the books of the Corporation or be
deemed to be outstanding for any purpose whatsoever. If the funds of the
Corporation legally available for redemption of shares of Preferred Stock on the
Redemption Date are insufficient to redeem the total number of outstanding
shares of Preferred Stock to be redeemed on such Redemption Date, (i) the
holders of shares of Preferred Stock shall shard ratably in any funds legally
available for redemption of such shares according to the respective amounts
which would be payable with respect to the number of shares owned by them if all
such shares requested to be redeemed on such Redemption Date were redeemed in
full and (ii) the Cash Redemption Price for the shares of Preferred Stock not
redeemed shall accrue interest at the rate of ten percent (10%) per annum,
payable quarterly in arrears (or, if any such payment of interest would violate
applicable law, at such time as such payment would be lawful), until such
Redemption Price is paid in full. The shares of Preferred Stock not redeemed
shall remain outstanding and entitled to all rights and preferences provided
herein. At any time thereafter, when additional funds of the Corporation are
legally available for the redemption of such shares of Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this Section 5 or otherwise
acquired by the Corporation in any manner whatsoever (including pursuant to
Section 6(v)) shall be cancelled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of Preferred Stock.
SECTION 6. RESTRICTIONS AND LIMITATIONS. At any time when at least
275,000 shares of Preferred Stock remain outstanding, except where the vote or
written consent of the holders of a greater number of shares of the Corporation
is required by law or by the Certificate of Incorporation and in addition to any
other vote required by law or the Certificate of
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Incorporation, without the approval of the holders of at least a majority of the
then outstanding shares of Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a series, the
Corporation will not:
(i) Create or authorize the creation of any additional class
or series of shares of stock, or authorize the increase of any existing class or
series of stock, or create or authorize any obligation or security convertible
into shares of any class or series of stock, in each case where the same would
rank in any way on a parity with or senior to the Preferred Stock as to voting,
liquidation or right to receive distributions or dividends, whether any such
creation, authorization or increase shall be by means of amendment to the
Certificate of Incorporation or by merger, consolidation or otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities, or acquire any other entity, or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all its assets;
(iii) Amend, alter or repeal its Certificate of Incorporation
or By-laws if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of the Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other than the
Preferred Stock, except for dividends or other distributions payable on any
other class or series of stock solely in the form of additional shares of such
series or class of stock and except for the purchase of shares of Common Stock
from former employees of the Corporation who acquired such shares directly from
the Corporation, if each such purchase is made pursuant to contractual rights
held by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or
(v) Redeem or otherwise acquire any shares of Preferred Stock
except as expressly authorized in Section 5 or pursuant to a purchase offer made
pro rata to all holders of the shares of Preferred Stock on the basis of the
aggregate number of outstanding shares of Preferred Stock then held by each such
holder.
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of the
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the
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Corporation to any other corporation, or any other entity or person, or any
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, the Corporation shall mail to each holder of Preferred Stock at
least twenty (20) days prior to the record date specified therein, a notice
specifying (a) the date of such record date for the purpose of such dividend or
distribution and a description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Incorporation, each share of Preferred Stock and each share of
Common Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class of stock for
all purposes.
SECTION 10. AMENDMENTS. No provision of these terms of the Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
and attested by its Secretary this day of April 11, 1995.
CENTRA SOFTWARE, INC.
By:
--------------------------
President
ATTEST:
- ---------------------------
Secretary
[Corporate Seal]
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
-----------------------------
Centra 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 written action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 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 Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH 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 11,155,712 shares consisting of:
(i) 8,000,000 shares of Common Stock, $.001 par value per
share (the "Common Stock"); and
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(ii) 3,155,712 shares of Preferred Stock, $.001 par value per
share, which shall consist of 1,133,000 shares of Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock") and
2,022,712 shares of Series B Convertible Participating Preferred Stock
(the "Series B Preferred Stock"), as set forth below. Individually and
collectively, such two Series of preferred stock are sometimes referred
to herein as the "Preferred Stock".
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations or
restrictions in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to, and qualified by, the rights of the holders
of the Preferred Stock of any series as may be designated by the Board of
Directors upon any issuance of the Preferred Stock of any series.
2. VOTING The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
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. No dividends shall be declared on the Common Stock
unless dividends are at the same time declared on the Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
share in the assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. AMENDMENTS. No provision of these terms of the Common Stock may be
amended, modified or waived without the written consent or affirmative vote of
the holders of at least a majority of the then outstanding shares of Common
Stock.
B. PREFERRED STOCK
SECTION 1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock into
which each such share of Preferred Stock could be converted pursuant to the
provisions of Section 4 hereof with such number determined as of the record date
for the determination of holders of Common Stock entitled to receive such
dividends). Any dividends
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so declared shall be paid in full to the holders of the Preferred Stock prior to
any payment of dividends to holders of Common Stock.
SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) GENERAL. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, each holder of
outstanding shares of Preferred Stock and Common Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus or earnings as follows:
(i) First, the holders of the outstanding shares of Series A Preferred Stock and
Series B Preferred Stock shall receive an amount in cash equal to $1.00 per
share and $2.25 per share, respectively (adjusted appropriately for stock
splits, stock dividends and the like), together with (A) any declared but unpaid
dividends and (B) all accrued but unpaid interest to which the holders of
outstanding shares of such Series of Preferred Stock are entitled pursuant to
Sections I and 5(c) hereof (collectively, the "Liquidation Amount" of the shares
of such Series), before any payment shall be made to the holders of any class of
Common Stock or of any other stock ranking on liquidation junior to the
Preferred Stock, provided, however, that if upon any liquidation, dissolution or
winding up of the Corporation, the amounts payable with respect to the Preferred
Stock and any other stock ranking as to any such distribution on a parity with
the Preferred Stock are not paid in full, the holders of shares of each Series
of Preferred Stock and such other stock shall share ratably in any distribution
of assets in proportion to the full respective preferential amounts to which
they are entitled; and (ii) Second, the holders of the outstanding shares of
Preferred Stock shall share ratably with the holders of the outstanding shares
of Common Stock in the distribution, in cash, of the assets of the Corporation
remaining for distribution to stockholders, whether such assets are capital,
surplus or earnings, as if each share of Preferred Stock had been converted into
the number of shares of Common Stock issuable upon the conversion of such share
of Preferred Stock pursuant to Section 4 hereof immediately prior to any such
liquidation, dissolution or winding up of the Corporation.
(b) CONSOLIDATION OR MERGER AS A LIQUIDATION. A consolidation
or merger of the Corporation (except (i) into or with a wholly-owned subsidiary
of the Corporation with requisite stockholder approval or (ii) a merger in which
the beneficial owners of the Corporation's capital stock immediately prior to
such transaction hold no less than fifty-one percent (51%) of the voting power
in the resulting entity) or a sale of all or substantially all or any
substantial portion of the assets of the Corporation shall be regarded as a
liquidation, dissolution or winding up of the affairs of the Corporation within
the meaning of this Section 2; provided, however, that each holder of the
Preferred Stock shall have the right to elect the benefits of the provisions of
Section 4(h) hereof in lieu of receiving payment in liquidation, dissolution or
winding up of the Corporation pursuant to this Section 2.
SECTION 3. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Preferred Stock shall be
entitled to vote on all matters. Each share of Preferred Stock shall entitle the
holder thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which such share of Preferred Stock is then
convertible pursuant to Section 4 hereof. Except as otherwise expressly provided
herein
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(including without limitation the provisions of Section 6 hereof) or as
required by law, the holders of shares of the Preferred Stock and the Common
Stock shall vote together as a single class on all matters.
(b) ADDITIONAL VOTING RIGHTS UPON CERTAIN DEFAULTS.
(I) RIGHT TO ELECT BOARD OF DIRECTORS. In the
event that the Corporation shall default in its payment of the Redemption Price
(as defined in Section 5(b) below) or if it shall have insufficient funds
legally available to pay the Cash Redemption Price (as defined in Section 5(b)
below) under Section 5(c), the Corporation shall promptly give written notice
thereof to each holder of Preferred Stock. If such payment is not made within 70
days of the Redemption Date (as defined in Section 5(a) below), the holders of
Preferred Stock shall, upon the giving of written notice to the Corporation by
the holders of at least 50% of the outstanding shares of Preferred Stock, be
entitled, pursuant to the terms of Section 3(b)(II) below, to elect the
smallest number of directors which shall constitute a majority of the authorized
number of directors of the Corporation, with the holders of the Preferred Stock
voting as a separate class, and the remaining members of the Board of Directors
shall be such persons, if any, who have received a majority vote of the holders
of the Common Stock and Preferred Stock, voting together as a single class.
(II) MECHANICS OF ELECTION. Whenever under the
provisions of Section 3(b)(I) above the right shall have accrued to the
holders of the shares of Preferred Stock as a class to elect directors, the
Board of Directors shall, within ten days after delivery to the Corporation at
its principal office of a request to such effect by the holders of at least 50%
of the then outstanding shares of Preferred Stock, call a special meeting of the
stockholders for the election of directors, to be held upon not less than 20 nor
more than 30 days' notice to such holders. If such notice of meeting is not
given within the ten days required above, the holders of Preferred Stock
requesting the calling of such meeting may also call such meeting and shall have
access to the stock books and records of the Corporation for such purpose. At
any meeting so called or at any other meeting held while the holders of the
outstanding shares of Preferred Stock shall have the voting power provided in
Section 3(b)(1) above, the holders of a majority of the then outstanding
shares of Preferred Stock, present in person or by proxy, shall be sufficient to
constitute a quorum for the election of directors as herein provided. Upon the
election of the directors at such meeting, the terms of office of all persons
who were previously directors of the Corporation and not elected pursuant to
Section 3(b)(I) above shall immediately terminate, whether or not the holders
of the shares of Common Stock and of any other class or series of voting stock
shall then have elected the remaining directors of the Corporation.
(III) VACANCIES. In the case of any vacancy in the
office of a director occurring among the directors elected by the holders of the
shares of Preferred Stock as a class, pursuant to the foregoing provisions of
Section 3(b)(II) hereof, the remaining directors elected by the holders of the
Preferred Stock, by affirmative vote of a majority thereof, or the remaining
director so elected if there be but one, may, if permitted by law and subject to
the provisions of Section 3(b)(IV) hereof, elect a successor or successors to
hold office for the unexpired terms of the director or directors whose place or
places shall be vacant. In case of any vacancy in the office of a director
occurring among the directors elected by the holders of Common Stock, Preferred
Stock and of any other class or series of voting stock as a class, the remaining
directors
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<PAGE>
elected by the holders of Common Stock, Preferred Stock and of any other
class or series of voting stock by affirmative vote of a majority thereof, or
the remaining director so elected if there be but one, may, if permitted by
law, elect a successor or successors to hold office for the unexpired term of
the director or directors whose place or places shall be vacant. Any director
who shall have been elected by the holders of the Preferred Stock (or by any
directors so elected by directors elected by the holders of the Preferred
Stock as provided in this Section 3(b)(III)) may be removed during his term
of office, either with or without cause, by, and only by, the affirmative
vote of the holders of at least 67% of the then outstanding shares of
Preferred Stock, cast at a special meeting of such stockholders duly called
for that purpose.
(IV) TERMINATION OF VOTING RIGHTS. If and when
all breaches referred to in Section 3(b)(I) above have been fully remedied, then
the holders of the shares of Preferred Stock shall be divested of all of the
voting rights specified in Section 3(b)(I) above, but always subject to the same
provisions vesting such voting rights in the holders of the shares of Preferred
Stock in case of similar future defaults as provided in Section 3(b)(I) Upon
the termination of any such voting rights as provided above, the Board of
Directors shall call a special meeting of stockholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Corporation shall terminate immediately upon the election of their
successors.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall
have the following conversion rights:
(a) AUTOMATIC CONVERSION. Each share of Preferred Stock
outstanding shall automatically be converted into one or more shares of Common
Stock at an initial conversion ratio of one share of Common Stock for each share
of Preferred Stock (the "Conversion Ratio") and, in connection therewith, the
right to receive from the Corporation an amount in cash equal to the Liquidation
Amount per share of such Series of Preferred Stock computed to the conversion
date (the "Conversion Payment"), immediately prior to the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933 covering the offer and sale of Common
Stock of the Corporation to the public in which (i) the aggregate price paid for
such shares by the public shall be at least $10,000,000, and (ii) the price paid
by the public for such shares shall be at least $6.75 per share (appropriately
adjusted to reflect the occurrence of any event described in Section 4(e) (a
"Qualified Public Offering")).
(b) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Preferred Stock into
Common Stock pursuant to Section 4(a) hereof shall not be deemed to be effective
until immediately prior to the closing of the Qualified Public Offering. On and
after the effective date of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
(c) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Preferred Stock, but in lieu thereof may
make a cash payment in respect thereof in any manner permitted by law.
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<PAGE>
(d) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Preferred Stock then outstanding provided that the shares
of Common Stock so reserved shall not be reduced or affected in any manner
whatsoever so long as any Preferred Stock are outstanding. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorization as may be required by
law, and shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Preferred Stock then outstanding and convertible into
shares of Common Stock.
(e) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio in
effect from time to time shall be subject to adjustment as follows:
(I) STOCK DIVIDENDS, SUBDIVISIONS AND
COMBINATIONS. Upon the issuance of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or the combination of outstanding shares of Common Stock into a smaller
number of shares of the Common Stock, the Conversion Ratio shall, simultaneously
with the happening of such dividend, subdivision or split be adjusted by
multiplying the then effective conversion Ratio by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after such event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event. An adjustment made
pursuant to this Section 4(e)(I) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis) and in the case of a subdivision or combination shall become effective
immediately as of the effective date thereof.
(II) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Preferred Stock
is outstanding, issue, sell or exchange any shares of Common Stock (including
shares held in the Corporation's treasury but excluding (i) up to 968,000
shares of Common Stock issued to officers, directors, employees, consultants
or agents of the Corporation pursuant to the Corporation's 1995 Stock Plan or
upon the exercise of options issued pursuant to such 1995 Stock Plan, (ii) up
to an additional 257,000 shares of Common Stock issued to officers,
directors, employees, consultants or agents of the Corporation pursuant to
the Corporation's 1995 Stock Plan or upon the exercise of options issued
pursuant to such 1995 Stock Plan, provided that for each such share the
Corporation has repurchased a share issued prior to April 11, 1995 to an
employee or former employee of the Corporation and (iii) shares as to which
an adjustment to the Conversion Ratio has been made in accordance with
Section 4(e)(1) above (the "Excluded Shares")), for a consideration per share
less than $1.00 (in the case of the Series A Preferred Stock) or $2.25 (in
the case of the Series B Preferred Stock) (as to each such Series of
Preferred Stock, the "Conversion Price") then, and thereafter successively
upon each such issuance, sale or exchange, the Conversion Ratio in effect
with respect to such
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Series of the Preferred Stock immediately prior to the issuance, sale or
exchange of such shares shall forthwith be increased to an amount determined by
multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of such additional
shares of Common Stock so issued; and
(B) the denominator of which shall be W the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of shares of Common
Stock which the net aggregate consideration received by the Corporation
for the total number of such additional shares of Common Stock so
issued would purchase at the applicable Conversion Price per share.
(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Preferred Stock is outstanding, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options for Excluded Shares
granted to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's 1995 Stock Plan), or issue any
securities convertible into or exchangeable for shares of Common Stock, for a
consideration per share (determined by dividing the Net Aggregate Consideration
(as determined below) by the aggregate number of shares of Common Stock that
would be issued if all such options, warrants, rights or convertible securities
were exercised or converted to the fullest extent permitted by their terms) less
than the Conversion Price per share for any Series of the Preferred Stock, the
Conversion Ratio for such Series of the Preferred Stock in effect immediately
prior to the issuance of such options, warrants or rights or securities shall be
increased to an amount determined by multiplying the Conversion Ratio by a
fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to
the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior
to the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the number
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of shares of Common Stock which the total amount of consideration
received by the Corporation for the issuance of such options, warrants,
rights or convertible securities plus the minimum amount set forth in
the terms of such security as payable to the Corporation upon the
exercise or conversion thereof (the "Net Aggregate Consideration")
would purchase at the applicable Conversion Price per share of such
Series of Preferred Stock.
(IV) EXPIRATION OR CHANGE IN RATIO. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible into
shares of Common Stock changes at any time, the Conversion Ratio for each Series
of Preferred Stock in effect at the time of such change shall be readjusted to
the Conversion Ratio which would have been in effect at such time had such
options or convertible securities provided for such changed consideration per
share (determined as provided in Section 4(e)(M) hereof), at the time initially
granted, issued or sold; provided, that such adjustment of the Conversion Ratio
will be made only as and to the extent that the Conversion Ratio effective upon
such adjustment remains greater than or equal to the Conversion Ratio that would
be in effect if such options, rights or securities had not been issued. No
adjustment of the Conversion Ratio shall be made under this Section 4 upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any adjustment of the
Conversion Ratio shall be disregarded if, as and when, the rights to acquire
shares of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment expire or
are cancelled without having been exercised, so that the Conversion Ratio
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Ratio in effect at the time of the issuance of the expired or
cancelled warrants, options, rights or convertible securities, with such
additional adjustments as would have been made to that Conversion Ratio had the
expired or cancelled warrants, options, rights or convertible securities not
been issued.
(V) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or options, warrants or rights to subscribe for shares of Common
Stock shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any shares of Common Stock or options, warrants or rights to subscribe for
shares of Common Stock shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such options by the parties
thereto, such options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
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(f) HOLDERS NOT ENTITLED TO ANTI-DILUTION PROTECTION.
Notwithstanding anything contained in Section 4(e) to the contrary, a holder
of any shares of Preferred Stock shall not be entitled to the benefits of
Section 4(e) with respect to an issuance, sale or exchange of any shares of
Common Stock pursuant to the provisions of Subsection 4(e)(II) , or an
issuance of options, warrants or rights to subscribe for shares of Common
Stock or an issuance of any securities convertible into or exchangeable for
shares of Common Stock pursuant to the provisions of Section 4(e)(III) (each
a "Dilutive Issuance") if (I) the Corporation has offered such holder the
opportunity, exercisable over a period of not less than 30 days, to purchase
securities in such Dilutive Issuance at a price and on terms no less
favorable to such holder than those generally offered to other persons
participating in such Dilutive Issuance and (II) such holder has failed to
participate in such Dilutive Issuance by acquiring in such Dilutive Issuance
such number of securities as shall at least equal the lesser of (x) such
holder's pro rata share of such Dilutive Issuance (as determined by dividing
the number of shares of Preferred Stock held by such holder immediately prior
to such Dilutive Issuance, by the total number of shares of Preferred Stock
outstanding immediately prior to such Dilutive Issuance) or (y) the maximum
amount which such holder was offered the opportunity to purchase.
(g) OTHER ADJUSTMENTS. In the event the Corporation 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
lawful and adequate provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their 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 (as that term is hereafter defined), retained such securities receivable
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 as applied to such
distributed securities.
If the Common Stock issuable upon the conversion of the
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by 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
elsewhere in Section 2(b) or in this Section 4), then and in each such event
the holder of each share of 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 Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of each Series of the Preferred
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Stock shall thereafter be entitled to receive upon conversion of the Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or of the successor corporation resulting from such merger or
consolidation or sale, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such capital reorganization, merger,
consolidation or sale plus the Conversion Payment payable upon conversion. In
any such case, appropriate provisions shall be made with respect to the rights
of the holders of the Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 4
(including, without limitation provisions for adjustment of the Conversion Ratio
and the number of shares receivable upon conversion of each Series of the
Preferred Stock) shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be deliverable upon the
conversion of the Preferred Stock.
Each holder of Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation or the sale
of all or substantially all of its assets and properties, as such events are
more fully set forth in the first paragraph of this Section 4(h), shall have the
option of electing treatment of his shares of Preferred Stock under either this
Section 4(h) or Section 2(b) hereof, notice of which election shall be submitted
in writing to the Corporation at its principal offices no later than ten (10)
days before the effective date of such event, provided that any such notice
shall be effective if given not later than fifteen (15) days after the date of
the Corporation's notice, pursuant to Section 8, with respect to such event.
(i) CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment or readjustment of the Conversion Ratio of any Series of the
Preferred Stock, the Corporation at its expense will furnish each holder of
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment in accordance with the
terms hereof, and stating 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 Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Ratio at the time in effect, and (iii) the number of shares
of Common Stock, the Liquidation Amount and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock.
(j) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
SECTION 5. MANDATORY REDEMPTION. The shares of Preferred Stock
shall be redeemed as follows:
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(a) AT ELECTION OF HOLDERS. On March 31, 2001, and on each of
the next two anniversaries of such date thereafter (the "Redemption Dates", and
each a "Redemption Date"), the Corporation shall, at the written request of the
holders of a majority of the then outstanding shares of Series A Preferred Stock
and Series B Preferred Stock taken together, made at least 90 days prior to each
of such Redemption Dates, redeem any outstanding shares of each such Series of
Preferred Stock according to the percentages listed below:
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ ----------------------------
March 31, 2001 33-1/3% of all the shares of
Preferred Stock outstanding on
such date
March 31, 2002 50% of all the shares of
Preferred Stock outstanding on
such date
March 31, 2003 100% of all the shares of
Preferred Stock outstanding on
such date
(b) REDEMPTION PRICE AND PAYMENT. The Preferred Stock to be
redeemed on each Redemption Date shall be redeemed by paying for each share
(i) in cash an amount equal to the Liquidation Amount per share of such
Series of Preferred Stock computed to the Redemption Date (the "Cash
Redemption Price") and (ii) the number of shares of Common Stock into which
such share is then convertible upon a conversion pursuant to Subsection 4(a)
hereof (the "Stock Redemption Price") (the Cash Redemption Price and Stock
Redemption Price are herein referred to collectively as the "Redemption
Price"). Such payment shall be made in full on the Redemption Date to the
holders entitled thereto.
(c) REDEMPTION MECHANICS. In the event that the Corporation
has received a written request pursuant to Section 5(a), at least 20 but not
more than 30 days prior to each such Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by delivery in person,
certified or registered mail, return receipt requested, telecopier or telex, to
each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
applicable Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless there shall have been
a default in the payment of the applicable Redemption Price, all rights of
holders of the shares of Preferred Stock to be redeemed on such Redemption Date
(except the right to receive the Redemption Price) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of
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the Corporation legally available for redemption of shares of Preferred Stock on
the Redemption Date are insufficient to redeem the total number of outstanding
shares of Preferred Stock to be redeemed on such Redemption Date, (i) the
holders of shares of Preferred Stock shall share ratably in any funds legally
available for redemption of such shares according to the respective amounts
which would be payable with respect to the number and Series of shares owned by
them if all such shares requested to be redeemed on such Redemption Date were
redeemed in full and (ii) the Cash Redemption Price for the shares of Preferred
Stock not redeemed shall accrue interest at the rate of ten percent (10%) per
annum, payable quarterly in arrears (or, if any such payment of interest would
violate applicable law, at such time as such payment would be lawful), until
such Redemption Price is paid in full. The shares of Preferred Stock not
redeemed shall remain outstanding and entitled to all rights and preferences
provided herein. At any time thereafter, when additional funds of the
Corporation are legally available for the redemption of such shares of Preferred
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion thereof for which
funds are then legally available, on the basis set forth above.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this Section 5 or otherwise
acquired by the Corporation in any manner whatsoever (including pursuant to
Section 6(v)) shall be cancelled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of Preferred Stock.
SECTION 6. RESTRICTIONS AND LIMITATIONS. At any time when at least (i)
275,000 shares of Series A Preferred Stock or (ii) 325,000 shares of Series B
Preferred Stock, respectively, remain outstanding, except where the vote or
written consent of the holders of a greater number of shares of such Series of
stock of the Corporation is required by law or by the Certificate of
Incorporation and in addition to any other vote required by law or the
Certificate of Incorporation, without the approval of the holders of at least a
majority of the then outstanding shares of Series A and Series B Preferred Stock
(or the approval of the affected Series of Preferred Stock, when only one such
Series of Preferred Stock is affected), voting together as a single class, and
given in writing or by vote at a meeting, the Corporation will not:
(i) Create or authorize the creation of any additional class
or series of shares of stock, or authorize the increase of any existing class or
series of stock, or create or authorize any obligation or security convertible
into shares of any class or series of stock, in each case where the same would
rank in any way on a parity with or senior to such Series of the Preferred Stock
as to voting, liquidation or right to receive distributions or dividends,
whether any such creation, authorization or increase shall be by means of
amendment to the Certificate of Incorporation or by merger, consolidation or
otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities, or acquire any other entity, or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all or any substantial portion of its
assets;
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<PAGE>
(iii) Amend, alter or repeal its Certificate of Incorporation
or By-laws if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of a Series of the Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other than
such Series of the Preferred Stock, except for dividends or other distributions
payable on any other class or series of stock solely in the form of additional
shares of such series or class of stock and except for the purchase of shares of
Common Stock from former employees of the Corporation who acquired such shares
directly from the Corporation, if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
employment of such former employee and the purchase price does not exceed the
original issue price paid by such former employee to the Corporation for such
shares; or
(v) Redeem or otherwise acquire any shares of Preferred Stock
except as expressly authorized in Section 5 or pursuant to a purchase offer made
pro rata to all holders of the shares of Series A Preferred Stock and Series B
Preferred Stock on the basis of the aggregate number of outstanding shares of
such Series of the Preferred Stock then held by each such holder.
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of the
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Preferred Stock
at least twenty (20) days prior to the record date specified therein, a notice
specifying (a) the date of such record date for the purpose of such dividend or
distribution and a description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Incorporation, each share of Preferred Stock and each share of
Common Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any
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<PAGE>
such class or share over any other such class or share, and shall be treated as
a single class of stock for all purposes.
SECTION 10. AMENDMENTS. No provision of these terms of the Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of, the holders of at least a majority of the then outstanding
shares of Series A and Series B Preferred Stock, voting together as a single
class, with respect to the rights of such Series of Preferred Stock; provided
that any amendment, modification or waiver which only affects, or
disproportionately affects, the rights of a single Series of Preferred Stock
shall additionally require the written consent or affirmative vote of the
holders of at least a majority of the then outstanding shares of such individual
Series of the Preferred Stock.
[Remainder of page intentionally left blank.]
14
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this first day of May, 1996.
CENTRA SOFTWARE, INC.
By:
--------------------------------
President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Centra 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 written action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 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 Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH 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 14,595,712 shares consisting of:
(i) 9,720,000 shares of Common Stock, $.00l par value
per share (the "Common Stock"); and
<PAGE>
(ii) 4,875,712 shares of Preferred Stock, $.001 par value per
share, which shall consist of 1,133,000 shares of Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock"),
2,022,712 shares of Series B Convertible Participating Preferred Stock
(the "Series B Preferred Stock"), and 1,720,000 shares of Series C
Convertible Preferred Stock (the "Series C Preferred Stock") as set
forth below. Individually and collectively, such three Series of
preferred stock are sometimes referred to herein as the "Preferred
Stock".
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations or
restrictions in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to, and qualified by, the rights of
the holders of the Preferred Stock of any series as may be designated by the
Board of Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
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. No dividends shall be declared on the Common Stock
unless dividends are at the same time declared on the Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
share in the assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. AMENDMENTS. No provision of these terms of the Common Stock may be
amended, modified or waived without the written consent or affirmative vote of
the holders of at least a majority of the then outstanding shares of Common
Stock.
B. PREFERRED STOCK
SECTION 1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than
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<PAGE>
dividends paid in additional shares of Common Stock) are paid with respect to
the Common Stock (treating each share of Preferred Stock as being equal to the
number of shares of Common Stock into which each such share of Preferred Stock
could be converted pursuant to the provisions of Section 4 hereof with such
number determined as of the record date for the determination of holders of
Common Stock entitled to receive such dividends). Any dividends so declared
shall be paid in full to the holders of the Preferred Stock prior to any payment
of dividends to holders of Common Stock.
SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) GENERAL. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, each holder of
outstanding shares of Preferred Stock and Common Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus or earnings as follows:
(i) First, the holders of the outstanding shares of Series A Preferred Stock and
Series B Preferred Stock shall receive an amount in cash equal to $1.00 per
share and $2.25 per share, respectively, (adjusted appropriately for stock
splits, stock dividends and the like), and the holders of the outstanding shares
of Series C Preferred Stock shall receive an amount in cash equal to the greater
of (A) $2.50 per share or (B) the amount the holders of Series C Preferred Stock
would have received had the Series C Preferred Stock been converted to Common
Stock prior to such liquidation, dissolution or winding up (adjusted
appropriately for stock splits, stock dividends and the like). The holders of
Preferred Stock will also receive (X) any declared but unpaid dividends and (Y)
all accrued but unpaid interest to which the holders of outstanding shares of
such Series of Preferred Stock are entitled pursuant to Sections 1 and 5(c)
hereof (collectively, the "Liquidation Amount" of the shares of such Series),
before any payment shall be made to the holders of any class of Common Stock or
of any other stock ranking on liquidation junior to the Preferred Stock,
provided, however, that if, upon any liquidation, dissolution or winding up of
the Corporation, the amounts payable with respect to the Preferred Stock and any
other stock ranking as to any such distribution on a parity with the Preferred
Stock are not paid in full, the holders of shares of each Series of Preferred
Stock and such other stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled; and (ii) Second, the holders of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock shall share ratably with the
holders of the outstanding shares of Common Stock in the distribution, in cash,
of the assets of the Corporation remaining for distribution to stockholders,
whether such assets are capital, surplus or earnings, as if each share of
Preferred Stock had been converted into the number of shares of Common Stock
issuable upon the conversion of such share of Preferred Stock pursuant to
Section 4 hereof immediately prior to any such liquidation, dissolution or
winding up of the Corporation.
(b) CONSOLIDATION OR MERGER AS A LIQUIDATION. A consolidation
or merger of the Corporation (except (i) into or with a wholly-owned subsidiary
of the Corporation with requisite stockholder approval or (ii) a merger in which
the beneficial owners of the
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<PAGE>
Corporation's capital stock immediately prior to such transaction hold no less
than fifty-one percent (51%) of the voting power in the resulting entity) or a
sale of all or substantially all or any substantial portion of the assets of the
Corporation shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this Section 2; provided,
however, that each holder of the Preferred Stock shall have the right to elect
the benefits of the provisions of Section 4(h) hereof in lieu of receiving
payment in liquidation, dissolution or winding up of the Corporation pursuant to
this Section 2.
SECTION 3. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Preferred Stock shall be
entitled to vote on all matters. Each share of Preferred Stock shall entitle the
holder thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which such share of Preferred Stock is then
convertible pursuant to Section 4 hereof. Except as otherwise expressly provided
herein (including without limitation the provisions of Section 6 hereof) or as
required by law, the holders of shares of the Preferred Stock and the Common
Stock shall vote together as a single class on all matters.
(b) ADDITIONAL VOTING RIGHTS UPON CERTAIN DEFAULTS.
(I) RIGHT TO ELECT BOARD OF DIRECTORS. In the event
that the Corporation shall default in its payment of the Redemption Price (as
defined in Section 5(b) below) or if it shall have insufficient funds legally
available to pay the Cash Redemption Price (as defined in Section 5(b) below)
under Section 5(c), the Corporation shall promptly give written notice thereof
to each holder of Preferred Stock. If such payment is not made within 70 days of
the Redemption Date (as defined in Section 5(a) below), the holders of Preferred
Stock shall, upon the giving of written notice to the Corporation by the holders
of at least 50% of the outstanding shares of Preferred Stock, be entitled,
pursuant to the terms of Section 3(b)(II) below, to elect the smallest number of
directors which shall constitute a majority of the authorized number of
directors of the Corporation, with the holders of the Preferred Stock voting as
a separate class, and the remaining members of the Board of Directors shall be
such persons, if any, who have received a majority vote of the holders of the
Common Stock and Preferred Stock, voting together as a single class.
(II) MECHANICS OF ELECTION. Whenever under the
provisions of Section 3(b)(I) above the right shall have accrued to the holders
of the shares of Preferred Stock as a class to elect directors, the Board of
Directors shall, within ten days after delivery to the Corporation at its
principal office of a request to such effect by the holders of at least 50% of
the then outstanding shares of Preferred Stock, call a special meeting of the
stockholders for the election of directors, to be held upon not less than 20 nor
more than 30 days' notice to such holders. If such notice of meeting is not
given within the ten days required above, the holders of Preferred Stock
requesting the calling of such meeting may also
4
<PAGE>
call such meeting and shall have access to the stock books and records of the
Corporation for such purpose. At any meeting so called or at any other meeting
held while the holders of the outstanding shares of Preferred Stock shall have
the voting power provided in Section 3(b)(I) above, the holders of a majority of
the then outstanding shares of Preferred Stock, present in person or by proxy,
shall be sufficient to constitute a quorum for the election of directors as
herein provided. Upon the election of the directors at such meeting, the terms
of office of all persons who were previously directors of the Corporation and
not elected pursuant to Section 3(b)(I) above shall immediately terminate,
whether or not the holders of the shares of Common Stock and of any other class
or series of voting stock shall then have elected the remaining directors of the
Corporation.
(III) VACANCIES. In the case of any vacancy in the
office of a director occurring among the directors elected by the holders of the
shares of Preferred Stock as a class, pursuant to the foregoing provisions of
Section 3(b)(II) hereof, the remaining directors elected by the holders of the
Preferred Stock, by affirmative vote of a majority thereof, or the remaining
director so elected if there be but one, may, if permitted by law and subject to
the provisions of Section 3(b)(IV) hereof, elect a successor or successors to
hold office for the unexpired terms of the director or directors whose place or
places shall be vacant. In case of any vacancy in the office of a director
occurring among the directors elected by the holders of Common Stock, Preferred
Stock and of any other class or series of voting stock as a class, the remaining
directors elected by the holders of Common Stock, Preferred Stock and of any
other class or series of voting stock by affirmative vote of a majority thereof,
or the remaining director so elected if there be but one, may, if permitted by
law, elect a successor or successors to hold office for the unexpired term of
the director or directors whose place or places shall be vacant. Any director
who shall have been elected by the holders of the Preferred Stock (or by any
directors so elected by directors elected by the holders of the Preferred Stock
as provided in this Section 3(b)(III)) may be removed during his term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of at least 67% of the then outstanding shares of Preferred Stock, cast
at a special meeting of such stockholders duly called for that purpose.
(IV) TERMINATION OF VOTING RIGHTS. If and when all
breaches referred to in Section 3(b)(I) above have been fully remedied, then the
holders of the shares of Preferred Stock shall be divested of all of the voting
rights specified in Section 3(b)(I) above, but always subject to the same
provisions vesting such voting rights in the holders of the shares of Preferred
Stock in case of similar future defaults as provided in Section 3(b)(I). Upon
the termination of any such voting rights as provided above, the Board of
Directors shall call a special meeting of stockholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Corporation shall terminate immediately upon the election of their
successors.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall have
the following conversion rights:
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<PAGE>
(a) AUTOMATIC CONVERSION. Each share of Preferred Stock
outstanding shall automatically be converted into one or more shares of Common
Stock at an initial conversion ratio of one share of Common Stock for each share
of Preferred Stock (the "Conversion Ratio") and, in connection therewith, solely
with respect to the Series A Preferred Stock and the Series B Preferred Stock,
the right to receive from the Corporation an amount in cash equal to the
Liquidation Amount per share of such Series of Preferred Stock computed to the
conversion date (the "Conversion Payment"), immediately prior to the closing of
a firm commitment underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933 covering the offer and
sale of Common Stock of the Corporation to the public in which (i) the aggregate
price paid for such shares by the public shall be at least $10,000,000, and (ii)
the price paid by the public for such shares shall be at least $7.50 per share
(appropriately adjusted to reflect the occurrence of any event described in
Section 4(e) (a "Qualified Public Offering")).
(b) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Preferred Stock into
Common Stock pursuant to Section 4(a) hereof shall not be deemed to be effective
until immediately prior to the closing of the Qualified Public Offering. On and
after the effective date of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
(c) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Preferred Stock, but in lieu thereof may
make a cash payment in respect thereof in any manner permitted by law.
(d) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Preferred Stock then outstanding provided that the shares
of Common Stock so reserved shall not be reduced or affected in any manner
whatsoever so long as any Preferred Stock are outstanding. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Preferred Stock then outstanding and convertible into
shares of Common Stock.
(e) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio in
effect from time to time shall be subject to adjustment as follows:
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<PAGE>
(I) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
Upon the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a smaller number of
shares of the Common Stock, the Conversion Ratio shall, simultaneously with the
happening of such dividend, subdivision or split be adjusted by multiplying the
then effective Conversion Ratio by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such event. An adjustment made pursuant to this
Section 4(e)(I) shall be given effect, upon payment of such a dividend or
distribution, as of the record date for the determination of stockholders
entitled to receive such dividend or distribution (on a retroactive basis) and
in the case of a subdivision or combination shall become effective immediately
as of the effective date thereof.
(II) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock (including
shares held in the Corporation's treasury but excluding (i) up to 968,000 shares
of Common Stock issued to officers, directors, employees, consultants or agents
of the Corporation pursuant to the Corporation's 1995 Stock Plan or upon the
exercise of options issued pursuant to such 1995 Stock Plan, plus such number of
shares of Common Stock which are repurchased by the Corporation from any such
persons after such date pursuant to contractual rights held by the Corporation
and at repurchase prices not exceding the respective original purchase prices
paid by such persons to the Corpration therefor, (ii) up to an additional
257,000 shares of Common Stock issued to officers, directors, employees,
consultants or agents of the Corporation pursuant to the Corporation's 1995
Stock Plan or upon the exercise of options issued pursuant to such 1995 Stock
Plan, provided that for each such share the Corporation has repurchased a share
issued prior to April 11, 1995 to an employee or former employee of the
Corporation, and (iii) shares as to which an adjustment to the Conversion Ratio
has been made in accordance with Section 4(e)(I) above (the "Excluded Shares")),
for a consideration per share less than $1.00 (in the case of the Series A
Preferred Stock), $2.25 (in the case of the Series B Preferred Stock), or $2.50
(in the case of the Series C Preferred Stock) (as to each such Series of
Preferred Stock, the "Conversion Price") then, and thereafter successively upon
each such issuance, sale or exchange, the Conversion Ratio in effect with
respect to such Series of the Preferred Stock immediately prior to the issuance,
sale or exchange of such shares shall forthwith be increased to an amount
determined by multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares
but including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of such additional
shares
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<PAGE>
of Common Stock so issued; and
(B) the denominator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of shares of Common
Stock which the net aggregate consideration received by the
Corporation for the total number of such additional shares of Common
Stock so issued would purchase at the applicable Conversion Price per
share.
(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from
time to time while the Preferred Stock is outstanding, issue options,
warrants or rights to subscribe for shares of Common Stock (other than
any options for Excluded Shares granted to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's 1995 Stock Plan), or issue any securities convertible
into or exchangeable for shares of Common Stock, for a consideration
per share (determined by dividing the Net Aggregate Consideration (as
determined below) by the aggregate number of shares of Common Stock
that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest
extent permitted by their terms) less than the Conversion Price per
share for any Series of the Preferred Stock, the Conversion Ratio for
such Series of the Preferred Stock in effect immediately prior to the
issuance of such options, warrants or rights or securities shall be
increased to an amount determined by multiplying the Conversion Ratio
by a fraction:
(A) the numerator of which shall be (i) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Preferred
Stock, options, warrants, rights or convertible securities), plus (ii)
the aggregate number of shares of Common Stock that would be issued if
all such options, warrants, rights or convertible securities were
exercised or converted; and
(B) the denominator of which shall be (i) the number of shares
of Common Stock of all classes outstanding immediately prior to the
issuance of such options, warrants, rights or convertible securities
(excluding treasury shares but including all shares of Common Stock
issuable upon conversion or exercise of any outstanding Preferred
Stock, options, warrants, rights or convertible securities), plus (ii)
the number of shares of Common Stock which the total amount of
consideration received by the Corporation for the issuance of such
options, warrants, rights or convertible securities plus the minimum
amount set forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net
8
<PAGE>
Aggregate Consideration') would purchase at the applicable Conversion
Price per share of such Series of Preferred Stock.
(IV) EXPIRATION OR CHANGE IN RATIO. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible into
shares of Common Stock changes at any time, the Conversion Ratio for each Series
of Preferred Stock in effect at the time of such change shall be readjusted to
the Conversion Ratio which would have been in effect at such time had such
options or convertible securities provided for such changed consideration per
share (determined as provided in Section 4(e) (III) hereof), at the time
initially granted, issued or sold; provided, that such adjustment of the
Conversion Ratio will be made only as and to the extent that the Conversion
Ratio effective upon such adjustment remains greater than or equal to the
Conversion Ratio that would be in effect if such options, rights or securities
had not been issued. No adjustment of the Conversion Ratio shall be made under
this Section 4 upon the issuance of any additional shares of Common Stock which
are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible securities if an adjustment shall previously
have been made upon the issuance of such warrants, options or other rights. Any
adjustment of the Conversion Ratio shall be disregarded if, as and when the
rights to acquire shares of Common Stock upon exercise or conversion of the
warrants, options, rights or convertible securities which gave rise to such
adjustment expire or are cancelled without having been exercised, so that the
Conversion Ratio effective immediately upon such cancellation or expiration
shall be equal to the Conversion Ratio in effect at the time of the issuance of
the expired or cancelled warrants, options, rights or convertible securities,
with such additional adjustments as would have been made to that Conversion
Ratio had the expired or cancelled warrants, options, rights or convertible
securities not been issued.
(V) CONSIDERATION FOR STOCK. In case any shares of Common
Stock or options, warrants or rights to subscribe for shares of Common Stock
shall be issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any shares of Common Stock or options, warrants or rights to subscribe for
shares of Common Stock shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such options by the parties
thereto, such options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
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<PAGE>
(f) HOLDERS NOT ENTITLED TO ANTI-DILUTION PROTECTION.
Notwithstanding anything contained in Section 4(e) to the contrary, a holder of
any shares of Preferred Stock shall not be entitled to the benefits of Section
4(e) with respect to an issuance, sale or exchange of any shares of Common Stock
pursuant to the provisions of Subsection 4(e)(II), or an issuance of options,
warrants or rights to subscribe for shares of Common Stock or an issuance of any
securities convertible into or exchangeable for shares of Common Stock pursuant
to the provisions of Section 4(e)(III) (each a "Dilutive Issuance") if (I) the
Corporation has offered such holder the opportunity, exercisable over a period
of not less than 30 days, to purchase securities in such Dilutive Issuance at a
price and on terms no less favorable to such holder than those generally offered
to other persons participating in such Dilutive Issuance, and (II) such holder
has failed to participate in such Dilutive Issuance by acquiring in such
Dilutive Issuance such number of securities as shall at least equal the lesser
of (x) such holder's pro rata share of such Dilutive Issuance (as determined by
dividing the number of shares of Preferred Stock held by such holder immediately
prior to such Dilutive Issuance, by the total number of shares of Preferred
Stock outstanding immediately prior to such Dilutive Issuance) or (y) the
maximum amount which such holder was offered the opportunity to purchase.
(g) OTHER ADJUSTMENTS. In the event the Corporation 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
lawful and adequate provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their 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 (as that term is hereafter defined), retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 as applied to such
distributed securities.
If the Common Stock issuable upon the conversion of the
Preferred Stock shall be changed into the same or different number of shares of
any class or classes of stock, whether by 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
elsewhere in Section 2(b) or in this Section 4), then and in each such event the
holder of each share of 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 Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time
10
<PAGE>
there shall be a capital reorganization of the Common Stock (other than a
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's properties and assets to any other person, then, as a part of and
as a condition to the effectiveness of such reorganization, merger,
consolidation or sale, lawful and adequate provision shall be made so that the
holders of each Series of the Preferred Stock shall thereafter be entitled to
receive upon conversion of the Preferred Stock the number of shares of stock or
other securities or property of the Corporation or of the successor corporation
resulting from such merger or consolidation or sale, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such capital
reorganization, merger, consolidation or sale plus (solely in the case of the
Series A Preferred Stock and the Series B Preferred Stock) the Conversion
Payment payable upon conversion. In any such case, appropriate provisions shall
be made with respect to the rights of the holders of the Preferred Stock after
the reorganization, merger, consolidation or sale to the end that the provisions
of this Section 4 (including, without limitation provisions for adjustment of
the Conversion Ratio and the number of shares receivable upon conversion of each
Series of the Preferred Stock) shall thereafter be applicable, as nearly as may
be, with respect to any shares of stock, securities or assets to be deliverable
upon the conversion of the Preferred Stock.
Each holder of Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation or the sale
of all or substantially all of its assets and properties, as such events are
more fully set forth in the first paragraph of this Section 4(h), shall have the
option of electing treatment of his shares of Preferred Stock under either this
Section 4(h) or Section 2(b) hereof, notice of which election shall be submitted
in writing to the Corporation at its principal offices no later than ten (10)
days before the effective date of such event, provided that any such notice
shall be effective if given not later than fifteen (15) days after the date of
the Corporation's notice, pursuant to Section 8, with respect to such event.
(i) CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment or readjustment of the Conversion Ratio of any Series of the
Preferred Stock, the Corporation at its expense will furnish each holder of
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment in accordance with the
terms hereof, and stating 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 Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Ratio at the time in effect, and (iii) the number of shares
of Common Stock, the Liquidation Amount and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock.
(j) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any
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<PAGE>
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Preferred Stock which is being converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
SECTION 5. MANDATORY REDEMPTION. The shares of Preferred Stock shall
be redeemed as follows:
(a) AT ELECTION OF HOLDERS. On March 31, 2002, and on each of
the next two anniversaries of such date thereafter (the "Redemption Dates", and
each a "Redemption Date"), the Corporation shall, at the written request of the
holders of a majority of the then outstanding shares of Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock taken together,
made at least 90 days prior to each of such Redemption Dates, redeem any
outstanding shares of each such Series of Preferred Stock according to the
percentages listed below:
<TABLE>
<CAPTION>
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
<S> <C>
March 31, 2002 33-1/3% of all the shares of Preferred
Stock outstanding on such date
March 31, 2003 50% of all the shares of Preferred Stock
outstanding on such date
March 31, 2004 100% of all the shares of Preferred Stock
outstanding on such date
</TABLE>
(b) REDEMPTION PRICE AND PAYMENT. The Series A Preferred Stock
and Series B Preferred Stock to be redeemed on each Redemption Date shall be
redeemed by paying for each share (i) in cash an amount equal to the Liquidation
Amount per share of such Series of Preferred Stock computed to the Redemption
Date (the "Cash Redemption Price") and (ii) the number of shares of Common Stock
into which such share is then convertible upon a conversion pursuant to
Subsection 4(a) hereof (the "Stock Redemption Price") (the Cash Redemption Price
and Stock Redemption Price are herein referred to collectively as the
"Redemption Price"). The Series C Preferred Stock to be redeemed on each
Redemption Date shall be redeemed by paying for each share either: (i) in cash
an amount equal to the
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<PAGE>
Liquidation Amount per share of such Series of Preferred Stock computed to the
Redemption Date (the "Cash Redemption Price"), or, at the option of the holder,
may be converted into (ii) the number of shares of Common Stock into which such
share is then convertible upon a conversion pursuant to Subsection 4(a) hereof
(the "Stock Redemption Price") (the Cash Redemption Price and Stock Redemption
Price are herein referred to collectively as the "Redemption Price"). Such
payments shall be made in full on the Redemption Date to the holders entitled
thereto.
(c) REDEMPTION MECHANICS. In the event that the Corporation
has received a written request pursuant to Section 5(a), at least 20 but not
more than 30 days prior to each such Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by delivery in person,
certified or registered mail, return receipt requested, telecopier or telex, to
each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
applicable Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless there shall have been
a default in the payment of the applicable Redemption Price, all rights of
holders of the shares of Preferred Stock to be redeemed on such Redemption Date
(except the right to receive the Redemption Price) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of
Preferred Stock on the Redemption Date are insufficient to redeem the total
number of outstanding shares of Preferred Stock to be redeemed on such
Redemption Date, (i) the holders of shares of Preferred Stock shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts which would be payable with respect to the number and
Series of shares owned by them if all such shares requested to be redeemed on
such Redemption Date were redeemed in full and (ii) the Cash Redemption Price
for the shares of Preferred Stock not redeemed shall accrue interest at the rate
of ten percent (10%) per annum, payable quarterly in arrears (or, if any such
payment of interest would violate applicable law, at such time as such payment
would be lawful), until such Redemption Price is paid in full. The shares of
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter, when additional funds
of the Corporation are legally available for the redemption of such shares of
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of such shares, or such portion thereof
for which funds are then legally available, on the basis set forth above.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this Section 5 or otherwise
acquired by the Corporation in any manner whatsoever (including pursuant to
Section 6(v)) shall be cancelled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such
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<PAGE>
appropriate corporate action as may be necessary to reduce accordingly the
number of authorized shares of Preferred Stock.
SECTION 6. RESTRICTIONS AND LIMITATIONS. At any time when at least (i)
275,000 shares of Series A Preferred Stock or (ii) 325,000 shares of Series B
Preferred Stock, or (iii) [400,000] shares of Series C Preferred Stock,
respectively, remain outstanding, except where the vote or written consent of
the holders of a greater number of shares of such Series of stock of the
Corporation is required by law or by the Certificate of Incorporation and in
addition to any other vote required by law or the Certificate of Incorporation,
without the approval of the holders of at least a majority of the then
outstanding shares of Series A, Series B and Series C Preferred Stock (or the
approval of the affected Series of Preferred Stock, when only one such Series of
Preferred Stock is affected), voting together as a single class, and given in
writing or by vote at a meeting, the Corporation will not:
(i) Create or authorize the creation of any additional class
or series of shares of stock, or authorize the increase of any existing class or
series of stock, or create or authorize any obligation or security convertible
into shares of any class or series of stock, in each case where the same would
rank in any way on a parity with or senior to such Series of the Preferred Stock
as to voting, liquidation or right to receive distributions or dividends,
whether any such creation, authorization or increase shall be by means of
amendment to the Certificate of Incorporation or by merger, consolidation or
otherwise;
(ii) Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities,
or acquire any other entity, or sell, lease, abandon, transfer or otherwise
dispose of all or substantially all or any substantial portion of its assets;
(iii) Amend, alter or repeal its Certificate of Incorporation or
By-laws if the effect would be detrimental or adverse in any manner with respect
to the rights of the holders of a Series of the Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock other than such Series
of the Preferred Stock, except for dividends or other distributions payable on
any other class or series of stock solely in the form of additional shares of
such series or class of stock and except for the purchase of shares of Common
Stock from former employees of the Corporation who acquired such shares directly
from the Corporation, if each such purchase is made pursuant to contractual
rights held by the Corporation relating to the termination of employment of such
former employee and the purchase price does not exceed the original issue price
paid by such former employee to the Corporation for such shares; or
(v) Redeem or otherwise acquire any shares of Preferred Stock
except as expressly authorized in Section 5 or pursuant to a purchase offer made
pro rata to all holders of
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<PAGE>
the shares of Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock on the basis of the aggregate number of outstanding shares of
such Series of the Preferred Stock then held by each such holder.
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of the
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
cancelled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Preferred Stock
at least twenty (20) days prior to the record date specified therein, a notice
specifying (a) the date of such record date for the purpose of such dividend or
distribution and a description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Incorporation, each share of Preferred Stock and each share of
Common Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class of stock for
all purposes.
SECTION 10. AMENDMENTS. No provision of these terms of the Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series A, Series B and Series C Preferred Stock, voting together as a
single class, with respect to the rights of such Series of Preferred Stock;
provided that any amendment, modification or waiver which only affects, or
disproportionately affects, the rights of a single Series of Preferred Stock
shall additionally require the written consent or affirmative vote of the
holders of at least a majority of the then outstanding shares of such individual
Series of the Preferred Stock.
15
<PAGE>
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16
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 3rd day of March, 1997.
CENTRA SOFTWARE, INC.
By:_________________________
Leon Narickas, President
17
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
Centra 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 written action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 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 Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH 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 16,213,980 shares consisting of:
(i) 9,744,490 shares of Common Stock, $.00l par value per
share (the "Common Stock"); and
<PAGE>
(ii) 6,469,490 shares of Preferred Stock, $.001 par value per
share, which shall consist of 1,133,000 shares of Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock"),
1,416,490 shares of Series B Convertible Participating Preferred Stock
(the "Series B Preferred Stock"), 1,670,000 shares of Series C
Convertible Preferred Stock (the "Series C Preferred Stock") and
2,250,000 shares of Series D Convertible Preferred Stock (the "Series D
Preferred Stock") as set forth below. Individually and collectively,
such four Series of preferred stock are sometimes referred to herein as
the "Preferred Stock".
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations or
restrictions in respect of each class of capital stock of the Corporation.
A. COMMON STOCK
1. GENERAL. The voting, dividend and liquidation rights of the holders
of the Common Stock are subject to, and qualified by, the rights of the holders
of the Preferred Stock of any series as may be designated by the Board of
Directors upon any issuance of the Preferred Stock of any series.
2. VOTING. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). There shall be no cumulative voting.
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. No dividends shall be declared on the Common Stock
unless dividends are at the same time declared on the Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
share in the assets of the Corporation available for distribution to its
stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. AMENDMENTS. No provision of these terms of the Common Stock may be
amended, modified or waived without the written consent or affirmative vote of
the holders of at least a majority of the then outstanding shares of Common
Stock.
B. PREFERRED STOCK
SECTION 1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the Common Stock (treating
2
<PAGE>
each share of Preferred Stock as being equal to the number of shares of Common
Stock into which each such share of Preferred Stock could be converted pursuant
to the provisions of Section 4 hereof with such number determined as of the
record date for the determination of holders of Common Stock entitled to receive
such dividends). Any dividends so declared shall be paid in full to the holders
of the Preferred Stock prior to any payment of dividends to holders of Common
Stock.
SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) GENERAL. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, each holder of
outstanding shares of Preferred Stock and Common Stock shall be entitled to be
paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus or earnings as follows:
(i) First, the holders of the outstanding shares of Series A Preferred Stock and
Series B Preferred Stock shall receive an amount in cash equal to $1.00 per
share and $2.25 per share, respectively, (adjusted appropriately for stock
splits, stock dividends and the like), and the holders of the outstanding shares
of Series C Preferred Stock and Series D Preferred Stock shall receive an amount
in cash equal to the greater of (A) $2.50 per share of Series C Preferred Stock
and $4.00 per share of Series D Preferred Stock or (B) the amount the holders of
Series C Preferred Stock and Series D Preferred Stock would have received had
the Series C Preferred Stock and the Series D Preferred Stock been converted to
Common Stock prior to such liquidation, dissolution or winding up (adjusted
appropriately for stock splits, stock dividends and the like); and the holders
of Preferred Stock will also receive (X) any declared but unpaid dividends and
(Y) all accrued but unpaid interest to which the holders of outstanding shares
of such Series of Preferred Stock are entitled pursuant to Sections 1 and 5(c)
hereof (collectively, the "Liquidation Amount" of the shares of such Series),
before any payment shall be made to the holders of any class of Common Stock or
of any other stock ranking on liquidation junior to the Preferred Stock,
provided, however, that if, upon any liquidation, dissolution or winding up of
the Corporation, the amounts payable with respect to the Preferred Stock and any
other stock ranking as to any such distribution on a parity with the Preferred
Stock are not paid in full, the holders of shares of each Series of Preferred
Stock and such other stock shall share ratably in any distribution of assets in
proportion to the full respective preferential amounts to which they are
entitled; and (ii) Second, the holders of the outstanding shares of Series A
Preferred Stock and Series B Preferred Stock shall share ratably with the
holders of the outstanding shares of Common Stock in the distribution, in cash,
of the assets of the Corporation remaining for distribution to stockholders,
whether such assets are capital, surplus or earnings, as if each share of
Preferred Stock had been converted into the number of shares of Common Stock
issuable upon the conversion of such share of Preferred Stock pursuant to
Section 4 hereof immediately prior to any such liquidation, dissolution or
winding up of the Corporation.
(b) CONSOLIDATION OR MERGER AS A LIQUIDATION. A consolidation
or merger of the Corporation (except (i) into or with a wholly-owned subsidiary
of the Corporation with requisite stockholder approval or (ii) a merger in which
the beneficial owners of the Corporation's capital stock immediately prior to
such transaction hold no less than fifty-one
3
<PAGE>
percent (51%) of the voting power in the resulting entity) or a sale of all or
substantially all or any substantial portion of the assets of the Corporation
shall be regarded as a liquidation, dissolution or winding up of the affairs of
the Corporation within the meaning of this Section 2; provided, however, that
each holder of the Preferred Stock shall have the right to elect the benefits of
the provisions of Section 4(h) hereof in lieu of receiving payment in
liquidation, dissolution or winding up of the Corporation pursuant to this
Section 2.
SECTION 3. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Preferred Stock shall be
entitled to vote on all matters. Each share of Preferred Stock shall entitle the
holder thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which such share of Preferred Stock is then
convertible pursuant to Section 4 hereof. Except as otherwise expressly provided
herein (including without limitation the provisions of Section 6 hereof) or as
required by law, the holders of shares of the Preferred Stock and the Common
Stock shall vote together as a single class on all matters.
(b) ADDITIONAL VOTING RIGHTS UPON CERTAIN DEFAULTS.
(I) RIGHT TO ELECT BOARD OF DIRECTORS. In the event
that the Corporation shall default in its payment of the Redemption Price (as
defined in Section 5(b) below) or if it shall have insufficient funds legally
available to pay the Cash Redemption Price (as defined in Section 5(b) below)
under Section 5(c), the Corporation shall promptly give written notice thereof
to each holder of Preferred Stock. If such payment is not made within 70 days of
the applicable Redemption Date (as defined in Section 5(a) below), the holders
of Preferred Stock shall, upon the giving of written notice to the Corporation
by the holders of at least 50% of the outstanding shares of Preferred Stock, be
entitled, pursuant to the terms of Section 3(b)(II) below, to elect the smallest
number of directors which shall constitute a majority of the authorized number
of directors of the Corporation, with the holders of the Preferred Stock voting
as a separate class, and the remaining members of the Board of Directors shall
be such persons, if any, who have received a majority vote of the holders of the
Common Stock and Preferred Stock, voting together as a single class.
(II) MECHANICS OF ELECTION. Whenever under the
provisions of Section 3(b)(I) above the right shall have accrued to the holders
of the shares of Preferred Stock as a class to elect directors, the Board of
Directors shall, within ten days after delivery to the Corporation at its
principal office of a request to such effect by the holders of at least 50% of
the then outstanding shares of Preferred Stock, call a special meeting of the
stockholders for the election of directors, to be held upon not less than 20 nor
more than 30 days' notice to such holders. If such notice of meeting is not
given within the ten days required above, the holders of Preferred Stock
requesting the calling of such meeting may also call such meeting and shall have
access to the stock books and records of the Corporation for such purpose. At
any meeting so called or at any other meeting held while the holders of the
outstanding shares of Preferred Stock shall have
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the voting power provided in Section 3(b)(I) above, the holders of a majority of
the then outstanding shares of Preferred Stock, present in person or by proxy,
shall be sufficient to constitute a quorum for the election of directors as
herein provided. Upon the election of the directors at such meeting, the terms
of office of all persons who were previously directors of the Corporation and
not elected pursuant to Section 3(b)(I) above shall immediately terminate,
whether or not the holders of the shares of Common Stock and of any other class
or series of voting stock shall then have elected the remaining directors of the
Corporation.
(III) VACANCIES. In the case of any vacancy in the
office of a director occurring among the directors elected by the holders of the
shares of Preferred Stock as a class, pursuant to the foregoing provisions of
Section 3(b)(II) hereof, the remaining directors elected by the holders of the
Preferred Stock, by affirmative vote of a majority thereof, or the remaining
director so elected if there be but one, may, if permitted by law and subject to
the provisions of Section 3(b)(IV) hereof, elect a successor or successors to
hold office for the unexpired term or terms of the director or directors whose
place or places shall be vacant. In case of any vacancy in the office of a
director occurring among the directors elected by the holders of Common Stock,
Preferred Stock and of any other class or series of voting stock as a class, the
remaining directors elected by the holders of Common Stock, Preferred Stock and
of any other class or series of voting stock by affirmative vote of a majority
thereof, or the remaining director so elected if there be but one, may, if
permitted by law, elect a successor or successors to hold office for the
unexpired term of the director or directors whose place or places shall be
vacant. Any director who shall have been elected by the holders of the Preferred
Stock (or by any directors so elected by directors elected by the holders of the
Preferred Stock as provided in this Section 3(b)(III)) may be removed during his
term of office, either with or without cause, by, and only by, the affirmative
vote of the holders of at least 67% of the then outstanding shares of Preferred
Stock, cast at a special meeting of such stockholders duly called for that
purpose.
(IV) TERMINATION OF VOTING RIGHTS. If and when all
breaches referred to in Section 3(b)(I) above have been fully remedied, then the
holders of the shares of Preferred Stock shall be divested of all of the voting
rights specified in Section 3(b)(I) above, but always subject to the same
provisions vesting such voting rights in the holders of the shares of Preferred
Stock in case of similar future defaults as provided in Section 3(b)(I). Upon
the termination of any such voting rights as provided above, the Board of
Directors shall call a special meeting of stockholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Corporation shall terminate immediately upon the election of their
successors.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall have
the following conversion rights:
(a) AUTOMATIC CONVERSION. Each share of Preferred Stock
outstanding shall automatically be converted into one or more shares of Common
Stock at an initial conversion ratio of one share of Common Stock for each share
of Preferred Stock (the "Conversion Ratio") and, in connection therewith, solely
with respect to the Series A Preferred Stock and the Series B
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<PAGE>
Preferred Stock, the right to receive from the Corporation an amount in cash
equal to the Liquidation Amount per share of such Series of Preferred Stock
computed to the conversion date (the "Conversion Payment"), immediately prior to
the closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933 covering the
offer and sale of Common Stock of the Corporation to the public in which (i) the
aggregate price paid for such shares by the public shall be at least
$10,000,000, and (ii) the price paid by the public for such shares shall be at
least $7.50 per share (appropriately adjusted to reflect the occurrence of any
event described in Section 4(e) (a "Qualified Public Offering")).
(b) EFFECTIVE DATE OF CONVERSION. The issuance by the
Corporation of shares of Common Stock upon a conversion of Preferred Stock into
Common Stock pursuant to Section 4(a) hereof shall not be deemed to be effective
until immediately prior to the closing of the Qualified Public Offering. On and
after the effective date of conversion, the person or persons entitled to
receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock.
(c) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Preferred Stock, but in lieu thereof may
make a cash payment in respect thereof in any manner permitted by law.
(d) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Preferred Stock then outstanding provided that the shares
of Common Stock so reserved shall not be reduced or affected in any manner
whatsoever so long as any Preferred Stock are outstanding. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Preferred Stock then outstanding and convertible into
shares of Common Stock.
(e) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio in
effect from time to time shall be subject to adjustment as follows:
(I) STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.
Upon the issuance of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, the subdivision of outstanding shares
of Common Stock into a greater number of shares of Common Stock, or the
combination of outstanding shares of Common Stock into a smaller number of
shares of the Common Stock, the Conversion Ratio shall, simultaneously with the
happening of such dividend, subdivision or split be adjusted by multiplying the
then effective
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Conversion Ratio by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event. An adjustment made pursuant to this Section
4(e)(I) shall be given effect, upon payment of such a dividend or distribution,
as of the record date for the determination of stockholders entitled to receive
such dividend or distribution (on a retroactive basis) and in the case of a
subdivision or combination shall become effective immediately as of the
effective date thereof.
(II) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock (including
shares held in the Corporation's treasury but excluding (i) up to 1,818,000
shares of Common Stock issued to officers, directors, employees, consultants or
agents of the Corporation pursuant to the Corporation's 1995 Stock Plan or upon
the exercise of options issued pursuant to such 1995 Stock Plan, plus such
number of shares of Common Stock which are repurchased by the Corporation from
any such persons after such date pursuant to contractual rights held by the
Corporation and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation therefor, (ii) up to an
additional 257,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's 1995 Stock Plan or upon the exercise of options issued pursuant to
such 1995 Stock Plan, provided that for each such share the Corporation has
repurchased a share issued prior to April 11, 1995 to an employee or former
employee of the Corporation, and (iii) shares as to which an adjustment to the
Conversion Ratio has been made in accordance with Section 4(e)(I) above (the
"Excluded Shares")), for a consideration per share less than $1.00 (in the case
of the Series A Preferred Stock), $2.25 (in the case of the Series B Preferred
Stock), $2.50 (in the case of the Series C Preferred Stock) or $4.00 (in the
case of the Series D Preferred Stock) (as to each such Series of Preferred
Stock, the "Conversion Price") then, and thereafter successively upon each such
issuance, sale or exchange, the Conversion Ratio in effect with respect to such
Series of the Preferred Stock immediately prior to the issuance, sale or
exchange of such shares shall forthwith be increased to an amount determined by
multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of such additional
shares of Common Stock so issued; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares
but including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of shares of Common
Stock which the net aggregate consideration received by the Corporation
for the total
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<PAGE>
number of such additional shares of Common Stock so issued would
purchase at the applicable Conversion Price per share.
(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Preferred Stock is outstanding, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options for Excluded Shares
granted to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's 1995 Stock Plan), or issue any
securities convertible into or exchangeable for shares of Common Stock, for a
consideration per share (determined by dividing the Net Aggregate Consideration
(as determined below) by the aggregate number of shares of Common Stock that
would be issued if all such options, warrants, rights or convertible securities
were exercised or converted to the fullest extent permitted by their terms) less
than the Conversion Price per share for any Series of the Preferred Stock, the
Conversion Ratio for such Series of the Preferred Stock in effect immediately
prior to the issuance of such options, warrants or rights or securities shall be
increased to an amount determined by multiplying the Conversion Ratio by a
fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to
the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior
to the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the number of shares of Common Stock which the total amount
of consideration received by the Corporation for the issuance of such
options, warrants, rights or convertible securities plus the minimum
amount set forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net Aggregate
Consideration') would purchase at the applicable Conversion Price per
share of such Series of Preferred Stock.
(IV) EXPIRATION OR CHANGE IN RATIO. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible into
shares of Common Stock changes at any time, the Conversion Ratio for each Series
of Preferred Stock in effect at the time of such change shall be readjusted to
the Conversion Ratio which would have been in effect at such time had such
options or convertible securities provided for such changed consideration per
share (determined as provided in Section 4(e)(III) hereof), at the time
initially granted, issued or sold; provided, that
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<PAGE>
such adjustment of the Conversion Ratio will be made only as and to the extent
that the Conversion Ratio effective upon such adjustment remains greater than or
equal to the Conversion Ratio that would be in effect if such options, rights or
securities had not been issued. No adjustment of the Conversion Ratio shall be
made under this Section 4 upon the issuance of any additional shares of Common
Stock which are issued pursuant to the exercise of any warrants, options or
other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if an adjustment
shall previously have been made upon the issuance of such warrants, options or
other rights. Any adjustment of the Conversion Ratio shall be disregarded if, as
and when the rights to acquire shares of Common Stock upon exercise or
conversion of the warrants, options, rights or convertible securities which gave
rise to such adjustment expire or are canceled without having been exercised, so
that the Conversion Ratio effective immediately upon such cancellation or
expiration shall be equal to the Conversion Ratio in effect at the time of the
issuance of the expired or canceled warrants, options, rights or convertible
securities, with such additional adjustments as would have been made to that
Conversion Ratio had the expired or canceled warrants, options, rights or
convertible securities not been issued.
(V) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or options, warrants or rights to subscribe for shares of Common
Stock shall be issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation therefor, without
deduction therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any shares of Common Stock or options, warrants or rights to subscribe for
shares of Common Stock shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration as
determined in good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith. In case
any options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such options by the parties
thereto, such options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors of the Corporation.
(f) HOLDERS NOT ENTITLED TO ANTI-DILUTION PROTECTION.
Notwithstanding anything contained in Section 4(e) to the contrary, a holder of
any shares of Preferred Stock shall not be entitled to the benefits of Section
4(e) with respect to an issuance, sale or exchange of any shares of Common Stock
pursuant to the provisions of Subsection 4(e)(II), or an issuance of options,
warrants or rights to subscribe for shares of Common Stock or an issuance of any
securities convertible into or exchangeable for shares of Common Stock pursuant
to the provisions of Section 4(e)(III) (each a "Dilutive Issuance") if (I) the
Corporation has offered such holder the opportunity, exercisable over a period
of not less than 30 days, to purchase securities in such Dilutive Issuance at a
price and on terms no less favorable to such holder than those generally offered
to other persons participating in such Dilutive Issuance, and (II) such holder
has failed to participate in such Dilutive Issuance by acquiring in such
Dilutive Issuance such number
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<PAGE>
of securities as shall at least equal the lesser of (x) such holder's pro rata
share of such Dilutive Issuance (as determined by dividing the number of shares
of Preferred Stock held by such holder immediately prior to such Dilutive
Issuance, by the total number of shares of Preferred Stock outstanding
immediately prior to such Dilutive Issuance) or (y) the maximum amount which
such holder was offered the opportunity to purchase.
(g) OTHER ADJUSTMENTS. In the event the Corporation 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
lawful and adequate provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their 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 (as that term is hereafter defined), retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 as applied to such
distributed securities.
If the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by 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 elsewhere
in Section 2(b) or in this Section 4), then and in each such event the holder of
each share of 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
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's assets to any other person, then, as a part of and as a condition
to the effectiveness of such reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of each Series
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or of the successor corporation resulting from such
merger or consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, merger,
consolidation or sale plus, solely in the case of the Series A Preferred Stock
and the Series B Preferred Stock, the Conversion Payment payable upon
conversion. In any such case, appropriate provisions shall be made with respect
to the rights of the holders of the Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this Section 4
(including, without
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<PAGE>
limitation provisions for adjustment of the Conversion Ratio and the number of
shares receivable upon conversion of each Series of the Preferred Stock) shall
thereafter be applicable, as nearly as may be, with respect to any shares of
stock, securities or assets to be deliverable upon the conversion of the
Preferred Stock.
Each holder of Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all of its assets and properties, as such events are more fully
set forth in the first paragraph of this Section 4(h), shall have the option of
electing treatment of his shares of Preferred Stock under either this Section
4(h) or Section 2(b) hereof, notice of which election shall be submitted in
writing to the Corporation at its principal offices no later than ten (10) days
before the effective date of such event, provided that any such notice shall be
effective if given not later than fifteen (15) days after the date of the
Corporation's notice, pursuant to Section 8, with respect to such event.
(i) CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment or readjustment of the Conversion Ratio of any Series of the
Preferred Stock, the Corporation at its expense will furnish each holder of
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment in accordance with the
terms hereof, and stating 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 Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Ratio at the time in effect, and (iii) the number of shares
of Common Stock, the Liquidation Amount and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock.
(j) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
SECTION 5. MANDATORY REDEMPTION. The shares of Preferred Stock shall
be redeemed as follows:
(a) AT ELECTION OF HOLDERS. On December 31, 2002, and on each
of the next two anniversaries of such date thereafter (collectively, the
"Redemption Dates", and each a "Redemption Date"), the Corporation shall, at the
written request of the holders of a majority of
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the then outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock taken together,
made at least 90 days prior to each of such Redemption Dates, redeem any
outstanding shares of each such Series of Preferred Stock according to the
percentages listed below:
<TABLE>
<CAPTION>
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
<S> <C>
December 31, 2002 33-1/3% of all the shares of Preferred Stock
outstanding on such date
December 31, 2003 50% of all the shares of Preferred Stock
outstanding on such date
December 31, 2004 100% of all the shares of Preferred Stock
outstanding on such date
</TABLE>
(b) REDEMPTION PRICE AND PAYMENT. The Series A Preferred Stock
and Series B Preferred Stock to be redeemed on each Redemption Date shall be
redeemed by paying for each share (i) in cash an amount equal to the Liquidation
Amount per share of such Series of Preferred Stock computed to the Redemption
Date (the "Cash Redemption Price") and (ii) the number of shares of Common Stock
into which such share is then convertible upon a conversion pursuant to
Subsection 4(a) hereof (the "Stock Redemption Price") (the Cash Redemption Price
and Stock Redemption Price are herein referred to collectively as the
"Redemption Price"). The Series C Preferred Stock and the Series D Preferred
Stock to be redeemed on each Redemption Date shall be redeemed by paying for
each share either: (i) in cash an amount equal to the Liquidation Amount per
share of such Series of Preferred Stock computed to the Redemption Date (the
"Cash Redemption Price"), or, at the option of the holder, may be converted into
(ii) the number of shares of Common Stock into which such share is then
convertible upon a conversion pursuant to Subsection 4(a) hereof (the "Stock
Redemption Price") (the Cash Redemption Price and Stock Redemption Price are
herein referred to collectively as the "Redemption Price"). Such payments shall
be made in full on the Redemption Date to the holders entitled thereto.
(c) REDEMPTION MECHANICS. In the event that the Corporation
has received a written request pursuant to Section 5(a), at least 20 but not
more than 30 days prior to each such Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by delivery in person,
certified or registered mail, return receipt requested, telecopier or telex, to
each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
applicable Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless there shall have been
a default in the payment of the
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applicable Redemption Price, all rights of holders of the shares of Preferred
Stock to be redeemed on such Redemption Date (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Preferred Stock on the Redemption Date are
insufficient to redeem the total number of outstanding shares of Preferred Stock
to be redeemed on such Redemption Date, (i) the holders of shares of Preferred
Stock shall share ratably in any funds legally available for redemption of such
shares according to the respective amounts which would be payable with respect
to the number and Series of shares owned by them if all such shares requested to
be redeemed on such Redemption Date were redeemed in full and (ii) the Cash
Redemption Price for the shares of Preferred Stock not redeemed shall accrue
interest at the rate of ten percent (10%) per annum, payable quarterly in
arrears (or, if any such payment of interest would violate applicable law, at
such time as such payment would be lawful), until such Redemption Price is paid
in full. The shares of Preferred Stock not redeemed shall remain outstanding and
entitled to all rights and preferences provided herein. At any time thereafter,
when additional funds of the Corporation are legally available for the
redemption of such shares of Preferred Stock, such funds will be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of such shares,
or such portion thereof for which funds are then legally available, on the basis
set forth above.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this Section 5 or otherwise
acquired by the Corporation in any manner whatsoever (including pursuant to
Section 6(v)) shall be canceled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of Preferred Stock.
SECTION 6. RESTRICTIONS AND LIMITATIONS. At any time when at least (i)
275,000 shares of Series A Preferred Stock or (ii) 325,000 shares of Series B
Preferred Stock, or (iii) 400,000 shares of Series C Preferred Stock or (iv)
500,000 shares of Series D Preferred Stock, respectively, remain outstanding,
except where the vote or written consent of the holders of a greater number of
shares of such Series of stock of the Corporation is required by law or by the
Certificate of Incorporation and in addition to any other vote required by law
or the Certificate of Incorporation, without the approval of the holders of at
least a majority of the then outstanding shares of Series A, Series B, Series C
and Series D Preferred Stock (or the approval of the affected Series of
Preferred Stock, when only one such Series of Preferred Stock is affected),
voting together as a single class, and given in writing or by vote at a meeting,
the Corporation will not:
(i) Create or authorize the creation of any additional class
or series of shares of stock, or authorize the increase of any existing class or
series of stock, or create or authorize any obligation or security convertible
into shares of any class or series of stock, in each case where the same would
rank in any way on a parity with or senior to such Series of the Preferred Stock
as to voting, liquidation or right to receive distributions or dividends,
whether any such
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<PAGE>
creation, authorization or increase shall be by means of amendment to the
Certificate of Incorporation or by merger, consolidation or otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities, or acquire any other entity, or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all or any substantial portion of its
assets;
(iii) Amend, alter or repeal its Certificate of Incorporation
or By-laws if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of a Series of the Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other than the
Series of the Preferred Stock, except for dividends or other distributions
payable on any other class or series of stock solely in the form of additional
shares of such series or class of stock and except for the purchase of shares of
Common Stock from former employees of the Corporation who acquired such shares
directly from the Corporation, if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
employment of such former employee and the purchase price does not exceed the
original issue price paid by such former employee to the Corporation for such
shares; or
(v) Redeem or otherwise acquire any shares of Preferred Stock
except as expressly authorized in Section 5 or pursuant to a purchase offer made
pro rata to all holders of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock on the
basis of the aggregate number of outstanding shares of such Series of the
Preferred Stock then held by each such holder.
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of the
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Preferred Stock
at least twenty (20) days prior to the record date specified therein, a notice
specifying (a) the date of such record date for the purpose of such dividend or
14
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distribution and a description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Incorporation, each share of Preferred Stock and each share of
Common Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class of stock for
all purposes.
SECTION 10. AMENDMENTS. No provision of these terms of the Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series A, Series B, Series C and Series D Preferred Stock, voting
together as a single class, with respect to the rights of such Series of
Preferred Stock; provided that any amendment, modification or waiver which only
affects, or disproportionately affects, the rights of a single Series of
Preferred Stock shall additionally require the written consent or affirmative
vote of the holders of at least a majority of the then outstanding shares of
such individual Series of the Preferred Stock.
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IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this 18th day of December, 1997.
CENTRA SOFTWARE, INC.
By:______________________________________
President
16
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------
Centra 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 written action of the Board of Directors of the Corporation, a
resolution was duly adopted, pursuant to Sections 141 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 Article FOURTH of the Certificate of Incorporation of
the Corporation be and hereby is deleted in its entirety and the following
Article FOURTH 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 consisting of:
(i) 15,835,510 shares of Common Stock, $.00l par value
(the "Common Stock"); and
(ii) 9,164,490 shares of Preferred Stock, $.001 par
value, which shall consist of 1,133,000 shares of Series A Convertible
Participating Preferred Stock
<PAGE>
(the "Series A Preferred Stock"), 1,416,490 shares of Series B
Convertible Participating Preferred Stock (the "Series B Preferred
Stock"), 1,670,000 shares of Series C Convertible Preferred Stock (the
"Series C Preferred Stock"), 2,250,000 shares of Series D Convertible
Preferred Stock (the "Series D Preferred Stock") and 2,695,000 shares
of Series E Convertible Preferred Stock (the "Series E Preferred
Stock") as set forth below. Individually and collectively, such five
Series of preferred stock are sometimes referred to herein as the
"Preferred Stock".
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations and
restrictions 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.
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. No dividends shall be declared on the Common Stock
unless dividends are at the same time declared on the Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to share in the assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. AMENDMENTS. No provision of these terms of the Common Stock
may be amended, modified or waived without the written consent or affirmative
vote of the holders of at least a majority of the then outstanding shares of
Common Stock.
B. PREFERRED STOCK
SECTION 1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock into
which each such share of Preferred Stock could be converted pursuant to the
provisions of Section 4 hereof with such number determined as of the record date
for the determination of holders of Common Stock entitled to receive such
dividends). Any dividends so declared shall be paid in full to the holders of
the Preferred Stock prior to any payment of dividends to holders of Common
Stock.
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SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) PRIOR TO DECEMBER 31, 2002. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary ("Liquidation"), prior to December 31, 2002, each holder of each
then outstanding share of Preferred Stock and Common Stock shall be entitled to
be paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus or earnings (the
"Distribution Pool") as follows:
(i) First, except as provided in subsection (v)
below, the holders of each then outstanding share of Preferred Stock shall
receive an amount equal to the aggregate sum of the number of shares of each
Series of Preferred Stock held by such holder multiplied by the purchase price
per share which is, in the case of Series A Preferred Stock, $1.00 per share,
Series B Preferred Stock, $2.25 per share, Series C Preferred Stock, $2.50 per
share, Series D Preferred Stock, $4.00 per share and Series E Preferred Stock,
$5.00 per share, with each such purchase price being adjusted appropriately for
stock splits, stock dividends and the like (with respect to each Series of
Preferred Stock, the "Purchase Price Per Share"). If the Distribution Pool is
insufficient to pay each holder of Preferred Stock the full amount described in
the preceding sentence, then each such holder shall be entitled to an amount
equal to the aggregate amount of the Distribution Pool multiplied by a fraction,
the numerator of which is (x) the aggregate sum of (1) the number of shares of
each Series of Preferred Stock held by such holder multiplied by (2) the
Purchase Price Per Share for each such Series, and the denominator of which is
(y) the aggregate sum of (1) the total number of outstanding shares of each
Series of Preferred Stock multiplied by (2) the Purchase Price Per Share for
each such Series.
(ii) Second, each holder of shares of then
outstanding Series E Preferred Stock shall receive an amount equal to the number
of shares of Series E Preferred Stock held by such holder multiplied by the
Purchase Price Per Share for the Series E Preferred Stock. If, after paying
amounts due under subsection (i) above, the balance of the Distribution Pool is
insufficient to pay each holder of Series E Preferred Stock the full amount
described in the preceding sentence, then each holder of Series E Preferred
Stock shall receive an amount equal to the remaining Distribution Pool
multiplied by a fraction, the numerator of which shall be the number of then
outstanding shares of Series E Preferred Stock held by such holder and the
denominator of which shall be the total number of then outstanding shares of
Series E Preferred Stock;
(iii) Third, the holders of each share of then
outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall receive an amount equal to
the aggregate sum of the number of shares of Series A, Series B, Series C and
Series D Preferred Stock held by such holder, multiplied by one-half of the
Purchase Price Per Share for each such Series. If after paying amounts due under
subsections (i) and (ii) above in full, the Distribution Pool is insufficient to
pay each holder of Preferred Stock the full amount described in the preceding
sentence, then each such holder shall be entitled to an amount equal to the
remaining Distribution Pool multiplied by a fraction, the numerator of which is
(x) the aggregate sum of (1) the number of shares of Series A, Series B, Series
C and Series D Preferred Stock held by such holder multiplied by (2) one-half of
the Purchase Price Per Share
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for each such Series, and the denominator of which is (y) the aggregate sum of
(1) the total number of outstanding shares of Series A, Series B, Series C and
Series D Preferred Stock, multiplied by (2) one-half of the Purchase Price Per
Share for each such Series;
(iv) Fourth, the holders of then outstanding
Preferred Stock shall receive any declared but unpaid dividends and all accrued
but unpaid interest to which the holders of outstanding shares of such Series of
Preferred Stock are entitled pursuant to Sections 1 and 5(c) hereof. If after
paying all amounts due under subsections (i), (ii) and (iii) above in full, the
Distribution Pool is insufficient to pay each holder of Preferred Stock the full
amount described in the preceding sentence, then each such holder shall be
entitled to a pro rata distribution in proportion to such holder's ownership of
shares of Preferred Stock giving rise to such dividends and/or interest;
(v) Fifth, the holders of the then outstanding shares
of Series A Preferred Stock and Series B Preferred Stock shall share ratably
with the holders of the then outstanding shares of Common Stock in the
distribution of the remaining portion of the Distribution Pool, if any, as if
each outstanding share of Series A and Series B Preferred Stock had been
converted into the number of shares of Common Stock issuable upon the conversion
of such shares of Series A and Series B Preferred Stock pursuant to Section 4
hereof immediately prior to any such Liquidation. In the event that holders of
Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred
Stock would receive a greater distribution following a Liquidation on or prior
to December 31, 2002 by treating their shares of Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock as if such shares had
been converted to Common Stock immediately prior to such Liquidation, then, with
respect to such holder's shares of each Series of Preferred Stock for which
conversion would result in a higher distribution (collectively, the "Converted
Distribution Shares"), in lieu of payment under subsections (i), (ii), (iii) and
(iv) above, such holders shall share ratably with respect to such Converted
Distribution Shares with the holders of Series A Preferred Stock and Series B
Preferred Stock and the holders Common Stock, as though such Converted
Distribution Shares were converted to shares of Common Stock in accordance with
Section 4 hereof immediately prior to such Liquidation, and, in such event, such
Converted Distribution Shares shall not be treated as outstanding shares of
Preferred Stock at the time of such Liquidation for purposes of this Section
2(a).
(b) ON OR AFTER DECEMBER 31, 2002. In the event of any
Liquidation on or after December 31, 2002, each holder of each then outstanding
share of Preferred Stock and Common Stock shall be entitled to be paid out of
the Distribution Pool as follows:
(i) First, the holders of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock shall receive an amount in
cash equal to $1.00 per share and $2.25 per share, respectively, (adjusted
appropriately for stock splits, stock dividends and the like), and the holders
of the outstanding shares of Series C Preferred Stock, Series D Preferred Stock
and Series E Preferred Stock shall receive an amount in cash equal to the
greater of (A) $2.50 per share of Series C Preferred Stock, $4.00 per share of
Series D Preferred Stock and $5.00 per share of Series E Preferred Stock
(adjusted appropriately for stock splits, stock dividends, and the like) or (B)
the amount the holders of Series C Preferred Stock, Series D
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<PAGE>
Preferred Stock and/or Series E Preferred Stock would have received had the
Series C Preferred Stock, the Series D Preferred Stock and/or the Series E
Preferred Stock been converted to Common Stock in accordance with Section 4
hereof immediately prior to such Liquidation; and the holders of Preferred Stock
will also receive (X) any declared but unpaid dividends and (Y) all accrued but
unpaid interest to which the holders of outstanding shares of such Series of
Preferred Stock are entitled pursuant to Sections 1 and 5(c). If the
Distribution Pool is insufficient to pay each holder of Preferred Stock the
amount described in the preceding sentence in full, then each such holder shall
receive an amount equal to the aggregate amount of the Distribution Pool
multiplied by a fraction, the numerator of which is (x) the aggregate sum of (1)
the number of shares of each Series of Preferred Stock held by such holder,
multiplied by (2) the Purchase Price Per Share for each such Series, and the
denominator of which is (y) the aggregate sum of (1) the total number of
outstanding shares of each Series of Preferred Stock, multiplied by (2) the
Purchase Price Per Share for each such Series;
(ii) Second, the holders of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock shall share ratably with
the holders of the outstanding shares of Common Stock in the distribution, of
the remaining portion of the Distribution Pool, as if each share of Series A and
Series B Preferred Stock had been converted into the number of shares of Common
Stock issuable upon the conversion of such share of Series A and Series B
Preferred Stock pursuant to Section 4 hereof immediately prior to any such
Liquidation.
The payments due to the Preferred Stockholders pursuant to Section
2(a)(i)-(iv) inclusive and Section 2(b)(i) shall hereinafter be collectively
referred to as the "Liquidation Amount" of the shares of such Series.
(c) CONSOLIDATION OR MERGER AS A LIQUIDATION. A consolidation
or merger of the Corporation (except (i) into or with a wholly-owned subsidiary
of the Corporation with requisite stockholder approval or (ii) a merger in which
the beneficial owners of the Corporation's capital stock immediately prior to
such transaction hold no less than fifty-one percent (51%) of the voting power
in the resulting entity) or a sale of all or substantially all or any
substantial portion of the assets of the Corporation shall be regarded as a
Liquidation within the meaning of this Section 2; provided, however, that each
holder of the Preferred Stock shall have the right to elect the benefits of the
provisions of Section 4(h) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 2.
SECTION 3. VOTING POWER.
(a) GENERAL. Except as otherwise expressly provided herein or
as required by law, the holder of each share of Preferred Stock shall be
entitled to vote on all matters. Each share of Preferred Stock shall entitle the
holder thereof to such number of votes per share as shall equal the number of
shares of Common Stock into which such share of Preferred Stock is then
convertible pursuant to Section 4 hereof. Except as otherwise expressly provided
herein (including without limitation the provisions of Section 6 hereof) or as
required by law, the holders of shares of the Preferred Stock and the Common
Stock shall vote together as a single class on all matters.
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<PAGE>
(b) ADDITIONAL VOTING RIGHTS UPON CERTAIN DEFAULTS.
(I) RIGHT TO ELECT BOARD OF DIRECTORS. In the
event that the Corporation shall default in its payment of the Redemption Price
(as defined in Section 5(b) below) or if it shall have insufficient funds
legally available to pay the Cash Redemption Price (as defined in Section 5(b)
below) under Section 5(c), the Corporation shall promptly give written notice
thereof to each holder of Preferred Stock. If such payment is not made within 70
days of the applicable Redemption Date (as defined in Section 5(a) below), the
holders of Preferred Stock shall, upon the giving of written notice to the
Corporation by the holders of at least 50% of the outstanding shares of
Preferred Stock, be entitled, pursuant to the terms of Section 3(b)(II) below,
to elect the smallest number of directors which shall constitute a majority of
the authorized number of directors of the Corporation, with the holders of the
Preferred Stock voting as a separate class to elect such number of directors
minus one, and the holders of Series E Preferred Stock voting as a separate
class to elect one director (the "Series E Director"), and the remaining members
of the Board of Directors shall be such persons, if any, who have received a
majority vote of the holders of the Common Stock and Preferred Stock, voting
together as a single class.
(II) MECHANICS OF ELECTION. Whenever under the
provisions of Section 3(b)(I) above the right shall have accrued to the holders
of the shares of Preferred Stock as a class, or the holders of Series E
Preferred Stock voting as a separate class, to elect directors, the Board of
Directors shall, within ten days after delivery to the Corporation at its
principal office of a request to such effect by the holders of at least 50% of
the then outstanding shares of Preferred Stock, or Series E Preferred Stock, as
the case may be, call a special meeting of the stockholders for the election of
directors, to be held upon not less than 20 nor more than 30 days' notice to
such holders. If such notice of meeting is not given within the ten days
required above, the holders of Preferred Stock requesting the calling of such
meeting may also call such meeting and shall have access to the stock books and
records of the Corporation for such purpose. At any meeting so called or at any
other meeting held while the holders of the outstanding shares of Preferred
Stock shall have the voting power provided in Section 3(b)(I) above, the holders
of a majority of the then outstanding shares of Preferred Stock, or Series E
Preferred Stock, as the case may be, present in person or by proxy, shall be
sufficient to constitute a quorum for the election of directors as herein
provided and each director shall (other than the Series E Director) be elected
by a majority of the then outstanding shares of Preferred Stock voting as a
single class, and the Series E Director shall be elected by a majority of the
then outstanding Series E Preferred Stock. Upon the election of the directors at
such meeting, the terms of office of all persons who were previously directors
of the Corporation and not elected pursuant to Section 3(b)(I) above shall
immediately terminate, whether or not the holders of the shares of Common Stock
and of any other class or series of voting stock shall then have elected the
remaining directors of the Corporation.
(III) VACANCIES. In the case of any vacancy in the
office of a director occurring among the directors elected by the holders of the
shares of Preferred Stock as a class, pursuant to the foregoing provisions of
Section 3(b)(II) hereof, the remaining directors elected by the holders of the
Preferred Stock, by affirmative vote of a majority thereof, or the remaining
director so elected if there be but one, may, if permitted by law and subject to
the provisions of
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Section 3(b)(IV) hereof, elect a successor or successors to hold office for the
unexpired term or terms of the director or directors whose place or places shall
be vacant. Other than with respect to the Series E Director, in case of any
vacancy in the office of a director occurring among the directors elected by the
holders of Common Stock, Preferred Stock and of any other class or series of
voting stock as a class, the remaining directors elected by the holders of
Common Stock, Preferred Stock and of any other class or series of voting stock,
by affirmative vote of a majority thereof, or the remaining director so elected
if there be but one, may, if permitted by law, elect a successor or successors
to hold office for the unexpired term of the director or directors whose place
or places shall be vacant. In the case of any vacancy in the office of the
Series E Director, such vacancy shall be filled in accordance with the
provisions of Section 3(b)(II). Any director who shall have been elected by the
holders of the Preferred Stock or Series E Preferred Stock (or by any directors
so elected by directors elected by the holders of the Preferred Stock as
provided in this Section 3(b)(III)) may be removed during his term of office,
either with or without cause, by, and only by, the affirmative vote of the
holders of at least 67% of the then outstanding shares of Preferred Stock or
Series E Preferred Stock as the case may be, cast at a special meeting of such
stockholders duly called for that purpose.
(IV) TERMINATION OF VOTING RIGHTS. If and when all
breaches referred to in Section 3(b)(I) above have been fully remedied, then the
holders of the shares of Preferred Stock shall be divested of all of the voting
rights specified in Section 3(b)(I) above, but always subject to the same
provisions vesting such voting rights in the holders of the shares of Preferred
Stock in case of similar future defaults as provided in Section 3(b)(I). Upon
the termination of any such voting rights as provided above, the Board of
Directors shall call a special meeting of stockholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Corporation shall terminate immediately upon the election of their
successors.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall have
the following conversion rights:
(a)(1) VOLUNTARY CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock outstanding shall be convertible, at the
option of the holder, at any time and from time to time, at an initial
conversion ratio of one share of Common Stock for each one share of Preferred
Stock (the "Conversion Ratio"), as such Conversion Ratio may be adjusted to
reflect the occurrence of any event described in Section 4(e). To effect such
conversion, the holder shall deliver to the Corporation written notice of the
same and shall surrender to the Corporation the certificate or certificates
representing the share or shares of Preferred Stock to be converted. The
Corporation shall, as soon as practicable after surrender of the certificate or
certificates for conversion, issue to the holder (or the holder's nominee) a
certificate or certificates for the number of shares of Common Stock to which
the holder is entitled under this Section 4, together with any cash in lieu of
fractional shares owing pursuant to Section 4(c) and cash in an amount equal to
all dividends accrued or declared but unpaid on the converted Preferred Stock
and any and all amounts owing with respect thereto at such time.
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(a)(2) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock outstanding shall automatically be converted into one or more shares of
Common Stock at the Conversion Ratio, as such Conversion Ratio may be adjusted
to reflect the occurrence of any event described in Section 4(e), and, in
connection therewith, solely with respect to the Series A Preferred Stock and
the Series B Preferred Stock, the right to receive from the Corporation an
amount in cash equal to the Liquidation Amount per share of such Series of
Preferred Stock computed to the conversion date (the "Conversion Payment"),
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933 covering the offer and sale of Common Stock of the Corporation to
the public in which (i) the aggregate price paid for such shares by the public
shall be at least $10,000,000, and (ii) the price paid by the public for such
shares shall be at least $7.50 per share (appropriately adjusted to reflect the
occurrence of any event described in Section 4(e)(I) (a "Qualified Public
Offering"). Each share of Series E Preferred Stock shall automatically be
converted into one or more shares of Common Stock at the Conversion Ratio, as
such Conversion Ratio may be adjusted to reflect the occurrence of any event
described in Section 4(e) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of Common Stock of
the Corporation to the public in which (i) the aggregate price paid for such
shares by the public shall be at least $10,000,000, and, (ii) if the offering is
consummated on or after December 31, 2002, a public price per share of at least
$8.50 (appropriately adjusted to reflect the occurrence of any event described
in Section 4(e)(I). Notwithstanding the foregoing, to the extent the price per
share of Common Stock in a Qualified Public Offering consummated before December
31, 2002 is less than $10.00 (appropriately adjusted to reflect the occurrence
of any event described in Section 4(e)(I)), each share of Series E Preferred
Stock shall be automatically converted into such number of shares of Common
Stock equal to the quotient of $5.00 (as appropriately adjusted to reflect the
occurrence of any event described in Section 4(e)(I)) divided by one-half of the
per share public offering price, or, if it would yield a greater number of
shares of Common Stock, at the effective Conversion Ratio.
(b) EFFECTIVE DATE OF CONVERSION. Voluntary conversion
pursuant to Section 4(a)(1) shall be deemed to have been made immediately prior
to the close of business on the date the notice and the surrendered share
certificates are received by the Corporation for conversion, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be the record holder or holders of the converted shares on the
effective date of conversion. The issuance by the Corporation of shares of
Common Stock upon a conversion of Preferred Stock into Common Stock pursuant to
Section 4(a)(2) hereof shall not be deemed to be effective until immediately
prior to the closing of the Qualified Public Offering. On and after the
effective date of conversion, the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock.
(c) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Preferred Stock, but in lieu thereof may
make a cash payment in respect thereof in any manner permitted by law.
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(d) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Preferred Stock then outstanding provided that the shares
of Common Stock so reserved shall not be reduced or affected in any manner
whatsoever so long as any Preferred Stock are outstanding. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Preferred Stock then outstanding and convertible into
shares of Common Stock.
(e) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio in
effect from time to time shall be subject to adjustment as follows:
(I) STOCK DIVIDENDS, SUBDIVISIONS AND
COMBINATIONS. Upon the issuance of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or the combination of outstanding shares of Common Stock into a smaller
number of shares of the Common Stock, the Conversion Ratio shall, simultaneously
with the happening of such dividend, subdivision or split be adjusted by
multiplying the then effective Conversion Ratio by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after such event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event. An adjustment made
pursuant to this Section 4(e)(I) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to receive such dividend or distribution (on a retroactive
basis) and in the case of a subdivision or combination shall become effective
immediately as of the effective date thereof.
(II) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock (including
shares held in the Corporation's treasury but excluding (i) up to 1,526,745
shares of Common Stock issued to officers, directors, employees, consultants or
agents of the Corporation pursuant to the Corporation's 1995 Stock Plan or upon
the exercise of options issued pursuant to such 1995 Stock Plan, plus such
number of shares of Common Stock which are repurchased by the Corporation from
any such persons after such date pursuant to contractual rights held by the
Corporation and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation therefor, (ii) up to an
additional 257,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's 1995 Stock Plan or upon the exercise of options issued pursuant to
such 1995 Stock Plan, provided that for each such share the Corporation has
repurchased a share issued prior to April 11, 1995 to an employee or former
employee of the Corporation, and (iii) shares as to which an adjustment to the
Conversion Ratio has been made in accordance with Section 4(e)(I) above (the
"Excluded Shares")), for a consideration per share
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<PAGE>
less than $1.00 (in the case of the Series A Preferred Stock), $2.25 (in the
case of the Series B Preferred Stock), $2.50 (in the case of the Series C
Preferred Stock), $4.00 (in the case of the Series D Preferred Stock) or $5.00
(in the case of the Series E Preferred Stock) (as to each such Series of
Preferred Stock, the "Conversion Price") then, and thereafter successively upon
each such issuance, sale or exchange, the Conversion Ratio in effect with
respect to such Series of the Preferred Stock immediately prior to the issuance,
sale or exchange of such shares shall forthwith be increased to an amount
determined by multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of such additional
shares of Common Stock so issued; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares
but including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of shares of Common
Stock which the net aggregate consideration received by the Corporation
for the total number of such additional shares of Common Stock so
issued would purchase at the applicable Conversion Price per share.
(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Preferred Stock is outstanding, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options for Excluded Shares
granted to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's 1995 Stock Plan), or issue any
securities convertible directly or indirectly, into or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price per share for any
Series of the Preferred Stock, the Conversion Ratio for such Series of the
Preferred Stock in effect immediately prior to the issuance of such options,
warrants or rights or securities shall be increased to an amount determined by
multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to
the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted; and
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<PAGE>
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior
to the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the number of shares of Common Stock which the total amount
of consideration received by the Corporation for the issuance of such
options, warrants, rights or convertible securities plus the minimum
amount set forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net Aggregate
Consideration') would purchase at the applicable Conversion Price per
share of such Series of Preferred Stock.
(IV) EXPIRATION OR CHANGE IN RATIO. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible into
shares of Common Stock changes at any time, the Conversion Ratio for each Series
of Preferred Stock in effect at the time of such change shall be readjusted to
the Conversion Ratio which would have been in effect at such time had such
options or convertible securities provided for such changed consideration per
share (determined as provided in Section 4(e)(III) hereof), at the time
initially granted, issued or sold; provided, that such adjustment of the
Conversion Ratio will be made only as and to the extent that the Conversion
Ratio effective upon such adjustment remains greater than or equal to the
Conversion Ratio that would be in effect if such options, rights or securities
had not been issued. No adjustment of the Conversion Ratio shall be made under
this Section 4 upon the issuance of any additional shares of Common Stock which
are issued pursuant to the exercise of any warrants, options or other
subscription or purchase rights or pursuant to the exercise of any conversion or
exchange rights in any convertible securities if an adjustment shall previously
have been made upon the issuance of such warrants, options or other rights. Any
adjustment of the Conversion Ratio shall be disregarded if, as and when the
rights to acquire shares of Common Stock upon exercise or conversion of the
warrants, options, rights or convertible securities which gave rise to such
adjustment expire or are canceled without having been exercised, so that the
Conversion Ratio effective immediately upon such cancellation or expiration
shall be equal to the Conversion Ratio in effect at the time of the issuance of
the expired or canceled warrants, options, rights or convertible securities,
with such additional adjustments as would have been made to that Conversion
Ratio had the expired or canceled warrants, options, rights or convertible
securities not been issued.
(V) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or options, warrants or rights to subscribe for shares of Common
Stock or any securities convertible, directly or indirectly, into or
exchangeable for shares of Common Stock shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock or options, warrants
or rights to subscribe for shares of Common Stock or any securities convertible,
directly or indirectly, into or exchangeable for shares of Common Stock shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be
11
<PAGE>
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Corporation, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any options shall be issued in
connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such options by the parties thereto, such options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
(f) HOLDERS NOT ENTITLED TO ANTI-DILUTION PROTECTION.
Notwithstanding anything contained in Section 4(e) to the contrary, a holder of
any shares of Preferred Stock shall not be entitled to the benefits of Section
4(e) with respect to an issuance, sale or exchange of any shares of Common Stock
pursuant to the provisions of Subsection 4(e)(II), or an issuance of options,
warrants or rights to subscribe for shares of Common Stock or an issuance of any
securities convertible into or exchangeable for shares of Common Stock pursuant
to the provisions of Section 4(e)(III) (each a "Dilutive Issuance") if (I) the
Corporation has offered such holder the opportunity, exercisable over a period
of not less than 30 days, to purchase securities in such Dilutive Issuance at a
price and on terms no less favorable to such holder than those generally offered
to other persons participating in such Dilutive Issuance, and (II) such holder
has failed to participate in such Dilutive Issuance by acquiring in such
Dilutive Issuance such number of securities as shall at least equal the lesser
of (x) such holder's pro rata share of such Dilutive Issuance (as determined by
dividing the number of shares of Preferred Stock held by such holder immediately
prior to such Dilutive Issuance, by the total number of shares of Preferred
Stock outstanding immediately prior to such Dilutive Issuance) or (y) the
maximum amount which such holder was offered the opportunity to purchase.
(g) OTHER ADJUSTMENTS. In the event the Corporation 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
lawful and adequate provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their 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 (as that term is hereafter defined), retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 as applied to such
distributed securities.
If the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by 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 elsewhere
in Section 2(b) or in this Section 4), then and in each such event the holder of
each share of 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
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<PAGE>
such shares of Preferred Stock might have been converted immediately prior to
such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(h) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's assets to any other person, then, as a part of and as a condition
to the effectiveness of such reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of each Series
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or of the successor corporation resulting from such
merger or consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, merger,
consolidation or sale plus, solely in the case of the Series A Preferred Stock
and the Series B Preferred Stock, the Conversion Payment payable upon
conversion. In any such case, appropriate provisions shall be made with respect
to the rights of the holders of the Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this Section 4
(including, without limitation provisions for adjustment of the Conversion Ratio
and the number of shares receivable upon conversion of each Series of the
Preferred Stock) shall thereafter be applicable, as nearly as may be, with
respect to any shares of stock, securities or assets to be deliverable upon the
conversion of the Preferred Stock.
Each holder of Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all of its assets and properties, as such events are more fully
set forth in the first paragraph of this Section 4(h), shall have the option of
electing treatment of his shares of Preferred Stock under either this Section
4(h) or Section 2(b) hereof, notice of which election shall be submitted in
writing to the Corporation at its principal offices no later than ten (10) days
before the effective date of such event, provided that any such notice shall be
effective if given not later than fifteen (15) days after the date of the
Corporation's notice, pursuant to Section 8, with respect to such event.
(i) CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment or readjustment of the Conversion Ratio of any Series of the
Preferred Stock, the Corporation at its expense will furnish each holder of
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment in accordance with the
terms hereof, and stating 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 Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Ratio at the time in effect, and (iii) the number of shares
of Common Stock, the Liquidation Amount and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock.
(j) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax
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<PAGE>
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Preferred Stock which is being converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
SECTION 5. MANDATORY REDEMPTION. The shares of Preferred Stock shall
be redeemed as follows:
(a) AT ELECTION OF HOLDERS. On December 31, 2002, and on each
of the next two anniversaries of such date thereafter (collectively, the
"Redemption Dates", and each a "Redemption Date"), the Corporation shall, at the
written request of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and Series E Preferred Stock taken together, made at
least 90 days prior to each of such Redemption Dates, redeem any outstanding
shares of each such Series of Preferred Stock according to the percentages
listed below:
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
December 31, 2002 33-1/3% of all the shares of Preferred
Stock outstanding on such date
December 31, 2003 50% of all the shares of Preferred
Stock outstanding on such date
December 31, 2004 100% of all the shares of Preferred
Stock outstanding on such date
(b) REDEMPTION PRICE AND PAYMENT. The Series A Preferred Stock
and Series B Preferred Stock to be redeemed on each Redemption Date shall be
redeemed by paying for each share (i) in cash an amount equal to the Liquidation
Amount per share of such Series of Preferred Stock computed to the Redemption
Date (the "Cash Redemption Price") and (ii) the number of shares of Common Stock
into which such share is then convertible upon a conversion pursuant to
Subsection 4(a) hereof (the "Stock Redemption Price") (the Cash Redemption Price
and Stock Redemption Price are herein referred to collectively as the
"Redemption Price"). The Series C Preferred Stock, the Series D Preferred Stock
and the Series E Preferred Stock to be redeemed on each Redemption Date shall be
redeemed by paying for each share either: (i) in cash an amount equal to the
Liquidation Amount per share of such Series of Preferred Stock computed to the
Redemption Date (the "Cash Redemption Price"), or, at the option of the holder,
may be converted into (ii) the number of shares of Common Stock into which such
share is then
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<PAGE>
convertible upon a conversion pursuant to Subsection 4(a) hereof (the "Stock
Redemption Price") (the Cash Redemption Price and Stock Redemption Price are
herein referred to collectively as the "Redemption Price"). Such payments shall
be made in full on the Redemption Date to the holders entitled thereto.
(c) REDEMPTION MECHANICS. In the event that the Corporation
has received a written request pursuant to Section 5(a), at least 20 but not
more than 30 days prior to each such Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by delivery in person,
certified or registered mail, return receipt requested, telecopier or telex, to
each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
applicable Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless there shall have been
a default in the payment of the applicable Redemption Price, all rights of
holders of the shares of Preferred Stock to be redeemed on such Redemption Date
(except the right to receive the Redemption Price) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of
Preferred Stock on the Redemption Date are insufficient to redeem the total
number of outstanding shares of Preferred Stock to be redeemed on such
Redemption Date, (i) the holders of shares of Preferred Stock shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts which would be payable with respect to the number and
Series of shares owned by them if all such shares requested to be redeemed on
such Redemption Date were redeemed in full and (ii) the Cash Redemption Price
for the shares of Preferred Stock not redeemed shall accrue interest at the rate
of ten percent (10%) per annum, payable quarterly in arrears (or, if any such
payment of interest would violate applicable law, at such time as such payment
would be lawful), until such Redemption Price is paid in full. The shares of
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter, when additional funds
of the Corporation are legally available for the redemption of such shares of
Preferred Stock, such funds will be used, at the end of the next succeeding
fiscal quarter, to redeem the balance of such shares, or such portion thereof
for which funds are then legally available, on the basis set forth above.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this Section 5 or otherwise
acquired by the Corporation in any manner whatsoever (including pursuant to
Section 6(a) shall be canceled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of Preferred Stock.
SECTION 6. RESTRICTIONS AND LIMITATIONS.
(a) PREFERRED STOCK. At any time when at least (i) 275,000
shares of Series A Preferred Stock, or (ii) 325,000 shares of Series B Preferred
Stock, or (iii) 400,000 shares of
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<PAGE>
Series C Preferred Stock, or (iv) 500,000 shares of Series D Preferred Stock, or
(v) 500,000 shares of Series E Preferred Stock, respectively, remain
outstanding, except where the vote or written consent of the holders of a
greater number of shares of such Series of stock of the Corporation is required
by law or by the Certificate of Incorporation and in addition to any other vote
required by law or the Certificate of Incorporation, without the approval of the
holders of at least a majority of the then outstanding shares of Series A,
Series B, Series C, Series D and Series E Preferred Stock, (or the approval of
the affected Series of Preferred Stock, when only one such Series of Preferred
Stock is affected), voting together as a single class, and given in writing or
by vote at a meeting, the Corporation will not:
(i) Create or authorize the creation of any additional class
or series of shares of stock, or authorize the increase of any existing class or
series of stock, or create or authorize any obligation or security convertible
into shares of any class or series of stock, in each case where the same would
rank in any way on a parity with or senior to such Series of the Preferred Stock
as to voting, liquidation or right to receive distributions or dividends,
whether any such creation, authorization or increase shall be by means of
amendment to the Certificate of Incorporation or by merger, consolidation or
otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities, or acquire any other entity, or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all or any substantial portion of its
assets;
(iii) Amend, alter or repeal its Certificate of Incorporation
or By-laws if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of a Series of the Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other than the
Series of the Preferred Stock, except for dividends or other distributions
payable on any other class or series of stock solely in the form of additional
shares of such series or class of stock and except for the purchase of shares of
Common Stock from former employees of the Corporation who acquired such shares
directly from the Corporation, if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
employment of such former employee and the purchase price does not exceed the
original issue price paid by such former employee to the Corporation for such
shares; or
(v) Redeem or otherwise acquire any shares of Preferred Stock
except as expressly authorized in Section 5 or pursuant to a purchase offer made
pro rata to all holders of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock on the basis of the aggregate number of outstanding shares of
such Series of the Preferred Stock then held by each such holder.
(b) SERIES E PREFERRED STOCK. At any time when at least
673,750 shares of Series E Preferred Stock remain outstanding, except where the
vote or written consent of the holders of a greater number of shares of such
Series of stock of the Corporation is required by
16
<PAGE>
law or by the Certificate of Incorporation and in addition to any other vote
required by law or the Certificate of Incorporation, without the approval of the
holders of at least a majority of the then outstanding shares of Series E
Preferred Stock, given in writing or by vote at a meeting, the Corporation will
not amend the Company's charter if such amendment:
(i) affects the Series E Preferred Stock liquidation
preference or the amount the holders of Series E Preferred Stock are entitled to
in the event of a Liquidation;
(ii) affects the automatic conversion rights and adjustments
of the Series E Preferred Stock in Section 4(a)(2) and (b) in the event of an
initial public offering by the Company with an initial offering price to the
public of less than $10 per share of Common Stock (as appropriately adjusted to
reflect the occurrence of any event described in Section 4(e)(I));
(iii) affects any other automatic or voluntary conversion
right of the Series E Preferred under Section 4(a) and (b).
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of the
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Preferred Stock
at least twenty (20) days prior to the record date specified therein, a notice
specifying (a) the date of such record date for the purpose of such dividend or
distribution and a description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Incorporation, each share of Preferred Stock and each share of
Common Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class of stock for
all purposes.
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<PAGE>
SECTION 10. AMENDMENTS. No provision of these terms of the Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series A, Series B, Series C, Series D and Series E Preferred Stock,
voting together as a single class, with respect to the rights of such Series of
Preferred Stock; provided that any amendment, modification or waiver which only
affects, or disproportionately affects, the rights of a single Series of
Preferred Stock shall additionally require the written consent or affirmative
vote of the holders of at least a majority of the then outstanding shares of
such individual Series of the Preferred Stock.
18
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this Certificate of Amendment to be signed by its President
this _____ day of April, 1999.
CENTRA SOFTWARE, INC.
By:
---------------------------------------
President
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CENTRA SOFTWARE, INC.
Pursuant to Section 242
of the General Corporation Law of
the State of Delaware
---------------------------------
Centra 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:
At a meeting of the Board of Directors of the Corporation held on
October 14, 1999, a resolution was duly adopted, pursuant to Sections 141 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.
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 the following
Article FOURTH 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 34,164,490 shares consisting of:
(i) 25,000,000 shares of Common Stock, $.00l par value
(the "Common Stock"); and
(ii) 9,164,490 shares of Preferred Stock, $.001 par value,
which shall consist of 1,133,000 shares of Series A Convertible
Participating Preferred Stock (the "Series A Preferred Stock"),
1,416,490 shares of Series B Convertible Participating Preferred Stock
(the "Series B Preferred Stock"), 1,670,000 shares of Series C
Convertible Preferred
<PAGE>
Stock (the "Series C Preferred Stock"), 2,250,000 shares of Series D
Convertible Preferred Stock (the "Series D Preferred Stock") and
2,695,000 shares of Series E Convertible Preferred Stock
(the "Series E Preferred Stock") as set forth below. Individually and
collectively, such five Series of preferred stock are sometimes
referred to herein as the "Preferred Stock".
The following is a statement of the voting powers and the designations,
preferences and other special rights, and the qualifications, limitations and
restrictions 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.
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. No dividends shall be declared on the Common Stock
unless dividends are at the same time declared on the Preferred Stock.
4. LIQUIDATION. Upon the dissolution or liquidation of the
Corporation, whether voluntary or involuntary, holders of Common Stock will be
entitled to share in the assets of the Corporation available for distribution to
its stockholders, subject to any preferential rights of any then outstanding
Preferred Stock.
5. AMENDMENTS. No provision of these terms of the Common Stock
may be amended, modified or waived without the written consent or affirmative
vote of the holders of at least a majority of the then outstanding shares of
Common Stock.
B. PREFERRED STOCK
SECTION 1. DIVIDENDS. The holders of the Preferred Stock shall be
entitled to receive, out of funds legally available therefor, dividends at the
same rate as dividends (other than dividends paid in additional shares of Common
Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock into
which each such share of Preferred Stock could be converted pursuant to the
provisions of Section 4 hereof with such number determined as of the record date
for the determination of holders of Common Stock entitled to receive such
dividends). Any dividends so declared shall
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be paid in full to the holders of the Preferred Stock prior to any payment of
dividends to holders of Common Stock.
SECTION 2. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) PRIOR TO DECEMBER 31, 2002. In the event of any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary ("Liquidation"), prior to December 31, 2002, each holder of each
then outstanding share of Preferred Stock and Common Stock shall be entitled to
be paid out of the assets of the Corporation available for distribution to
stockholders, whether such assets are capital, surplus or earnings (the
"Distribution Pool") as follows:
(i) First, except as provided in subsection (v)
below, the holders of each then outstanding share of Preferred Stock shall
receive an amount equal to the aggregate sum of the number of shares of each
Series of Preferred Stock held by such holder multiplied by the purchase price
per share which is, in the case of Series A Preferred Stock, $1.00 per share,
Series B Preferred Stock, $2.25 per share, Series C Preferred Stock, $2.50 per
share, Series D Preferred Stock, $4.00 per share and Series E Preferred Stock,
$5.00 per share, with each such purchase price being adjusted appropriately for
stock splits, stock dividends and the like (with respect to each Series of
Preferred Stock, the "Purchase Price Per Share"). If the Distribution Pool is
insufficient to pay each holder of Preferred Stock the full amount described in
the preceding sentence, then each such holder shall be entitled to an amount
equal to the aggregate amount of the Distribution Pool multiplied by a fraction,
the numerator of which is (x) the aggregate sum of (1) the number of shares of
each Series of Preferred Stock held by such holder multiplied by (2) the
Purchase Price Per Share for each such Series, and the denominator of which is
(y) the aggregate sum of (1) the total number of outstanding shares of each
Series of Preferred Stock multiplied by (2) the Purchase Price Per Share for
each such Series.
(ii) Second, each holder of shares of then
outstanding Series E Preferred Stock shall receive an amount equal to the number
of shares of Series E Preferred Stock held by such holder multiplied by the
Purchase Price Per Share for the Series E Preferred Stock. If, after paying
amounts due under subsection (i) above, the balance of the Distribution Pool is
insufficient to pay each holder of Series E Preferred Stock the full amount
described in the preceding sentence, then each holder of Series E Preferred
Stock shall receive an amount equal to the remaining Distribution Pool
multiplied by a fraction, the numerator of which shall be the number of then
outstanding shares of Series E Preferred Stock held by such holder and the
denominator of which shall be the total number of then outstanding shares of
Series E Preferred Stock;
(iii) Third, the holders of each share of then
outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock shall receive an amount equal to
the aggregate sum of the number of shares of Series A, Series B, Series C and
Series D Preferred Stock held by such holder, multiplied by one-half of the
Purchase Price Per Share for each such Series. If after paying amounts due under
subsections (i)
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and (ii) above in full, the Distribution Pool is insufficient to pay each holder
of Preferred Stock the full amount described in the preceding sentence, then
each such holder shall be entitled to an amount equal to the remaining
Distribution Pool multiplied by a fraction, the numerator of which is (x) the
aggregate sum of (1) the number of shares of Series A, Series B, Series C and
Series D Preferred Stock held by such holder multiplied by (2) one-half of the
Purchase Price Per Share for each such Series, and the denominator of which is
(y) the aggregate sum of (1) the total number of outstanding shares of Series A,
Series B, Series C and Series D Preferred Stock, multiplied by (2) one-half of
the Purchase Price Per Share for each such Series;
(iv) Fourth, the holders of then outstanding
Preferred Stock shall receive any declared but unpaid dividends and all accrued
but unpaid interest to which the holders of outstanding shares of such Series of
Preferred Stock are entitled pursuant to Sections 1 and 5(c) hereof. If after
paying all amounts due under subsections (i), (ii) and (iii) above in full, the
Distribution Pool is insufficient to pay each holder of Preferred Stock the full
amount described in the preceding sentence, then each such holder shall be
entitled to a pro rata distribution in proportion to such holder's ownership of
shares of Preferred Stock giving rise to such dividends and/or interest;
(v) Fifth, the holders of the then outstanding shares
of Series A Preferred Stock and Series B Preferred Stock shall share ratably
with the holders of the then outstanding shares of Common Stock in the
distribution of the remaining portion of the Distribution Pool, if any, as if
each outstanding share of Series A and Series B Preferred Stock had been
converted into the number of shares of Common Stock issuable upon the conversion
of such shares of Series A and Series B Preferred Stock pursuant to Section 4
hereof immediately prior to any such Liquidation. In the event that holders of
Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred
Stock would receive a greater distribution following a Liquidation on or prior
to December 31, 2002 by treating their shares of Series C Preferred Stock,
Series D Preferred Stock and/or Series E Preferred Stock as if such shares had
been converted to Common Stock immediately prior to such Liquidation, then, with
respect to such holder's shares of each Series of Preferred Stock for which
conversion would result in a higher distribution (collectively, the "Converted
Distribution Shares"), in lieu of payment under subsections (i), (ii), (iii) and
(iv) above, such holders shall share ratably with respect to such Converted
Distribution Shares with the holders of Series A Preferred Stock and Series B
Preferred Stock and the holders Common Stock, as though such Converted
Distribution Shares were converted to shares of Common Stock in accordance with
Section 4 hereof immediately prior to such Liquidation, and, in such event, such
Converted Distribution Shares shall not be treated as outstanding shares of
Preferred Stock at the time of such Liquidation for purposes of this Section
2(a).
(b) ON OR AFTER DECEMBER 31, 2002. In the event of any
Liquidation on or after December 31, 2002, each holder of each then outstanding
share of Preferred Stock and Common Stock shall be entitled to be paid out of
the Distribution Pool as follows:
(i) First, the holders of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock shall receive an amount in
cash equal to $1.00 per share and $2.25
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per share, respectively, (adjusted appropriately for stock splits, stock
dividends and the like), and the holders of the outstanding shares of Series C
Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall
receive an amount in cash equal to the greater of (A) $2.50 per share of Series
C Preferred Stock, $4.00 per share of Series D Preferred Stock and $5.00 per
share of Series E Preferred Stock (adjusted appropriately for stock splits,
stock dividends, and the like) or (B) the amount the holders of Series C
Preferred Stock, Series D Preferred Stock and/or Series E Preferred
Stock would have received had the Series C Preferred Stock, the Series D
Preferred Stock and/or the Series E Preferred Stock been converted to Common
Stock in accordance with Section 4 hereof immediately prior to such Liquidation;
and the holders of Preferred Stock will also receive (X) any declared but unpaid
dividends and (Y) all accrued but unpaid interest to which the holders of
outstanding shares of such Series of Preferred Stock are entitled pursuant to
Sections 1 and 5(c). If the Distribution Pool is insufficient to pay each holder
of Preferred Stock the amount described in the preceding sentence in full, then
each such holder shall receive an amount equal to the aggregate amount of the
Distribution Pool multiplied by a fraction, the numerator of which is (x) the
aggregate sum of (1) the number of shares of each Series of Preferred Stock held
by such holder, multiplied by (2) the Purchase Price Per Share for each such
Series, and the denominator of which is (y) the aggregate sum of (1) the total
number of outstanding shares of each Series of Preferred Stock, multiplied by
(2) the Purchase Price Per Share for each such Series;
(ii) Second, the holders of the outstanding shares of
Series A Preferred Stock and Series B Preferred Stock shall share ratably with
the holders of the outstanding shares of Common Stock in the distribution, of
the remaining portion of the Distribution Pool, as if each share of Series A and
Series B Preferred Stock had been converted into the number of shares of Common
Stock issuable upon the conversion of such share of Series A and Series B
Preferred Stock pursuant to Section 4 hereof immediately prior to any such
Liquidation.
The payments due to the Preferred Stockholders pursuant to Section
2(a)(i)-(iv) inclusive and Section 2(b)(i) shall hereinafter be collectively
referred to as the "Liquidation Amount" of the shares of such Series.
(c) CONSOLIDATION OR MERGER AS A LIQUIDATION. A consolidation
or merger of the Corporation (except (i) into or with a wholly-owned subsidiary
of the Corporation with requisite stockholder approval or (ii) a merger in which
the beneficial owners of the Corporation's capital stock immediately prior to
such transaction hold no less than fifty-one percent (51%) of the voting power
in the resulting entity) or a sale of all or substantially all or any
substantial portion of the assets of the Corporation shall be regarded as a
Liquidation within the meaning of this Section 2; provided, however, that each
holder of the Preferred Stock shall have the right to elect the benefits of the
provisions of Section 4(h) hereof in lieu of receiving payment in liquidation,
dissolution or winding up of the Corporation pursuant to this Section 2.
SECTION 3. VOTING POWER.
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(a) GENERAL. Except as otherwise expressly provided
herein or as required by law, the holder of each share of Preferred Stock shall
be entitled to vote on all matters. Each share of Preferred Stock shall entitle
the holder thereof to such number of votes per share as shall equal the number
of shares of Common Stock into which such share of Preferred Stock is then
convertible pursuant to Section 4 hereof. Except as otherwise expressly provided
herein (including without limitation the provisions of Section 6 hereof) or as
required by law, the holders of shares of the Preferred Stock and the Common
Stock shall vote together as a single class on all matters.
(b) ADDITIONAL VOTING RIGHTS UPON CERTAIN DEFAULTS.
(I) RIGHT TO ELECT BOARD OF DIRECTORS. In the
event that the Corporation shall default in its payment of the Redemption Price
(as defined in Section 5(b) below) or if it shall have insufficient funds
legally available to pay the Cash Redemption Price (as defined in Section 5(b)
below) under Section 5(c), the Corporation shall promptly give written notice
thereof to each holder of Preferred Stock. If such payment is not made within 70
days of the applicable Redemption Date (as defined in Section 5(a) below), the
holders of Preferred Stock shall, upon the giving of written notice to the
Corporation by the holders of at least 50% of the outstanding shares of
Preferred Stock, be entitled, pursuant to the terms of Section 3(b)(II) below,
to elect the smallest number of directors which shall constitute a majority of
the authorized number of directors of the Corporation, with the holders of the
Preferred Stock voting as a separate class to elect such number of directors
minus one, and the holders of Series E Preferred Stock voting as a separate
class to elect one director (the "Series E Director"), and the remaining members
of the Board of Directors shall be such persons, if any, who have received a
majority vote of the holders of the Common Stock and Preferred Stock, voting
together as a single class.
(II) MECHANICS OF ELECTION. Whenever under the
provisions of Section 3(b)(I) above the right shall have accrued to the holders
of the shares of Preferred Stock as a class, or the holders of Series E
Preferred Stock voting as a separate class, to elect directors, the Board of
Directors shall, within ten days after delivery to the Corporation at its
principal office of a request to such effect by the holders of at least 50% of
the then outstanding shares of Preferred Stock, or Series E Preferred Stock, as
the case may be, call a special meeting of the stockholders for the election of
directors, to be held upon not less than 20 nor more than 30 days' notice to
such holders. If such notice of meeting is not given within the ten days
required above, the holders of Preferred Stock requesting the calling of such
meeting may also call such meeting and shall have access to the stock books and
records of the Corporation for such purpose. At any meeting so called or at any
other meeting held while the holders of the outstanding shares of Preferred
Stock shall have the voting power provided in Section 3(b)(I) above, the holders
of a majority of the then outstanding shares of Preferred Stock, or Series E
Preferred Stock, as the case may be, present in person or by proxy, shall be
sufficient to constitute a quorum for the election of directors as herein
provided and each director shall (other than the Series E Director) be elected
by a majority of the then outstanding shares of Preferred Stock voting as a
single class, and the Series E Director shall be elected by a majority of the
then outstanding Series E Preferred
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Stock. Upon the election of the directors at such meeting, the terms of office
of all persons who were previously directors of the Corporation and not elected
pursuant to Section 3(b)(I) above shall immediately terminate, whether or not
the holders of the shares of Common Stock and of any other class or series of
voting stock shall then have elected the remaining directors of the Corporation.
(III) VACANCIES. In the case of any vacancy in the
office of a director occurring among the directors elected by the holders of the
shares of Preferred Stock as a class, pursuant to the foregoing provisions of
Section 3(b)(II) hereof, the remaining directors elected by the holders of the
Preferred Stock, by affirmative vote of a majority thereof, or the remaining
director so elected if there be but one, may, if permitted by law and subject to
the provisions of Section 3(b)(IV) hereof, elect a successor or successors to
hold office for the unexpired term or terms of the director or directors whose
place or places shall be vacant. Other than with respect to the Series E
Director, in case of any vacancy in the office of a director occurring among the
directors elected by the holders of Common Stock, Preferred Stock and of any
other class or series of voting stock as a class, the remaining directors
elected by the holders of Common Stock, Preferred Stock and of any other class
or series of voting stock, by affirmative vote of a majority thereof, or the
remaining director so elected if there be but one, may, if permitted by law,
elect a successor or successors to hold office for the unexpired term of the
director or directors whose place or places shall be vacant. In the case of any
vacancy in the office of the Series E Director, such vacancy shall be filled in
accordance with the provisions of Section 3(b)(II). Any director who shall have
been elected by the holders of the Preferred Stock or Series E Preferred Stock
(or by any directors so elected by directors elected by the holders of the
Preferred Stock as provided in this Section 3(b)(III)) may be removed during his
term of office, either with or without cause, by, and only by, the affirmative
vote of the holders of at least 67% of the then outstanding shares of Preferred
Stock or Series E Preferred Stock as the case may be, cast at a special meeting
of such stockholders duly called for that purpose.
(IV) TERMINATION OF VOTING RIGHTS. If and when
all breaches referred to in Section 3(b)(I) above have been fully remedied, then
the holders of the shares of Preferred Stock shall be divested of all of the
voting rights specified in Section 3(b)(I) above, but always subject to the same
provisions vesting such voting rights in the holders of the shares of Preferred
Stock in case of similar future defaults as provided in Section 3(b)(I). Upon
the termination of any such voting rights as provided above, the Board of
Directors shall call a special meeting of stockholders at which all directors
will be elected, and the terms of office of all persons who are then directors
of the Corporation shall terminate immediately upon the election of their
successors.
SECTION 4. CONVERSION. The holders of the Preferred Stock shall have
the following conversion rights:
(a)(1) VOLUNTARY CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred
Stock and Series E Preferred Stock outstanding shall be convertible, at the
option of the holder, at any time and from time to time, at
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an initial conversion ratio of one share of Common Stock for each one share of
Preferred Stock (the "Conversion Ratio"), as such Conversion Ratio may be
adjusted to reflect the occurrence of any event described in Section 4(e). To
effect such conversion, the holder shall deliver to the Corporation written
notice of the same and shall surrender to the Corporation the certificate or
certificates representing the share or shares of Preferred Stock to be
converted. The Corporation shall, as soon as practicable after surrender of the
certificate or certificates for conversion, issue to the holder (or the holder's
nominee) a certificate or certificates for the number of shares of Common Stock
to which the holder is entitled under this Section 4, together with any cash in
lieu of fractional shares owing pursuant to Section 4(c) and cash in an amount
equal to all dividends accrued or declared but unpaid on the converted Preferred
Stock and any and all amounts owing with respect thereto at such time.
(a)(2) AUTOMATIC CONVERSION. Each share of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock outstanding shall automatically be converted into one or more shares of
Common Stock at the Conversion Ratio, as such Conversion Ratio may be adjusted
to reflect the occurrence of any event described in Section 4(e), and, in
connection therewith, solely with respect to the Series A Preferred Stock and
the Series B Preferred Stock, the right to receive from the Corporation an
amount in cash equal to the Liquidation Amount per share of such Series of
Preferred Stock computed to the conversion date (the "Conversion Payment"),
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933 covering the offer and sale of Common Stock of the Corporation to
the public in which (i) the aggregate price paid for such shares by the public
shall be at least $10,000,000, and (ii) the price paid by the public for such
shares shall be at least $7.50 per share (appropriately adjusted to reflect the
occurrence of any event described in Section 4(e)(I) (a "Qualified Public
Offering"). Each share of Series E Preferred Stock shall automatically be
converted into one or more shares of Common Stock at the Conversion Ratio, as
such Conversion Ratio may be adjusted to reflect the occurrence of any event
described in Section 4(e) immediately prior to the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of Common Stock of
the Corporation to the public in which (i) the aggregate price paid for such
shares by the public shall be at least $10,000,000, and, (ii) if the offering is
consummated on or after December 31, 2002, a public price per share of at least
$8.50 (appropriately adjusted to reflect the occurrence of any event described
in Section 4(e)(I). Notwithstanding the foregoing, to the extent the price per
share of Common Stock in a Qualified Public Offering consummated before December
31, 2002 is less than $10.00 (appropriately adjusted to reflect the occurrence
of any event described in Section 4(e)(I)), each share of Series E Preferred
Stock shall be automatically converted into such number of shares of Common
Stock equal to the quotient of $5.00 (as appropriately adjusted to reflect the
occurrence of any event described in Section 4(e)(I)) divided by one-half of the
per share public offering price, or, if it would yield a greater number of
shares of Common Stock, at the effective Conversion Ratio.
(b) EFFECTIVE DATE OF CONVERSION. Voluntary conversion
pursuant to Section 4(a)(1) shall be deemed to have been made immediately prior
to the close of business on the date
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the notice and the surrendered share certificates are received by the
Corporation for conversion, and the person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be the record holder
or holders of the converted shares on the effective date of conversion. The
issuance by the Corporation of shares of Common Stock upon a conversion of
Preferred Stock into Common Stock pursuant to Section 4(a)(2) hereof shall not
be deemed to be effective until immediately prior to the closing of the
Qualified Public Offering. On and after the effective date of conversion, the
person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock.
(c) FRACTIONAL SHARES. The Corporation shall not be obligated
to deliver to holders of Preferred Stock any fractional share of Common Stock
issuable upon any conversion of such Preferred Stock, but in lieu thereof may
make a cash payment in respect thereof in any manner permitted by law.
(d) RESERVATION OF COMMON STOCK. The Corporation shall at all
times reserve and keep available out of its authorized and unissued Common
Stock, solely for issuance upon the conversion of Preferred Stock as herein
provided, free from any preemptive rights or other obligations, such number of
shares of Common Stock as shall from time to time be issuable upon the
conversion of all the Preferred Stock then outstanding provided that the shares
of Common Stock so reserved shall not be reduced or affected in any manner
whatsoever so long as any Preferred Stock are outstanding. The Corporation shall
prepare and shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be required by
law, and shall comply with all requirements as to registration, qualification or
listing of the Common Stock, in order to enable the Corporation lawfully to
issue and deliver to each holder of record of Preferred Stock such number of
shares of its Common Stock as shall from time to time be sufficient to effect
the conversion of all Preferred Stock then outstanding and convertible into
shares of Common Stock.
(e) ADJUSTMENTS TO CONVERSION RATIO. The Conversion Ratio in
effect from time to time shall be subject to adjustment as follows:
(I) STOCK DIVIDENDS, SUBDIVISIONS AND
COMBINATIONS. Upon the issuance of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, the subdivision of
outstanding shares of Common Stock into a greater number of shares of Common
Stock, or the combination of outstanding shares of Common Stock into a smaller
number of shares of the Common Stock, the Conversion Ratio shall, simultaneously
with the happening of such dividend, subdivision or split be adjusted by
multiplying the then effective Conversion Ratio by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
after such event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to such event. An adjustment made
pursuant to this Section 4(e)(I) shall be given effect, upon payment of such a
dividend or distribution, as of the record date for the determination of
stockholders entitled to
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receive such dividend or distribution (on a retroactive basis) and in the case
of a subdivision or combination shall become effective immediately as of the
effective date thereof.
(II) SALE OF COMMON STOCK. In the event the
Corporation shall at any time or from time to time while the Preferred Stock is
outstanding, issue, sell or exchange any shares of Common Stock (including
shares held in the Corporation's treasury but excluding (i) up to 1,526,745
shares of Common Stock issued to officers, directors, employees, consultants or
agents of the Corporation pursuant to the Corporation's 1995 Stock Plan or upon
the exercise of options issued pursuant to such 1995 Stock Plan, plus such
number of shares of Common Stock which are repurchased by the Corporation from
any such persons after such date pursuant to contractual rights held by the
Corporation and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation therefor, (ii) up to an
additional 257,000 shares of Common Stock issued to officers, directors,
employees, consultants or agents of the Corporation pursuant to the
Corporation's 1995 Stock Plan or upon the exercise of options issued pursuant to
such 1995 Stock Plan, provided that for each such share the Corporation has
repurchased a share issued prior to April 11, 1995 to an employee or former
employee of the Corporation, and (iii) shares as to which an adjustment to the
Conversion Ratio has been made in accordance with Section 4(e)(I) above (the
"Excluded Shares")), for a consideration per share less than $1.00 (in the case
of the Series A Preferred Stock), $2.25 (in the case of the Series B Preferred
Stock), $2.50 (in the case of the Series C Preferred Stock), $4.00 (in the case
of the Series D Preferred Stock) or $5.00 (in the case of the Series E Preferred
Stock) (as to each such Series of Preferred Stock, the "Conversion Price") then,
and thereafter successively upon each such issuance, sale or exchange, the
Conversion Ratio in effect with respect to such Series of the Preferred Stock
immediately prior to the issuance, sale or exchange of such shares shall
forthwith be increased to an amount determined by multiplying the Conversion
Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock (excluding treasury shares but
including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of such additional
shares of Common Stock so issued; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock (excluding treasury shares
but including all shares of Common Stock issuable upon conversion or
exercise of any outstanding Preferred Stock, options, warrants, rights
or convertible securities), plus (ii) the number of shares of Common
Stock which the net aggregate consideration received by the Corporation
for the total number of such additional shares of Common Stock so
issued would purchase at the applicable Conversion Price per share.
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(III) SALE OF OPTIONS, RIGHTS OR CONVERTIBLE
SECURITIES. In the event the Corporation shall at any time or from time to time
while the Preferred Stock is outstanding, issue options, warrants or rights to
subscribe for shares of Common Stock (other than any options for Excluded Shares
granted to officers, directors, employees, consultants or agents of the
Corporation pursuant to the Corporation's 1995 Stock Plan), or issue any
securities convertible directly or indirectly, into or exchangeable for shares
of Common Stock, for a consideration per share (determined by dividing the Net
Aggregate Consideration (as determined below) by the aggregate number of shares
of Common Stock that would be issued if all such options, warrants, rights or
convertible securities were exercised or converted to the fullest extent
permitted by their terms) less than the Conversion Price per share for any
Series of the Preferred Stock, the Conversion Ratio for such Series of the
Preferred Stock in effect immediately prior to the issuance of such options,
warrants or rights or securities shall be increased to an amount determined by
multiplying the Conversion Ratio by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock of all classes outstanding immediately prior to
the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the aggregate number of shares of Common Stock that would be
issued if all such options, warrants, rights or convertible securities
were exercised or converted; and
(B) the denominator of which shall be (i) the number
of shares of Common Stock of all classes outstanding immediately prior
to the issuance of such options, warrants, rights or convertible
securities (excluding treasury shares but including all shares of
Common Stock issuable upon conversion or exercise of any outstanding
Preferred Stock, options, warrants, rights or convertible securities),
plus (ii) the number of shares of Common Stock which the total amount
of consideration received by the Corporation for the issuance of such
options, warrants, rights or convertible securities plus the minimum
amount set forth in the terms of such security as payable to the
Corporation upon the exercise or conversion thereof (the "Net Aggregate
Consideration') would purchase at the applicable Conversion Price per
share of such Series of Preferred Stock.
(IV) EXPIRATION OR CHANGE IN RATIO. If the
consideration per share provided for in any options or rights to subscribe for
shares of Common Stock or any securities exchangeable for or convertible into
shares of Common Stock changes at any time, the Conversion Ratio for each Series
of Preferred Stock in effect at the time of such change shall be readjusted to
the Conversion Ratio which would have been in effect at such time had such
options or convertible securities provided for such changed consideration per
share (determined as provided in Section 4(e)(III) hereof), at the time
initially granted, issued or sold; PROVIDED, that such adjustment of the
Conversion Ratio will be made only as and to the extent that the Conversion
Ratio effective upon such adjustment remains greater than or equal to the
Conversion Ratio that would be in effect if such options, rights or securities
had not been issued. No
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adjustment of the Conversion Ratio shall be made under this Section 4 upon the
issuance of any additional shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
convertible securities if an adjustment shall previously have been made upon the
issuance of such warrants, options or other rights. Any adjustment of the
Conversion Ratio shall be disregarded if, as and when the rights to acquire
shares of Common Stock upon exercise or conversion of the warrants, options,
rights or convertible securities which gave rise to such adjustment expire or
are canceled without having been exercised, so that the Conversion Ratio
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Ratio in effect at the time of the issuance of the expired or
canceled warrants, options, rights or convertible securities, with such
additional adjustments as would have been made to that Conversion Ratio had the
expired or canceled warrants, options, rights or convertible securities not been
issued.
(V) CONSIDERATION FOR STOCK. In case any shares of
Common Stock or options, warrants or rights to subscribe for shares of Common
Stock or any securities convertible, directly or indirectly, into or
exchangeable for shares of Common Stock shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any shares of Common Stock or options, warrants
or rights to subscribe for shares of Common Stock or any securities convertible,
directly or indirectly, into or exchangeable for shares of Common Stock shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined in good faith by the Board of
Directors of the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation in
connection therewith. In case any options shall be issued in connection with the
issue and sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to such
options by the parties thereto, such options shall be deemed to have been issued
for such consideration as determined in good faith by the Board of Directors of
the Corporation.
(f) HOLDERS NOT ENTITLED TO ANTI-DILUTION PROTECTION.
Notwithstanding anything contained in Section 4(e) to the contrary, a holder of
any shares of Preferred Stock shall not be entitled to the benefits of Section
4(e) with respect to an issuance, sale or exchange of any shares of Common Stock
pursuant to the provisions of Subsection 4(e)(II), or an issuance of options,
warrants or rights to subscribe for shares of Common Stock or an issuance of any
securities convertible into or exchangeable for shares of Common Stock pursuant
to the provisions of Section 4(e)(III) (each a "Dilutive Issuance") if (I) the
Corporation has offered such holder the opportunity, exercisable over a period
of not less than 30 days, to purchase securities in such Dilutive Issuance at a
price and on terms no less favorable to such holder than those generally offered
to other persons participating in such Dilutive Issuance, and (II) such holder
has failed to participate in such Dilutive Issuance by acquiring in such
Dilutive Issuance such number of securities as shall at least equal the lesser
of (x) such holder's pro rata share of such Dilutive
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Issuance (as determined by dividing the number of shares of Preferred Stock held
by such holder immediately prior to such Dilutive Issuance, by the total number
of shares of Preferred Stock outstanding immediately prior to such Dilutive
Issuance) or (y) the maximum amount which such holder was offered the
opportunity to purchase.
(g) OTHER ADJUSTMENTS. In the event the Corporation 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
lawful and adequate provision shall be made so that the holders of Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities of the
Corporation which they would have received had their 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 (as that term is hereafter defined), retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 4 as applied to such
distributed securities.
If the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, whether by 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 elsewhere
in Section 2(b) or in this Section 4), then and in each such event the holder of
each share of 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
Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(h) MERGERS AND OTHER REORGANIZATIONS. If at any time or from
time to time there shall be a capital reorganization of the Common Stock (other
than a subdivision, combination, reclassification or exchange of shares provided
for elsewhere in this Section 4) or a merger or consolidation of the Corporation
with or into another Corporation or the sale of all or substantially all of the
Corporation's assets to any other person, then, as a part of and as a condition
to the effectiveness of such reorganization, merger, consolidation or sale,
lawful and adequate provision shall be made so that the holders of each Series
of the Preferred Stock shall thereafter be entitled to receive upon conversion
of the Preferred Stock the number of shares of stock or other securities or
property of the Corporation or of the successor corporation resulting from such
merger or consolidation or sale, to which a holder of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, merger,
consolidation or sale plus, solely in the case of the Series A Preferred Stock
and the Series B Preferred Stock, the Conversion Payment payable upon
conversion. In any such case, appropriate provisions shall be made with respect
to the rights of the holders of the Preferred Stock after the reorganization,
merger, consolidation or sale to the end that the provisions of this Section 4
(including, without limitation provisions for adjustment of the Conversion Ratio
and the number of shares receivable
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<PAGE>
upon conversion of each Series of the Preferred Stock) shall thereafter be
applicable, as nearly as may be, with respect to any shares of stock, securities
or assets to be deliverable upon the conversion of the Preferred Stock.
Each holder of Preferred Stock upon the occurrence of a capital
reorganization, merger or consolidation of the Corporation or the sale of all or
substantially all of its assets and properties, as such events are more fully
set forth in the first paragraph of this Section 4(h), shall have the option of
electing treatment of his shares of Preferred Stock under either this Section
4(h) or Section 2(b) hereof, notice of which election shall be submitted in
writing to the Corporation at its principal offices no later than ten (10) days
before the effective date of such event, provided that any such notice shall be
effective if given not later than fifteen (15) days after the date of the
Corporation's notice, pursuant to Section 8, with respect to such event.
(i) CERTIFICATE AS TO ADJUSTMENTS. In each case of an
adjustment or readjustment of the Conversion Ratio of any Series of the
Preferred Stock, the Corporation at its expense will furnish each holder of
Preferred Stock with a certificate, prepared by the chief financial officer of
the Corporation, showing such adjustment or readjustment in accordance with the
terms hereof, and stating 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 Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Ratio at the time in effect, and (iii) the number of shares
of Common Stock, the Liquidation Amount and the amount, if any, of other
property which at the time would be received upon the conversion of Preferred
Stock.
(j) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
(k) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any shares of
Preferred Stock in any manner which interferes with the timely conversion of
such Preferred Stock, except as may otherwise be required to comply with
applicable securities laws.
SECTION 5. MANDATORY REDEMPTION. The shares of Preferred Stock shall
be redeemed as follows:
(a) AT ELECTION OF HOLDERS. On December 31, 2002, and on each
of the next two anniversaries of such date thereafter (collectively, the
"Redemption Dates", and each a "Redemption Date"), the Corporation shall, at the
written request of the holders of a majority of the then outstanding shares of
Series A Preferred Stock, Series B Preferred Stock, Series C
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Preferred Stock, Series D Preferred Stock and Series E Preferred Stock taken
together, made at least 90 days prior to each of such Redemption Dates, redeem
any outstanding shares of each such Series of Preferred Stock according to the
percentages listed below:
Percentage of Shares of
Preferred Stock then
Date of Redemption Outstanding to be Redeemed
- ------------------ --------------------------
December 31, 2002 33-1/3% of all the shares of
Preferred Stock outstanding on
such date
December 31, 2003 50% of all the shares of
Preferred Stock
outstanding on such date
December 31, 2004 100% of all the shares of
Preferred Stock
outstanding on such date
(b) REDEMPTION PRICE AND PAYMENT. The Series A Preferred Stock
and Series B Preferred Stock to be redeemed on each Redemption Date shall be
redeemed by paying for each share (i) in cash an amount equal to the Liquidation
Amount per share of such Series of Preferred Stock computed to the Redemption
Date (the "Cash Redemption Price") and (ii) the number of shares of Common Stock
into which such share is then convertible upon a conversion pursuant to
Subsection 4(a) hereof (the "Stock Redemption Price") (the Cash Redemption Price
and Stock Redemption Price are herein referred to collectively as the
"Redemption Price"). The Series C Preferred Stock, the Series D Preferred Stock
and the Series E Preferred Stock to be redeemed on each Redemption Date shall be
redeemed by paying for each share either: (i) in cash an amount equal to the
Liquidation Amount per share of such Series of Preferred Stock computed to the
Redemption Date (the "Cash Redemption Price"), or, at the option of the holder,
may be converted into (ii) the number of shares of Common Stock into which such
share is then convertible upon a conversion pursuant to Subsection 4(a) hereof
(the "Stock Redemption Price") (the Cash Redemption Price and Stock Redemption
Price are herein referred to collectively as the "Redemption Price"). Such
payments shall be made in full on the Redemption Date to the holders entitled
thereto.
(c) REDEMPTION MECHANICS. In the event that the Corporation
has received a written request pursuant to Section 5(a), at least 20 but not
more than 30 days prior to each such Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by delivery in person,
certified or registered mail, return receipt requested, telecopier or telex, to
each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of
Preferred Stock notifying such holder of the redemption and specifying the
applicable Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless there shall have been
a default in the payment of the
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applicable Redemption Price, all rights of holders of the shares of Preferred
Stock to be redeemed on such Redemption Date (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Preferred Stock on the Redemption Date are
insufficient to redeem the total number of outstanding shares of Preferred Stock
to be redeemed on such Redemption Date, (i) the holders of shares of Preferred
Stock shall share ratably in any funds legally available for redemption of such
shares according to the respective amounts which would be payable with respect
to the number and Series of shares owned by them if all such shares requested to
be redeemed on such Redemption Date were redeemed in full and (ii) the Cash
Redemption Price for the shares of Preferred Stock not redeemed shall accrue
interest at the rate of ten percent (10%) per annum, payable quarterly in
arrears (or, if any such payment of interest would violate applicable law, at
such time as such payment would be lawful), until such Redemption Price is paid
in full. The shares of Preferred Stock not redeemed shall remain outstanding and
entitled to all rights and preferences provided herein. At any time thereafter,
when additional funds of the Corporation are legally available for the
redemption of such shares of Preferred Stock, such funds will be used, at the
end of the next succeeding fiscal quarter, to redeem the balance of such shares,
or such portion thereof for which funds are then legally available, on the basis
set forth above.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. Any
shares of Preferred Stock redeemed pursuant to this Section 5 or otherwise
acquired by the Corporation in any manner whatsoever (including pursuant to
Section 6(a) shall be canceled and shall not under any circumstances be
reissued; and the Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of Preferred Stock.
SECTION 6. RESTRICTIONS AND LIMITATIONS.
(a) PREFERRED STOCK. At any time when at least (i) 275,000
shares of Series A Preferred Stock, or (ii) 325,000 shares of Series B Preferred
Stock, or (iii) 400,000 shares of Series C Preferred Stock, or (iv) 500,000
shares of Series D Preferred Stock, or (v) 500,000 shares of Series E Preferred
Stock, respectively, remain outstanding, except where the vote or written
consent of the holders of a greater number of shares of such Series of stock of
the Corporation is required by law or by the Certificate of Incorporation and in
addition to any other vote required by law or the Certificate of Incorporation,
without the approval of the holders of at least a majority of the then
outstanding shares of Series A, Series B, Series C, Series D and Series E
Preferred Stock, (or the approval of the affected Series of Preferred Stock,
when only one such Series of Preferred Stock is affected), voting together as a
single class, and given in writing or by vote at a meeting, the Corporation will
not:
(i) Create or authorize the creation of any additional class
or series of shares of stock, or authorize the increase of any existing class or
series of stock, or create or authorize any obligation or security convertible
into shares of any class or series of stock, in each case
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<PAGE>
where the same would rank in any way on a parity with or senior to such Series
of the Preferred Stock as to voting, liquidation or right to receive
distributions or dividends, whether any such creation, authorization or increase
shall be by means of amendment to the Certificate of Incorporation or by merger,
consolidation or otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities, or acquire any other entity, or sell, lease, abandon, transfer or
otherwise dispose of all or substantially all or any substantial portion of its
assets;
(iii) Amend, alter or repeal its Certificate of Incorporation
or By-laws if the effect would be detrimental or adverse in any manner with
respect to the rights of the holders of a Series of the Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other than the
Series of the Preferred Stock, except for dividends or other distributions
payable on any other class or series of stock solely in the form of additional
shares of such series or class of stock and except for the purchase of shares of
Common Stock from former employees of the Corporation who acquired such shares
directly from the Corporation, if each such purchase is made pursuant to
contractual rights held by the Corporation relating to the termination of
employment of such former employee and the purchase price does not exceed the
original issue price paid by such former employee to the Corporation for such
shares; or
(v) Redeem or otherwise acquire any shares of Preferred Stock
except as expressly authorized in Section 5 or pursuant to a purchase offer made
pro rata to all holders of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock on the basis of the aggregate number of outstanding shares of
such Series of the Preferred Stock then held by each such holder.
(b) SERIES E PREFERRED STOCK. At any time when at least
673,750 shares of Series E Preferred Stock remain outstanding, except where the
vote or written consent of the holders of a greater number of shares of such
Series of stock of the Corporation is required by law or by the Certificate of
Incorporation and in addition to any other vote required by law or the
Certificate of Incorporation, without the approval of the holders of at least a
majority of the then outstanding shares of Series E Preferred Stock, given in
writing or by vote at a meeting, the Corporation will not amend the Company's
charter if such amendment:
(i) affects the Series E Preferred Stock liquidation
preference or the amount the holders of Series E Preferred Stock are entitled to
in the event of a Liquidation;
(ii) affects the automatic conversion rights and adjustments
of the Series E Preferred Stock in Section 4(a)(2) and (b) in the event of an
initial public offering by the
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<PAGE>
Company with an initial offering price to the public of less than $10 per share
of Common Stock (as appropriately adjusted to reflect the occurrence of any
event described in Section 4(e)(I));
(iii) affects any other automatic or voluntary conversion
right of the Series E Preferred under Section 4(a) and (b).
SECTION 7. NO REISSUANCE OF PREFERRED STOCK. No share or shares of the
Preferred Stock acquired by the Corporation by reason of redemption, purchase,
conversion or otherwise shall be reissued, and all such shares shall be
canceled, retired and eliminated from the shares which the Corporation shall be
authorized to issue. The Corporation may from time to time take such appropriate
corporate action as may be necessary to reduce the authorized number of shares
of the Preferred Stock accordingly.
SECTION 8. NOTICES OF RECORD DATE. In the event (i) the Corporation
establishes a record date to determine the holders of any class of securities
who are entitled to receive any dividend or other distribution, or (ii) there
occurs any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation, or any transfer of all or substantially all of
the assets of the Corporation to any other corporation, or any other entity or
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of Preferred Stock
at least twenty (20) days prior to the record date specified therein, a notice
specifying (a) the date of such record date for the purpose of such dividend or
distribution and a description of such dividend or distribution, (b) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up is expected to become effective,
and (c) the time, if any, that is to be fixed, as to when the holders of record
of Common Stock (or other securities) shall be entitled to exchange their shares
of Common Stock (or other securities) for securities or other property
deliverable upon such reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
SECTION 9. OTHER RIGHTS. Except as otherwise provided in this
Certificate of Incorporation, each share of Preferred Stock and each share of
Common Stock shall be identical in all respects, shall have the same powers,
preferences and rights, without preference of any such class or share over any
other such class or share, and shall be treated as a single class of stock for
all purposes.
SECTION 10. AMENDMENTS. No provision of these terms of the Preferred
Stock may be amended, modified or waived without the written consent or
affirmative vote of the holders of at least a majority of the then outstanding
shares of Series A, Series B, Series C, Series D and Series E Preferred Stock,
voting together as a single class, with respect to the rights of such Series of
Preferred Stock; provided that any amendment, modification or waiver which only
affects, or disproportionately affects, the rights of a single Series of
Preferred Stock shall additionally require the written consent or affirmative
vote of the holders of at least a majority of the then outstanding shares of
such individual Series of the Preferred Stock.
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<PAGE>
IN WITNESS WHEREOF, Centra Software, Inc. has caused this certificate
to be signed by its Chief Executive Officer and attested by its Secretary as of
October 27, 1999.
---------------------------
Leon Navickas
Chief Executive Officer
Attested by:
- -------------------------------------------------
Stephen N. Johnson
Secretary
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<PAGE>
Exhibit 10.4
CENTRA SOFTWARE, INC.
1999 DIRECTOR PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the 1999 Director Plan (the "Plan"). The purpose
of the Plan is to encourage ownership in Centra Software, Inc. (the "Company")
by non-employee directors of the Company whose continued services are considered
essential to the Company's future progress and to provide them with a further
incentive to remain as directors of the Company.
The following terms shall be defined as set forth below:
"Board" means the Board of Directors of the Company.
"Change of Control" shall have the meaning set forth in Section 10.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Common Stock" means the common stock, $.001 par value per share, of the
Company, subject to adjustments pursuant to Section 3.
"Committee" shall have the meaning set forth in Section 2.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 12.
"Outside Director" means any director who (i) is not an employee of the
Company or of any "affiliated group," as such term is defined in Section 1504(a)
of the Code, which includes the Company (an "Affiliate"), (ii) is not a former
employee of the Company or any Affiliate who is receiving compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
Company's or any Affiliate's taxable year, (iii) has not been an officer of the
Company or any Affiliate and (iv) does not receive remuneration from the Company
or any Affiliate, either directly or indirectly, in any capacity other than as a
director. "Outside Director" shall be determined in accordance with Section
162(m) of the Code and the Treasury regulations issued thereunder.
"Option" or "Stock Option" shall refer to a non-statutory stock option not
entitled to special tax treatment under Section 422 of the Internal Revenue
Code.
"Subsidiary" means a subsidiary as defined in Section 424 of the Code.
SECTION 2. ADMINISTRATION OF PLAN
(a) COMMITTEE. The Plan shall be administered by a committee of the Board
(the "Committee") consisting of not less than two (2) Outside Directors, but the
authority and validity of any act taken or not taken by the Committee shall not
be affected if any person administering the Plan is not an "Outside Director."
Except as specifically reserved to the Board under the terms of the Plan, the
Committee shall have full and final authority to operate, manage and administer
the Plan on behalf of the Company. Action by the Committee shall require the
affirmative vote of a majority of all members thereof.
<PAGE>
(b) POWERS OF COMMITTEE. The Committee shall have the power and authority
to grant and modify Options consistent with the terms of the Plan, including the
power and authority:
(i) to select the persons to whom Options may from time to time be
granted (individually, a "Participant");
(ii) to determine the time or times of grant;
(iii) to determine the number of shares to be covered by any Option;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of
any Option, which terms and conditions may differ among
individual Options and participants, and to approve the form
of written instruments evidencing the Options; provided,
however, that no such action shall adversely affect rights
under any outstanding Option without the participant's
consent;
(v) to accelerate the exercisability or vesting of all or any
portion of any Option;
(vi) to determine whether, to what extent, and under what
circumstances Common Stock and other amounts payable with
respect to an Option shall be deferred either automatically or
at the election of the participant and whether and to what
extent the Company shall pay or credit amounts equal to
interest (at rates determined by the Committee) or dividends
or deemed dividends on such deferrals; and
(vii) to adopt, alter and repeal such rules, guidelines and
practices for administration of the Plan and for its own acts
and proceedings as it shall deem advisable; to interpret the
terms and provisions of the Plan and any Option (including
related written instruments); to make all determinations it
deems advisable for the administration of the Plan; to decide
all disputes arising in connection with the Plan; and to
otherwise supervise the administration of the Plan.
All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. SHARES ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION.
(a) SHARES ISSUABLE. The maximum number of shares of Common Stock with
respect to which Options may be granted under the Plan shall be two hundred
thousand 200,000. For purposes of this limitation, the shares of Common Stock
underlying any Options which are forfeited, cancelled, reacquired by the Company
or otherwise terminated (other than by exercise) shall be added back to the
shares of Common Stock with respect to which Options may be granted under the
Plan so long as the participants to whom such Options had been previously
granted received no benefits of ownership of the underlying shares of Common
Stock to which the Option related. Shares issued under the Plan may be
authorized but unissued shares or shares reacquired by the Company.
(b) STOCK DIVIDENDS, MERGERS, ETC. In the event that after approval of the
Plan by the stockholders of the Company in accordance with Section 12, the
Company effects a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities with
respect to which Options may thereafter be granted (including without limitation
the limitations set forth in Sections 3(a) above), (ii) the number and kind of
shares remaining subject to outstanding Options, and (iii) the Option or
purchase price in respect of such
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<PAGE>
shares. In the event of any merger, consolidation, dissolution or liquidation of
the Company, the Committee in its sole discretion may, as to any outstanding
Options, make such substitution or adjustment in the aggregate number of shares
reserved for issuance under the Plan and in the number and purchase price (if
any) of shares subject to such Options as it may determine and as may be
permitted by the terms of such transaction, or accelerate, amend or terminate
such Options upon such terms and conditions as it shall provide (which, in the
case of the termination of the vested portion of any Option, shall require
payment or other consideration which the Committee deems equitable in the
circumstances), subject, however, to the provisions of Section 10.
SECTION 4. ELIGIBILITY.
Options may be granted to directors of the Company who are not employees
of the Company or any Subsidiary ("Non-Employee Director").
SECTION 5. STOCK OPTIONS.
The Committee may grant to Options to purchase stock to Non-Employee
Directors. Each Option granted under the Plan shall be evidenced by a written
agreement in such form as the Committee shall from time to time approve, which
agreements shall comply with and be subject to the following terms and
conditions.
(a) OPTION GRANT DATES
(i) AUTOMATIC OPTION GRANT DATES. Options shall automatically be
granted to all Non-Employee Directors as follows:
(1) Each Non-Employee Director who is serving on the Board
on the effective date (the "IPO 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 IPO
Effective Date.
(2) Following the IPO, each 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 Non-Employee Director is first elected to
serve on the Board.
(3) Following the IPO, each Non-Employee Director 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 5,000
shares of Common Stock at the close of business on the
date of each such adjournment.
(ii) PERIODIC GRANTS OF OPTIONS. Subject to execution by the
Non-Employee Director of an appropriate option agreement, the
Committee may grant additional Options to purchase a number of
shares to be determined by the Committee in recognition of
services provided by a Non-Employee Director in his or her
capacity as a director, provided that such grants are
in compliance with the requirements of Rule 16b-3, as
promulgated under the Securities Exchange Act of 1934, as
amended from time to time ("Rule 16b-3").
Each date of grant of an Option pursuant to this Section 5(a) is hereinafter
referred to as an "Option Grant Date".
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<PAGE>
(b) OPTION EXERCISE PRICE. The Option exercise price per share for each
Option granted under the Plan shall equal (i) the closing price on any national
securities exchange on which the Common Stock is listed, (ii) the closing price
of the Common Stock on the Nasdaq National Market or (iii) the average of the
closing bid and asked prices in the over-the-counter market, whichever is
applicable, as published in The Wall Street Journal, on the Option Grant Date.
Notwithstanding the preceding sentence, the Option exercise price per share for
each Option granted on the IPO Effective Date shall be the price per share for
which the Common Stock was offered to the public in the IPO. If no sales of
Common Stock were made on the Option Grant Date, the price of the Common Stock
for purposes of clauses (i) and (ii) above shall be the reported price for the
next preceding day on which sales were made.
(c) TRANSFERABILITY OF OPTIONS. Except as the Committee may otherwise
determine or provide in an Option granted under the Plan, any Option granted
under the Plan to an optionee shall not be transferable by the optionee other
than by will or the laws of descent and distribution, and shall be exercisable
during the optionee's lifetime only by the optionee or the optionee's guardian
or legal representative. References to an optionee, to the extent relevant in
the context, shall include references to authorized transferees.
(d) VESTING PERIOD. Each Option granted under the Plan pursuant to Section
5(a)(i) above shall become exercisable on the first anniversary of the date of
grant of such Option; provided, however, that the optionee is serving as a
director of the Company on such vesting date (it being understood that a
director whose term expires at an Annual Meeting of Stockholders and who does
not stand for re-election is deemed to be a director on (but not following) the
date of such Annual Meeting for the purposes of this Section 5 if he continues
to serve through the date of such Annual Meeting). Each Option granted under the
Plan pursuant to Section 5(a)(ii) above shall become exercisable on such terms
as shall be determined by the Board and set forth in the option agreement with
the respective optionee.
(e) TERMINATION. Each Option shall terminate, and may no longer be
exercised, on the earlier of (i) the date ten years after the Option Grant Date
of such Option or (ii) the first anniversary of the date on which the optionee
ceases to serve as a director of the Company.
(f) EXERCISE PROCEDURE. Stock Options may be exercised in whole or in
part, by delivering written notice of exercise to the Company, specifying the
number of shares to be purchased. Payment of the purchase price may be made by
one or more of the following methods:
(i) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(ii) In the form of shares of Stock that are not then subject to
restrictions, if permitted by the Committee, in its
discretion. Such surrendered shares shall be valued at Fair
Market Value on the exercise date; or
(iii) By the optionee delivering to the Company a properly executed
exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check
payable and acceptable to the Company to pay the purchase
price; provided that in the event the optionee chooses to pay
the purchase price as so provided, the optionee and the broker
shall comply with such procedures and enter into such
agreements of indemnity and other agreements as the Committee
shall prescribe as a condition of such payment procedure. The
Company need not act upon such exercise notice until the
Company receives full payment of the exercise price; or
(iv) By any other means (including, without limitation, by delivery
of a promissory note of the optionee payable on such terms as
are specified by the Committee) which the Committee determines
are consistent with the purpose of the Plan and with
applicable laws and regulations.
4
<PAGE>
The delivery of certificates representing shares of Stock to the Optionee
(or a purchaser acting in his stead in accordance with the provisions of the
Stock Option) by the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Stock Option or imposed
by applicable law.
SECTION 6. TERMINATION OF STOCK OPTIONS.
Any Option granted under the Plan shall contain such terms and conditions
with respect to its termination as the Committee, in its discretion, may from
time to time determine.
SECTION 7. AMENDMENTS AND TERMINATION.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Option (or provide substitute
Options at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Option if it were then initially
granted under this Plan) for the purpose of satisfying changes in law or for any
other lawful purpose, but no such action shall adversely affect rights under any
outstanding Option without the holder's consent.
SECTION 8. STATUS OF PLAN.
With respect to the portion of any Option which has not been exercised and
any payments in cash, Common Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Option or Options. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Common Stock or make payments with respect to Options
hereunder, provided that the existence of such trusts or other arrangements is
consistent with the provision of the foregoing sentence.
SECTION 9. CHANGE OF CONTROL PROVISIONS.
(a) Upon the occurrence of a Change of Control as defined in this Section
10:
(i) subject to the provisions of clause (iii) below, after the
effective date of such Change of Control, each holder of an
outstanding Option shall be entitled, upon exercise of such
Option, to receive, in lieu of shares of Common Stock (or
consideration based upon the Fair Market Value of Stock),
shares of such stock or other securities, cash or property (or
consideration based upon shares of such stock or other
securities, cash or property) as the holders of shares of
Common Stock received in connection with the Change of
Control;
(ii) the Committee may accelerate the time for exercise of, and
waive all conditions and restrictions on, each unexercised and
unexpired Option, effective upon a date prior or subsequent to
the effective date of such Change of Control, specified by the
Committee; or
(iii) each outstanding Stock Option may be cancelled by the
Committee as of the effective date of any such Change of
Control provided that (x) notice of such cancellation shall be
given to each holder of such an Option and (y) each holder of
such an Option shall have the right to exercise such Option to
the extent that the same is then exercisable or, in full, if
the Committee shall have accelerated the time for exercise of
all such unexercised and unexpired Options, during the thirty
(30) day period preceding the effective date of such Change of
Control.
5
<PAGE>
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Act) becomes a "beneficial owner" (as such
term is defined in Rule 13d-3 promulgated under the Act)
(other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company),
directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; or
(ii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or
other entity, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than sixty-five
percent (65%) of the combined voting power of the voting
securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
SECTION 10. GENERAL PROVISIONS.
(a) NO DISTRIBUTION; COMPLIANCE WITH LEGAL REQUIREMENTS. The Committee may
require each person acquiring shares pursuant to an Option to represent to and
agree with the Company in writing that such person is acquiring the shares
without a view to distribution thereof. No shares of Common Stock shall be
issued pursuant to an Option until all applicable securities laws and other
legal and stock exchange requirements have been satisfied. The Committee may
require the placing of such stop orders and restrictive legends on certificates
for Common Stock and Options as it deems appropriate.
(b) DELIVERY OF STOCK CERTIFICATES. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when the
Company or a stock transfer agent of the Company shall have delivered such
certificates in the United States mail, addressed to the participant, at the
participant's last known address on file with the Company.
(c) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in this Plan,
nor the granting of any Option nor any other action taken pursuant to this Plan,
shall constitute or be evidence of any agreement or understanding, express or
implied, that the Company will retain the optionee as a director for any period
of time.
(D) NO STOCKHOLDERS' RIGHTS FOR OPTIONS. An optionee shall have no rights
as a stockholder with respect to the shares covered by his ir her option until
the date of the issuance to him or her of a stock certificate therefor, and no
adjustment will be made for dividends or other rights (except as provided in
Section 3) for which the record date is prior to the date such certificate is
issued.
SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan shall become effective upon approval by the holders of a majority
of the shares of capital stock of the Company present or represented and
entitled to vote at a meeting of stockholders.
6
<PAGE>
SECTION 12. GOVERNING LAW.
This Plan shall be governed by, and construed and enforced in accordance
with, the substantive laws of the State of Delaware without regard to its
principles of conflicts of laws.
* * *
7
<PAGE>
Exhibit 10.8
LEXINGTON OFFICE PARK
LEXINGTON, MASSACHUSETTS
LEASE dated July 21, 1999
THIS INSTRUMENT IS AN INDENTURE OF LEASE in which the Landlord and the
Tenant are the parties hereinafter named, and which relates to space in a
certain building (the "Building") known as, and with an address at, 430 Bedford
Street, Lexington, Massachusetts, being one (1) of two (2) buildings which
together with the land on which said buildings are located and other
improvements thereon constitute the Lexington Office Park (sometimes hereinafter
called the "Complex").
The parties to this Indenture of Lease hereby agree with each other as
follows:
ARTICLE I
REFERENCE DATA
1.1 Subjects Referred To:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this
Article:
<TABLE>
<S> <C>
LANDLORD: Trustees of Elandzee Trust under
Declaration of Trust dated March
27, 1972, recorded with the
Middlesex South District
Registry of Deeds in Book 12237,
Page 161 as amended by
instrument dated January 23,
1991 recorded with said Registry
in Book 20987, Page 157 but not
individually.
LANDLORD'S ORIGINAL c/o Boston Properties, Inc. 8
ADDRESS: Arlington Street Boston,
Massachusetts 02116
</TABLE>
<PAGE>
<TABLE>
<S> <C>
LANDLORD'S Stacey A. Baker
CONSTRUCTION
REPRESENTATIVE:
TENANT: Centra Software. Inc., a
Delaware corporation
TENANT'S ORIGINAL 430 Bedford Street
ADDRESS: Lexington, MA 02420
TENANT'S CONSTRUCTION Steve Johnson
REPRESENTATIVE:
PREMISES A
COMMENCEMENT DATE: September 1, 1999
PREMISES B
COMMENCEMENT DATE: March 1, 2000
PREMISES C
COMMENCEMENT DATE: August 1, 2001
TERM (SOMETIMES CALLED The Lease Term applicable to
THE "ORIGINAL TERM"): that portion of the Building
Tenant is leasing at any given
time.
PREMISES A LEASE TERM: That period of time commencing
on the Premises A Commencement
Date and expiring on August 31,
2001, unless extended or sooner
terminated as provided in this
Lease.
PREMISES B LEASE TERM: That period of time commencing
on the Premises B Commencement
Date and expiring on August 31,
2001, unless extended or sooner
terminated as provided in this
Lease.
PREMISES C LEASE TERM: That period of time commencing
on the Premises C Commencement
Date and expiring on August 31,
2001, unless extended or sooner
terminated as provided in this
Lease.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EXTENSION OPTION: One (1) period of two (2) years
as provided in and on the terms
set forth in Section 8.20
hereof.
THE SITE: That certain parcel of land
located on the southerly side of
Bedford Street in Lexington,
Middlesex County, Massachusetts,
being more particularly
described in Exhibit A attached
hereto.
THE BUILDING: The Building known as and
numbered 430 Bedford Street,
Lexington, Massachusetts, and
being one (1) of two (2)
buildings located in the
"Complex". The Building is
appropriately labeled on Exhibit
A-1 attached hereto and hereby
made a part hereof.
THE BUILDINGS: The two (2) buildings located on
the Site which buildings include
the Building (hereinbefore
referred to) and the building
known as and numbered 420
Bedford Street in said
Lexington. The Buildings as
herein identified by street
number are labeled as such on
the Site Plan attached hereto as
Exhibit A-1.
TENANT'S SPACE That portion of the Building
(SOMETIMES CALLED which Tenant is leasing at any
THE "PREMISES"): time pursuant to the provisions
of this Lease.
PREMISES A: A portion of the second (2nd)
floor of the Building in
accordance with the floor plan
annexed hereto as Exhibit D and
incorporated herein by
reference.
PREMISES B: A portion of the second (2nd)
floor of the Building in
accordance with the floor plan
annexed hereto as Exhibit D and
incorporated herein by
reference.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
PREMISES C: A portion of the second (2nd)
floor of the Building in
accordance with the floor plan
annexed hereto as Exhibit D and
incorporated herein by
reference.
NUMBER OF
PARKING SPACES: Twenty-Four (24) during the
period from September 1, 1999
through February 28, 2000;
Thirty-Four (34) during the
period from March 1, 2000
through July 31, 2001; and
Sixty-Four (64) during the
period from August 1, 2001
through the scheduled expiration
date of the Term unless extended
or sooner terminated.
ANNUAL FIXED RENT: The sum of the Annual Fixed
Rents applicable to the Premises
at any given time under lease to
Tenant in the Building.
ANNUAL FIXED RENT FOR PREMISES A: (a) During the Original Tenn of
this Lease at the annual rate of
$198,612.00 (being the product
of (i) $27.00 and (ii) the
"Rentable Floor Area of Premises
A" (hereinafter defined in this
Section 1.1).
(b) During the extension option
period (if exercised), as
determined pursuant to Section
8.20.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ANNUAL FIXED RENT FOR PREMISES B: (a) During the Original Term of
this Lease at the annual rate of
$81,243.00 (being the product of
(i) $27.00 and (ii) the
"Rentable Floor Area of Premises
B" (hereinafter defined in this
Section 1.1).
(b) During the extension option
period (if exercised), as
determined pursuant to Section
8.20.
ANNUAL FIXED RENT FOR PREMISES C: (a) During the Original Term of
this Lease at the annual rate of
$242,568,00 (being the product
of (i) $27.00 and (ii) the
"Rentable Floor Area of Premises
C" (hereinafter defined in this
Section 1.1).
(b) During the extension option
period (if exercised), as
determined pursuant to Section
8.20.
BASE OPERATING EXPENSES: Landlord's Operating Expenses
(as hereinafter defined in
Section 2.6) for calendar year
1999, being January 1, 1999
through December 31, 1999.
BASE TAXES: Landlord's Tax Expenses (as
hereinafter defined in Section
2.7) for fiscal tax year 1999
being July 1, 1998 through June
30, 1999.
TENANT ELECTRICITY: Initially as provided in Section
2.5 subject to adjustment as
provided in Section 2.8.
RENTABLE FLOOR AREA The rentable floor area of all
OF TENANT'S SPACE the space at any given time
(SOMETIMES ALSO CALLED leased to Tenant in the Building
"RENTABLE FLOOR pursuant to this Lease.
AREA OF THE PREMISES" OR
"RENTABLE FLOOR AREA OF
TENANT'S SPACE"):
RENTABLE FLOOR AREA OF
PREMISES A: 7,356 square feet
RENTABLE FLOOR AREA OF
PREMISES B: 3,009 square feet
RENTABLE FLOOR AREA OF
PREMISES C: 8,984 square feet
TOTAL RENTABLE FLOOR AREA
OF THE BUILDING: 84,500 square feet.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
TOTAL RENTABLE FLOOR
AREA OF THE BUILDINGS: 169,000 square feet.
PERMITTED USES: Office purposes.
INITIAL MINIMUM LIMITS OF $3,000,000.00 combined single
TENANT'S COMMERCIAL limit per occurrence on a per
GENERAL LIABILITY location basis.
INSURANCE:
BROKER: Fallon, Hines & O'Connor, Inc.
One Post Office Square
33rd Floor
Boston, MA 02109
</TABLE>
1.2 Exhibits. There are incorporated as part of this Lease:
EXHIBIT A Description of Site
EXHIBIT A-1 Site Plan of Complex
EXHIBIT B Intentionally Omitted
EXHIBIT C Landlord's Services
EXHIBIT D Floor Plans
EXHIBIT E. Form of Confidentiality Agreement
1.3 Table of Articles and Sections
ARTICLE I--REFERENCE DATA
1.1 Subjects Referred to
1.2 Exhibits
1.3 Table of Articles and Sections
ARTICLE II--PREMISES, TERM AND RENT
<PAGE>
2.1 The Premises
2.2 Rights To Use Common Facilities
2.2.1 Tenant's Parking
2.3 Landlord's Reservations
2.4 Habendum
2.5 Monthly Fixed Rent Payments
2.6 Adjustment for Operating Expenses
2.7 Adjustment for Real Estate Taxes
2.8 Adjustment for Tenant Electricity
ARTICLE III--CONSTRUCTION
3.1 Delivery of Premises
3.2 Intentionally Omitted
3.3 Alterations and Additions
3.3.1 Certain Alterations
3.4 General Provisions Applicable to Construction
ARTICLE IV--LANDLORD'S COVENANTS; INTERRUPTIONS AND
DELAYS
4.1 Landlord's Covenants
4.1.1 Services Furnished by Landlord
4.1.2 Additional Services Available to Tenant
4.1.3 Roof, Exterior Wall, Floor Slab and Common Facility
Repairs
4.1.4 Door Signs
<PAGE>
4.1.5 Landlord's Insurance
4.2 Interruptions and Delays in Services and Repairs, etc.
ARTICLE V--TENANT'S COVENANTS
5.1 Payments
5.2 Repair and Yield Up
5.3 Use
5.4 Obstructions; Items Visible From Exterior; Rules and
Regulations
5.5 Safety Appliances; Licenses
5.6 Assignment; Sublease
5.7 Indemnity; Insurance
5.8 Personal Property at Tenant's Risk
5.9 Right of Entry
5.10 Floor Load; Prevention of Vibration and Noise
5.11 Personal Property Taxes
5.12 Compliance with Laws
5.13 Payment of Litigation Expenses
ARTICLE VI--CASUALTY AND TAKING
6.1 Fire and Casualty-Termination or Restoration; Rent Adjustment
6.2 Uninsured Casualty
ARTICLE VII--DEFAULT
7.1 Tenant's Default
<PAGE>
7.2 Landlord's Default
ARTICLE VIII--MISCELLANEOUS PROVISIONS
8.1 Extra Hazardous Use
8.2 Waiver
8.3 Cumulative Remedies
8.4 Quiet Enjoyment
8.5 Notice To Mortgagee and Ground Lessor
8.6 Assignment of Rents
8.7 Surrender
8.8 Brokerage
8.9 Invalidity of Particular Provisions
8.10 Provisions Binding, Etc.
8.11 Recording
8.12 Notices
8.13 When Lease Becomes Binding
8.14 Section Headings
8.15 Rights of Mortgagee
8.16 Status Report and Financial Statements
8.17 Self-Help
8.18 Holding Over
8.19 Non-Subrogation
8.20 Extension Option
<PAGE>
8.21 Late Payment
8.22 Governing Law
ARTICLE II
PREMISES, TERM AND RENT
2.1 Landlord, hereby demises and leases to Tenant, and Tenant hereby hires
and accepts from Landlord, Tenant's Space in the Building excluding
exterior faces of exterior walls, the common stairways and stairwells,
elevators and elevator wells, fan rooms, electric and telephone
closets, janitor closets, freight elevator vestibules, and pipes,
ducts, conduits, wires and appurtenant fixtures serving exclusively or
in common other parts of the Building and if Tenant's Space includes
less than the entire rentable area of any floor, excluding the common
corridors, elevator lobbies and toilets located on such floor. Tenant's
Space with such exclusions is hereinafter referred to as the
"Premises". The term "Building" means the Building identified on the
first page, and which is the subject of this Lease and being one of the
two (2) Buildings erected on the Site by the Landlord; the term
"Site"means all, and also any part of the Land described in Exhibit A,
upon which the two (2) Buildings are located, plus any additions or
reductions thereto resulting from the change of any abutting street
line. The term "Property" means the two (2) Buildings and the Site.
2.2 Tenant shall have, as appurtenant to the Premises, the non- exclusive
right to use in common with others, subject to reasonable rules of
general applicability to tenants of the Building from time to time made
by Landlord of which Tenant is given notice (a) the common lobbies,
corridors, stairways, elevators and loading platform of the Building,
and the pipes, ducts, conduits, wires and appurtenant meters and
equipment serving the Premises in common with others, (b) common
walkways and driveways necessary for access to the Building, and (c) if
the Premises include less than the entire rentable floor area of any
floor, the common toilets, corridors and elevator lobby of such floor.
2.2.1 In addition, Tenant shall have the right to use in the parking area the
Number of Parking Spaces for the parking of automobiles in common with
use by other tenants of the Complex, provided, however, that Landlord
shall not be obligated to furnish stalls or spaces on the Site
specifically designated for Tenant's use. Tenant covenants and agrees
that it and all persons claiming by, through and under it, shall at all
times abide by all reasonable rules and regulations promulgated by
Landlord with respect to the use of the parking areas on the Site. The
parking privileges granted herein are non-transferable. Further,
Landlord assumes no responsibility whatsoever for loss or damage due to
fire, theft or otherwise to any automobile(s) parked on the Site or to
any personal property therein, however caused, and Tenant covenants and
agrees, upon request from Landlord from time to time, to notify its
officers, employees, agents and invitees of such limitation
<PAGE>
of liability. Tenant acknowledges and agrees that a license only is
hereby granted, and no bailment is intended or shall be created.
2.3 Landlord reserves the right from time to time, without unreasonable
interference with Tenant's use: (a) to install, use, maintain, repair,
replace and relocate for service to the Premises and other parts of the
Building, or either, pipes, ducts, conduits, wires and appurtenant
fixtures, wherever located in the Premises or Building, and (b) to
alter or relocate any other common facility, provided that
substitutions are substantially equivalent or better. Installations,
replacements and relocations referred to in clause (a) above shall be
located so far as practicable in the central core area of the Building,
above ceiling surfaces, below floor surfaces or within perimeter walls
of the Premises, and shall not materially reduce the Rentable Floor
Area of the Premises. In the event of any change in the square footage
of the Premises resulting from Landlord's exercise of its rights
pursuant to this Section 2.3, Annual Fixed Rent payable hereunder shall
be adjusted to equal the product of (i) the Rentable Floor Area of the
Premises (as adjusted) and (ii) the Annual Fixed Rent payable per
square foot at the time of such adjustment. Except in the case of
emergencies, Landlord agrees to give Tenant reasonable advance notice
of any of the foregoing activities which require work in the Premises.
2.4 Tenant shall have and hold the Premises for a period commencing on the
applicable Commencement Date as set forth in Section 1.1 hereof, and
continuing for the Term unless sooner terminated as provided in Article
VI or Article VII, or unless extended as provided in Section 8.20.
2.5 Tenant agrees to pay to Landlord, or as directed by Landlord, at
Landlord's Original Address specified in Section 1.1 hereof, or at such
other place as Landlord shall from time to time designate by notice,
(1) (a) on the applicable Commencement Date (defined in Section 1.1
hereof) and thereafter monthly, in advance, on the first day of each
and every calendar month during the Original Term, a sum equal to one
twelfth (1/12th) of the Annual Fixed Rent (sometimes hereinafter
referred to as "fixed rent") and (1) (b) on the applicable Commencement
Date and thereafter monthly, in advance, on the first day of each and
every calendar month during the Original Term, a sum equal to one
twelfth (1/12th) of $.85 per annum for each square foot of Rentable
Floor Area of Tenant's Space for tenant electricity subject to
escalation as provided in Section 2.8 and (2) on the first day of each
and every calendar month during the extension option period (if
exercised), a sum equal to (a) one twelfth (1/12th) of the annual fixed
rent as determined in Section 8.20 for the extension option period plus
(b) then applicable monthly electricity charges (subject to escalation
for electricity as provided in Section 2.8 hereof). Until notice of
some other designation is given, fixed rent and all other charges for
which provision is herein made shall be paid by remittance to or for
the order of Boston Properties, Inc., Agents, at 8 Arlington Street,
Boston, Massachusetts 02116, and all remittances received by Boston
Properties, Inc., as Agents as aforesaid, or by any subsequently
designated recipient, shall be treated as payment to Landlord.
<PAGE>
Annual Fixed Rent for any partial month shall be paid by Tenant to
Landlord at such rate on a pro rata basis, and, if the Commencement
Date is a day other than the first day of a calendar month, the first
payment which Tenant shall make to Landlord shall be a payment equal to
a proportionate part of such monthly Annual Fixed Rent for the partial
month from the Commencement Date to the first day of the succeeding
calendar month.
Other charges payable by Tenant on a monthly basis, as hereinafter
provided, likewise shall be prorated, and the first payment on account
thereof shall be determined in similar fashion but shall commence on
the Commencement Date; and other provisions of this Lease calling for
monthly payments shall be read as incorporating this undertaking by
Tenant.
The Annual Fixed Rent and all other charges for which provision is
herein made shall be paid by Tenant to Landlord, without offset,
deduction or abatement except as otherwise specifically set forth in
this Lease.
2.6 "Landlord's Operating Expenses" means the cost of operation of the
Building and the Site which shall exclude (a) costs of special services
rendered to tenants (including Tenant) for which a separate charge is
made; (b) all capital expenditures and depreciation, except as
otherwise explicitly provided in this Section 2.6; (c) leasing fees or
brokerage commissions, advertising and promotional expenses, legal
fees, the cost of tenant improvements, build out allowances, moving
expenses, assumption of rent under existing leases and other
concessions incurred in connection with leasing space in the Building;
(d) interest on indebtedness, debt amortization, ground rent, and
refinancing costs for any mortgage or ground lease of the Building or
the Site; (e) any increase in Landlord's insurance premiums resulting
from any unusual tenant activity only to the extent such additional
cost can be identified by the insurer; (f) costs incurred in performing
work or furnishing services for any tenant (including Tenant), whether
at such tenant's or Landlord's expense, to the extent that such work or
services is in excess of any work or service that Landlord is obligated
to furnish to Tenant at Landlord's expense (e.g., if Landlord agrees to
provide extra cleaning to another tenant, the cost thereof would be
excluded since Landlord is not obligated to furnish extra cleaning to
Tenant); (g) the cost of repairs or replacements incurred by reason of
fire or other casualty or condemnation other than costs not in excess
of the deductible on any insurance maintained by Landlord which
provides a recovery for such repair or replacement; (h) payments for
rented equipment, the cost of which equipment would constitute a
capital expenditure if the equipment were purchased; (i) legal fees
paid in order in connection with the enforcement of any lease in the
Building; (j) salaries or other compensation paid to employees above
the grade of building manager (including, without limitation, profit
sharing and bonuses); (k) costs resulting solely from the gross
negligence of Landlord, but shall include, without limitation, the
following: premiums for insurance carried with respect to the Building
and the Site (including, without limitation, liability insurance,
insurance against loss in case of fire or casualty and insurance of
monthly installments of fixed rent and any additional rent which may be
due under this Lease and other leases of space in the Building for not
<PAGE>
more than 12 months in the case of both fixed rent and additional rent
and if there be any first mortgage of the Property, including such
insurance as may be required by the holder of such first mortgage);
compensation and all fringe benefits, workmen's compensation insurance
premiums and payroll taxes paid to, for or with respect to all persons
engaged in the operating, maintaining or cleaning of the Building or
Site, water, sewer, electric, gas, oil and telephone charges (excluding
utility charges separately chargeable to tenants for additional or
special services); cost of building and cleaning supplies and
equipment; cost of maintenance, cleaning and repairs (other than
repairs not properly chargeable against income or reimbursed from
contractors under guarantees); cost of snow removal and care of
landscaping; payments under service contracts with independent
contractors; management fees at reasonable rates consistent with the
type of occupancy and the service rendered; and all other reasonable
and necessary expenses paid in connection with the operation, cleaning
and maintenance of the Building and the Site and properly chargeable
against income, provided, however, there shall be included (a)
depreciation for capital expenditures made by Landlord (i) to reduce
operating expenses if Landlord shall have reasonably determined that
the annual reduction in operating expenses shall exceed depreciation
therefor or (ii) to comply with applicable laws, rules, regulations,
requirements, statutes, ordinances, by-laws and court decisions of all
public authorities which are now or hereafter in force (herein
collectively called "Legal Requirements"); plus (b) in the case of both
(i) and (ii) an interest factor, reasonably determined by Landlord, as
being the interest rate then charged for long term mortgages by
institutional lenders on like properties within the locality in which
the Building is located; depreciation in the case of both (i) and (ii)
shall be determined by dividing the original cost of such capital
expenditure by the number of years of useful life of the capital item
acquired and the useful life shall be reasonably determined by Landlord
in accordance with generally accepted accounting principles and
practices in effect at the time of acquisition of the capital item.
"Operating Expenses Allocable to the Premises" means (i) the same
proportion of Landlord's Operating Expenses for and pertaining to the
Building as the Rentable Floor Area of Tenant's Space bears to the
Rentable Floor Area of the Building plus (ii) the same proportion of
Landlord's Operating Expenses for and pertaining to the Site as the
Rentable Floor Area of Tenant's Space bears to the Rentable Floor Area
of the Buildings.
"Base Operating Expenses" is hereinbefore defined in Section 1.1.
"Base Operating Expenses Allocable to the Premises" means (i) the same
proportion of Base Operating Expenses for and pertaining to the
Building as the Rentable Floor Area of Tenant's Space bears to the
Rentable Floor Area of the Building plus (ii) the same proportion of
Base Operating Expenses for and pertaining to the Site as the Rentable
Floor Area of Tenant's Space bears to the Rentable Floor Area of the
Buildings.
If with respect to any calendar year failing within the Term, or
fraction of a calendar year falling within the Term at the beginning or
end thereof, the Operating Expenses Allocable
<PAGE>
to the Premises, (a) for a full calendar year exceed Base Operating
Expenses Allocable to the Premises, or for any such fraction of a
calendar year exceed the corresponding fraction of Base Operating
Expenses Allocable to the Premises, or (b) for a full calendar year are
less than Base Operating Expenses Allocable to the Premises, or for any
such fraction of a calendar year are less than the corresponding
fraction of Base Operating Expenses Allocable to the Premises then, in
the case of (a) Tenant shall pay to Landlord, as additional rent, the
amount of such excess, or in the case of (b) Landlord shall credit of
such difference against monthly installments of fixed rent next
thereafter coming due or against any sums then due from Tenant to
Landlord under this Lease (or refund such difference if the Term has
ended and Tenant has no further obligation to Landlord). Such payments
shall be made at the times and in the manner hereinafter provided in
this Section 2.6. (The Base Operating Expenses Allocable to the
Premises do not include the $.85 for tenant electricity to be paid by
Tenant at the time of payment of Annual Fixed Rent and for which
provision is made in Section 2.5 hereof, separate provision being made
in Section 2.8 of this Lease for Tenant's share of increases in
electricity costs.)
Not later than ninety (90) days after the end of the first calendar
year or fraction thereof ending December 31 and of each succeeding
calendar year during the Term or fraction thereof at the end of the
Term, Landlord shall render Tenant a statement in reasonable detail and
according to usual accounting practices certified by a representative
of Landlord, showing for the preceding calendar year or fraction
thereof, as the case may be, Landlord's Operating Expenses and
Operating Expenses Allocable to the Premises. Said statement to be
rendered to Tenant shall also show for the preceding year or fraction
thereof as the case may be the amounts of operating expenses already
paid by Tenant as additional rent, and the amount of operating expenses
remaining due from, or overpaid by, Tenant for the year or other period
covered by the statement. Within thirty (30) days after the date of
delivery of such statement, Tenant shall pay to Landlord the balance of
the amounts, if any, required to be paid pursuant to the above
provisions of this Section 2.6 with respect to the preceding year or
fraction thereof, or Landlord shall credit any amounts due from it to
Tenant pursuant to the above provisions of this Section 2.6 against (i)
monthly installments of fixed rent next thereafter coming due or (ii)
any sums then due from Tenant to Landlord under this Lease (or refund
such portion of the overpayment as aforesaid if the Term has ended and
Tenant has no further obligation to Landlord). Upon no less than three
(3) business days prior notice to Landlord, Tenant, at Tenant's
expense, may examine Landlord's books and records regarding such
statement at any reasonable time specified by Landlord during
Landlord's business hours at a place designated by Landlord, but
Landlord need not retain such books or records for more than three (3)
years after the close of the applicable calendar year. Tenant shall
hold such books and records in confidence and not disclose the same to
any other party, including, without limitation, any other tenant in the
Buildings. If such examination reveals that Landlord's Operating
Expenses for a calendar year have been (a) overstated by Landlord, then
an equitable adjustment shall be made in the amount paid or payable
pursuant to this Section 2.6 for such calendar year, and appropriate
credit shall be made against (i) monthly installments of Annual Fixed
Rent next thereafter coming due or (ii) any other sums due
<PAGE>
from Tenant to Landlord under this Lease (or refund such amount if the
Term has ended and Tenant has no further obligation to Landlord other
than an indemnification obligation for which no claim has been made) or
(b) understated by Landlord, then an equitable adjustment shall be made
in the amount paid or payable pursuant to this Section 2.6 for such
calendar year and an appropriate payment shall be made by Tenant to
Landlord within thirty (30) days after Landlord bills Tenant therefor.
In addition, Tenant shall make payments monthly on account of Tenant's
share of increases in operating expenses anticipated for the then
current year at the time and in the fashion herein provided for the
payment of fixed rent. The amount to be paid to Landlord shall be an
amount reasonably estimated annually by Landlord to be sufficient to
cover, in the aggregate, a sum equal to Tenant's share of such
increases in operating expenses for each calendar year during the Term.
Notwithstanding the foregoing provisions, no decrease in Landlord's
Operating Expenses shall result in a reduction of the amount otherwise
payable by Tenant if and to the extent said decrease is attributable to
vacancies in the Buildings rather than to any other causes.
2.7 If with respect to any full Tax Year or fraction of a Tax Year falling
within the Term, Landlord's Tax Expenses Allocable to the Premises as
hereinafter defined (a) for a full Tax Year exceed Base Taxes Allocable
to the Premises, or for any such fraction of a Tax Year exceed the
corresponding fraction of Base Taxes Allocable to the Premises, or (b)
for a full Tax Year subsequent to the date of full assessment are less
than Base Taxes Allocable to the Premises, or for any such fraction of
a Tax Year subsequent to the date of full assessment are less than the
corresponding fraction of Base Taxes Allocable to the Premises; then,
on or before the thirtieth (30th) day following receipt by Tenant of
the certified statement referred to below in this Section 2.7, in the
case of (a) Tenant shall pay to Landlord, as additional rent, the
amount of such excess, or in the case of (b) Landlord shall credit such
difference against monthly installments of fixed rent next thereafter
coming due (or refund such overpayment if the Term has ended and Tenant
has no further obligation to Landlord). In addition, payments by Tenant
on account of increases in real estate taxes anticipated for the then
current year shall be made monthly at the time and in the fashion
herein provided for the payment of fixed rent. The amount so to be paid
to Landlord shall be an amount reasonably estimated by Landlord to be
sufficient to provide Landlord, in the aggregate, a sum equal to
Tenant's share of such increases, at least ten (10) days before the day
on which such payments by Landlord would become delinquent. Not later
than ninety (90) days after Landlord's Tax Expenses Allocable to the
Premises are determined for the first such Tax Year or fraction thereof
and for each succeeding Tax Year or fraction thereof during the Term,
Landlord shall render Tenant a statement in reasonable detail certified
by a representative of Landlord showing for the preceding Tax Year or
fraction thereof, as the case may be, real estate taxes on the Building
and the Site and abatements and refunds of any taxes and assessments.
Expenditures for legal fees and for other expenses incurred in
obtaining the tax refund or abatement may be charged against the tax
refund or abatement before the adjustments are made for the Tax Year.
To
<PAGE>
the extent that real estate taxes shall be payable to the taxing
authority in installments with respect to periods less than a Tax Year,
the foregoing statement shall be rendered and payments made on account
of such installments. Notwithstanding the foregoing provisions, no
decrease in Landlord's Tax Expenses with respect to any Tax Year shall
result in a reduction of the amount otherwise payable by Tenant if and
to the extent said decrease is attributable to vacancies in the
Building or partial completion of the Building rather than to any other
causes.
Terms used herein are defined as follows:
(i) "Tax Year" means the twelve-month period beginning
July 1 each year during the Term or if the
appropriate governmental tax fiscal period shall
begin on any date other than July 1, such other date.
(ii) "Landlord's Tax Expenses Allocable to the Premises"
means (i) the same proportion of Landlord's Tax
Expenses for and pertaining to the Building as the
Rentable Floor Area of Tenant's Space bears to the
Total Rentable Floor Area of the Building, plus (ii)
the same proportion of Landlord's Tax Expenses for
and pertaining to the Site as the Rentable Floor Area
of Tenant's Space bears to the Total Rentable Floor
Area of the Buildings.
(iii) "Landlord's Tax Expenses" with respect to any Tax
Year means the aggregate real estate taxes on the
Building and Site with respect to that Tax Year,
reduced by any abatement receipts with respect to
that Tax Year.
(iv) "Base Taxes" is hereinbefore defined in Section 1.1.
(v) "Base Taxes Allocable to the Premises" means (i) the
same proportion of Base Taxes for and pertaining to
the Building as the Rentable Floor Area of Tenant's
Space bears to the Total Rentable Floor Area of the
Building, plus (ii) the same proportion of Base Taxes
for and pertaining to the Site as the Rentable Floor
Area of Tenant's Space bears to the Total Rentable
Floor Area of the Buildings.
(vi) "Real estate taxes" means all taxes and special
assessments of every kind and nature assessed by any
governmental authority on the Building or Site which
the Landlord shall be required to pay because of or
in connection with the ownership, leasing and
operation of the Site, the Building and the Property
(including without limitation, if applicable the
excise prescribed by Mass Gen Laws (Ter Ed) Chapter
121A, Section 10 and amounts in excess thereof paid
to the Town of Lexington pursuant to agreement
between Landlord and the Town) and reasonable
expenses of any proceedings for abatement of taxes.
The amount of special taxes or special
<PAGE>
assessments to be included shall be limited to the
amount of the installment (plus any interest, other
than penalty interest, payable thereon) of such
special tax or special assessment required to be paid
during the year in respect of which such taxes are
being determined, Landlord hereby agreeing to elect
to pay any such special tax or special assessment
over the longest period of time permitted by law
without the imposition of penalty. There shall be
excluded from such taxes all income, estate,
succession, inheritance and transfer taxes; provided,
however, that if at any time during the Term the
present system of ad valorem taxation of real
property shall be changed so that in lieu of the
whole or any part of the ad valorem tax on real
property there shall be assessed on Landlord a
capital levy or other tax on the gross rents received
with respect to the Site or Building or Property, or
a federal, state, county, municipal, or other local
income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect in
the jurisdiction in which the Property is located)
measured by or based, in whole or in part, upon any
such gross rents, then any and all of such taxes,
assessments, levies or charges, to the extent so
measured or based, shall be deemed to be included
within the term "real estate taxes" but only to the
extent that the same would be payable if the Site and
Buildings were the only property of Landlord.
2.8 If with respect to any calendar year falling within the Term or
fraction of a calendar year falling within the Term at the beginning or
end thereof, the cost of furnishing electricity to the Building,
including common areas and facilities and space occupied by tenants,
(but expressly excluding utility charges separately chargeable to
tenants for additional or special services for a full calendar year)
exceeds $.85 per square foot of Rentable Floor Area of the Building, or
for any such fraction of a calendar year exceeds the corresponding
fraction of $.85 per square foot of Rentable Floor Area of the
Building, then Tenant shall pay to Landlord, as additional rent, on or
before the thirtieth (30th) day following receipt by Tenant of the
statement referred to below in this Section 2.8, its proportionate
share of the amount of such excess. Payments by Tenant on account of
Tenant's share of such excess (i.e. the same ratio of such excess as
the Rentable Floor Area of Tenant's Space bears to the Total Rentable
Floor Area of the Building) shall be made monthly at the time and in
the fashion herein provided for the payment of Annual Fixed Rent. The
amount so to be paid to Landlord shall be an amount from time to time
reasonably estimated by Landlord to be sufficient to cover, in the
aggregate, a sum equal to Tenant's share of such excess for each
calendar year during the Term.
Not later than ninety (90) days after the end of the first calendar
year or fraction thereof ending December 31 and of each succeeding
calendar year during the Term or fraction thereof at the end of the
Term, Landlord shall render Tenant a reasonably detailed accounting
certified by a representative of Landlord showing for the preceding
calendar year, or fraction thereof, as the case may be, the costs of
furnishing electricity to the Building. Said statement to be rendered
to Tenant also shall show for the preceding year
<PAGE>
or fraction thereof, as the case may be, the amount already paid by
Tenant on account of electricity, and the amount remaining due from, or
overpaid by, Tenant for the year or other period covered by the
statement.
ARTICLE III
CONSTRUCTION
3.1 Landlord shall deliver each portion of the Premises to Tenant on the
applicable Commencement Date as specified in Section 1.1 hereof in
"as-is" condition. Landlord shall have no obligation to perform any
additions, alterations, improvements or demolition to the Premises nor
shall Landlord be responsible for the installation or connection of
Tenant's computer, telephone or other communications equipment, systems
or wiring.
3.2 Intentionally Omitted.
3.3 This Section 3.3 shall apply before and during the Term. Tenant shall
not make alterations and additions to Tenant's space except in
accordance with plans and specifications therefor first approved by
Landlord, which approval shall not be unreasonably withheld. Landlord
shall not be deemed unreasonable for withholding approval of any
alterations or additions which (a) involve or might affect any
structural or exterior element of the Building, any area or element
outside of the Premises, or any facility serving any area of the
Building outside of the Premises, or (b) will delay completion of the
Premises or Building, or (c) will require unusual expense to readapt
the Premises to normal office use on Lease termination or increase the
cost of construction or of insurance or taxes on the Building or of the
services called for by Section 4.1 unless Tenant first gives assurance
acceptable to Landlord for payment of such increased cost and that such
readaptation will be made prior to such termination without expense to
Landlord. Landlord's review and approval of any such plans and
specifications and consent to perform work described therein shall not
be deemed an agreement by Landlord that such plans, specifications and
work conform with applicable Legal Requirements and requirements of
insurers of the Building (herein called "Insurance Requirements") nor
deemed a waiver of Tenant's obligations under this Lease with respect
to applicable Legal Requirements and Insurance Requirements nor impose
any liability or obligation upon Landlord with respect to the
completeness, design sufficiency or compliance of such plans,
specifications and work with applicable Legal Requirements and
Insurance Requirements. All alterations and additions shall be part of
the Building unless and until Landlord shall specify the same for
removal pursuant to Section 5.2 except for any additions or alterations
which Tenant requests to remain in the Premises in Tenant's notice
seeking Landlord's consent for the installation thereof (which notice
shall specifically refer to this Section 3.3) and for which Landlord
specifically agrees in writing may remain. Notwithstanding the
foregoing, upon the expiration or earlier termination of
<PAGE>
the Lease, Tenant may remove its telephone system, however, Tenant may
not remove any wiring without first obtaining Landlord's consent. All
of Tenant's alterations and additions and installation of furnishings
shall be coordinated with any work being performed by Landlord and in
such manner as to maintain harmonious labor relations and not to damage
the Buildings or Site or interfere with construction or operation of
the Buildings and other improvements to the Site and, except for
installation of furnishings, shall be performed by Landlord's general
contractor or by contractors or workmen first approved by Landlord.
Except for work by Landlord's general contractor, Tenant, before its
work is started, shall secure all licenses and permits necessary
therefor; deliver to Landlord a statement of the names of all its
contractors and subcontractors and the estimated cost of all labor and
material to be furnished by them and security satisfactory to Landlord
protecting Landlord against liens arising out of the furnishing of such
labor and material; and cause each contractor to carry workmen's
compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees and commercial general
liability insurance or comprehensive general liability insurance with a
broad form comprehensive liability endorsement with such limits as
Landlord may reasonably require, but in no event less than $2,000,000
combined single limit per occurrence on a per location basis (all such
insurance to be written in companies approved by Landlord and naming
and insuring Landlord and Landlord's managing agent as additional
insureds and insuring Tenant as well as the contractors), and to
deliver to Landlord certificates of all such insurance. Tenant agrees
to pay promptly when due the entire cost of any work done on the
Premises by Tenant, its agents, employees, or independent contractors,
and not to cause or permit any liens for labor or materials performed
or furnished in connection therewith to attach to the Premises or the
Buildings or the Site and immediately to discharge any such liens which
may so attach. Tenant shall pay, as additional rent, 100% of any real
estate taxes on the Complex which shall, at any time after commencement
of the Term, result from any alteration, addition or improvement to the
Premises made by Tenant.
3.3.1 Notwithstanding the terms of Section 3.3, Tenant shall have the right,
without obtaining the prior consent of Landlord, to make alterations,
additions or improvements to the Premises where:
(i) the same are within the interior of the Premises
within the Building, and do not affect the exterior
of the Premises and the Building (including no signs
on windows);
(ii) the same do not affect the roof, walls, any
structural element of the Building, the mechanical,
electrical, plumbing, heating, ventilating, air
conditioning and fire protection systems of the
Building;
(iii) the cost of any individual alteration, addition or
improvement shall not exceed $2,500.00 and the
aggregate cost of said alterations, additions or
<PAGE>
improvements made by Tenant during the Lease Term
shall not exceed $10,000.00 in cost; and
(iv) Tenant shall comply with the provisions of this Lease
and if such work increases the cost of insurance or
taxes or of services, Tenant shall pay for any such
increase in cost;
provided, however, that Tenant shall, within fifteen (15) days after
the making of such changes, send to Landlord plans and specifications
describing the same in reasonable detail and provided further that
Landlord, by notice to Tenant given at least thirty (30) days prior to
the expiration or earlier termination of the Lease Term, may require
Tenant to restore the Premises to its condition prior to such
alteration, addition or improvement at the expiration or earlier
termination of the Lease Term.
3.4 All construction work required or permitted by this Lease shall be done
in a good and workmanlike manner and in compliance with all applicable
Legal Requirements and Insurance Requirements now or hereafter in
force. Each party may inspect the work of the other at reasonable times
and shall promptly give notice of observed defects. Each party
authorizes the other to rely in connection with design and construction
upon approval and other actions on the party's behalf by any
Construction Representative of the party named in Article I or any
person hereafter designated in substitution or addition by notice to
the party relying.
ARTICLE IV
LANDLORD'S COVENANTS; INTERRUPTIONS AND DELAYS
4.1 Landlord covenants:
4.1.1 To furnish services, utilities, facilities and supplies set forth in
Exhibit C equal to those customarily provided by landlords in high
quality buildings in the Boston West Suburban Market subject to
escalation reimbursement in accordance with Section 2.6.
4.1.2 To furnish, at Tenant's expense, reasonable additional Building
operation services which are usual and customary in similar office
buildings in the Boston West Suburban Market upon reasonable advance
request of Tenant at reasonable and equitable rates from time to time
established by Landlord.
4.1.3 Subject to the escalation provisions of Section 2.6 and except as
otherwise provided in Article VI, (i) to make such repairs and
replacements to the roof, exterior walls, floor slabs and common areas
and facilities including without limitation the plumbing, electrical,
mechanical, heating, ventilating, air-conditioning and other systems
serving the base building (excluding any systems installed by Tenant)
as may be necessary to keep
<PAGE>
them in good, working order and condition and (ii) to maintain the
Building (exclusive of Tenant's responsibilities under this Lease) in a
first class manner comparable to the maintenance of similar properties
in the Boston Suburban Market.
4.1.4 To provide and install, at Landlord's expense, letters or numerals on
doors in the Premises to identify Tenant's official name and Building
address; all such letters and numerals shall be in the building
standard graphics and no others shall be used or permitted on the
Premises.
4.1.5 Landlord shall carry at all times during the Term of this Lease (i)
commercial general liability insurance with respect to the Building in
an amount not less than $3,000,000.00 combined single limit per
occurrence and (ii) insurance against loss or damage with respect to
the Buildings covered by the so-called "at risk" type insurance
coverage in an amount equal to at least the replacement value of the
Building. Landlord may also maintain such other insurance as may from
time to time be required by a mortgagee holding a mortgage lien on the
Building. Further, Landlord may also maintain such insurance against
loss of annual fixed rent and additional rent and such other risks and
perils as Landlord deems proper. Any and all such insurance (i) may be
maintained under a blanket policy affecting other properties of
Landlord and/or its affiliated business organizations, (ii) may be
written with deductibles as determined by Landlord and (iii) shall be
subject to escalation reimbursement in accordance with Section 2.6.
4.2 Landlord shall not be liable to Tenant for any compensation or
reduction of rent by reason of inconvenience or annoyance or for loss
of business arising from the necessity of Landlord or its agents
entering the Premises for any of the purposes in this Lease authorized,
or for repairing the Premises or any portion of the Building however
the necessity may occur. In case Landlord is prevented or delayed from
making any repairs, alterations or improvements, or furnishing any
services or performing any other covenant or duty to be performed on
Landlord's part, by reason of any cause reasonably beyond Landlord's
control, including without limitation the causes set forth in Section
3.2 hereof as being reasonably beyond Landlord's control, Landlord
shall not be liable to Tenant therefor, nor, except as expressly
otherwise provided in Section 6.1, shall Tenant be entitled to any
abatement or reduction of rent by reason thereof, nor shall the same
give rise to a claim in Tenant's favor that such failure constitutes
actual or constructive, total or partial, eviction from the Premises.
Landlord reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary
repairs have been completed; provided, however, that in each instance
of stoppage, Landlord shall exercise reasonable diligence to eliminate
the cause thereof. Except in case of emergency repairs, Landlord will
give Tenant reasonable advance notice of any contemplated stoppage and
will use reasonable efforts to avoid unnecessary inconvenience to
Tenant by reason thereof.
<PAGE>
ARTICLE V
TENANT'S COVENANTS
Tenant covenants during the term and such further time as Tenant
occupies any part of the Premises:
5.1 To pay when due all fixed rent and additional rent and all charges for
utility services rendered to the Premises and service inspections
therefor (except as otherwise provided in Exhibit C) and, as further
additional rent, all charges for additional services rendered pursuant
to Section 4.1.2.
5.2 Except as otherwise provided in Article VI and Section 4.1.3, to keep
the Premises in good order, repair and condition, reasonable wear and
tear only excepted, and all glass in windows (except glass in exterior
walls unless the damage thereto is attributable to Tenant's negligence
or misuse) and doors of the Premises whole and in good condition with
glass of the same type and quality as that injured or broken, damage by
fire only excepted, and at the expiration or termination of this Lease
peaceably to yield up the Premises all construction, work,
improvements, and all alterations and additions thereto made by Tenant
in good order, repair and condition, reasonable wear and tear excepted,
first removing all goods and effects of Tenant and, to the extent
specified by Landlord by notice to Tenant given at least ten (10) days
before such expiration or termination (unless otherwise specified by
Landlord as set forth in Section 3.3), the wiring for Tenant's
computer, telephone and other communication systems and equipment and
all alterations and additions made by Tenant and all partitions, and
repairing any damage caused by such removal and restoring the Premises
and leaving them clean and neat. Tenant shall not permit or commit any
waste, and Tenant shall be responsible for the cost of repairs which
may be made necessary by reason of damage to common areas in the
Building, to the Site or to the other building by Tenant, Tenant's
independent contractors, Tenant' s employees or Tenant's invitees.
5.3 Continuously from the commencement of the Term to use and occupy the
Premises for the Permitted Uses only, and not to injure or deface the
Premises, Building, the other building or Site nor to permit in the
Premises or on the Site any auction sale, or inflammable fluids or
chemicals, or nuisance, or the emission from the Premises of any
objectionable noise or odor, nor to use or devote the Premises or any
part thereof for any purpose other than the Permitted Uses, nor any use
thereof which is inconsistent with the maintenance of the Building as
an office building of the first class in the quality of its
maintenance, use and occupancy, or which is improper, offensive,
contrary to law or ordinance or liable to invalidate or increase the
premiums for any insurance on the Building or its contents or liable to
render necessary any alteration or addition to the Building. Further,
(i) Tenant shall not, nor shall Tenant permit its employees, invitees,
agents, independent contractors, contractors, assignees or subtenants
to, keep, maintain, store or dispose of (into the sewage or waste
disposal system or otherwise) or engage in
<PAGE>
any activity which might produce or generate any substance which is or
may hereafter be classified as a hazardous material, waste or substance
(collectively "Hazardous Materials"), under federal, state or local
laws, rules and regulations, including, without limitation, 42 U.S.C.
Section 6901 et seq., 42 U.S.C. Section 9601 et seq., 42 U.S.C. Section
2601 et seq., 49 U.S.C. Section 1802 et seq. and Massachusetts General
Laws, Chapter 21E and the rules and regulations promulgated under any
of the foregoing, as such laws, rules and regulations may be amended
from time to time (collectively "Hazardous Materials Laws"), (ii)
Tenant shall immediately notify Landlord of any incident in, on or
about the Premises, the Building or the Site that would require the
filing of a notice under any Hazardous Materials Laws, (iii) Tenant
shall comply and shall cause its employees, invitees, agents,
independent contractors, contractors, assignees and subtenants to
comply with each of the foregoing and (iv) Landlord shall have the
right to make such inspections (including testing) as Landlord shall
elect from time to time to determine that Tenant is complying with the
foregoing.
5.4 Not to obstruct in any manner any portion of the Building not hereby
leased or any portion thereof or of the other building or of the Site
used by Tenant in common with others; not without prior consent of
Landlord to permit the painting or placing of any signs, curtains,
blinds, shades, awnings, aerials or flagpoles, or the like, visible
from outside the Premises; and to comply with all reasonable Rules and
Regulations now or hereafter made by Landlord of uniform application to
all occupants of the Building, of which Tenant has been given notice,
for the care and use of the Building and Site and their facilities and
approaches; Landlord shall not be liable to Tenant for the failure of
other occupants of the Buildings to conform to such Rules and
Regulations.
5.5 To keep the Premises equipped with all safety appliances required by
any public authority because of any use made by Tenant other than
normal office use, and to procure all licenses and permits so required
because of such use and, if requested by Landlord, to do any work so
required because of such use, it being understood that the foregoing
provisions shall not be construed to broaden in any way Tenant's
Permitted Uses.
5.6 Except as otherwise expressly provided herein, Tenant covenants and
agrees that it shall not assign, mortgage, pledge, hypothecate or
otherwise transfer this Lease and/or Tenant's interest in this Lease or
sublet (which term, without limitation, shall include granting of
concessions, licenses or the like) the whole or any part of the
Premises. Any assignment, mortgage, pledge, hypothecation, transfer or
subletting not expressly permitted in or consented to by Landlord under
Sections 5.6.1-5.6.5 shall be void, ab initio; shall be of no force and
effect; and shall confer no rights on or in favor of third parties. In
addition, Landlord shall be entitled to seek specific performance of or
other equitable relief with respect to the provisions hereof.
5.6.1 Notwithstanding the foregoing provisions of Section 5.6 above and the
provisions of Section 5.6.2 below, but subject to the provisions of
Sections 5.6.3, 5.6.4 and 5.6.5 below, Tenant shall have the right to
assign this Lease or to sublet the Premises (in whole
<PAGE>
or in part) to any parent or subsidiary corporation of Tenant or to any
corporation into which Tenant may be converted or with which it may
merge, provided that the entity to which this Lease is so assigned or
which so sublets the Premises has a credit worthiness (e.g. assets on a
pro forma basis using generally accepted accounting principles
consistently applied and using the most recent financial statements)
which is the same or better than the Tenant as of the date of this
Lease.
5.6.1.1 Notwithstanding the provisions of Section 5.6.1 above but subject to
the provisions of this Section 5.6.1.1 and the provisions of Sections
5.6.3, 5.6.4 and 5.6.5, Tenant may sublease less than twenty percent
(20%) of the Rentable Floor Area of the Premises in the aggregate
provided that in each instance Tenant first obtains the express prior
written consent of Landlord, which consent shall not be unreasonably
withheld or delayed. Landlord shall not be deemed to be unreasonably
withholding its consent to such a proposed subleasing if:
(a) the proposed subtenant is not of a character
consistent with the operation of a first class office
building (by way of example, Landlord shall not be
deemed to be unreasonably withholding its consent to
an assignment or subleasing to any governmental
agency), or
(b) the proposed subtenant is not of good character or
reputation, or
(c) the proposed subtenant does not possess adequate
financial capability to perform the Tenant
obligations as and when due or required, or
(d) the subtenant proposes to use the Premises (or part
thereof) for a purpose other than the purpose for
which the Premises may be used as stated in Section
1.1 hereof, or
(e) the character of the business to be conducted or the
proposed use of the Premises by the proposed
subtenant or assignee shall (i) be likely to increase
Landlord's Operating Expenses beyond that which
Landlord incurs for use by Tenant; (ii) be likely to
increase the burden on elevators or other Building
systems or equipment over the burden prior to such
proposed subletting; or (iii) violate or be likely to
violate any provisions or restrictions contained
herein relating to the use or occupancy of the
Premises, or
(f) there shall be existing an Event of Default (defined
in section 7.1).
5.6.2 Notwithstanding the provisions of Section 5.6.1 above, but subject to
the provisions of this Section 5.6.2 and the provisions of Sections
5.6.3, 5.6.4 and 5.6.5 below, Tenant covenants and agrees not to assign
this Lease or to sublet twenty percent (20%) or more
<PAGE>
of the Rentable Floor Area of the Premises (which shall be deemed to
include, without limitation, any proposed subleasing which together
with prior subleasings would result in an area equal to or greater than
twenty (20%) percent of the Rentable Floor Area of the Premises in the
aggregate being the subject of one or more subleases) without, in each
instance, having first obtained the prior written consent of Landlord,
which consent shall not be unreasonably withheld or delayed. Landlord
shall not be deemed to be unreasonably withholding its consent to such
a proposed assignment or subleasing if:
(a) the proposed assignee or subtenant is not of a
character consistent with the operation of a first
class office building (by way of example, Landlord
shall not be deemed to be unreasonably withholding
its consent to an assignment or subleasing to any
governmental agency), or
(b) the proposed assignee or subtenant is not of good
character or reputation, or
(c) the proposed assignee or subtenant does not possess
adequate financial capability to perform the Tenant
obligations as and when due or required, or
(d) the assignee or subtenant proposes to use the
Premises (or part thereof) for a purpose other than
the purpose for which the Premises may be used as
stated in Section 1.1 hereof, or
(e) the character of the business to be conducted or the
proposed use of the Premises by the proposed
subtenant or assignee shall (i) be likely to increase
Landlord's Operating Expenses beyond that which
Landlord incurs for use by Tenant; (ii) be likely to
increase the burden on elevators or other Building
systems or equipment over the burden prior to such
proposed subletting or assignment; or (iii) violate
or be likely to violate any provisions or
restrictions contained herein relating to the use or
occupancy of the Premises, or
(f) there shall be existing an Event of Default (defined
in Section 7.1), or
(g) in the case of a proposed assignment, Landlord
elects, at its option, by notice given within thirty
(30) days after receipt of Tenant's notice given
pursuant to Section 5.6.3 below, to terminate this
Lease as of a date which shall be not earlier than
sixty (60) days nor later than one hundred twenty
(120) days after Landlord's notice to Tenant;
provided, however, that upon the termination date as
set forth in Landlord's notice, all of Landlord's and
Tenant's obligations relating to the period after
such termination date (but not those relating to the
period before such termination date) shall cease, or
<PAGE>
(h) in the case of a proposed subleasing which together
with prior subleasings would result in an area equal
to twenty percent (20%) or more of the Rentable Floor
Area of the Premises being the subject of one or more
subleases, Landlord elects, at its option, by notice
given within thirty (30) days after receipt of
Tenant's notice given pursuant to Section 5.6.3
below, to terminate this Lease as to such portions of
the Premises proposed to be sublet which would, if
made, result in an area greater than twenty percent
(20%) of the Rentable Floor Area of the Premises
being sublet (herein called the "Terminated Portion
of the Premises") as of a date which shall be not
earlier than sixty (60) days nor later than one
hundred twenty (120) days after Landlord's notice to
Tenant; provided, however that upon the termination
date as set forth in Landlord's notice, all of
Landlord's and Tenant's obligations as to the
Terminated Portion of the Premises relating to the
period after such termination date (but not those
relating to the period before such termination date)
shall cease and provided, further, that this Lease
shall remain in full force and effect as to the
remainder of the Premises, except that from and after
the termination date the Rentable Floor Area of the
Premises shall be reduced to the rentable floor area
of the remainder of the Premises and the definition
of Rentable Floor Area of the Premises shall be so
amended and after such termination all references in
this Lease to the "Premises" or the "Rentable Floor
Area of the Premises" shall be deemed to be
references to the remainder of the Premises and
accordingly Tenant's payments for Annual Fixed Rent,
operating costs, real estate taxes and electricity
shall be reduced on a pro rata basis to reflect the
size of the remainder of the Premises, and provided
further that Landlord shall have the right to make
such alterations and improvements as may be required
to separately demise the Terminated Portion of the
Premises.
5.6.3 Tenant shall give Landlord notice of any proposed sublease or
assignment, and said notice shall specify the provisions of the
proposed assignment or subletting, including (a) the name and address
of the proposed assignee or subtenant, (b) in the case of a proposed
assignment or subletting pursuant to Section 5.6.2, such information as
to the proposed assignee's or proposed subtenant's net worth and
financial capability and standing as may reasonably be required for
Landlord to make the determination referred to in Section 5.6.2 above
(provided, however, that Landlord shall hold such information
confidential having the right to release same to its officers,
accountants, attorneys and mortgage lenders on a confidential basis),
(c) all of the terms and provisions upon which the proposed assignment
or subletting is to be made, (d) in the case of a proposed assignment
or subletting pursuant to Section 5.6.2, all other information
necessary to make the determination referred to in Section 5.6.2 above
and (e) in the case of a proposed assignment or subletting pursuant to
Section 5.6.1 above, such information as may be reasonably required by
Landlord to determine that such proposed assignment or subletting
complies with the requirements of said Section 5.6.1.
<PAGE>
If Landlord shall consent to the proposed assignment or subletting, as
the case may be, then, in such event, Tenant may thereafter sublease
(the whole but not part of the Premises) or assign pursuant to Tenant's
notice, as given hereunder; provided, however, that if such assignment
or sublease shall not be executed and delivered to Landlord within
ninety (90) days after the date of Landlord's consent, the consent
shall be deemed null and void and the provisions of Section 5.6.1.1
shall be applicable.
5.6.4 In addition, in the case of any assignment or subleasing as to which
Landlord may consent (other than an assignment or subletting permitted
under Section 5.6.1 hereof) such consent shall be upon the express and
further condition, covenant and agreement, and Tenant hereby covenants
and agrees that, in addition to the Annual Fixed Rent, additional rent
and other charges to be paid pursuant to this Lease, fifty percent
(50%) of the "Assignment/Sublease Profits" (hereinafter defined), if
any, shall be paid to Landlord.
The "Assignment/Sublease Profits" shall be the excess, if any, of (a)
the "Assignment/ Sublease Net Revenues" as hereinafter defined over (b)
the Annual Fixed Rent and additional rent and other charges provided in
this Lease (provided, however, that for the purpose of calculating the
Assignment/Sublease Profits in the case of a sublease, appropriate
proportions in the applicable Annual Fixed Rent, additional rent and
other charges under this Lease shall be made based on the percentage of
the Premises subleased and on the terms of the sublease). The
"Assignment/Sublease Net Revenues" shall be the fixed rent, additional
rent and all other charges and sums payable either initially or over
the term of the sublease or assignment plus all other profits and
increases to be derived by Tenant as a result of such subletting or
assignment less the reasonable costs of Tenant incurred in such
subleasing or assignment (the definition of which shall include but not
necessarily be limited to rent concessions, brokerage commissions and
alteration allowances) amortized over the term of the sublease or
assignment.
All payments of the Assignment/Sublease Profits due Landlord shall be
made within ten (10) days of receipt of same by Tenant.
5.6.5 (A) It shall be a condition of the validity of any assignment or
subletting of right under Section 5.6.1 above, or consented to under
Section 5.6.2 above, that both Tenant and the assignee or sublessee
agree directly with Landlord in a separate written instrument
reasonably satisfactory to Landlord which contains terms and provisions
reasonably required by Landlord, including, without limitation, the
agreement of the assignee or sublessee to be bound by all the
obligations of the Tenant hereunder, including, without limitation, the
obligation to pay the rent and other amounts provided for under this
Lease (but in the case of a partial subletting, such subtenant shall
agree on a pro rata basis to be so bound) including the provisions of
Sections 5.6 through 5.6.5 hereof, but such assignment or subletting
shall not relieve the Tenant named herein of any of the obligations of
the Tenant hereunder, Tenant shall remain fully and primarily liable
therefor and the liability of Tenant and such assignee (or subtenant,
as the case may be) shall be joint and several. Further, and
notwithstanding the foregoing, the provisions
<PAGE>
hereof shall not constitute a recognition of the assignment or the
assignee thereunder or the sublease or the subtenant thereunder, as the
case may be, and at Landlord's option, upon the termination of the
Lease, the assignment or sublease shall be terminated.
(B) As additional rent, Tenant shall reimburse Landlord promptly for
reasonable out of pocket legal and other expenses incurred by Landlord
in connection with any request by Tenant for consent to assignment or
subletting.
(C) If this Lease be assigned, or if the Premises or any part thereof
be sublet or occupied by anyone other than Tenant, Landlord may upon
prior notice to Tenant, at any time and from time to time, collect rent
and other charges from the assignee, sublessee or occupant and apply
the net amount collected to the rent and other charges herein reserved,
but no such assignment, subletting, occupancy or collection shall be
deemed a waiver of this covenant, or a waiver of the provisions of
Sections 5.6 through 5.6.5 hereof, or the acceptance of the assignee,
sublessee or occupant as a tenant or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained, the Tenant herein named to remain primarily liable under
this Lease.
(D) The consent by Landlord to an assignment or subletting under any of
the provisions of Sections 5.6.1 or 5.6.2 shall in no way be construed
to relieve Tenant from obtaining the express consent in writing to
Landlord to any further assignment or subletting.
(E) In addition to the other requirements set forth in this Lease and
notwithstanding any other provision of this Lease, partial sublettings
of the Premises shall only be permitted under the following terms and
conditions: (i) the layout of both the subleased premises and the
remainder of the Premises must comply with applicable laws, ordinances,
rules and/or regulations and be approved by Landlord, including,
without limitation, all requirements concerning access and egress; and
(ii), in the event the subleased premises are separately physically
demised from the remainder of the Premises, Tenant shall pay all costs
of separately physically demising the subleased premises.
5.7 (A) To defend with counsel first approved by Landlord, save harmless,
and indemnify Landlord from any liability for injury, loss, accident or
damage to any person or property, and from any claims, actions,
proceedings and expenses and costs in connection therewith (including
without limitation reasonable counsel fees) (i) arising from or claimed
to have arisen from (a) the omission, fault, willful act, negligence or
other misconduct of Tenant or Tenant's contractors, licensees,
invitees, agents, servants, independent contractors or employees or (b)
any use made or thing done or occurring on the Premises to the extent
not due to the omission, fault, willful act, negligence or other
misconduct of Landlord, or (ii) resulting from the failure of Tenant to
perform and discharge its covenants and obligations under this Lease.
<PAGE>
(B) To maintain commercial general liability insurance or comprehensive
general liability insurance written on an occurrence basis with a broad
form comprehensive liability endorsement covering the Premises insuring
Landlord and Landlords managing agent (and such persons as are in
privity of estate with Landlord and Landlords managing agent as may be
set out in notice from time to time) as additional insureds as well as
Tenant with limits which shall, at the commencement of the Tenn, be at
least equal to those stated in Section 1.1 and from time to time during
the Tenn shall be for such higher limits, if any, as are customarily
carried in Greater Boston with respect to similar properties, and
workmen's compensation insurance with statutory limits covering all of
Tenant's employees working in the Premises, and to deposit promptly
with Landlord certificates for such insurance, and all renewals
thereof, bearing the endorsement that the policies will not be canceled
until after ten (10) days' written notice to Landlord. All insurance
required to be maintained by Tenant pursuant to this Lease shall be
maintained with responsible companies qualified to do business, and in
good standing, in the Commonwealth of Massachusetts and which have a
rating of at least "A" and are within a financial size category of not
less than "Class VIII" in the most current Best's Key Rating Guide or
such similar rating as may be reasonably selected by Landlord if such
Guide is no longer published.
5.8 That all of the furnishings, fixtures, equipment, effects and property
of every kind, nature and description of Tenant and of all persons
claiming by, through or under Tenant which, during the continuance of
this Lease or any occupancy of the Premises by Tenant or anyone
claiming under Tenant, may be on the Premises or elsewhere in the
Building or on the Site, shall be at the sole risk and hazard of
Tenant, and if the whole or any part thereof shall be destroyed or
damaged by fire, water or otherwise, or by the leakage or bursting of
water pipes, steam pipes, or other pipes, by theft or from any other
cause, no part of said loss or damage is to be charged to or be borne
by Landlord, except that Landlord shall in no event be indemnified or
held harmless or exonerated from any liability to Tenant or to any
other person, for any injury, loss, damage or liability to the extent
such indemnity, hold harmless or exoneration is prohibited by law.
Further, Tenant, at Tenant's expense, shall maintain at all times
during the Term of this Lease insurance against loss or damage covered
by the so-called "all risk" type insurance coverage with respect to
Tenant's fixtures, equipment, goods, wares and merchandise, tenant
improvements made by or paid for by Tenant, and other property of
Tenant (collectively "Tenant's Property"). Such insurance shall be in
an amount at least equal to the full replacement cost of Tenant's
Property.
5.9 To permit Landlord and its agents to examine the Premises at reasonable
times and, if Landlord shall so elect, to make any repairs or
replacements Landlord may deem necessary; to remove, at Tenant's
expense, any alterations, addition, signs, curtains, blinds, shades,
awnings, aerials, flagpoles, or the like not consented to in writing;
and to show the Premises to prospective tenants during the eighteen
(18) months preceding expiration of the Term and to prospective
purchasers and mortgagees at all reasonable times.
<PAGE>
5.10 Not to place a load upon the Premises exceeding an average rate of 70
pounds of live load per square foot of floor area (partitions shall be
considered as part of the live load); and not to move any safe, vault
or other heavy equipment in, about or out of the Premises except in
such manner and at such time as Landlord shall in each instance
authorize; Tenant's business machines and mechanical equipment which
cause vibration or noise that may be transmitted to the Building
structure or to any other space in the Building shall be so installed,
maintained and used by Tenant so as to eliminate such vibration or
noise.
5.11 To pay promptly when due all taxes which may be imposed upon Tenant's
Property in the Premises to whomever assessed.
5.12 To comply with all applicable Legal Requirements now or hereafter in
force which shall impose a duty on Landlord or Tenant relating to or as
a result of the use or occupancy of the Premises; provided that Tenant
shall not be required to make any alterations or additions to the
structure, roof, exterior and load bearing walls, foundation,
structural floor slabs and other structural elements of the Building
unless the same are required by such Legal Requirements as a result of
or in connection with Tenant's use or occupancy of the Premises beyond
normal use of space of this kind. Tenant shall promptly pay all fines,
penalties and damages that may arise out of or be imposed because of
its failure to comply with the provisions of this Section 5.12.
5.13 As additional rent, to pay all reasonable costs, counsel and other fees
incurred by Landlord in connection with the successful enforcement by
Landlord of any obligations of Tenant under this Lease.
ARTICLE VI
CASUALTY AND TAKING
6.1 In case during the Lease Term the Building or the Site are damaged by
fire or other casualty and such fire or casualty damage cannot, in the
ordinary course, reasonably be expected to be repaired within one
hundred twenty (120) days from the time that repair work would
commence, Landlord may, at its election, terminate this Lease by notice
given to Tenant within sixty (60) days after the date of such fire or
other casualty, specifying the effective date of termination. The
effective date of termination specified by Landlord shall not be less
than thirty (30) days nor more than forty-five (45) days after the date
of notice of such termination.
In case during the portion of the Term prior to August 31, 2001 or last
year of the Term during the Extended Tenn referred to in Section 8.20
the Premises are damaged by fire or other casualty and such fire or
casualty damage cannot, in the ordinary course, reasonably be expected
to be repaired within one hundred twenty (120) days (and/or as to
special
<PAGE>
work or work which requires long lead time then if such work cannot
reasonably be expected to be repaired within such additional time as is
reasonable under the circumstances given the nature of the work) from
the time that repair work would commence, Tenant may, at its election,
terminate this Lease by notice given to Landlord within sixty (60) days
after the date of such fire or other casualty, specifying the effective
date of termination. The effective date of termination specified by
Tenant shall be not less than thirty (30) days nor more than forty-five
(45) days after the date of notice of such termination.
Unless terminated pursuant to the foregoing provisions, this Lease
shall remain in full force and effect following any such damage
subject, however, to the following provisions.
If the Building or the Site or any part thereof are damaged by fire or
other casualty and this Lease is not so terminated, or Landlord or
Tenant have no right to terminate this Lease, and in any such case the
holder of any mortgage which includes the Building as a part of the
mortgaged premises or any ground lessor of any ground lease which
includes the Site as part of the demised premises allows the net
insurance proceeds to be applied to the restoration of the Building
(and/or the Site), Landlord promptly after such damage and the
determination of the net amount of insurance proceeds available shall
use due diligence to restore the Premises and the Building in the event
of damage thereto (excluding Tenant's Property) into proper condition
for use and occupation and a just proportion of the Annual Fixed Rent,
Tenant's share of Operating Costs and Tenant's share of real estate
taxes according to the nature and extent of the injury to the Premises
shall be abated from the date of damage until the Premises shall have
been put by Landlord substantially into such condition except for punch
list items and long lead items. Notwithstanding anything herein
contained to the contrary, Landlord shall not be obligated to expend
for such repair and restoration any amount in excess of the net
insurance proceeds.
Unless such restoration is completed within eight (8) months from the
date of the casualty or taking, such period to be subject, however, to
extension where the delay in completion of such work is due to causes
beyond Landlord's reasonable control (but in no event beyond fifteen
(15) months from the date of the casualty or taking), Tenant shall have
the right to terminate this Lease at any time after the expiration of
such eight (8) month (as extended) period until the restoration is
substantially completed, such termination to take effect as of the
thirtieth (30th) day after the date of receipt by Landlord of Tenant's
notice, with the same force and effect as if such date were the date
originally established as the expiration date hereof unless, within
thirty (30) days after Landlord's receipt of Tenant's notice, such
restoration is substantially completed, in which case Tenant's notice
of termination shall be of no force and effect and this Lease and the
Lease Term shall continue in full force and effect.
<PAGE>
6.2 Notwithstanding anything to the contrary contained in this Lease, if
the Building or the Premises shall be substantially damaged by fire or
casualty as the result of a risk not covered by the forms of casualty
insurance at the time maintained by Landlord and such fire or casualty
damage cannot, in the ordinary course, reasonably be expected to be
repaired within ninety (90) days from the time that repair work would
commence, Landlord may, at its election, terminate the Term of this
Lease by notice to the Tenant given within thirty (30) days after such
loss. If Landlord shall give such notice, then this Lease shall
terminate as of the date of such notice with the same force and effect
as if such date were the date originally established as the expiration
date hereof.
6.3 If the entire Building, or such portion of the Premises as to render
the balance (if reconstructed to the maximum extent practicable in the
circumstances) unsuitable for Tenant's purposes, shall be taken by
condemnation or right of eminent domain, Landlord or Tenant shall have
the right to terminate this Lease by notice to the other of its desire
to do so, provided that such notice is given not later than thirty (30)
days after Tenant has been deprived of possession. If either party
shall give such notice, then this Lease shall terminate as of the date
of such notice with the same force and effect as if such date were the
date originally established as the expiration date hereof.
Further, if so much of the Building shall be so taken that continued
operation of the Building would be uneconomic as a result of the
taking, Landlord shall have the right to terminate this Lease by giving
notice to Tenant of Landlord's desire to do so not later than thirty
(30) days after Tenant has been deprived of possession of the Premises
(or such portion thereof as may be taken), provided, that Landlord
shall terminate all other leases and occupancy agreements in the
Building affected by the taking. If Landlord shall give such notice,
then this Lease shall terminate as of the date of such notice with the
same force and effect as if such date were the date originally
established as the expiration date hereof.
Should any part of the Premises be so taken or condemned during the
Lease Term hereof, and should this Lease not be terminated in
accordance with the foregoing provisions, and the holder of any
mortgage which includes the Premises as part of the mortgaged premises
or any ground lessor of any ground lease which includes the Site as
part of the demised premises allows the net condemnation proceeds to be
applied to the restoration of the Building, Landlord agrees that after
the determination of the net amount of condemnation proceeds available
to Landlord, Landlord shall use due diligence to put what may remain of
the Premises into proper condition for use and occupation as nearly
like the condition of the Premises prior to such taking as shall be
practicable (excluding Tenant's Property). Notwithstanding the
foregoing, Landlord shall not be obligated to expend for such repair
and restoration any amount in excess of the net condemnation proceeds.
If the Premises shall be affected by any exercise of the power of
eminent domain, then the Annual Fixed Rent, Tenant's share of operating
costs and Tenant's share of real estate
<PAGE>
taxes shall be justly and equitably abated and reduced according to the
nature and extent of the loss of use thereof suffered by Tenant; and in
case of a taking which permanently reduces the Rentable Floor Area of
the Premises, a just proportion of the Annual Fixed Rent, Tenant's
share of operating costs and Tenant's share of real estate taxes shall
be abated for the remainder of the Lease Term.
6.4 Landlord shall have and hereby reserves to itself any and all rights to
receive awards made for damages to the Premises, the Buildings, the
Complex and the Site and the leasehold hereby created, or any one or
more of them, accruing by reason of exercise of eminent domain or by
reason of anything lawfully done in pursuance of public or other
authority. Tenant hereby grants, releases and assigns to Landlord all
Tenant's rights to such awards, and covenants to execute and deliver
such further assignments and assurances thereof as Landlord may from
time to time request.
Nothing contained herein shall be construed to prevent Tenant from
prosecuting in any condemnation proceeding a claim for the value of any
of Tenant's usual trade fixtures installed in the Premises by Tenant at
Tenant's expense and for relocation and moving expenses, provided that
such action and any resulting award shall not affect or diminish the
amount of compensation otherwise recoverable by Landlord from the
taking authority.
ARTICLE VII
DEFAULT
7.1 If at any time subsequent to the date of this Lease any one or more of
the following events (herein sometimes called an "Event of Default")
shall occur:
(a) Tenant shall fail to pay the fixed rent, additional
rent or other charges for which provision is made
herein on or before the date on which the same become
due and payable, and the same continues for seven (7)
days after notice from Landlord thereof, or
(b) Landlord having rightfully given the notice specified
in subdivision (a) above twice in any calendar year,
Tenant shall thereafter in the same calendar year
fail to pay the fixed rent, additional rent or other
charges on or before the date on which the same
become due and payable, or
(c) Tenant shall fail to perform or observe any other
term or condition contained in this Lease and Tenant
shall not commence to cure such failure within thirty
(30) days after notice from Landlord to Tenant
thereof and promptly and diligently complete the
curing of the same, or
<PAGE>
(d) The estate hereby created shall be taken on execution
or by other process of law, or if Tenant shall be
judicially declared bankrupt or insolvent according
to law, or if any assignment or trust mortgage
arrangement, so- called, shall be made of the
property of Tenant for the benefit of creditors, or
if a receiver, guardian, conservator, trustee in
involuntary bankruptcy or other similar officer shall
be appointed to take charge of all or any substantial
part of Tenant's property by a court of competent
jurisdiction, or if a petition shall be filed for the
reorganization of Tenant under any provisions of the
Bankruptcy Act now or hereafter enacted and the same
shall not be fully and finally dismissed within 60
days after institution of the same, or if Tenant
shall file a petition for such reorganization, or for
arrangements under any provisions of the Bankruptcy
Act now or hereafter enacted and providing a plan for
a debtor to settle, satisfy or extend the time for
payment of debts,
then, and in any of said cases (notwithstanding any license of a former
breach of covenant or waiver of the benefit hereof or consent in a
former instance), Landlord lawfully may, immediately or at any time
thereafter, and without demand or further notice terminate this Lease
by notice to Tenant, specifying a date not less than fourteen (14) days
after the giving of such notice on which this Lease shall terminate,
and this Lease shall come to an end on the date specified therein as
fully and completely as if such date were the date herein originally
fixed for the expiration of the Lease Term, and Tenant will then quit
and surrender the Premises to Landlord; and in the event that this
Lease is terminated under any of the provisions contained in Section
7.1 or shall be otherwise terminated by breach of any obligation of
Tenant, Tenant covenants and agrees forthwith to pay and be liable for,
on the days originally fixed herein for the payment thereof, amounts
equal to the several installments of rent and other charges reserved as
they would, under the terms of this Lease, become due if this Lease had
not been terminated or if Landlord had not entered or re-entered, as
aforesaid, and whether the Premises be relet or remain vacant, in whole
or in part, or for a period less than the remainder of the Term, and
for the whole thereof, but in the event the Premises be relet by
Landlord, Tenant shall be entitled to a credit in the net amount of
rent and other charges received by Landlord in reletting, after
deduction of all expenses incurred in reletting the Premises
(including, without limitation, remodeling costs, brokerage fees and
the like), and in collecting the rent in connection therewith, in the
following manner:
Amounts received by Landlord after reletting shall first be applied
against such Landlord's expenses, until the same are recovered, and
until such recovery, Tenant shall pay, as of each day when a payment
would fall due under this Lease, the amount which Tenant is obligated
to pay under the terms of this Lease (Tenant's liability prior to any
such reletting and such recovery not in any way to be diminished as a
result of the fact that such reletting might be for a rent higher than
the rent provided for in this Lease); when and if such expenses have
been completely recovered, the amounts received from reletting by
Landlord as have not previously been applied shall be credited against
<PAGE>
Tenant's obligations as of each day when a payment would fall due under
this Lease, and only the net amount thereof shall be payable by Tenant.
Further, amounts received by Landlord from such reletting for any
period shall be credited only against obligations of Tenant allocable
to such period, and shall not be credited against obligations of Tenant
hereunder accruing subsequent or prior to such period; nor shall any
credit of any kind be due for any period after the date when the term
of this Lease is scheduled to expire according to its terms.
At any time after such termination and whether or not Landlord shall
have collected any damages as aforesaid, as liquidated final damages
and in lieu of all other damages beyond the date of notice from
Landlord to Tenant, at Landlord's election, Tenant shall pay to
Landlord such a sum as at the time of the giving of such notice
represents the amount of the excess, if any, of (a) the discounted
present value, at a discount rate of six percent (6%), of the total
rent and other benefits which would have accrued to Landlord under this
Lease from the date of such notice for what would be the then unexpired
Lease Term if the Lease terms had been fully complied with by Tenant
over and above (b) the discounted present value, at a discount rate of
six percent (6%), of the then cash rental value (in advance) of the
Premises for the balance of the Lease Term.
For the purposes of this Article, if Landlord elects to require Tenant
to pay damages in accordance with the immediately preceding paragraph,
the total rent shall be computed by assuming that Tenant's share of
excess taxes, Tenant's share of excess operating costs and Tenant's
share of excess electrical costs would be, for the balance of the
unexpired Term from the date of such notice, the amount thereof (if
any) for the immediately preceding annual period payable by Tenant to
Landlord.
Nothing contained in this Lease shall limit or prejudice the right of
Landlord to prove for and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal
to the maximum allowed by any statute or rule of law in effect at the
time when, and governing the proceedings in which, the damages are to
be proved, whether or not the amount be greater, equal to, or less than
the amount of the loss or damages referred to above.
7.2 Landlord shall in no event be in default in the performance of any of
Landlord's obligations hereunder unless and until Landlord shall have
failed to perform such obligations within thirty (30) days, or such
additional time as is reasonably required to correct any such default,
after notice by Tenant to Landlord properly specifying wherein Landlord
has failed to perform any such obligation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
<PAGE>
8.1 Tenant covenants and agrees that Tenant will not do or permit anything
to be done in or upon the Premises, or bring in anything or keep
anything therein, which shall increase the rate of insurance on the
Premises or on the Building above the standard rate applicable to
premises being occupied for the use to which Tenant has agreed to
devote the Premises; and Tenant further agrees that, in the event that
Tenant shall do any of the foregoing, Tenant will promptly pay to
Landlord, on demand, any such increase resulting therefrom, which shall
be due and payable as additional rent thereunder.
8.2 Failure on the part of Landlord or Tenant to complain of any action or
non-action on the part of the other, no matter how long the same may
continue, shall never be a waiver by Tenant or Landlord, respectively,
of any of its rights hereunder. Further, no waiver at any time of any
of the provisions hereof by Landlord or Tenant shall be construed as a
waiver of any of the other provisions hereof, and a waiver at any time
of any of the provisions hereof shall not be construed as a waiver at
any subsequent time of the same provisions. The consent or approval of
Landlord or Tenant to or of any action by the other requiring such
consent or approval shall not be construed to waive or render
unnecessary Landlord's or Tenant's consent or approval to or of
subsequent similar act by the other.
No payment by Tenant, or acceptance by Landlord, of a lesser amount
than shall be due from Tenant to Landlord shall be treated otherwise
than as a payment on account. The acceptance by Landlord of a check for
a lesser amount with an endorsement or statement thereon, or upon any
letter accompanying such check, that such lesser amount is payment in
full, shall be given no effect, and Landlord may accept such check
without prejudice to any other rights or remedies which Landlord may
have against Tenant.
8.3 The specific remedies to which Landlord may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any
other remedies or means of redress to which it may be lawfully entitled
in case of any breach or threatened breach by Tenant of any provisions
of this Lease. In addition to the other remedies provided in this
Lease, Landlord shall be entitled to the restraint by injunction of the
violation or attempted or threatened violation of any of the covenants,
conditions or provisions of this Lease or to a decree compelling
specific performance of any such covenants, conditions or provisions.
8.4 Tenant, subject to the terms and provisions of this Lease on payment of
the rent and observing, keeping and performing all of the terms and
provisions of this Lease on Tenant's part to be observed, kept and
performed, shall lawfully, peaceably and quietly have, hold, occupy and
enjoy the Premises during the Term, without hindrance or ejection by
any persons lawfully claiming under Landlord to have title to the
Premises superior to Tenant, subject, however, to the terms of this
Lease; the foregoing covenant of quiet enjoyment is in lieu of any
other covenant, express or implied; and it is understood and agreed
that this covenant and any and all other covenants of Landlord
contained in this Lease shall be binding upon Landlord and Landlord's
successors only with respect to breaches occurring during Landlord's or
Landlord's successors' respective ownership of Landlord's interest
hereunder, as the case may be.
<PAGE>
Further, Tenant specifically agrees to look solely to Landlord's then
equity interest in the Building at the time owned, or in which Landlord
holds an interest as ground lessee, for recovery of any judgment from
Landlord; it being specifically agreed that neither Landlord (original
or successor), nor any beneficiary of any Trust of which any person
holding Landlord's interest is Trustee, shall ever be personally liable
for any such judgment, or for the payment of any monetary obligation to
Tenant. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Tenant might otherwise
have to obtain injunctive relief against Landlord or Landlord's
successors in interest, or any action not involving the personal
liability of Landlord (original or successor), any successor Trustee to
the persons named herein as Landlord, or any beneficiary of any Trust
of which any person holding Landlord's interest is Trustee, to respond
in monetary damages from Landlord's assets other than Landlord's equity
interest aforesaid in the Building.
In no event shall Landlord ever be liable to Tenant for any indirect or
consequential damages suffered by Tenant from whatever cause.
8.5 After receiving notice from any person, firm or other entity that it
holds a mortgage which includes the Premises as part of the mortgaged
premises, or that it is the ground lessor under a lease with Landlord,
as ground lessee, which includes the Premises as a part of the demised
premises, no notice from Tenant to Landlord shall be effective unless
and until a copy of the same is given to such holder or ground lessor,
and the curing of any of Landlord's defaults by such holder or ground
lessor within a reasonable time thereafter (including a reasonable time
to obtain possession of the premises if the mortgagee or ground lessor
elects to do so) shall be treated as performance by Landlord. For the
purposes of this Section 8.5 or Section 8.15, the term "mortgage"
includes a mortgage on a leasehold interest of Landlord (but not one on
Tenant's leasehold interest).
8.6 With reference to any assignment by Landlord of Landlord's interest in
this Lease, or the rents payable hereunder, conditional in nature or
otherwise, which assignment is made to the holder of a mortgage or
ground lease on property which includes the Premises, Tenant agrees:
(a) That the execution thereof by Landlord, and the
acceptance thereof by the holder of such mortgage or
the ground lessor, shall never be treated as an
assumption by such holder or ground lessor of any of
the obligations of Landlord hereunder, unless such
holder, or ground lessor, shall, by notice sent to
Tenant, specifically otherwise elect; and
(b) That, except as aforesaid, such holder or ground
lessor shall be treated as having assumed Landlord's
obligations hereunder only upon foreclosure of such
holder's mortgage and the taking of possession of the
Premises, or, in the case of a ground lessor, the
assumption of Landlord's position hereunder by such
ground lessor. In no event shall the acquisition of
title
<PAGE>
to the Building and the land on which the same is
located by a purchaser which, simultaneously
therewith, leases the entire Building or such land
back to the seller thereof be treated as an
assumption, by operation of law or otherwise, of
Landlord's obligations hereunder, but Tenant shall
look solely to such seller-lessee, and its successors
from time to time in title, for performance of
Landlord's obligations hereunder subject to the
provisions of Section 8.4 hereof. In any such event,
this Lease shall be subject and subordinate to the
lease to such purchaser. For all purposes, such
seller-lessee, and its successors in title, shall be
the landlord hereunder unless and until Landlord's
position shall have been assumed by such
purchaser-lessor.
8.7 No act or thing done by Landlord during the Lease Term shall be deemed
an acceptance of a surrender of the Premises, and no agreement to
accept such surrender shall be valid, unless in writing signed by
Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys of the Premises prior to the termination
of this Lease. The delivery of keys to any employee of Landlord or of
Landlord's agents shall not operate as a termination of the Lease or a
surrender of the Premises.
8.8 Tenant warrants and represents that Tenant has not dealt with any
broker in connection with the consummation of this Lease other than the
broker, person or firm, if any, designated in Section 1.1 hereof; and
in the event any claim is made against the Landlord relative to
dealings with brokers other than the Brokers, if any, designated in
Section 1.1 hereof, Tenant shall defend the claim against Landlord with
counsel of Landlord's selection and save harmless and indemnify
Landlord on account of loss, cost or damage which may arise by reason
of such claim. Landlord agrees that it shall be solely responsible for
the payment of brokerage commissions to the broker, person or firm, if
any, designated in Section 1.1 hereof.
8.9 If any term or provision of this Lease, or the application thereof to
any person or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Lease, or the application of such
term or provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and
be enforced to the fullest extent permitted by law.
8.10 The obligations of this Lease shall run with the land, and except as
herein otherwise provided, the terms hereof shall be binding upon and
shall inure to the benefit of the successors and assigns, respectively,
of Landlord and Tenant and, if Tenant shall be an individual, upon and
to his heirs, executors, administrators, successors and assigns. Each
term and each provision of this Lease to be performed by Tenant shall
be construed to be both a covenant and a condition. The reference
contained to successors and assigns of Tenant is not intended to
constitute a consent to subletting or assignment by Tenant.
<PAGE>
8.11 Tenant agrees not to record the within Lease, but each party hereto
agrees, on the request of the other, to execute a so-called Notice of
Lease or short form lease in form recordable and complying with
applicable law and reasonably satisfactory to Landlord's attorneys. In
no event shall such document set forth rent or other charges payable by
Tenant under this Lease; and any such document shall expressly state
that it is executed pursuant to the provisions contained in this Lease,
and is not intended to vary the terms and conditions of this Lease.
8.12 Whenever, by the terms of this Lease, notice shall or may be given
either to Landlord or to Tenant, such notice shall be in writing and
shall be sent by registered or certified mail postage prepaid:
If intended for Landlord, addressed to Landlord at the address
set forth on the first page of this Lease (or to such other
address or addresses as may from time to time hereafter be
designated by Landlord by like notice).
If intended for Tenant, addressed to Tenant at the address set
forth on the second page of this Lease except that from and
after the Commencement Date the address of Tenant shall be the
Premises (or to such other address or addresses as may from
time to time hereafter be designated by Tenant by like notice)
with a copy to Robert L. Birnbaum, Esq., Foley, Hoag & Eliot,
One Post Office Square, Boston, MA 02109.
Except as otherwise provided herein, all such notices shall be
effective when received; provided, that (i) if receipt is refused,
notice shall be effective upon the first occasion that such receipt is
refused or (ii) if the notice is unable to be delivered due to a change
of address of which no notice was given, notice shall be effective upon
the date such delivery was attempted.
Where provision is made for the attention of an individual or
department, the notice shall be effective only if the wrapper in which
such notice is sent is addressed to the attention of such individual or
department.
Time is of the essence with respect to any and all notices and periods
for giving notice or taking any action thereto under this Lease.
8.13 Employees or agents of Landlord have no authority to make or agree to
make a lease or any other agreement or undertaking in connection
herewith. The submission of this document for examination and
negotiation does not constitute an offer to lease, or a reservation of,
or option for, the Premises, and this document shall become effective
and binding only upon the execution and delivery hereof by both
Landlord and Tenant. All negotiations, considerations, representations
and understandings between Landlord and Tenant are incorporated herein
and may be modified or altered only by written agreement
<PAGE>
between Landlord and Tenant, and no act or omission of any employee or
agent of Landlord shall alter, change or modify any of the provisions
hereof.
8.14 The titles of the Articles throughout this Lease are for convenience
and reference only, and the words contained therein shall in no way be
held to explain, modify, amplify or aid in the interpretation,
construction or meaning of the provisions of this Lease.
8.15 This Lease shall be subject and subordinate to any mortgage now or
hereafter on the Site or the Building, or both, and to each advance
made or hereafter to be made under any mortgage, and to all renewals,
modifications, consolidations, replacements and extensions thereof and
all substitutions therefor, provided, that the holder of such mortgage
agrees to recognize the right of Tenant to use and occupy the Premises
upon the payment of rent and other charges payable by Tenant under this
Lease and the performance by Tenant of Tenant's obligations hereunder.
In confirmation of such subordination, Tenant shall execute and deliver
promptly such instruments of subordination as such mortgagee may
request. Tenant hereby appoints such mortgagee (from time to time) as
Tenant's attorney-in-fact to execute such subordination upon default of
Tenant in complying with such mortgagee's (from time to time) request.
In the event that any mortgagee or its respective successor in title
shall succeed to the interest of Landlord, then, at the option of such
mortgagee or successor, this Lease shall nevertheless continue in full
force and effect and Tenant shall and does hereby agree to attorn to
such mortgagee or successor and to recognize such mortgagee or
successor as its landlord. If any holder of a mortgage which includes
the Premises, executed and recorded prior to the date of this Lease,
shall so elect, this Lease and the rights of Tenant hereunder, shall be
superior in right to the rights of such holder, with the same force and
effect as if this Lease had been executed, delivered and recorded, or a
statutory Notice hereof recorded, prior to the execution, delivery and
recording of any such mortgage. The election of any such holder shall
become effective upon either notice from such holder to Tenant in the
same fashion as notices from Landlord to Tenant are to be given
hereunder or by the recording in the appropriate registry or recorder's
office of an instrument in which such holder subordinates its rights
under such mortgage to this Lease.
If in connection with obtaining financing for the Building or Complex,
a bank, insurance company, pension trust or other institutional lender
shall request reasonable modifications in this Lease as a condition to
such financing, Tenant will not unreasonably withhold, delay or
condition its consent thereto, provided that such modifications do not
increase the monetary or other obligations of Tenant hereunder or
materially adversely affect the leasehold interest hereby created.
8.16 Recognizing that Landlord may find it necessary to establish to third
parties, such as accountants, banks, potential or existing mortgagees,
potential purchasers or the like, the then current status of
performance hereunder, Tenant, on the request of Landlord made from
time to time, will promptly furnish to Landlord, or any existing or
potential holder of any mortgage encumbering the Premises, the
Building, the Site and/or the Complex or
<PAGE>
any potential purchaser of the Premises, the Building, the Site and/or
the Complex, (each an "Interested Party"), a statement of the status of
any matter pertaining to this Lease, including, without limitation,
acknowledgments that (or the extent to which) each party is in
compliance with its obligations under the terms of this Lease. In
addition, Tenant shall deliver to Landlord, or any Interested Party
designated by Landlord, financial statements of Tenant and any
guarantor of Tenant's obligations under this Lease, as reasonably
requested by Landlord, including, but not limited to financial
statements for the past three (3) years, provided, that Landlord and
any such Interested Party first executes Tenant's confidentiality
non-disclosure agreement in the form attached hereto as Exhibit E.. Any
such status statement or financial statement delivered by Tenant
pursuant to this Section 8.16 may be relied upon by any Interested
Party.
8.17 (A) If Tenant shall at any time default in the performance of any
obligation under this Lease, Landlord shall have the right, but shall
not be obligated, to enter upon the Premises and to perform such
obligation notwithstanding the fact that no specific provision for such
substituted performance by Landlord is made in this Lease with respect
to such default. In performing such obligation, Landlord may make any
payment of money or perform any other act. All sums so paid by Landlord
(together with interest at the rate of two and one-half percentage
points over the then prevailing prime rate in Boston as set by Fleet
Boston) and all costs and expenses in connection with the performance
of any such act by Landlord, shall be deemed to be additional rent
under this Lease and shall be payable to Landlord immediately on
demand. Landlord may exercise the foregoing rights without waiving any
other of its rights or releasing Tenant from any of its obligations
under this Lease.
(B) Landlord shall never be liable for any failure to make repairs
which, under the provisions of this Lease, Landlord has undertaken to
make unless:
(a) Tenant has given notice to Landlord of the need to
make such repairs, or of a condition in the Building
or in the Premises requiring any repair for which
Landlord is responsible; and
(b) Landlord has failed to commence to make such repairs
within a reasonable time after receipt of such
notice.
In the event Landlord fails to make such repairs as are required of
Landlord within thirty (30) days after written notice from Tenant to
Landlord and to the holder of any mortgage on the Premises of which
Landlord has given Tenant notice or of which Tenant has actual notice,
specifying the nature of such repairs (or if such repairs are of the
type which cannot be completed within thirty (30) days, then if
Landlord or the holder of any such mortgage (at the option of such
mortgagee) fails to (i) commence making such repairs within thirty (30)
days after such written notice from Tenant and (ii) thereafter
prosecute such repairs to completion with due diligence given the
nature of such repairs), then thereafter at any time prior to
Landlord's or such mortgagee's commencing such repairs or
<PAGE>
subsequent to Landlord or such mortgagee commencing such repairs if
Landlord or such mortgagee has not prosecuted such repairs to
completion with due diligence given the nature of such repairs, Tenant
may, but need not, make such repairs and charge the reasonable cost
thereof to Landlord; provided, however, that in the case of emergency
repairs (i) such notice by Tenant to Landlord and such mortgagee need
not be in writing, and (ii) Tenant may make such emergency repairs and
charge the reasonable cost thereof to Landlord if either Landlord or
such mortgagee has not made such emergency repairs within a reasonable
time after such notice. If Landlord fails to reimburse Tenant for such
reasonable costs within thirty (30) days after the submission to
Landlord of documentation describing the nature of such repair work
performed by or for Tenant, Tenant shall have the right to commence and
prosecute suit against Landlord to collect such reasonable costs.
However, in no event shall Tenant have the right to offset against,
withhold or deduct from Annual Fixed Rent or additional rent payable
under this Lease for any reason relating to this Section 8.17(B).
8.18 Any holding over by Tenant after the expiration of the term of this
Lease shall be treated as a tenancy at sufferance at double the rents
and other charges herein (prorated on a daily basis) and shall
otherwise be on the terms and conditions set forth in this Lease, as
far as applicable; provided, however, that neither the foregoing nor
any other term or provision of this Lease shall be deemed to permit
Tenant to retain possession of the Premises or hold over in the
Premises after the expiration or earlier termination of the Lease Term.
8.19 Any insurance carried by either party with respect to the Premises or
property therein or occurrences thereon shall, if it can be so written
without additional premium or with an additional premium which the
other party agrees to pay, include a clause or endorsement denying to
the insurer rights of subrogation against the other party to the extent
rights have been waived by the insured prior to occurrence of injury or
loss. Each party, notwithstanding any provisions of this Lease to the
contrary, hereby waives any rights of recovery against the other for
injury or loss due to hazards covered by such insurance to the extent
of the indemnification received thereunder.
8.20 (A) Provided that at the time of the exercise of the option to extend
(hereinafter referred to) and at the commencement of the option period
(i) no Event of Default exists and (ii) Tenant has not assigned this
Lease or has not subleased the Premises (except for an assignment or
subletting permitted under Section 5.6.1 or the term of which has
expired) and (iii) this Lease is still in full force and effect, Tenant
shall have the right to extend the Term upon all the same terms,
conditions and provisions herein contained (except for the Annual Fixed
Rent which shall be adjusted during the option period as hereinbelow
set forth) for one (1) period of two (2) years as hereinafter set
forth. The option period is sometimes herein referred to as the
"Extended Term".
(B) If Tenant desires to exercise the then option to extend the Term,
then Tenant shall give notice to Landlord, not earlier than twelve (12)
months nor later than six (6) months prior to the expiration of the
then current Term of this Lease of Tenant's request for
<PAGE>
Landlord's quotation of the annual fair market rent for the Premises as
of the commencement date of the Extended Term, such quotation to be
based on the use of the Premises as first class office space in the
Boston West Suburban Market (hereinafter called the "Annual Market
Rent"). Within thirty (30) days after Landlord's receipt of Tenant's
notice requesting such a quotation, Landlord shall notify Tenant of
Landlord's quotation of the Annual Market Rent (which in no event shall
be less than the Annual Fixed Rent for the last year of the Lease Term
then in effect). In order to exercise its rights hereunder, Tenant
shall, within fifteen (15) days after receipt by Tenant of Landlord's
quotation of the Annual Market Rent, give written notice that it
exercises its option to extend the Term of this Lease, in which case
the Term of this Lease shall be extended for an additional term of two
(2) years upon all of the same terms, conditions, covenants and
agreements contained in this Lease except that the Annual Fixed Rent
shall be equal to the Annual Market Rent as quoted by Landlord;
provided, however, in no event shall the Annual Fixed Rent payable
during the option period be less than the Annual Fixed Rent for the
last year of the Lease Term then in effect. Upon the giving of such
notice, this Lease and the Lease Term hereof shall be extended, for the
Extended Term, without the necessity for the execution of any
additional documents, except that Landlord and Tenant agree to enter
into an instrument in writing setting forth the Annual Fixed Rent for
the Extended Term but the failure to so enter into such a written
instrument shall not negate the exercise of the option to extend. Upon
the giving of such notice of extension as aforesaid all references
herein to the Lease Term or the term of this Lease shall be construed
as referring to the Lease Term, as so extended, unless the context
clearly otherwise requires. Notwithstanding anything here contained to
the contrary, in no event shall the Lease Tenn hereof be extended for
more than two (2) years after the expiration of the Original Term
hereof.
8.21 If Landlord shall not have received any payment or installment of rent
on or before the date (the "Due Date") on which the same first becomes
payable under this Lease, the amount of such payment or installment
shall bear interest from the Due Date through and including the date
such payment or installment is received by Landlord, at a rate equal to
the lesser of (i) the rate announced by Fleet Boston from time to time
as its prime or base rate (or if such rate is no longer available, a
comparable rate reasonably selected by Landlord), plus two percent
(2%), or (ii) the maximum applicable legal rate, if any. Such interest
shall be deemed additional rent and shall be paid by Tenant to Landlord
upon demand.
8.22 This Lease shall be governed exclusively by the provisions hereof and
by the law of the Commonwealth of Massachusetts, as the same may from
time to time exist.
<PAGE>
EXECUTED as a sealed instrument in two or more counterparts each of which shall
be deemed to be an original.
WITNESS: LANDLORD:
/s/ [illegible] Marie Cameron /s/ S. A. Baker
---------------------------------
STACEY A. BAKER, FOR THE TRUSTEES
OF ELANDZEE TRUST PURSUANT TO
WRITTEN DELEGATION, BUT NOT
INDIVIDUALLY
TENANT:
CENTRA SOFTWARE, INC.
By: /s/ Anthony J. Mark
--------------------------
Name ANTHONY J. MARK
-------------------------
Title PRESIDENT (OR VICE
------------------------
PRESIDENT)
------------------------------
HEREUNTO DULY AUTHORIZED
ATTEST:
By By: /s/ Stephen A. Johnson
------------------------ ---------------------------
Name Name STEPHEN A. JOHNSON
---------------------- -------------------------
Title SECRETARY (OR Title: TREASURER (OR
-------------------- ------------------------
ASSISTANT SECRETARY ASSISTANT TREASURER)
- -------------------------- ------------------------------
HEREUNTO DULY AUTHORIZED
(CORPORATE SEAL)
<PAGE>
EXHIBIT A
The premises located in Lexington, Middlesex County, Massachusetts,
being shown on that certain plan entitled "Plan Of Land in Lexington, Mass. For
Boston Properties dated February 17, 1984, prepared by Joseph W. Moore Co., Land
Surveyors and Civil Engineers, a Division of Boston Survey consultants, Inc.,
which plan is recorded with the Middlesex South District Registry of Deeds as
Plan No. 400 of 1984. Said premises are more particularly bounded and described
according to said plan, as follows:
Beginning at a point at the Northerly corner of premises at its
intersection with Bedford Street, thence running S 41 DEG. 48' 54" E
by said Bedford Street, One Hundred Ninety-Two and 28/100
(192.28) feet;
Thence running along a curve on said Bedford Street having a radius of
3200.00', a distance of Two Hundred Five and 87/100 (205.87) feet to a
point;
Thence running S 38 DEG. 07' 44" E, along said Bedford Street,
a distance of Seven and 45/100 (7.45) feet;
Thence running S 12 DEG. 52' 18" E a distance of Fifty-Six and 66/100
(56.66) feet to a Mass. Highway Bound (MHB), as shown on said plan;
Thence running S 33 DEG. 33' 25" E a distance of 230.30 feet to a Mass
Highway Bound (MHB), as shown on said plan;
Thence running by a curve of the Northern Circumferential Highway
(Route 128-Ramp) as shown on said plan, which curve has a radius of
300.00 feet, a distance of Three Hundred and 99/100 (300.99).feet to a
point;
Thence running by said curve of said Northern Circumferential Highway
having a radius of 300.00 feet, a distance of One Hundred One and
79/100 (101.79) feet to a point;
Thence running S 43 DEG. 22' 09" W by said Northern Circumferential
Highway, a distance of Two Hundred Thirty-Two and 94/100 (232.94) feet
to a point;
Thence running by a curve of said Northern Circumferential Highway
having a radius of 280.00 feet, a distance of 95.00 feet to a point;
Thence turning and running N 39 DEG. 30' 59" W a distance of
Forty-Seven and 45/100 (47.45) feet to a point;
Thence turning and running S 54 DEG. 29' 48" W by land N/F of
Bean & Deming a distance of Seven Hundred Eleven and 14/100 (711.14)
feet to a point;
Thence turning and running N 42 DEG. 11' 12" W, by land N/F of Town of
Lexington, a distance of Two Hundred Seventy-Two (272.00) feet to a
point;
<PAGE>
Thence turning and running N 42 DEG. 46' 02" E by said land N/F of
Town of Lexington, a distance of Six Hundred Fifty-Five 16/100
(655.16) feet to a point;
Thence turning and running N 63 DEG. 50' 44" E by said land N/F of
Town of Lexington, a distance of Five Hundred Eighty-Seven and 14/100
(587.14) feet to a point;
Thence turning and running N 53 DEG. 59' 18" E by land N/F of
Lexington Chalet, Inc., a distance of Eighty-One Hundredths (0.81) feet
to a point;
Thence running N 49 DEG. 24' 01" E by said land N/F of
Lexington Chalet, Inc., a distance of Six Hundred Sixty-Seven and
51/100 (667.51) feet to a point;
Thence running N 49 DEG. 40' 06" E by said land N/F of
Lexington Chalet, Inc., and by two lines measuring in total
One Hundred Sixty and 89/100 (160.89) feet to a point;
Thence running N 48 DEG. 13' 46" E by said land N/F of
Lexington Chalet, Inc., a distance of Fifty-Four and
49/100 (54.49) feet to a point;
Thence running N 51 DEG. 33' 50" E, by said land N/F of
Lexington Chalet, Inc., a distance of Fifty-Four and
24/100 (54.24) feet to the point and place of beginning.
Portions of said premises are registered Land and are shown as (i) Lot
1 On Land Court Plan 9475Y and (ii) Lot 393 on Land Court Plan 9475-2. Said
registered land is more particularly described in Certificates of Title No.
161938 in Registration Book 939, Page 188.
<PAGE>
EXHIBIT C
LANDLORD SERVICES
I. CLEANING:
Cleaning and janitor services as provided below:
A. OFFICE AREAS:
DAILY: (Monday through Friday, inclusive, holidays excepted).
1. Empty all waste receptacles and ashtrays and remove
waste material from the Premises; wash receptacles as
necessary.
2. Sweep and dust mop all uncarpeted areas using a
dust-treated mop.
3. Vacuum all rugs and carpeted areas.
4. Hand dust and wipe clean with treated cloths all
horizontal surfaces including furniture, office
equipment, window sills, door ledges, chair rails,
and convector tops, within normal reach.
5. Wash clean all water fountains and sanitize.
6. Move and dust under all desk equipment and telephones
and replace same (but not computer terminals,
specialized equipment or other materials).
7. Wipe clean all chrome and other bright work.
8. Hand dust grill work within normal reach.
9. Main doors to premises shall be locked and lights shut off
upon completion of cleaning.
WEEKLY:
1. Dust coat racks and the like.
2. Spot clean entrance doors, light switches and doorways.
QUARTERLY:
1. Render high dusting not reached in daily cleaning to
include:
a) dusting all pictures, frames, charts, graphs and
similar wall hangings.
<PAGE>
b) dusting of all vertical surfaces, such as walls,
partitions, doors and door
frames, etc.
c) dusting all pipes, ducts and moldings.
d) dusting of all vertical blinds.
e) dust all ventilating, air conditioning, louvers
and grills.
2. Spray buff all resilient floors.
B. LAVATORIES:
DAILY: (Monday through Friday, inclusive, holidays excepted).
1. Sweep and damp mop.
2. Clean all mirrors, powder shelves, dispensers and
receptacles, bright work, flushometers, piping and
toilet seat hinges.
3. Wash both sides of all toilet seats.
4. Wash all basins, bowls and urinals.
5. Dust and clean all powder room fixtures.
6. Empty and clean paper towel and sanitary disposal
receptacles.
7. Remove waste paper and refuse.
8. Refill tissue holders, soap dispensers, towel
dispensers, sanitary dispensers; materials to be
furnished by Landlord.
MONTHLY:
1. Machine scrub lavatory floors.
2. Wash all partitions and tile walls in lavatories.
3. Dust all lighting fixtures and grills in lavatories.
<PAGE>
C. MAIN LOBBIES, ELEVATORS, STAIRWELLS AND COMMON CORRIDORS:
DAILY: (Monday through Friday, inclusive, holidays excepted).
1. Sweep and damp mop all floors, empty and clean waste
receptacles, dispose of waste.
2. Clean elevators, wash or vacuum floors, wipe down walls and
doors.
3. Spot clean any metal work inside lobbies.
4. Spot clean any metal work surrounding building entrance
doors.
5. Sweep all stairwells and dust handrails.
MONTHLY:
1. All resilient tile floors in public areas to be spray
buffed.
D. WINDOW CLEANING:
All exterior windows shall be washed on the inside and outside
surfaces no less than three (3) times per year.
II. HVAC:
A. Heating, ventilating and air conditioning equipment will be
provided with sufficient capacity to accommodate a maximum
population density of one (1) person per one hundred fifty
(150) square feet of useable floor area served, and a combined
lighting and standard electrical load of 3.0 watts per square
foot of useable floor area. In the event Tenant introduces
into the Premises personnel or equipment which overloads the
system's ability to adequately perform its proper functions,
Landlord shall so notify Tenant in writing and supplementary
system(s) may be required and installed by Landlord at
Tenant's expense, if within fifteen (15) days Tenant has not
modified its use so as not to cause such overload.
Operating criteria of the basic system are in accordance with
the Massachusetts Energy Code and shall not be less than the
following:
i) Cooling season indoor conditions of not in excess of
78 degrees Fahrenheit when outdoor conditions are 91
degrees Fahrenheit drybulb and 73 degrees Fahrenheit
wetbulb.
ii) Heating season minimum room temperature of 72 degrees
Fahrenheit when outdoor conditions are 6 degrees
Fahrenheit drybulb.
<PAGE>
B. Landlord shall provide heating, ventilating and air
conditioning as normal seasonal charges may require during
Normal Building Operating Hours (8:00 a.m. to 6:00 p.m.,
Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturdays, legal holidays in all cases excepted).
If Tenant shall require air conditioning (during the air
conditioning season) or heating or ventilating during any
season outside Normal Building Operating Hours, Landlord shall
use landlord's best efforts to furnish such services for the
area or areas specified by written request of Tenant delivered
to the Building Superintendent or the Landlord before 3:00
p.m. of the business day preceding the extra usage. For such
services, Tenant shall pay Landlord, as additional rent, upon
receipt of billing, a sum equal to the cost incurred by
Landlord.
III. ELECTRICAL SERVICES:
A. Landlord shall provide electric power for a combined load of
3.0 watts per square foot of useable area for lighting and for
office machines through standard receptacles for the typical
office space.
B. Landlord, at its option, may require separate metering and
direct billing to Tenant for the electric power required for
any special equipment (such as computers and reproduction
equipment) that requires either 3-phase electric power or any
voltage other than 120, or for any other usage in excess of
3.0 watts per square foot.
C. Landlord will furnish and install, at Tenant's expense, all
replacement lighting tubes, lamps and ballasts required by
Tenant. Landlord will clean lighting fixtures on a regularly
scheduled basis at Tenant's expense.
IV. ELEVATORS
Provide passenger elevator service.
V. WATER:
Provide hot water for lavatory purposes and cold water for drinking,
lavatory and toilet purposes.
VI. CARD ACCESS SYSTEM:
Landlord will provide a card access system at one entry door of the
building.
<PAGE>
EXHIBIT E
CENTRA SOFTWARE, INC.
CONFIDENTIALITY/NON-DISCLOSURE AGREEMENT
THIS AGREEMENT, made as of (the "Effective Date"), by and between
Centra Software, Inc., a Delaware Corporation, having its principal place of
business at 430 Bedford Street, Lexington, MA 02173 ("Centra"), and Boston
Properties Limited Partnership having its principal place of business at
Prudential Center 800 Boylston Street, Boston, MA 02199-8001 (Boston
Properties).
This Confidentiality/Non-Disclosure Agreement ("Agreement") by and between
Centra and Boston Properties states the obligations of the parties hereto with
respect to Centra's disclosure of confidential and proprietary information of a
financial or commercial nature in connection with the lease hereof. Centra will
not make such disclosures without Boston Properties' agreement to maintain
confidential treatment of such information. The Agreement shall commence on the
date Centra executes this Agreement and shall terminate one year therefrom.
The Authorized Company Representative's signature on this Agreement obligates
any and all members of Boston Properties to uphold the terms and conditions of
Agreement, unless otherwise designated by an Officer of Centra.
As such, the parties hereto agree as follows:
1. Boston Properties will not disclose or use any business information
received of Centra designated as "Confidential," or "Proprietary," or
in like words, "Confidential Information," without the prior written
consent of Centra and then only to the extent specified in such
consent.
2. Such Confidential Information is limited to Centra's financial
information, marketing and sales data and plans, and other information
that may be requested by Boston Properties in connection with the lease
hereof. The Confidential Information may be disclosed to Boston
Properties in writing, in other tangible form, or electronically,
orally, or visually.
3. Boston Properties agrees to treat Confidential Information as it would
its own confidential information and to disseminate it within Boston
Properties only to the extent necessary for the purposes hereof and
only to Boston Properties' employees, lenders, attorneys or consultants
bound to maintain confidentiality.
4. Boston Properties shall at no time, either during or after the term of
this Agreement, or for a period of one (1) year after its expiration:
<PAGE>
4.1. Publish, disclose, or otherwise divulge any of Centra's
Confidential Information to any person, except its officers
and employees on a need-to-know basis, or
4.2. Permit its officers, lenders, attorneys or employees to
divulge Centra's Confidential Information without the prior
written consent of Centra.
4.3. Not use Confidential Information except in the course of
duties under these terms and conditions.
4.4. Upon request by Centra, Boston Properties agrees to
immediately return to Centra all of Centra's Confidential
Information in its possession, custody, or control, with a
letter confirming that the Confidential Information has in no
way been reproduced or copied or that all copies have been
returned.
5. The Confidential Information restrictions will not apply to information
which is (1) publicly known at the time of its disclosure, (2) lawfully
received from a third party not bound in a confidential relationship to
Centra, (3) published or otherwise made known to the public by Centra,
(4) generated independently before its receipt from Centra, or (5)
required to be disclosed pursuant to court order, duly authorized
subpoena, or governmental authority or any other administrative or
judicial proceeding or as required by law and notice is provided to
Centra prior to such disclosure.
6. In no event shall Boston Properties be liable for any indirect or
consequential damages in connection with this agreement.
7. This Agreement shall be binding on the parties, and their successors
and assigns. The laws of The Commonwealth of Massachusetts, United
States of America, shall govern this Agreement. Any legal action or
proceeding with respect to this Agreement shall be brought in the
Courts of the Commonwealth of Massachusetts or of the United States of
America for the District of Massachusetts. This Agreement shall remain
in effect with respect to any Confidential Information during the
period of the lease hereof.
IN WITNESS WHEREOF, the authorized representatives of the parties acknowledge
that they have read, understood, and agree to be bound by the terms and
conditions of this agreement, and that this Agreement is executed as of the date
set forth below.
<TABLE>
<S> <C>
Centra Software, Inc. Boston Properties Limited Partnership
By Boston Properties, Inc., its General Partner:
By: By:
--------------------------------------- ---------------------------------------------
- ------------------------------------------ ------------------------------------------------
(Printed or typed) (Printed or typed)
Title: Title:
------------------------------------ ------------------------------------------
Date: Date:
------------------------------------- ------------------------------------------
</TABLE>
<PAGE>
FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO LEASE dated as of this ____ day of ____________,
1999, by and between Mortimer B. Zuckerman and Edward H. Linde as TRUSTEES OF
ELANDZEE TRUST under Declaration of Trust dated MARCH 27, 1972, recorded with
the Middlesex South District Registry of Deeds in Book 12237, Page 161 as
amended by instrument dated January 23, 1991 recorded with said Registry of in
Book 20987, Page 157, but not individually ("Landlord") and CENTRA SOFTWARE,
INC., a Delaware corporation ("Tenant").
R E C I T A L S
By Lease dated July 21, 1999, (the "Lease"), Landlord did lease to
Tenant and Tenant did lease from Landlord 19,349 square feet of rentable floor
area (the "Rentable Floor Area of the Initial Premises") on the second floor of
the building (the "Building") known as and numbered 430 Bedford Street,
Lexington, Massachusetts (referred to in the Lease as the "Premises" or
"Tenant's Space") and hereinafter sometimes referred to as the "Initial
Premises".
Tenant has determined to Lease from Landlord an additional 3,490 square
feet of rentable floor area (the "Rentable Floor Area of the Additional
Premises") on the first floor of the Building, which space is shown on Exhibit A
attached hereto (the "Additional Premises").
Landlord and Tenant are entering into this instrument to set forth said
leasing of the Additional Premises, to integrate the Additional Premises into
the Lease and to amend the Lease.
NOW THEREFORE, in consideration of One Dollar ($1.00) and other good
and valuable consideration in hand this date paid by each of the parties to the
other, the receipt and sufficiency of which are hereby severally acknowledged,
and in further consideration of the mutual promises herein contained, Landlord
and Tenant hereby agree to and with each other as follows:
1. Effective as of September 27, 1999 (the "Additional Premises
Commencement Date") the Additional Premises shall constitute a
part of the "Premises" (and "Tenant's Space") demised to
Tenant under the Lease, so
-1-
<PAGE>
that the "Tenant's Space" (as defined in Section 1.1 of the
Lease) and the "Premises" (as defined and used in the Lease),
shall include the Initial Premises and the Additional
Premises. By way of example, the option to extend the Term of
the Lease contained in Section 8.20 of the Lease shall apply
to the Initial Premises and the Additional Premises
collectively, but not to either space independently.
2. The remainder of the Term of the Lease for the Initial
Premises and the Additional Premises shall be coterminous.
Accordingly, the following is hereby added to the definition
of the "Term" of the Lease as set forth in Section 1.1 of the
Lease:
TERM: As to the Additional Premises, a period
beginning on the Additional Premises
Commencement Date and ending on August 31,
2001, unless sooner terminated or extended
as provided in the Lease as amended.
3. (A) Annual Fixed Rent for the Initial Premises shall continue
to be paid by Tenant as provided in the Lease.
(B) Annual Fixed Rent for the Additional Premises from the
Additional Premises Commencement Date through August 31, 2001,
shall be payable at the annual rate of $97,720.00 (being the
product of (i) $28.00 and (ii) the Rentable Floor Area of the
Additional Premises (being 3,490 square feet)); provided,
however, that Tenant shall not be responsible for payments of
Annual Fixed Rent until December 15, 1999 (the "Additional
Premises Rent Commencement Date").
(C) Annual Fixed Rent for the Initial Premises and the
Additional Premises during the extension option period (if
exercised) shall be as provided in Section 8.20 of the Lease.
4. Notwithstanding that, Tenant's payments for Annual Fixed Rent
shall not commence until the Additional Premises Rent
Commencement Date, Tenant shall comply with all other terms of
the Lease with respect to the Additional Premises as and at
the times provided for in the Lease.
-2-
<PAGE>
5. For the purposes of computing Tenant's payments for
electricity (as determined pursuant to Sections 2.5 and 2.8 of
the Lease) and Tenant's Payments for operating expenses
pursuant to Section 2.6 of the Lease, for the portion of the
Lease Term on and after the Additional Premises Commencement
Date, the "Rentable Floor Area of the Premises" shall include
the Rentable Floor Area of the Additional Premises (being
3,490 square feet). For the portion of the Lease Term prior to
the Additional Premises Commencement Date, the Rentable Floor
Area of the Premises shall be as provided in the Lease for
such purposes.
6. (A) From and after the Additional Premises Commencement Date,
for the purposes of computing Tenant's payments for real
estate taxes pursuant to Section 2.7 of the Lease with respect
to the Additional Premises, the following is hereby added to
the definition of "Base Taxes" contained in Section 1.1 of the
Lease:
BASE TAXES: With respect to the Additional Premises
only, Landlord's Tax Expenses (as hereinafter defined
in Section 2.7) for fiscal tax year 2000, being the
period from July 1, 1999 through June 30, 2000.
Such definition shall remain unchanged with respect to the
Initial Premises.
(B) Further, for purposes of determining and calculating the
Tenant's obligations to make payment for real estate taxes
pursuant to Section 2.7 of the Lease respecting the Additional
Premises, (i) all references in Section 2.7 of the Lease to
the "Premises" shall be deemed to be references to the
Additional Premises; (ii) all references in Section 2.7 to the
"Rentable Floor Area of Tenant's Space" shall be deemed to be
references to the Rentable Floor Area of the Additional
Premises (being 3,490 square feet); and (iii) in the
definitions of "Landlord's Tax Expenses Allocable to the
Premises" and "Base Taxes Allocable to the Premises" the
reference to the "Rentable Floor Area of Tenant's Space" shall
mean said Rentable Floor Area of the Additional Premises.
-3-
<PAGE>
7. As of the Additional Premises Commencement Date, the
definition of "Number of Parking Spaces" contained in Section
1.1 of the Lease, shall be deleted in its entirety and
replaced with the following:
NUMBER OF
PARKING SPACES: Thirty Six (36) during the period from the
Additional Premises Commencement Date
through February 28, 2000; Forty Six (46)
during the period from March 1, 2000 through
July 31, 2001; and Seventy Six (76) during
the period from August 1, 2001 through the
scheduled expiration date of the Term unless
extended or sooner terminated.
8. Landlord agrees at its expense to clean the carpeting in the
Additional Premises and re-lamp the Additional Premises as may
be required. In addition, Landlord shall provide signage
identifying Tenant's name on the Tenant entry and lobby
directory. The failure of Landlord to complete such work prior
to any particular date shall not entitle Tenant to any
abatement or reduction of Annual Fixed Rent or additional rent
or the right to withhold or set off against Annual Fixed Rent
or additional rent nor give rise to any right to terminate the
Lease or this First Amendment.
9. The 3,848 square feet of space located on the second floor of
the Building (the "3,848 Space") shown on Exhibit B attached
hereto is currently leased to Whittman-Hart, Inc. (successor
to Waterfield Technology Group, Inc.) pursuant to a lease
dated September 20, 1993 as amended (the "Waterfield Lease").
If upon the expiration or earlier termination of the
Waterfield Lease, Landlord and Tenant enter into an amendment
to the Lease for the leasing of the 3,848 Space (the "3,848
-4-
<PAGE>
Amendment"), Landlord agrees upon Tenant's written request to
remove the Additional Premises from the space leased to Tenant
pursuant to the Lease as of the commencement of the term for
the 3,848 Space (the "3,848 Commencement Date") and Tenant
shall be relieved of all obligations under the Lease with
respect to the Additional Premises subsequent to the date of
such removal. Any such removal shall be conditioned upon (i)
Tenant actually occupying the 3,848 Space, (ii) Tenant
commencing rental payments for the 3,848 Space, (iii) there
being no "Event of Default" (as defined in Section 7.1) as of
the date of such removal, (iv) Tenant having paid all Annual
Fixed Rent and additional rent due under the Lease through the
date of such reduction and (v) Tenant shall have requested
such reduction as provided in the previous sentence prior to
the 3,848 Commencement Date, time being of the essence. In the
event the Additional Premises are so removed pursuant to this
Section 8, Tenant shall quit, vacate and surrender the
Additional Premises in the condition required by the Lease
upon the expiration or earlier termination of the Lease Term.
10. (A) Tenant warrants and represents that Tenant has not dealt
with any broker in connection with the consummation of this
First Amendment other than Fallon Hines O'Connor (the
"Recognized Broker"); and in the event any claim is made
against Landlord relative to dealings by Tenant with brokers
other than the Recognized Broker, Tenant shall defend the
claim against Landlord with counsel of Tenant's selection
first approved by Landlord (which approval will not be
unreasonably withheld) and save harmless and indemnify
Landlord on account of loss, cost or damage which may arise by
reason of such claim.
(B) Landlord warrants and represents that Landlord has not
dealt with any broker in connection with the consummation of
this First Amendment other than the Recognized Broker; and in
the event any claim is made against Tenant relative to
dealings by Landlord with brokers, Landlord shall defend the
claim against Tenant with counsel of Landlord's selection and
save harmless and indemnify Tenant on account of loss, cost or
damage which may arise by reason of such claim.
-5-
<PAGE>
11. Except as otherwise expressly provided herein, all capitalized
terms used herein without definition shall have the same
meanings as are set forth in the Lease.
12. Except as herein amended the Lease shall remain unchanged and
in full force and effect. All references to the "Lease" shall
be deemed to be references to the Lease as herein amended.
-6-
<PAGE>
EXECUTED as a sealed instrument as of the date and year
first above written.
WITNESS: LANDLORD:
- -------------------------------- ------------------------------------
STACEY A. BAKER, FOR THE TRUSTEES OF
ELANDZEE TRUST PURSUANT TO WRITTEN
DELEGATION, BUT NOT INDIVIDUALLY
ATTEST: TENANT:
By CENTRA SOFTWARE, INC.
-----------------------------
Name
---------------------------
Title SECRETARY (OR By
------------------------- ----------------------------
ASSISTANT SECRETARY) Name
------------------------- --------------------------
Title PRESIDENT (OR VICE
-------------------------
PRESIDENT)
-------------------------
HERETO DULY AUTHORIZED
By
----------------------------
Name
--------------------------
Title TREASURER (OR ASSISTANT
------------------------
TREASURER)
------------------------
HERETO DULY AUTHORIZED
(CORPORATE SEAL)
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of
this registration statement.
Arthur Andersen LLP
Boston, Massachusetts
December 2, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 SEP-30-1999
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1997 DEC-31-1998 SEP-30-1999
<EXCHANGE-RATE> 1 1 1
<CASH> 8,009 1,979 3,893
<SECURITIES> 80 0 5,759
<RECEIVABLES> 200 1,869 2,747
<ALLOWANCES> 50 100 219
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 8,306 3,938 12,581
<PP&E> 984 1,457 2,012
<DEPRECIATION> 295 660 1,079
<TOTAL-ASSETS> 9,238 4,753 13,620
<CURRENT-LIABILITIES> 1,065 2,397 3,033
<BONDS> 158 530 455
17,992 18,498 32,353
0 0 0
<COMMON> 3 3 4
<OTHER-SE> (9,980) (16,675) (22,225)
<TOTAL-LIABILITY-AND-EQUITY> 9,238 4,753 13,620
<SALES> 289 4,226 5,582
<TOTAL-REVENUES> 289 4,226 5,582
<CGS> 205 1,104 1,196
<TOTAL-COSTS> 205 1,104 1,196
<OTHER-EXPENSES> 6,490 9,586 10,136
<LOSS-PROVISION> 50 99 66
<INTEREST-EXPENSE> 34 33 48
<INCOME-PRETAX> (6,371) (6,253) (5,539)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (6,371) (6,253) (5,539)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (6,877) (6,759) (5,919)
<EPS-BASIC> (1.33) (1.16) (0.92)
<EPS-DILUTED> (1.33) (1.16) (0.92)
</TABLE>
