XXXXX XXXX
Narragansett I, L.P.
Narragansett Offshore Ltd.
SDS Merchant Fund, L.P.
Pequot Scout Fund, L.P.
Re: Consultant's Lock-up and Tag Along Rights Agreement
---------------------------------------------------------
Dear Sirs/Madams:
The undersigned, being a holder of shares of the common stock par value
$0.001 per share (the "Merlin Common Stock") of Merlin Software Technologies
International, Inc., a Nevada corporation ("Merlin"), understands that Merlin
proposes to enter into a Note and Warrant Purchase Agreement (the "Purchase
Agreement") with Narragansett I, L.P., Narragansett Offshore Ltd., Pequot Scout
Fund, L.P. and SDS Merchant Fund, L.P. (collectively, the "Purchasers"),
pursuant to which Merlin will sell to the Purchasers an aggregate of $2,100,000
principal amount of Series A Senior Secured Convertible Notes due August 18,
2003 (the "Notes") and Series A 10% Common Stock Purchase Warrants (the
"Warrants") to purchase an aggregate of 1,520,000 shares of Merlin Common Stock
(the "Transaction"). The undersigned also understands that the Purchasers are
willing to proceed with this Transaction only if the undersigned, the executive
officers and directors of Merlin and certain 5% or greater shareholders of
Merlin Common Stock agree to enter into this Lock-up and Tag Along Rights
Agreement and certain other documents as may be reasonably requested by the
Purchasers. Capitalized terms used, but not defined, herein shall have the
respective meanings ascribed to them in the Purchase Agreement and the Related
Documents.
I hereby warrant and represent as follows:
(i) I am familiar with the terms of the Transaction, and I have had the
opportunity to discuss in detail the terms of the Transaction with the directors
and officers of Merlin;
(ii) I am the sole beneficial owner of the shares of Merlin Common Stock
registered in my name, and no other person has any lien or other interest of any
nature in such shares; without limiting the foregoing, I do not hold such
shares in any representative or fiduciary capacity; and
(iii) I have the full authority and capacity to enter into and carry out all
the terms of this Lock-up and Tag Along Rights Agreement, and I am not subject
to or bound by any agreement or instrument, or the order of any court or other
governmental authority which in any way
restricts my authority or capacity to enter into and carry out all the terms
of this Lock-up and Tag Along Rights Agreement.
In consideration of the consummation of the Transaction, I irrevocably agree
that I will not, directly or indirectly,
(1) offer for sale, sell, pledge, assign, hypothecate or otherwise create
any interest in or dispose of (or enter into any transaction or device that is
designed to, or could reasonably be expected to, result in any of the foregoing)
any shares of Merlin Common Stock (including, without limitation, shares of
Merlin Common Stock that I "beneficially own" as defined in Section 13(d) of the
Securities Exchange Act of 1934, as amended, including the rules and regulations
of the Securities and Exchange Commission thereunder, and shares of Merlin
Common Stock that may be issued upon exercise of any option (excluding Common
Stock issued upon the exercise of stock incentive options currently held by the
undersigned, if the exercise price thereof is paid in cash) or warrant, or upon
the occurrence of any future contingency) or securities convertible into or
exchangeable for Merlin Common Stock which may be issued or transferred to me or
for my benefit under the terms of the Transaction during the Lock-up Period (as
defined below), or
(2) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of ownership
of such shares of Merlin Common Stock, including, but not limited to, short
sales, puts, calls or other hedging transactions, including private hedging
transactions,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Merlin Common Stock or other securities, in cash or
otherwise, during the Lock-up Period.
As used herein, the "Lock-up Period" with respect to the Merlin Common
Stock shall mean the period commencing on the date of the closing of the First
Tranche of the Transaction ("the First Tranche Closing Date") and ending two
years after the First Tranche Closing Date. Notwithstanding anything to the
contrary contained herein, I understand that I will be allowed to resell my
shares of Merlin Common Stock during the Lock-up Period in accordance with the
following restrictions:
1. For so long as the market price of the Common Stock is above $5.00
per share, I will be able to resell all of my shares of Common Stock.
2. For so long as the market price of the Common Stock is above $2.50
per share and below $5.00 per share and the principal amount of Notes
outstanding is greater than $250,000, I will be able to resell up to 150,000
shares of Common Stock, and if the principal amount of Notes outstanding is less
than $250,000, I will be able to resell all of my shares of Common Stock.
3. For so long as the market price of the Common Stock is below $2.50
per share and the principal amount of Notes outstanding is greater then
$250,000, I will be able to resell up to 50,000 shares of Common Stock, and if
the principal amounts of the Notes outstanding is less than $250,000, I will be
able to resell all of my shares of Common Stock.
I understand that the Purchasers will proceed with the Transaction in
reliance on this Lock-Up and Tag Along Rights Agreement, and that any shares of
Merlin Common Stock currently held by me will contain a restrictive legend
stating that the transfer of such shares is restricted.
TAG ALONG RIGHT. If the undersigned (the "Electing Shareholder") elects to
sell any Merlin Common Stock to a third party other than an at market sale
through a broker assisted transaction on a stock exchange or an over-the-counter
market, the Purchasers shall thereafter be deemed to have been offered the
opportunity to sell their shares of Merlin Common Stock to the proposed
purchaser on the same terms as the Electing Shareholder. The Electing
Shareholder shall be estopped from transferring its Merlin Common Stock until
all tag-along rights of their shares of Merlin Common Stock granted herein have
expired or have been released and relieved by the Purchasers. The tag-along
rights granted herein shall expire upon the earlier of (i) the Maturity of the
Notes, (ii) the Conversion of all of the outstanding Notes by the Purchasers or
(iii) the Company's exercise of its Mandatory Conversion Right for all of the
outstanding Notes. On or before the date which is sixty (60) days after the
Purchasers receive actual written notice from the Electing Shareholder of the
terms of the proposed transaction (the "Notice"), the Purchasers may, at their
sole option, send a notice (the "Election Notice") to the Electing Shareholder
electing to sell all or some of their shares of Merlin Common Stock in
accordance with the terms specified in the Notice. The Electing Shareholder
shall not sell any shares of Merlin Common Stock pursuant to this paragraph,
unless the proposed purchaser also acquires all shares of Merlin Common Stock
which the Purchasers have elected to sell pursuant to an Election Notice on
terms and conditions at least as favorable as those set out in the Notice.
Notwithstanding the foregoing, I may transfer any shares of Merlin Common
Stock or any securities convertible into or exchangeable or exercisable for or
deriving from shares of Merlin Common Stock during my lifetime or, upon my death
by will or intestacy, to my immediate family or trusts or other entities of
which my immediate family are the only beneficiaries; provided, however, that
(i) prior to any transfer each transferee shall execute a copy of this agreement
and become bound thereby, and (ii) no such transfer, singly or in the aggregate
with other transfers, shall require the registration of the shares so
transferredFor the purposes of this paragraph, "immediate family" shall mean my
spouse, lineal descendants, parents and siblings.
I agree that I will execute any additional documents reasonably necessary
or related to the enforcement of this Lock-up and Tag Along Rights Agreement.
My obligations under this Lock-up and Tag Along Rights Agreement shall be
binding upon my heirs, personal representatives, successors
and assigns.
Dated: August 28, 2000 Very truly yours,
-----------------
/s/ E. Xxxxxxx Xxxx
STATE OF MAINE )
) ss.:
COUNTY OF CUMBERLAND )
On the 28th day of August, in the year 2000 before me, the undersigned, a notary
public in and for said State, personally appeared E. Xxxxxxx Xxxx, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual(s) whose name(s) is (are) subscribed to the within instrument and
acknowledged to me that such individual(s) executed the same in his/her/their
capacity(ies) and that by such signature(s) on the instrument, the
individual(s), or the persons upon behalf of which the individual(s) acted,
executed the instrument.
/s/ Xxxxxxx X. Xxxxxxx
-----------------------------
Notary Public
Xxxxxxx X. Xxxxxxx
Notary Public, Maine
My Commission Expires Oct. 23, 2002
