NETEGRITY, INC.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
January 6, 1998
Table of Contents
Page
SECTION 1. Issuance and Sale of Series D Preferred Stock and Warrants......-1-
1.1. The Purchases...................................................-1-
1.2. The Closings....................................................-1-
1.3. Conditions to the Initial Closing...............................-2-
1.4. Additional Issuances, Purchase Price Adjustment.................-4-
1.5. Purchase Price Allocation.......................................-5-
1.6. Conditions to the Subsequent Closing............................-6-
SECTION 2. Representations and Warranties of the Company...................-7-
2.1. Organization and Good Standing; Power and Authority;
Qualifications..................................................-7-
2.2. Authorization of the Documents..................................-7-
2.3. Capitalization..................................................-7-
2.4. Authorization and Issuance of Capital Stock.....................-8-
2.5. SEC Reports.....................................................-9-
2.6. Financial Statements............................................-9-
2.7. Absence of Material Changes.....................................-10-
2.8. No Conflict.....................................................-11-
2.9. Agreements......................................................-11-
2.10. Intellectual Property Rights....................................-12-
2.11. Equity Investments; Subsidiaries................................-14-
2.12. Title to Assets and Properties, Insurance.......................-14-
2.13. Employee Benefit Plans..........................................-14-
2.14. Labor Relations, Employees......................................-15-
2.15. Litigation, Orders..............................................-16-
2.16. Compliance with Laws, Permits...................................-16-
2.17. Offering Exemption..............................................-17-
2.18. Disclosure......................................................-17-
2.19. Taxes...........................................................-18-
2.20. Consents........................................................-18-
2.21. Brokers.........................................................-18-
2.22. Suppliers and Customers.........................................-18-
2.23. Use of Proceeds.................................................-18-
SECTION 3. Representations and Warranties of the Purchasers................-19-
SECTION 4. Certain Covenants...............................................-20-
4.1. Access to Records...............................................-20-
4.2. Financial Reports...............................................-20-
4.3. Affirmative Covenants...........................................-22-
4.4. Insurance.......................................................-23-
4.5. Merger, etc.....................................................-23-
4.6. Transactions with Affiliates....................................-24-
4.7. Notice of Breach................................................-24-
4.8. Matters Related to Directors, Non-Voting Observers..............-24-
4.9. Rights of First Offer...........................................-25-
4.10. Subsidiary Stock................................................-25-
4.11. Limitation on Convertible Securities............................-26-
4.12. Payment of Taxes and Other Charges..............................-26-
4.13. Dividends.......................................................-26-
4.14. Investments.....................................................-26-
4.15. Changes in Capital Stock........................................-26-
4.16. Schedule 2.3 Transaction........................................-26-
SECTION 5. Transfer Taxes..................................................-27-
SECTION 6. Survival of Representations, Warranties, Agreements
and Covenants, etc.
................................................................-27-
SECTION 7. Expenses........................................................-27-
SECTION 8. Indemnification.................................................-27-
8.1. General Indemnification.........................................-27-
8.2. Indemnification Principles......................................-28-
SECTION 9. Events of Default and Remedies..................................-29-
9.1. Events of Default...............................................-29-
9.2. Remedy for Event of Default.....................................-31-
9.3. Waiver..........................................................-31-
SECTION 10.Other Remedies..................................................-31-
SECTION 11.Further Assurances..............................................-31-
SECTION 12.Successors and Assigns..........................................-31-
SECTION 13.Entire Agreement................................................-32-
SECTION 14.Notices.........................................................-32-
SECTION 15.Amendments......................................................-33-
(ii)
SECTION 16.Counterparts....................................................-33-
SECTION 17.Headings........................................................-33-
SECTION 18.Nouns and Pronouns..............................................-33-
SECTION 19.Governing Law...................................................-33-
SECTION 20.Publicity.......................................................-33-
SECTION 21.Severability....................................................-34-
(iii)
Exhibits Section Reference
Exhibit A Form of Warrant Recitals
Exhibit B-1 Schedule of Purchasers-Initial Closing 1.1(a)
Exhibit B-2 Schedule of Purchasers - Subsequent Closing 1.1(a)
Exhibit C Form of Registration Rights Agreement 1.3(b)
Exhibit D Certificate of Designation 1.3(c)
Exhibit E Form of Opinion of Counsel to the Company 1.3(g)
Exhibit F Terms of Consulting Agreement 1.3(j)
Exhibit G Allocation of Purchase Price 1.5
(iv)
Schedules
Schedule 1.3(b) Good Standing
Schedule 2.1 Foreign Qualification
Schedule 2.3 Capitalization; Schedule 2.3 Transaction
Schedule 2.6 Liabilities/Obligations
Schedule 2.7 Absence of Changes
Schedule 2.9 Contracts
Schedule 2.10 Certain Intellectual Property Rights
Schedule 2.10(b) Payments for Intellectual Property
Schedule 2.10(c) Third Party Intellectual Property Rights
Schedule 2.10(d) Software
Schedule 2.10(e) Third Party Software
Schedule 2.11 Equity Investments; Subsidiaries
Schedule 2.12(b) Insurance Coverage
Schedule 2.13 Employment Benefit Plans
Schedule 2.14 Employees
Schedule 2.15 Litigation
Schedule 2.16 Permits
Schedule 2.20 Consents
Schedule 2.21 Brokers
Schedule 4.15 Certain Excluded Securities
(v)
Index of Defined Terms
Term Section
Additional Common Stock Amount 1.4(b)
Additional Preferred Stock Amount 1.4(d)
Ancillary Documents 1.3(b)(ii)
Benefit Plan 2.13(a)
Board 1.3(b)(viii)
Business Recitals
By-Laws 1.3(b)(vi)
Certificate of Designation 1.3(b)(iv)
Certificate of Incorporation 1.3(b)(iv)
Claim Notice 8.3
Closings 1.2(a)
Code 2.13(a)
Commission 2.5
Common Stock Recitals
Common Stock Equivalents 2.3
Company Preamble
Consulting Agreement 1.3(b)(xi)
Contract 2.9(a)
Conversion Shares 2.4
Customer Satisfaction 1.6(d)
Deductible 8.1
DSCM 1.3(b)(viii)
Employee 2.13(a)
Employee Agreement 2.13(a)
Encumbrances 2.12(a)
Environmental Laws 2.16(b)
ERISA 2.13(a)
Event of Default 9.1
Exchange Act 2.5
GAAP 2.6
Initial Closing 1.2(a)
Initial Designee 4.8(a)
Initial Purchase 1.1
Intellectual Property 2.10(f)
Investment 4.14
Litigation 19
Losses 8.2
Maintenance Amount 4.9
Management Letter 4.2(a)
(vi)
Material Adverse Change 2.6
Material Adverse Effect 2.1
NASDAQ 1.3(b)(v)
Non-voting Observer 4.8(a)
Notice 4.9
Opinion 1.3(b)(vii)
Pequot Entities Preamble
Pequot Entities' Designees 4.8(b)
Permitted Encumbrances 2.7
Permits 2.16(a)
PPEF Preamble
Proposed Securities 4.9
Purchase Price 1.1
Purchaser Entity 8.1
Purchasers Preamble
Purchases 1.1
Quarterly Financials 4.2(b)
Registration Rights Agreement 1.3(b)(ii)
SEC Reports 2.5
Securities Act 2.17
Series D Preferred Stock Recitals
SiteMider 1.2(a)
Software 2.10(g)
Subsidiary 2.1
Subsequent Closing 1.2(a)
Subsequent Purchase 1.1
Taxes 2.19
Third Party Software 2.10(h)
Warrants Recitals
Warrant Shares Recitals
(vii)
NETEGRITY, INC.
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
AGREEMENT, dated as of January 6, 1998, by and among NETEGRITY, INC., a
Delaware corporation (the "Company"), PEQUOT PRIVATE EQUITY FUND, L.P., a
Delaware limited partnership ("PPEF") and PEQUOT OFFSHORE PRIVATE EQUITY FUND,
INC., a British Virgin Islands corporation (together with PPEF, the "Pequot
Entities" or the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of designing,
developing, marketing, servicing and supporting data network security products
as such business is more particularly described in the SEC Reports (the
"Business").
WHEREAS, the Company wishes to sell to the Pequot Entities and the
Pequot Entities wish to purchase from the Company (i) shares of Series D
Convertible Preferred Stock, par value $.01 per share (the "Series D Preferred
Stock"), convertible into shares of the Company's Common Stock, par value $.01
per share (the "Series D Preferred Stock") convertible into shares of the
Company's Common Stock, par value $.01 (the "Common Stock") and (ii) warrants,
substantially in the form of Exhibit A hereto (the "Warrants"), to purchase
shares of Common Stock (such shares of Common Stock referred to as the "Warrant
Shares").
ACCORDINGLY, the parties hereto hereby agree as follows:
SECTION 1. Issuance and Sale of Series D Preferred Stock and Warrants.
1.1. The Purchases. Upon the terms and subject to the conditions set
forth in this Agreement, at the Initial Closing and the Subsequent Closing, the
Pequot Entities shall purchase from the Company, and the Company shall sell to
the Pequot Entities, the number of shares of Series D Preferred Stock and
Warrants set forth opposite such entity's name on Exhibit B- I (the "Initial
Purchase") and Exhibit B-2 (the "Subsequent Purchase"), respectively
(collectively, the "Purchases"), at the purchase price set forth opposite such
entity's name on each exhibit. The aggregate purchase price to be paid by the
Pequot Entities for the Series D Preferred Stock and Warrants purchased by them
hereunder is set forth on Exhibit B-1 and B-2, as the case may be, as "Total
Purchase Price" (collectively, the "Purchase Price").
1.2. The Closings. (a) (i) The closing of the Initial Purchase (the
"Initial Closing") shall take place at the offices of Fried, Frank, Harris,
Xxxxxxx & Xxxxxxxx, Xxx Xxx Xxxx Xxxxx, Xxx Xxxx, XX 00000, the parties
intending such Initial Closing occur at 9:00 a.m. on January 7, 1998 or on such
other date as shall be mutually agreed by the Company and the Purchasers and
(ii) the closing of the Subsequent Purchase (the "Subsequent Closing" and,
together with the Initial Closing, the "Closings") shall take place at the
location and time of day referred to in clause (i) above 30 days following the
first shipment of version 3.0 of SiteMinder ("SiteMinder
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3.0") to customers, provided, however, that SiteMinder 3.0 has attained Customer
Satisfaction; provided, further, however, that in the event the Subsequent
Closing has not occurred on or before May 15, 1998 for any reason, either the
Company or the Pequot Entities may elect, upon written notice to the other party
no later than May 31, 1998, not to consummate the Subsequent Purchase.
(b) At each of the Closings, the Company shall deliver to each
Purchaser a certificate or certificates representing the shares of Series D
Preferred Stock and the Warrants purchased by such Purchaser, registered in the
name of such Purchaser or its nominee. Delivery of such certificates of shares
of Series D Preferred Stock and Warrants to a Purchaser shall be made against
receipt at each of the Closings by the Company from such Purchaser of the
purchase price therefor, which shall be paid by wire transfer to an account
designated at least one business day prior to each of the Closings by the
Company. The Purchasers shall notify the Company as to the names and amounts to
be included on the certificates to be issued two business days prior to each of
the Closings.
1.3. Conditions to the Initial Closing. (a) The obligations of the
Company and the Purchasers to consummate the transactions contemplated hereby at
the Initial Closing are subject to the satisfaction of the following conditions:
no temporary restraining order, preliminary or permanent injunction or other
order or decree which prevents the consummation of the transactions contemplated
hereby shall have been issued and remain in effect, and no statutes, rule or
regulation shall have been enacted by any governmental authority (of the United
States or otherwise) which prevents the consummation of the transactions
contemplated hereby; provided, however, that the parties shall use their
reasonable best efforts to cause any such decree, ruling, injunction or other
order to be vacated or lifted.
(b) The obligations of the Purchasers to consummate the
transactions contemplated hereby at the Initial Closing is subject to the
satisfaction or waiver, on or prior to the date of the Initial Closing, of the
following conditions:
(i) the representations and warranties of the
Company set forth in Section 2 of this Agreement shall be true and correct in
all material respects as of the date when made and (unless made as of a
specified date) as of the date of the Initial Closing; any and all documents or
other materials provided to the Purchasers for review by the Company shall,
in the sole judgment and discretion of the Purchasers, not contain any material
misstatements or fail to contain any material fact; and the Company shall have
performed in all material respects its covenants set forth in this Agreement
to be performed prior to the date of the Initial Closing and shall not have
taken any action which (if any shares of Series D Preferred Stock were
outstanding) would violate any provision of the Certificate of Incorporation
(including the Certificate of Designation) or this Agreement or the Ancillary
Documents, as the case may be (and at the Initial Closing the Company shall
deliver to the Purchasers an officer's certificate certifying as to the
Company's compliance with the conditions set forth in this clause (i));
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(ii) The Company and the Pequot Entities shall
have entered into the Registration Rights Agreement in the form of Exhibit C
hereto (the "Registration Rights Agreement" and, together with all other
contracts, agreements, schedules, certificates and other documents (including,
but not limited to, the Certificate of Designation, the Consulting
Agreement and the Warrants) being delivered pursuant to or in connection with
this Agreement by any party hereto at or prior to the Initial Closing, the
"Ancillary Documents").
(iii) The Company shall have delivered to the
Pequot Entities long-form certificates of good standing from the jurisdictions
set forth on Schedule 1.3(b) with respect to the Company and the Subsidiary
dated as of a date no earlier than ten days prior to the Initial Closing.
(iv) The Amended and Restated Certificate of
Incorporation of the Company, as amended, shall have been amended and
supplemented by a Certificate of Designation substantially in the form of
Exhibit D hereto setting forth the rights and preferences of the Series D
Preferred Stock (the "Certificate of Designation"), and the Certificate of
Designation shall have been filed with, and approved by, the Secretary of
State of the State of Delaware (the Amended and Restated Certificate of
Incorporation, as amended, including such Certificate of Designation, the
"Certificate of Incorporation");
(v) The Common Stock to be issued upon
conversion of the Series D Preferred Stock and the exercise of the Warrants
shall have been approved for quotation on the Nasdaq Small Cap Market
("NASDAQ"), subject to official notice of issuance;
(vi) The Company shall have delivered to the
Pequot Entities a certificate duly executed by its Secretary, satisfactory in
form and substance to the Pequot Entities, certifying (i) a copy of its
organizational documents including the Certificate of Incorporation and the
by-laws of the Company (the "By-Laws"), (ii) resolutions authorizing the
transaction and (iii) incumbency matters.
(vii) The Pequot Entities shall receive from
Xxxxxxxx, Xxxxxxx & Xxxxxxx, counsel for the Company, an opinion addressed to
the Pequot Entities, dated as of the Initial Closing, satisfactory in form
and substance to the Pequot Entities, which shall be in the form of
Exhibit E attached hereto (the "Opinion").
(viii) Pursuant to the terms of the Certificate of
Designation, in the event that the Pequot Entities shall designate a
person to serve on the Board of Directors of the Company (the "Board")
(who, if such person is not an employee of Dawson Samberg Capital Management,
Inc. ("DSCM"), the investment manager for each of the Pequot Entities, shall
be reasonably acceptable to the Company), such designee shall have been
elected to the Board effective, without any further action, as of the date
of the Initial Closing.
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(ix) The Certificate of Incorporation of the
Company shall reflect that the size of the Board shall be fixed at 6 members
(not including the Initial Designee) with a maximum of 13 directors.
(x) The Company shall have obtained, with
financially sound and reputable insurers, directors' and officers' liability
insurance in an amount not less than $3,000,000 or a binder with respect to
such insurance in form satisfactory to the Pequot Entities.
(xi) The Company shall have entered into a
consulting agreement with Xxxxx XxXxxx ("Consulting Agreement"), in the form of
Exhibit F attached hereto.
(xii) Without limiting the generality of
Section 1.3(b)(i), in the sole judgment and discretion of the Purchasers, no
Material Adverse Effect shall have occurred since the date hereof nor shall any
event or events have occurred since the date hereof which could reasonably be
expected to have a Material Adverse Effect nor shall a Material Adverse
Change have occurred (x) in the facts and information regarding the Business,
the Company and the Subsidiary, (y) in the assets of the Business, the
Company and the Subsidiary and (z) in the Company's ability to operate in
accordance with the financial projections set forth in
Schedule 2.6.
1.4. Additional Issuances, Purchase Price Adjustment. (a) In addition
to and without limitation of all other indemnities in this Agreement, in the
event that at any time on or after the Initial Closing or the Subsequent
Closing, as the case may be, the representation and warranty set forth in the
last sentence of Section 2.3 is determined not to have been true when made, the
Company shall issue to the Pequot Entities (on a pro rata basis based on the
number of shares of Series D Preferred Stock purchased hereunder by each
entity), at no cost to the Pequot Entities, and as an adjustment to the Purchase
Price paid by the Pequot Entities for the Series D Preferred Stock and Warrants,
an additional amount of Series D Preferred Stock such that, if such issuance of
additional Series D Preferred Stock were made at the Initial Closing or the
Subsequent Closing, as the case may be, such representation and warranty would
have been true and accurate in all respects when made.
(b) If at the time of any required Purchase Price adjustment
pursuant to Section 1.4(a) all shares of Series D Preferred Stock have been
mandatorily converted into shares of Common Stock pursuant to Section 6(a) of
the Company's Certificate of Designation, the Company shall promptly issue to
the Pequot Entities (on a pro rata basis based on the number of shares of Series
D Preferred Stock purchased hereunder by each entity), at no cost to the Pequot
Entities and as an adjustment to the Purchase Price paid by the Pequot Entities
for the Series D Preferred Stock and Warrants, an additional amount and kind of
Common Stock equal to the amount and kind of Common Stock (such amount, the
"Additional Common Stock Amount") issuable upon the conversion (based on the
conversion price in effect at the time the last shares of Series D Preferred
Stock were converted into shares of Common Stock) of the amount of Series D
Preferred Stock which would have been issued with respect to such Purchase Price
adjustment
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pursuant to Section 1.4(a) if such Purchase Price adjustment had been made
immediately prior to the time the last shares of Series D Preferred Stock were
converted into shares of Common Stock.
(c) Any additional shares of Series D Preferred Stock and
Common Stock issued to the Pequot Entities pursuant to this Section 1.4 shall be
treated as if they were issued on the date hereof or on the date of the
Subsequent Closing, as the case may be, and shall reflect or be accompanied by
any dividends or other distributions which would have accrued or have been
payable with respect to, and the application of any antidilution, ratable
treatment or similar provisions (as set forth in the Company's Certificate of
Incorporation, applicable law or otherwise) which would have been applicable to,
such shares of Series D Preferred Stock and Common Stock had they been issued on
the date hereof or on the date of the Subsequent Closing, as the case may be.
(d) In connection with (i) any issuance of Series D Preferred
Stock pursuant to Section 1.4(a) (with respect to any such issuance, the amount
of Series D Preferred Stock so issued referred to as the "Additional Preferred
Stock Amount"), the Company shall promptly issue to the Pequot Entities (on a
pro rata basis based on the number of shares of Series D Preferred Stock
purchased hereunder by each entity), at no cost to the Pequot Entities and as an
adjustment to the Purchase Price paid by the Pequot Entities for the Series D
Preferred Stock and the Warrants, an additional number of Warrants having the
right to purchase an amount of Common Stock equal to one-third of the Common
Stock issuable upon conversion of the Additional Preferred Stock Amount and (ii)
any issuance of Common Stock pursuant to Section 1.4(b), the Company shall
promptly issue to the Pequot Entities (on a pro rata basis based on the number
of shares of Series D Preferred Stock purchased hereunder by each entity), at no
cost to the Pequot Entities and as an adjustment to the Purchase Price paid by
the Pequot Entities for the Series D Preferred Stock and the Warrants, an
additional number of Warrants having the right to purchase an amount of Common
Stock equal to one-third of the Additional Common Stock Amount in respect of
such issuance.
(e) In connection with any issuance of Series D Preferred
Stock and/or Warrants pursuant to this Section 1.4, the Company shall reserve a
sufficient number of shares of (i) Common Stock for issuance to the Pequot
Entities upon exercise of the Warrants so issued and (ii) Common Stock for
issuance to the Pequot Entities upon the conversion of the shares of Series D
Preferred Stock so issued. Any shares of Series D Preferred Stock or Common
Stock issued to the Pequot Entities pursuant to this Section 1.4 shall, when
issued, be validly issued and fully paid and nonassessable with no personal
liability attaching to the ownership thereof and free and clear of all
Encumbrances.
1.5. Purchase Price Allocation. Subject to any adjustments to the
Purchase Price provided for herein, the Purchase Price shall be allocated
between the Series D Preferred Stock and the Warrants as set forth in Exhibit G.
-5-
1.6. Conditions to the Subsequent Closing. The obligations of the
Pequot Entities to consummate the Subsequent Closing shall be subject to the
satisfaction (or waiver), on or prior to the date of the Subsequent Closing,
of the following conditions
(a) The representations and warranties of the Company set
forth in Section 2 of this Agreement shall be true and correct in all material
respects as of the date when made and (unless made as of a specified date) as of
the date of the Subsequent Closing; any and all documents or other materials
provided to the Purchasers for review by the Company shall, in the sole judgment
and discretion of the Company, not contain any material misstatement or fail to
contain any material fact; and the Company shall have performed in all material
respects its covenants set forth in this Agreement to be performed prior to the
date of the Subsequent Closing and shall not have taken any action which (if any
shares of Series D Preferred Stock were outstanding) would violate any provision
of the Certificate of Incorporation (including the Certificate of Designation),
this Agreement or the Ancillary Documents, as the case may be (and, at the
Subsequent Closing, the Company shall deliver to the Pequot Entities an
officer's certificate certifying as to the Company's compliance with the
conditions set forth in this clause (a));
(b) The Initial Closing shall have occurred;
(c) The Company shall have delivered to the Pequot Entities
long-form certificates of good standing from the jurisdictions set forth on
Schedule 1.3(b) with respect to the Company and the Subsidiary dated as of a
date no earlier than ten days prior to the Subsequent Closing;
(d) SiteMinder 3.0 shall have attained an acceptable level of
quality and satisfaction, as determined by the Pequot Entities in their sole
discretion ("Customer Satisfaction");
(e) The Common Stock to be issued upon conversion of the
Series D Preferred Stock and the exercise of the Warrant shall continue to be
approved for quotation on the NASDAQ, subject to official notice of issuance;
(f) The Company shall have delivered to the Pequot Entities a
certificate executed by its Secretary, in form and substance satisfactory to the
Pequot Entities, dated as of the Subsequent Closing certifying (i) a copy of its
organizational documents including the Certificate of Incorporation and the
By-Laws, (ii) resolutions authorizing the transaction and (iii) incumbency
matters;
(g) No Material Adverse Effect shall have occurred since the
Initial Closing nor shall any event or events have occurred since the Initial
Closing which could reasonably be expected to have a Material Adverse Effect nor
shall a Material Adverse Change have occurred (x) in the facts and information
regarding the Business, the Company and the Subsidiary, (y) in
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the assets of the Business, the Company and the Subsidiary and (z) in the
Company's ability to operate in accordance with the financial projections set
forth in Schedule 2.6; and
(h) The Pequot Entities shall have received the
Opinion, dated as of the date of the Subsequent Closing.
SECTION 2. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Purchasers as follows:
2.1. Organization and Good Standing; Power and Authority;
Qualifications. Each of the Company and its subsidiary, Encotone, Inc. (the
"Subsidiary") (i) is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization and (ii) has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as presently conducted and as proposed to be conducted. The Company has
all requisite power and authority to enter into and carry out the transactions
contemplated by this Agreement and the Ancillary Documents to which it is a
party. Each of the Company and the Subsidiary is qualified to transact business
as a foreign corporation in, and is in good standing under the laws of, those
jurisdictions listed on Schedule 2.1 under its name, which jurisdictions
constitute all of the jurisdictions wherein the character of the property owned
or leased or the nature of the activities conducted by it makes such
qualification necessary and where failure to so qualify would individually or in
the aggregate have a material adverse effect on the properties, business,
prospects, operations, earnings, assets, liabilities or the condition (financial
or otherwise) of the Company and its Subsidiary taken as a whole (a "Material
Adverse Effect").
2.2. Authorization of the Documents. The execution, delivery and
performance by the Company of this Agreement and each of the Ancillary Documents
to which it is a party has been duly authorized by all requisite corporate
action on the part of the Company (and do not or will not require the approval
or consent of the stockholders of the Company), and each of this Agreement and
the Ancillary Documents constitutes a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms except to
the extent that enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting creditors' rights generally.
2.3. Capitalization. The authorized capitalization of the Company
immediately following the Initial Purchase will consist of (a) 5,000,000 shares
of Preferred Stock, par value $.01 per share, of which (i) 5,000,000 shares have
been designated Series D Preferred Stock and (ii) 1,666,667 shares of Series D
Preferred Stock are issued and outstanding and all such outstanding shares are
validly issued, fully paid and nonassessable and free and clear of all
Encumbrances, other than Encumbrances, if any, arising as a result of actions
taken by the Purchasers; and (b) 25,000,000 shares of Common Stock of which
9,204,946 shares are issued and outstanding and all such outstanding shares are
validly issued, fully paid and nonassessable and free and clear of all
Encumbrances. No class of capital stock of the Company is entitled to preemptive
rights. Except as listed on Schedule 2.3 hereto, there are no outstanding
options,
-7-
warrants, subscription rights, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, shares of any class of
capital stock of the Company, or Contracts, by which the Company or the
Subsidiary is or may become bound to issue additional shares of its capital
stock or options, warrants or other rights to purchase or acquire any shares of
its capital stock. Except as set forth in Schedule 2.3 hereto, since December
31, 1996, the Company has not declared or paid any dividend or made any other
distribution of cash, stock or other property to its stockholders. Except as
contemplated by this Agreement or the Ancillary Documents or except for the
right to vote its shares of Common Stock for the election of directors, no
person has the right to nominate or elect one or more directors of the Company.
The shares of Common Stock issuable upon conversion of the Series D Preferred
Stock and exercise of the Warrants issued to Pequot Entities on the dates of the
Initial Closing and the Subsequent Closing under this Agreement represent, in
the aggregate, 20.79% and 34.43% of the outstanding Common Stock of the Company
on the date of the Initial Closing and the Subsequent Closing, respectively, and
the voting power of such issued shares represent, in the aggregate, 20.79% and
34.43% of the total number of votes able to be cast on any matter by all voting
securities of the Company (other than any matter to be voted on by the holders
of shares of Series D Preferred Stock as a separate class) on the date of the
Initial Closing and the Subsequent Closing, respectively (treating for purposes
of these calculations (i) all outstanding warrants, options, agreements,
securities (including notes and debt securities) or other commitments
convertible, exercisable or exchangeable into shares of capital stock or other
equity securities of the Company or pursuant to which the equity securities of
the Company ("Common Stock Equivalents") outstanding on the date hereof
(including the Warrants) as having been converted, exchanged or exercised, (ii)
any shares of Common Stock or Common Stock Equivalents issuable pursuant to any
Contract entered into by the Company on or prior to the date hereof, or any
preemptive right granted by the Company on or prior to the date hereof, in each
case, as having been issued on the date hereof and (iii) all shares of Common
Stock issuable under the Company's management option pool as having been issued
on the date hereof).
2.4. Authorization and Issuance of Capital Stock. The authorization,
issuance, sale and delivery of the Series D Preferred Stock and the Warrants
pursuant to this Agreement and the authorization, reservation, issuance, sale
and delivery of the shares of Series D Preferred Stock, the Warrants, the
Conversion Shares and the Warrant Shares have been duly authorized by all
requisite corporate action on the part of the Company, and when issued, sold and
delivered in accordance with this Agreement and/or any Ancillary Document, the
Series D Preferred Stock, the Warrants, the Conversion Shares and the Warrant
Shares will be validly issued and outstanding, fully paid and nonassessable with
no personal liability attaching to the ownership thereof, free and clear of any
Encumbrances, other than Encumbrances, if any, arising as a result of actions
taken by the Purchasers. The terms, designations, powers, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of any series of Preferred Stock
of the Company are as stated in the Certificate of Incorporation. No stockholder
approval is required to consummate the transaction contemplated hereunder and
under the Ancillary Documents. The Board has unanimously approved the
transactions contemplated hereby for the purposes of Section 203 of the General
Corporation Law of the State
-8-
of Delaware pursuant to Section 203(a)(1) thereof. The Company has reserved a
sufficient number of shares of (i) Common Stock for issuance upon conversion or
exercise of the Series D Preferred Stock and the Warrants, respectively, (ii)
Common Stock for the issuance of dividends on the Series D Preferred Stock
pursuant to the Certificate of Designation, and (iii) Common Stock for issuance
upon conversion or exercise of all other Common Stock Equivalents outstanding on
the date hereof. The shares of Common Stock issuable upon the conversion of the
Series D Preferred Stock issued or issuable to the Purchasers hereunder or under
any Ancillary Document shall be referred to collectively as the "Conversion
Shares."
2.5. SEC Reports. The Company has filed all proxy statements, reports
and other documents required to be filed by it with the Securities and Exchange
Commission (the "Commission") under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), from and after January 1, 1994; and the Company
has furnished the Purchasers true and complete copies of all annual reports,
quarterly reports, proxy statements and other reports under the Exchange Act
filed by the Company from and after such date, each as filed with the Commission
(collectively, the "SEC Reports"). Each SEC Report was in compliance in all
material respects with the requirements of its respective report form and did
not on the date of filing contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, and as of the date hereof there is no fact or facts not
disclosed in the SEC Reports which relate specifically to the Company and which
individually or in the aggregate may have a Material Adverse Effect.
2.6. Financial Statements. The financial statements (including any
related schedules and/or notes) included in the SEC Reports have been prepared
in accordance with generally accepted accounting principles ("GAAP")
consistently applied (except as indicated in the notes thereto) throughout the
periods involved and fairly present in all material respects the consolidated
financial condition, results of operations and changes in stockholders' equity
of the Company as of the respective dates thereof and for the respective periods
then ended (in each case subject, as to interim statements, to changes resulting
from year-end adjustments, none of which were material in amount or effect).
Except as set forth in Schedule 2.6, the Company has no liabilities or
obligations (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known, whether due or to become due and regardless of when
asserted), except (i) liabilities and obligations in the respective amounts
reflected in or reserved against in the Company's balance sheet or the footnotes
thereto as of December 31, 1996 included in the SEC Reports or (ii) liabilities
and obligations incurred after December 31, 1996 in the ordinary course of
business consistent (in amount and kind) with past practice (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) and that do not exceed $25,000 in the aggregate.
Since December 31, 1996, the Company has operated its business only in the
ordinary course and there has not been individually or in the aggregate any
change that would have a Material Adverse Effect (a "Material Adverse Change")
other than changes disclosed in the SEC Reports or otherwise set forth in
Schedule 2.6 hereto. The financial forecasts furnished by the Company to the
Purchasers, a copy of which is attached
-9-
hereto as Schedule 2.6, have been reasonably prepared in good faith and reflect
the best currently available estimates and judgment of the Company's management
as to the expected future financial performance of the Business based on the
assumptions set forth in Schedule 2.6.
2.7. Absence of Material Changes. Except as set forth on Schedule 2.7
and except as otherwise expressly contemplated by this Agreement, since December
31, 1996, the Business has been conducted in the ordinary course, consistent
with past practice and there has not been (a) any Material Adverse Change, nor
has any event or change occurred which could reasonably result in a Material
Adverse Change, in the condition (financial or otherwise), results of
operations, business, assets, liabilities or prospects of the Business, the
Company or the Subsidiary or any event or condition which could reasonably be
expected to have such a Material Adverse Effect, (b) any waiver or cancellation
of any valuable right of the Business, the Company or the Subsidiary, or the
cancellation of any material debt or claim held by the Business, the Company or
the Subsidiary, (c) any payment, discharge or satisfaction of any claim,
liability or obligation of the Business, the Company or the Subsidiary other
than in the ordinary course of business, (d) any Encumbrance upon the assets of
the Business, the Company or the Subsidiary other than any Permitted
Encumbrance, (e) any declaration or payment of dividends on, or other
distribution with respect to, or any direct or indirect redemption or
acquisition of, any securities of the Company or the Subsidiary, (f) any
issuance of any stock, bonds or other securities of the Company or the
Subsidiary, (g) any sale, assignment or transfer of any tangible or intangible
assets of the Business, the Company or the Subsidiary except in the ordinary
course of business, (h) any loan by the Company or the Subsidiary to any
officer, director, employee, consultant or shareholder of the Company or the
Subsidiary (other than advances to such persons in the ordinary course of
business in connection with travel and travel related expenses), (i) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the assets, property, condition (financial or otherwise),
results of operations or prospects of the Business, the Company or the
Subsidiary, (j) any increase, direct or indirect, in the compensation paid or
payable to any officer or director of the Company or the Subsidiary or, other
than in the ordinary course of business, to any other employee, consultant or
agent of the Company or the Subsidiary, (k) any change in the accounting
methods, practices or policies of the Business, the Company or the Subsidiary,
(l) any indebtedness incurred for borrowed money by the Business, the Company or
the Subsidiary other than in the ordinary course of business, (m) any amendment
to or termination of any material agreement to which the Business, the Company
or the Subsidiary is a party other than the expiration of any such agreement in
accordance with its terms, (n) any change in the laws or regulations governing
the Business, the Company or the Subsidiary, (o) any Material Adverse Change in
the manner of business or operations of the Business, the Company or the
Subsidiary (including, without limitation, any accelerations or deferral of the
payment of accounts payable or other current liabilities or deferral of the
collection of accounts or notes receivable), (p) any capital expenditures or
commitments therefor by the Business, the Company or the Subsidiary that
aggregate in excess of $25,000, (q) any amendment of the certificate of
incorporation, by-laws or other organizational documents of the Company or the
Subsidiary, (r) any transaction entered into by the Company other than in the
ordinary course of business or any other material
-10-
transactions entered into by the Business, the Company or the Subsidiary whether
or not in the ordinary course of business or (s) any agreement or commitment
(contingent or otherwise) by the Business, the Company or the Subsidiary to do
any of the foregoing. For purposes of this Agreement, "Permitted Encumbrances"
shall mean (1) those consisting of zoning or planning restrictions, easements,
permits and other restrictions or limitations on the use of such property or
irregularities in title thereto that, individually and in the aggregate, do not
materially impair the use of such property, (ii) warehousemen's, mechanics',
carriers', landlords', repairmen's or other similar Encumbrances arising in the
ordinary course of business and securing obligations not yet due and payable and
(iii) other Encumbrances which arise in the ordinary course of business and
which individually and in the aggregate do not materially impair its use of such
property or its ability to obtain financing by using such asset as collateral or
would otherwise individually or in the aggregate have a Material Adverse Effect.
2.8. No Conflict. The execution and delivery by the Company of the
Agreement and the Ancillary Documents to which it is a party and the
consummation by the Company of the transactions contemplated hereby and thereby
and its compliance with the provisions hereof and thereof (including, without
limitation, the issuance, sale and delivery by the Company of the Series D
Preferred Stock, the Warrants, the Warrant Shares and the Conversion Shares)
will not (a) violate any provision of any domestic (federal, state or local) or
foreign law, statute, rule or regulation, or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body applicable to it, or any of its properties or assets, (b)
conflict with, or result in any violation or breach of, or constitute (with due
notice or lapse of time, or both) a default or loss of a benefit under, or cause
or permit the acceleration under, the terms, conditions or provisions of any
Contract to which it is a party or its properties or assets is subject, except
for defaults which would not individually or in the aggregate, have a Material
Adverse Effect, (c) result in the creation or imposition of any Encumbrance upon
any of its properties or assets, except for Permitted Encumbrances or (d)
violate its organizational documents.
2.9. Agreements. (a) Except as set forth on Schedule 2.9, neither the
Company nor the Subsidiary is a party to, and the Business is not bound or
subject to, any indenture, mortgage, guaranty, lease, license or other contract,
agreement or understanding, written or oral (a "Contract"), other than any
Contract that (i) pursuant to its terms, has expired, been terminated or fully
performed by the parties, and in each case, under which neither the Company, the
Subsidiary nor the Business have any liability, contingent or otherwise, or (ii)
involves monthly payments to or from the Company, the Subsidiary or the Business
(as opposed to an indemnity agreement or similar contract under which a party is
not required to make fixed monthly payments) which monthly payments do not
aggregate on an annual basis to $25,000 or more, and in each case, is not
material to the business, condition (financial or otherwise), operations or
prospects of the Business, the Company or the Subsidiary.
(b) Each of such Contracts is, as of the date hereof,
and will continue after the Closing to be, as to the Company or the Subsidiary,
as the case may be, legal, valid, binding and in full force and effect and
enforceable in accordance with its terms. There is no breach,
-11-
violation or default by the Company or the Subsidiary (or, to the knowledge of
the Company, any other party) under any such Contract and no event (including,
without limitation, the consummation of the transactions contemplated by this
agreement) which, with notice or lapse of time or both, would (A) constitute a
breach, violation or default by the Company or the Subsidiary (or, to the best
knowledge of the Company, any other party) under any such Contract or (B) give
rise to any lien or right of termination, modification, cancellation,
prepayment, suspension, limitation, revocation or acceleration against the
Company or the Subsidiary under any such Contract. Except as set forth on
Schedule 2.9, neither the Company or the Subsidiary nor, to the knowledge of the
Company, any other party to any of such Contracts (i) is in arrears in respect
of the performance or satisfaction of the terms and conditions on its part to be
performed or satisfied under any of such Contracts or (ii) has granted or has
been granted any waiver or indulgence under any of such Contracts or has
repudiated any provision thereof.
2.10. Intellectual Property Rights. (a) Except as disclosed on Schedule
2.10 hereto, (i) the Company owns or has the right to use pursuant to license,
sub-license, agreement or permission all of its Intellectual Property, except
where the absence of any thereof would not individually or in the aggregate have
a Material Adverse Effect; (ii) the Company has, to its knowledge, not
interfered with, infringed upon or misappropriated any Intellectual Property
rights of third parties, except for interferences, infringements and
misappropriations which would not individually or in the aggregate have a
Material Adverse Effect, and the Company has not received any claim, demand or
notice alleging any such interference, infringement or misappropriation
(including any claim that it must license or refrain from using any Intellectual
Property rights of any third party). To the Company's knowledge, no third party
has interfered with, infringed upon or misappropriated any Intellectual Property
rights of the Company, except for interferences, infringements and
misappropriations which would not individually or in the aggregate have a
Material Adverse Effect.
(b) Except as set forth on Schedule 2.10(b), neither the
Business, the Company nor the Subsidiary is obligated to pay any amount, whether
as royalty, license fee or other payment, to any person in order to make, use,
or sell any Intellectual Property.
(c) Except as set forth on Schedule 2.10(c), the operation of
the Business, the Company and the Subsidiary as presently operated does not need
to use or rely upon any Intellectual Property rights of third parties.
(d) Schedule 2.10(d) sets forth a list of all Software used in
the operation of the Business, the Company and the Subsidiary (in connection
with servicing the customer) as currently conducted or currently proposed to be
conducted.
(e) Schedule 2.10(e) lists and identifies all Third Party
Software used in connection with servicing clients. Except as set forth on
Schedule 2.10(e), the Company and the Subsidiary has the right to use all Third
Party Software, including all Intellectual Property Rights associated therewith,
pursuant to license, sublicense or contract. All royalties due under said
-12-
licenses have been paid and there exists no default by the Business, the Company
or the Subsidiary or by any other party under the terms of said licenses, and no
event has occurred which, upon the passage of time or the giving of notice, or
both, would result in any default by the Business, the Company or the Subsidiary
or by any other party to the license or prevent the Company from exercising and
obtaining the benefits of any options contained therein. The Company is not
aware of any circumstance pursuant to which it is, or could be, unable to use,
or have access to, such Third Party Software, or that its ability to use, or
have access to, such Third Party Software would be materially limited (including
any oral or written claim made by a third party to the Company or its counsel
threatening to stop or restrict use of access by the Company to such Third Party
Software).
(f) As used in this Agreement "Intellectual Property" means
all intellectual property owned, leased, licensed, and used by the Company or
the Subsidiary, including, without limitation, (i) all world wide inventions and
discoveries (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (ii)
all trademarks, service marks, trade dress, logos, trade names and corporate
names, together with all translations, adaptations, derivations and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, renewals and derivatives in connection therewith, (iii) all
copyrightable works, all copyrights and all applications, registrations and
renewals in connection therewith, (iv) all mask works and all applications,
registrations and renewals in connection therewith, (v) all know-how, trade
secrets and confidential business information, whether patentable or
unpatentable and whether or not reduced to practice (including ideas, research
and development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, addresses, phone numbers, pricing and cost
information, and business and marketing plans and proposals), (vi) all Software,
(vii) all other proprietary rights of any type of description (regardless of
whether the same have been formally registered), (viii) all copies and tangible
embodiments thereof (in whatever form or medium) and (ix) all licenses and
agreements in connection with the foregoing.
(g) As used in this Agreement, "Software" means any and all
versions, releases, and predecessors of the software and computer programs of
the Company, including all such software and computer programs in machine
readable source code forms and in machine executable object code forms and all
related specifications (including, without limitation, all logic architectures,
algorithms and logic flows and all physical, financial, operating and design
parameters), any data used by or related to Software, work in progress relating
to corrections, modifications or enhancements, operating systems and procedures
(including development methodology), designs, design revisions, related
applications, work benches, software in any language, concepts, ideas,
processes, techniques, software designs and test tools, third party software
interfaces written by them and all methods of implementation and packaging,
together with all associated know-how and show-how.
-13-
(h) As used in this Agreement, "Third Party Software" means
software or computer programs used in the operation of the Business
(specifically, in connection with servicing clients) as presently conducted or
currently anticipated to be conducted and that are not owned by the Company.
2.11. Equity Investments; Subsidiaries. Except for the Subsidiary or as
set forth on Schedule 2. 1 1, the Company has never had, nor does it presently
have, any subsidiaries, nor has it owned, nor does it presently own, whether
directly or indirectly owned, any capital stock or other proprietary interest,
directly or indirectly, in any corporation, association, trust, partnership,
joint venture or other entity. All of the outstanding shares of capital stock of
each class of the Subsidiary (a) are owned beneficially and of record by the
Company free and clear of any liens, charges and Encumbrances, (b) constitute
50% of such Subsidiary's outstanding shares and (c) have been validly issued,
are fully paid and non-assessable.
2.12. Title to Assets and Properties, Insurance. (a) Each of the
Company and the Subsidiary has good and marketable title, or a valid leasehold
interest in or contractual right to use, all of its assets and properties, free
and clear of any mortgages, judgments, claims, liens, security interests,
pledges, escrows, charges or other encumbrances of any kind or character
whatsoever ("Encumbrances") except in each case for Permitted Encumbrances and
such defects in title and such other liens and Encumbrances which do not
individually or in the aggregate materially detract from the value to the
Company of the properties and assets of the Company and the Subsidiary taken as
a whole.
(b) The Company and the Subsidiary maintain insurance in such
amounts (to the extent available in the public market), including
self-insurance, retainage and deductible arrangements, and of such a character
as is reasonable for companies engaged in the same or similar business
(including, but not limited to, insurance against liability from customer losses
as a result of the Company's products). Schedule 2.12(b) sets forth a list of
all insurance coverage carried by the Business and/or the Company and/or the
Subsidiary, the carrier and terms and amount of coverage.
2.13. Employee Benefit Plans. (a) Schedule 2.13 hereto contains a true
and complete list of (i) each plan, program, policy, payroll practice, contract,
agreement or other arrangement, or commitment therefore, providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any kind,
whether formal or informal, funded or unfunded, written or oral, and whether or
not legally binding, which is now or previously has been sponsored, maintained,
contributed to or required to be contributed to by the Company or pursuant to
which the Company or the Subsidiary have any liability, contingent or otherwise,
including, but not limited to, any "employee benefit plan" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (each, a "Benefit Plan"); and (ii) each management, employment, bonus,
option, equity (or equity related), severance, consulting, non compete,
confidentiality or similar agreement or contract (each, an "Employee
Agreement"), pursuant to which the Company or the
-14-
Subsidiary have any liability, contingent or otherwise, between the Company or
the Subsidiary and any current, former or retired employee, officer, consultant,
independent contractor, agent or director of the Company or the Subsidiary (an
"Employee"). Except as identified on Schedule 2.13, neither the Company nor the
Subsidiary currently sponsor, maintain, contribute to, nor is it required to
contribute to, nor has the Company or the Subsidiary ever sponsored, maintained,
contributed to or been required to contribute to, or incurred any liability to,
(i) any "defined benefit plan" (as defined in ERISA Section 3(35)); (ii) any
"multiemployer plan" (as defined in ERISA Section 3(37)) or (iii) any Benefit
Plan which provides, or has any liability to provide, life insurance, medical,
severance or other employee welfare benefits to any Employee upon his or her
retirement or termination of employment, except as required by Section 4980B of
the Internal Revenue Code of 1986, as amended (the "Code").
(b) Neither the Company nor the Subsidiary has ever been (i) a
member of a "controlled group of corporations," under "common control" or an
"affiliated service group" within the meaning of Sections 414(b), (c) or (m) of
the Code, (ii) required to be aggregated under Section 414(o) of the Code, or
(ii) under "common control," within the meaning of Section 4001(a)(14) of ERISA,
or any regulations promulgated or proposed under any of the foregoing Sections,
in each case with any other entity.
(c) The Company has previously provided to the Purchasers
current, accurate and complete copies of all documents embodying or relating to
each Benefit Plan and each Employee Agreement, including all amendments thereto,
trust or funding agreements relating thereto (if any), the two most recent
annual reports (Series 5500 and related schedules) required under ERISA (if
any), the most recent determination letter (if any) received from the Internal
Revenue Service, the most recent summary plan description (with all material
modifications) (if any), and all material communications to any Employee or
Employees relating to any Benefit Plan or Employee Agreement.
(d) Each Benefit Plan has been established and maintained in
accordance with its terms and in compliance with all applicable, laws, statutes,
orders, rules and regulations, including but not limited to ERISA and the Code;
and each Benefit Plan intended to qualify under Section 401 of the Code is, and
since its inception has been, so qualified.
(e) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) (i) constitute an event under any Benefit
Plan or Employee Agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any Employee or (ii) result in a bonus or payment to any officer or director
of the Company.
2.14. Labor Relations, Employees. Schedule 2.14 hereto lists all
employees of the Company and the Subsidiary with total cash compensation in
excess of $75,000. Except as set
-15-
forth on Schedule 2.14 hereto, (i) neither the Company nor the Subsidiary is
delinquent in payments to any of its employees, for any wages, salaries,
commissions, bonuses or other direct compensation for any services performed by
the date hereof or amounts required to be reimbursed by them to the date hereof,
(ii) each of the Company and the Subsidiary is in compliance with all applicable
federal, state and local laws, rules and regulations respecting employment,
employment practices, labor, terms and conditions of employment and wages and
hours, (iii) neither the Company nor the Subsidiary is bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought to
represent any of the employees, representatives or agents of the Company or the
Subsidiary, (iv) there is no labor strike, dispute, slowdown or stoppage
actually pending, or, to the knowledge of the Company, threatened against or
involving the Company or the Subsidiary, (v) to the knowledge of the Company, no
salaried key employee has any plans to terminate his or her employment with the
Company or the Subsidiary. Each of the officers of the Company and the
Subsidiary, each key employee and each other employee of the Company and the
Subsidiary who has or had access to confidential information of the Business has
executed a confidentiality agreement, and such agreements are in full force and
effect.
2.15. Litigation, Orders. Except as set forth on Schedule 2.15, there
is no civil, criminal or administrative action, suit, claim, notice, hearing,
inquiry, proceeding or investigation at law or in equity by or before any court,
arbitrator or similar panel, governmental instrumentality or other agency now
pending or, to the knowledge of the Company, threatened against the Business,
the Company or the Subsidiary or the assets (including the Intellectual
Property) of the Business, the Company or the Subsidiary. Except as set forth in
Schedule 2.15, neither the Business, the Company nor the Subsidiary is subject
to any order, writ, injunction or decree of any court of any federal, state,
municipal or other domestic or foreign governmental department, commission,
board, bureau, agency or instrumentality.
2.16. Compliance with Laws, Permits. (a) Except as provided in Schedule
2.16, the Business, the Company and the Subsidiary are in compliance, and have
been conducted in compliance with, all federal, state, local and foreign laws,
rules, ordinances, codes, consents, authorizations, registrations, regulations,
decrees, directives, judgments and orders (including Environmental Laws)
applicable to it except where the failure to comply would not individually or in
the aggregate have a Material Adverse Effect. Each of the Company and the
Subsidiary has all federal, state, local and foreign governmental licenses,
permits, qualifications and authorizations ("Permits") necessary in the conduct
of the Business as currently conducted. All such Permits are in full force and
effect, and no violations have been recorded in respect of any such Permits; no
proceeding is pending or, to the best knowledge of the Company, threatened to
revoke or limit any such Permit; and no such Permit will be suspended, cancelled
or adversely modified as a result of the execution and delivery of this
Agreement or the Ancillary Documents and the consummation of the transactions
contemplated hereby or thereby, except where failure
-16-
to have such Permit would not individually or in the aggregate have a Material
Adverse Effect. Schedule 2.16 sets forth a list of all such Permits and the
expiration dates thereof
(b) For purposes of this Agreement, "Environmental Laws"
means, without limitation, (i) the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. xx.xx. 9601, et seq.; the Emergency
Planning and Community Rights-to-Know Act of 1986, 42 U.S.C. xx.xx. 11001, et
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. xx.xx. 6901, et
seq.; the Toxic Substances Control Act, 15 U.S.C. xx.xx. 2601, et seq.; the
Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. xx.xx. 136, et
seq.; the Clean Air Act 42 U.S.C. xx.xx. 7401, et seq.; the Clean Water Act
(Federal Water Pollution Control Act), 33 U.S.C. xx.xx. 1251, et seq.; the Safe
Drinking Water Act, 42 U.S.C. xx.xx. 300f, et seq.; the Occupational Safety and
Health Act, 29 U.S.C. xx.xx. 641, et seq.; the Hazardous Materials
Transportation Act, 49 U.S.C. xx.xx. 1801, et seq.; as any of the above statutes
have been or may be amended from time to time, all rules and regulations
promulgated pursuant to any of the above statutes, and any other foreign,
federal, state or local law, statute, ordinance, rule or regulation governing
environmental matters, as the same have been or may be amended from time to
time, including any common law cause of action providing any right or remedy
with respect to environmental matters, and all applicable judicial and
administrative decisions, orders, and decrees relating to environmental matters
and (ii) and all indemnity agreements and other contractual obligations, as in
effect at such date, relating to the protection of the environment, including
the air, surface and subsurface soils, surface waters, groundwaters and natural
resources, and occupational health and safety and exposure of persons to
hazardous materials.
2.17. Offering Exemption. Assuming the accuracy of the representations
and warranties contained in Section 3 hereof, the offer and sale of the Series D
Preferred Stock and the Warrants as contemplated hereby and the issuance and
delivery of the Warrant Shares to the Pequot Entities upon exercise of the
Warrants and the issuance and delivery of the Conversion Shares to the
Purchasers upon the conversion of the Series D Preferred Stock are each exempt
from registration under the Securities Act of 1933, as amended (the "Securities
Act"), and under applicable state securities and "blue sky" laws, as currently
in effect.
2.18. Disclosure. Neither this Agreement nor any certificate,
instrument or written statement furnished or made to the Purchasers by or on
behalf of the Company in connection with this Agreement or the Ancillary
Documents contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. There is no fact which the Company has not disclosed to
the Purchasers or their counsel in writing and of which the Company is aware
which materially and adversely affects or which could reasonably be expected to
materially and adversely affect the Business or the business, financial
condition, operations, property, affairs or prospects of the Company or the
Subsidiary or the ability of the Company to perform its obligations under the
Agreement or any of the Ancillary Documents.
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2.19. Taxes. The Company and the Subsidiary have filed or caused to be
filed all income tax returns which are required to be filed and have paid or
caused to be paid all Taxes that have become due, except Taxes the validity or
amount of which is being contested in good faith by appropriate proceedings and
with respect to which adequate reserves have been set aside. "Taxes," for
purposes of this Agreement, means any taxes, assessments, duties, fees, levies,
imposts, deductions, withholdings, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or personal property, asset,
sales, use, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, utility, severance, production, unemployment compensation,
occupation, premium, windfall profits, transfer and gains taxes, or other
governmental charges of any nature whatsoever imposed by any government or
taxing authority of any country or political subdivision of any country and any
liabilities with respect thereto, including any penalties, additions to tax,
fines or interest thereon, and includes any liability of the Company and the
Subsidiary arising under any tax sharing agreement to which it is or has been a
party.
2.20. Consents. Except as set forth on Schedule 2.20, no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any person (governmental or private) is required by the Company in
connection with the execution, delivery and performance of this Agreement and
the Ancillary Documents to which it is a party, the consummation by the Company
of the transactions contemplated hereby or thereby, or the issuance, sale or
delivery of the Series D Preferred Stock, the Warrants, the Warrant -Shares or
the Conversion Shares (other than such notifications or filings required under
applicable federal or state securities laws, if any, which shall be made on a
timely basis).
2.21. Brokers. Except as listed on Schedule 2.21, neither the Company
nor any of its officers, directors, employees or stockholders has employed any
broker or finder in connection with the transactions contemplated by this
Agreement or the Ancillary Documents nor will the execution of, and performance
of the transactions contemplated in, this Agreement or the Ancillary Documents
result in a payment to any broker or finder (including, but not limited to, any
employee or director of the Company).
2.22. Suppliers and Customers. The Company does not have any knowledge
of any termination, cancellation or threatened termination or cancellation or
limitation of, or any material modification or change in, or expressed material
dissatisfaction with the business relationship between the Business, the Company
or the Subsidiary and any supplier or vendor or customer or client of the
Business, the Company or the Subsidiary, in each case, of materials or services
in an amount in excess of $10,000 per year.
2.23. Use of Proceeds. The Company shall use the proceeds arising from
the transactions contemplated hereby for continued product development growth of
its sales organization, working capital, acquisition of technology assets as
appropriate and other general corporate purposes approved by the Board.
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SECTION 3. Representations and Warranties of the Purchasers.
Each of the Purchasers represents and warrants to the Company as of the
date hereof as follows:
(a) Such Purchaser is acquiring the Series D Preferred Stock,
and the Warrants, for its own account, for investment and not with a view to the
distribution thereof within the meaning of the Securities Act.
(b) Such Purchaser understands that (i) the Series D Preferred
Stock and the Warrants, have not been, and that the Warrant Shares and
Conversion Shares will not be, registered under the Securities Act or any state
securities laws, by reason of their issuance by the Company in a transaction
exempt from the registration requirements thereof and (ii) the Series D
Preferred Stock, Warrants, Warrant Shares and the Conversion Shares may not be
sold unless such disposition is registered under the Securities Act and
applicable state securities laws or is exempt from registration thereunder.
(c) Such Purchaser further understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
Purchaser) under the Securities Act depends on the satisfaction of various
conditions, and that, if applicable, Rule 144 may afford the basis for sales
only in limited amounts.
(d) Such Purchaser has not employed any broker or finder in
connection with the transactions contemplated by this Agreement.
(e) Such Purchaser is an "Accredited Investor" (as defined in
Rule 501(a) under the Securities Act).
(f) Such Purchaser is duly organized and validly existing
under the laws of the state of its organization and has all power and authority
to enter into and consummate the transactions contemplated by the Agreement and
the Ancillary Documents. This Agreement and each of the Ancillary Documents to
which such Purchaser is a party has been duly authorized by all necessary action
on the part of such Purchaser. This Agreement and each of the Ancillary
Documents to which such Purchaser is a party constitutes a valid and binding
agreement of such Purchaser enforceable against such Purchaser in accordance
with its terms except to the extent that enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally.
(g) The execution, delivery and performance by such Purchaser
of this Agreement and each of the Ancillary Documents to which it is a party and
the consummation by such Purchaser of the transactions contemplated hereby and
thereby will not (a) violate any provision of law, statute, rule or regulation,
or any ruling, writ, injunction, order, judgment or decree of any court,
administrative agency or other governmental body applicable to it, or any of its
properties or assets or (b) violate its organizational documents (if any).
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(h) No permit, authorization consent or approval of or by, or
any notification of or filing (including any filing under the Xxxx-Xxxxx Xxxxxx
Antitrust improvements Act of 1976, as amended) with, any person (governmental
or private) is required in connection with the execution, delivery and
performance by such Purchaser of the Agreement and the Ancillary Documents to
which it is a party, or the consummation by such Purchaser of the transactions
contemplated thereby.
SECTION 4. Certain Covenants.
4.1. Access to Records. The Company shall afford the Purchasers and
their employees, counsel and other authorized representatives full access,
during normal business hours, upon reasonable advance notice, with due regard to
its ongoing operations, to the assets, properties, plants, offices, warehouses
and other facilities, Contracts and books and records of the Business and of the
Company and the Subsidiary, and to the outside auditors of the Company and their
work papers relating thereto, in each case, as the Purchasers may from time to
time reasonably request. The parties hereto agree that no investigation by the
Purchasers or their representatives shall affect or limit the scope of the
representations and warranties of the Company contained herein or in any
Ancillary Document delivered pursuant hereto or limit liability for breach of
any such representation or warranty.
4.2. Financial Reports. So long as the Purchasers hold a seat on
the Board of Directors or are entitled to have a Non-voting Observer at the
meetings of the Board, the Company agrees to furnish to the Purchasers the
following:
(a) Within 15 days after the end of each fiscal month,
internal summary financial and operating statements for such month, prepared by
management for the Chief Executive Officer of the Company and, if prepared, a
letter or memorandum discussing the summary financial information for such
period and setting forth a comparison by reasonable categories of such financial
information to the applicable budget and the comparable figures for the prior
year and a reasonable explanation of any differences (a "Management Letter").
(b) Within 45 days after the end of each of the first three
quarterly fiscal periods, (i) unaudited balance sheets and an income statement
as of the end of such period, together with statements of retained earnings and
cash flow for such period ("Quarterly Financials") and a Management Letter, (ii)
a statement certified by the Chief Financial Officer of the Company, certifying
that the financial position and results of operations of the Company for such
period as reflected in the Quarterly Financials are presented fairly and have
been prepared in accordance with GAAP (subject to normal year-end adjustments
and the absence of footnotes) consistently applied and (iii) an officer's
certificate stating that the Company is not in default under any of its material
agreements or, if any such default exists, specifying the nature and period of
existence thereof and what actions the Company has taken and proposes to take
with respect thereto; provided, however, that delivery pursuant to this clause
(b) of a copy of the
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Quarterly Financials on Form 10-Q of the Company for such quarterly period filed
with the Commission shall be deemed to satisfy the requirements of this clause
(b).
(c) Within 90 days after the end of each fiscal year,
commencing with the first fiscal year ending after the Closing, (i) audited
balance sheets and an income statement as of the end of such fiscal year,
together with statements of retained earnings and cash flow for such fiscal
year, all in reasonable detail and certified by a recognized "Big Six" national
firm of independent accountants selected by the Board, as presenting fairly the
financial position and results of operations of the Company and as having been
prepared in accordance with GAAP consistently applied, including their opinion
thereon which is unqualified with respect to the scope of such firm's
examination and the Company's status as a going concern, (ii) the accounting
firm's management letter, plus (iii) an officer's certificate stating that the
Company is not in default under any of its material agreements or, if such
default by the Company or the Subsidiary exists, a certificate specifying the
nature and period of existence thereof and what actions the Company has taken
and proposes to take with respect thereto; provided, however, that delivery
pursuant to clause (c) of a copy of the Annual Report on Form 10-K of the
Company for such fiscal year filed with the Commission shall be deemed to
satisfy the requirements of this clause (c).
(d) At least 30 days but not more than 90 days prior to the
beginning of each fiscal year, an annual operating plan and budget prepared on a
monthly basis for the Company for such fiscal year (displaying anticipated
statements of income and cash flows and balance sheets), and promptly upon
preparation thereof any other significant budgets prepared by the Company and
any revisions of such annual or other budgets, and within 30 days after any
monthly period in which there is a material adverse deviation from the annual
budget, an officer's certificate explaining the deviation and what actions the
Company has taken and proposes to take with respect thereto.
(e) Promptly (but in any event within five business days)
after the discovery or receipt of notice of any default under any material
agreement to which the Company and/or the Subsidiary is a party, which default
could have a Material Adverse Effect on the Company or the Subsidiary or any
other Material Adverse Event or circumstance affecting the Company or the
Subsidiary (including, without limitation, the filing of any material litigation
against the Company or the Subsidiary or the existence of any dispute with any
person which involves a reasonable likelihood of such litigation being
commenced), an officer's certificate specifying the nature and period of
existence thereof and what actions the Company has taken and proposes to take
with respect thereto.
(f) Promptly (but in any event within three business days)
after transmission thereof, copies of all financial statements, proxy
statements, reports and any other general written communications which the
Company sends to its stockholders and copies of all registration statements and
all regular, special or periodic reports which it files, or any of its officers
or directors file with respect to the Company, with the Commission or with any
securities exchange
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on which any of its securities are then listed, and copies of all press releases
and other statements made available generally by the Company to the public
concerning material developments in the Company's businesses.
(g) With reasonable promptness, such other information and
financial data concerning the Company and/or its subsidiaries as any of the
Purchasers may reasonably request.
(h) If for any period the Company shall have any subsidiary or
subsidiaries whose accounts are consolidated with those of the Company, then, in
respect of such period, the financial statements and information delivered
pursuant to the foregoing Sections 4.2(a), 4.2(b) and 4.2(c) shall be the
consolidated and consolidating financial statements of the Company and all such
consolidated subsidiaries.
(i) In all cases, the Company shall provide to the Purchasers
all information which it provides or has an obligation to provide to any other
stockholder of the Company in such person's capacity as a stockholder, pursuant
to any agreement with such stockholder or otherwise and any other information
that the Purchasers may reasonably request.
4.3. Affirmative Covenants. (a) The books of account and other
financial and corporate records of the Company and the Subsidiary shall be
maintained in accordance with good business and accounting practices and the
financial condition of the Company and the Subsidiary shall be accurately
reflected in the financial statements referred to in Section 4.2.
(b) The Company shall, and shall cause the Subsidiary to,
maintain in full force and effect its corporate existence, rights, governmental
approvals and franchises and all licenses and other rights to use patents,
processes, trademarks, trade names or copyrights owned or possessed by it and
deemed by it to be material to the conduct of its business. The Company shall,
and shall cause the Subsidiary to, use its commercially reasonable efforts to
preserve its favorable business relationships with the clients, lenders,
suppliers, customers, licensors and licensees and others having business
dealings with the Business and to preserve the goodwill and ongoing operations
of the Business.
(c) The Company shall, and shall cause the Subsidiary to,
comply with all applicable laws, rules regulations and orders.
(d) The Company shall, and shall cause the Subsidiary to, keep
their properties in good repair, working order and condition, reasonable wear
and tear excepted, and from time to time make all reasonably needful and proper,
or legally required, repairs, renewals, replacements, additions and improvements
thereto. The Company shall, and shall cause the Subsidiary to, comply at all
times with each provision of all leases to which any of them is a party or under
which any of them occupies, or has possession, of, property.
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(e) The Company shall, and shall cause the Subsidiary to, keep
its assets which are of an insurable character, if any, insured by financially
sound and reputable insurers against loss or damage by fire, extended coverage
and other hazards and risks and liability to persons and property to the extent
and in the manner customary for companies in similar businesses similarly
situated.
(f) The Company shall, and shall cause the Subsidiary to, use
its best efforts to obtain all federal, state, local and foreign governmental
licenses, permits and qualifications material to and necessary in the conduct of
its business as proposed to be conducted.
(g) The Company shall, and shall cause the Subsidiary to, use
its best efforts to cause all Intellectual Property, including, but not limited
to, technological developments, inventions, discoveries or improvements made by
its employees to be fully documented in engineering or other notebooks in
accordance with the prevailing industrial professional standards, and, where
possible and appropriate, file and prosecute United States and foreign patent
applications relating to and protecting such developments. In addition, the
Company shall, and shall cause the Subsidiary to, use its commercially
reasonable efforts to cause all Intellectual Property, including, but not
limited to, all technological developments, inventions, discoveries or
improvements made by any of its employees or any employees of its subsidiaries
to be owned by it and, where possible and appropriate, obtain reasonable legal
protections for the its benefit with respect to such property.
(h) The Company shall, and shall cause the Subsidiary to,
comply with all material obligations which it incurs pursuant to any contract or
agreement, whether oral or written, express or implied, as such obligations
become due, unless and to the extent that the same are being contested in good
faith and by appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently applied)
have been established on its books with respect thereto.
4.4. Insurance. The Company shall maintain after the Closings
directors' and officers' liability insurance and shall increase such insurance
to $5,000,000 no later than April 1, 1998. The Company and the Board will
evaluate the appropriateness of obtaining "key man" life insurance to be owned
by the Company and with the Company named as the payee of all benefits
thereunder.
4.5. Merger, etc. The Company will not merge with or into or
consolidate with, or sell all or substantially all of its assets to, any other
person unless (a) the surviving entity shall have assumed in writing all of the
obligations of the Company under this Agreement and the Ancillary Documents, and
(b) immediately after the consummation of such merger or consolidation the
surviving entity would not be in violation of any of the provisions applicable
to the Company contained in this Agreement and the Ancillary Documents.
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4.6. Transactions with Affiliates. The Company will not, and will not
permit the Subsidiary to, engage in any transaction or group of related
transactions (including, without limitation, the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
affiliate (other than the Company), except in the ordinary course and pursuant
to the reasonable requirements of the Company's or the Subsidiary's business and
upon fair and reasonable terms no less favorable to the Company or such
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a person not an affiliate.
4.7. Notice of Breach. As promptly as practicable, and in any event not
later than five business days after senior management of the Company becomes
aware thereof, the Company shall provide the Purchasers with written notice of
any breach by the Company of any provision of this Agreement, including, without
limitation, this Section 4, specifying the nature of such breach and any actions
proposed to be taken by the Company to cure such breach.
4.8. Matters Related to Directors, Non-Voting Observers. (a) In the
event that the Pequot Entities as holders of Series D Preferred Stock, pursuant
to Article 3 of the Certificate of Designation, elect a person to initially
serve on the Board (an "Initial Designee") and that person is not an employee of
DSCM, then the Pequot Entities shall also be entitled to designate a non-voting
observer other than a voting member of the Board to attend and participate in
(but not to vote at) all meetings of the Board and any committee of the Board
(the "Non-voting Observer") The Non-voting Observer shall have the same access
and limitations to information concerning the business and operations of the
Company as directors of the Company, and shall be entitled to participate in
discussions and consult with the Board without voting. The Initial Designee
shall be Xxxxx XxXxxx.
(b) In addition to any requirements specified in the By-Laws, the
Company shall notify the Pequot Entities, any members of the Board designated by
the Pequot Entities (including the Initial Designee) pursuant to the Certificate
of Designation (the "Pequot Entities' Designees") or the Non-voting Observer, as
the case may be, by telecopy, of (a) every meeting (or action by written
consent) of the Board and (b) every meeting (or action by written consent) of
the board of directors of the Subsidiary and of any committee of the Board or
the Subsidiary, to the extent, in the case of this clause (b), that Pequot
Entities' Designees are on the board of directors of the Subsidiary or are on
such committee of the Board of the Company or the Subsidiary, at least three
days in advance of such meeting (or distribution of written consents), or, if
such notice under the circumstances is not practicable, as soon before the
meeting (or distribution) as is practicable.
(c) The Company shall, upon request therefor, promptly reimburse the
Pequot Entities' Designees and the Non-voting Observer, as the case may be, for
all reasonable expenses incurred by them in connection with their attendance at
meetings of the Board or of committees of the Board and any other activities
undertaken by them in their capacity as directors of the Company or the
Subsidiary or observer, as applicable. The foregoing shall be in addition to,
and not in lieu of (or in duplication of), any indemnification or reimbursement
obligations of the
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Company under the Certificate of Incorporation or By-Laws or by law. The
Non-voting Observer shall be entitled to indemnification from the Company to the
maximum extent permitted by law as though he or she were a director of the
Company.
(d) Without the approval of the Board that includes the affirmative
vote of the Pequot Entities' Designees, (i) the Company shall not amend,
supplement, modify or repeal any provision of the Certificate of Incorporation
or By-Laws or take any other action, including, without limitation, the adoption
of a shareholders' rights plan or similar plan, which would adversely affect the
rights or benefits of the Purchasers under any of this Agreement or the
Ancillary Documents, including, without limitation, the conversion rights of the
holders of the Series D Preferred Stock or the exercise rights of the Warrants
hereunder and (ii) the Company shall not, and shall not permit the Subsidiary
to, sell assets of the Company or the Subsidiary in excess of an aggregate of
$250,000.
4.9. Rights of First Offer. Prior to seeking financing from any third
party consisting of an issuance of Equity Securities (the "Proposed Securities")
by the Company on or after the Initial Closing (but excluding the Subsequent
Purchase and the Schedule 2.3 Transaction), the Company shall notify the Pequot
Entities of a description in reasonable detail of the Proposed Securities, the
amount proposed to be issued and the consideration the Company desires to
receive therefor (the "Notice"), which Notice shall constitute an offer to the
Pequot Entities to purchase a portion (a "Maintenance Amount") of such Proposed
Securities on a pari passu basis in order to maintain the Pequot Entities'
percentage level of ownership of the total Common Stock outstanding as such term
is used in the last sentence of Section 2.3. The Pequot Entities shall have 15
days after receipt of the Notice (unless the Pequot Entities earlier indicates
that it has no interest in purchasing the Proposed Securities), to decide
whether or not to acquire the Maintenance Amount, after which (if the Pequot
Entities have not agreed to purchase the above-mentioned Maintenance Amount on
the terms set forth in the Notice or such other terms as are mutually acceptable
to the Company and the Pequot Entities) the Company shall be permitted to seek
and obtain a third-party purchaser to acquire the entire amount of the Proposed
Securities, provided that the closing of such acquisition by such third party
purchaser occurs within 90 days from the date of the Notice and provided that
the acquisition of the Proposed Securities by such third-party purchaser is on
terms no more favorable to such third-party purchaser than those terms set forth
in the Notice. No equity securities shall be issued by the Company to any person
unless the Company has first offered such portion of the equity securities to
the Pequot Entities in accordance with this Section 4.9, except with respect to
a primary public offering of at least a price per share equal to 200% of the
amount designated as the Purchase Price Per Share on Exhibit B-I with gross
proceeds to the Company of at least $15 million.
4.10. Subsidiary Stock. The Company shall not, without the prior
written consent of the holders of a majority of the shares of Series D Preferred
Stock, (a) create, designate, or authorize the issuance of, any series of stock
of the Subsidiary or (b) spin off the assets or the shares of the common stock
of the Subsidiary.
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4.11. Limitation on Convertible Securities. For so long as any Series D
Preferred Stock is outstanding, the Company will not issue (a) any convertible
debt securities or (b) any convertible equity securities ranking pari passu or
senior to the Series D Preferred Stock with respect to dividends or as to
distribution of assets upon liquidation, dissolution or winding up without the
prior written consent of the holders of a majority of the shares of Series D
Preferred Stock then outstanding.
4.12. Payment of Taxes and Other Charges. The Company will pay or
discharge, and will cause the Subsidiary to pay or discharge, before the same
shall become delinquent, (a) all Taxes, assessments and other governmental
charges or levies imposed upon it or any of its properties or income (including,
without limitation, such as may arise under Section 4062, 4063 or 4064 of ERISA
or any similar provision of law) and (b) all claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like persons which, in
the case of either clause (a) or clause (b), if unpaid, might result in the
creation of a material lien upon any of its properties, provided, however, that
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount, applicability
or validity is being contested in good faith pursuant to appropriate
proceedings.
4.13. Dividends. Without the approval of the Board, which approval
includes the affirmative vote of the Pequot Entities' Designees, the Company
will not declare or pay any dividend or make any other distribution of cash,
stock or property to its shareholders.
4.14. Investments. The Company will not, and will not permit the
Subsidiary to, make, directly or indirectly, any advance, loan (including
guarantees), or other extension of credit or capital contribution to (by means
of any transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase, acquisition or
ownership by such person of any capital stock, bonds, notes, debentures or other
securities issued or owned by any other person and all other items that would be
classified as investments on a balance sheet prepared in accordance with
generally accepted accounting principles (an "Investment") unless (i) such an
Investment is in the ordinary course of business or (ii) the Investment is
approved by the Board, which approval includes the affirmative vote of the
Pequot Entities' Designees.
4.15. Changes in Capital Stock. Between the date hereof and the
Subsequent Closing, the Company will not change the amount of its authorized
capital stock, or subdivide or otherwise change any shares of any class of its
capital stock, whether by way of reclassification, stock split or otherwise, or
issue any additional shares of capital stock other than Excluded Securities (as
defined in the Certificate of Designation) and as set forth in Schedule 4.15
hereto and will not grant any options, warrants or other rights to purchase or
acquire shares of the Company's capital stock.
4.16. Schedule 2.3 Transaction. The Company shall perform its
obligations under the Schedule 2.3 Transaction, when and if necessary, as set
forth in Schedule 2.3.
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SECTION 5. Transfer Taxes. The Company agrees that it will pay, and
will hold each Purchaser harmless from any and all liability with respect to any
stamp or similar Taxes which may be determined to be payable in connection with
the execution and delivery and performance of this Agreement, and that it will
similarly pay and hold each Purchaser harmless from all Taxes in respect of the
issuance of the Series D Preferred Stock, the Warrants, the Warrant Shares and
the Conversion Shares to such Purchaser.
SECTION 6. Survival of Representations, Warranties, Agreements and
Covenants, etc. All representations and warranties in this Agreement and in the
Ancillary Documents shall survive the execution and delivery of this Agreement
and the Closing and shall in no way be affected by any investigation or
knowledge of the subject matter thereof made by or on behalf of any Purchaser.
All agreements contained herein shall survive the Closing until, by their
respective terms, they are no longer operative.
SECTION 7. Expenses. (a) Except as set forth in Section
7(b), the Company and each Purchaser shall pay all the costs and expenses
incurred by it or on its behalf in connection with this Agreement and the
consummation of the transactions contemplated hereby.
(b) Within ten days from the receipt of a billing statement
from the Pequot Entities, the Company shall pay and shall reimburse the Pequot
Entities for all of their reasonable documented out-of-pocket costs and expenses
incurred in connection with this transaction (including, without limitation, the
fees and expenses of counsel retained by the Pequot Entities in connection with
the negotiation and preparation of this Agreement and the Ancillary Documents
and the consummation of the transactions contemplated hereby and thereby;
provided, however, in no event shall the liability of the Company under this
Section 7(b) in the aggregate exceed $50,000. The Company shall pay, and hold
the Pequot Entities harmless against liability for the payment of, (i) the
Pequot Entities' reasonable documented out-of-pocket costs and expenses
(including, without limitation, all fees and expenses of Fried, Frank, Harris,
Xxxxxxx & Xxxxxxxx as special counsel of the Pequot Entities) arising in
connection with the preparation, negotiation and execution of this Agreement and
the Ancillary Documents and the consummation of the transactions contemplated
hereby and thereby, (ii) the reasonable fees and expenses incurred by the Pequot
Entities with respect to any amendments or waivers (whether or not the same
become effective) under or in respect of this Agreement and the Ancillary
Documents, (iii) stamp and other Taxes which may be payable in respect of the
execution and delivery of this Agreement or the issuance, delivery or
acquisition of any shares of Series D Preferred Stock, the Warrants, the Warrant
Shares or Conversion Shares and (iv) the reasonable fees and expenses incurred
with respect to the enforcement of the rights granted under this Agreement and
the Ancillary Documents.
SECTION 8. Indemnification.
8.1. General Indemnification. The Company shall indemnify,
defend and hold each Purchaser, its affiliates, their respective officers,
directors, partners, employees, attorneys, agents,
-27-
representatives, successors and assigns (each a "Purchaser Entity") harmless
from and against all Losses incurred or suffered by a Purchaser Entity (whether
incurred or suffered directly or indirectly through ownership of capital stock
of the Company) arising from the breach of any of the representations,
warranties, covenants or agreements made by the Company in this Agreement or in
any Ancillary Document. Each Purchaser, severally and not jointly, shall
indemnify, defend and hold the Company, its affiliates, their respective
officers, directors, employees, agents, representatives, successors and assigns
harmless against all Losses arising from the breach of any of its
representations, warranties, covenants or agreements in this Agreement or in any
Ancillary Documents. Notwithstanding anything to the contrary in this Agreement,
no indemnification payment by the Company pursuant to this Section 8 with
respect to any Losses otherwise payable hereunder as a result of a breach of the
representations and warranties of the Company (other than any Losses resulting
from breaches of the representation and warranty in Section 2.3 which shall not
be subject to the Deductible) shall be payable until the time as such Losses
shall aggregate for all Purchaser Entities to more than $50,000 (the
"Deductible"), at which point the Company shall be obligated to indemnify the
Purchasers from and against all Losses relating back to the first dollar.
8.2. Indemnification Principles. For purposes of this Section 8, (i)
"Losses" shall mean each and all of the following items: claims, losses,
(including, without limitation, losses of earnings) liabilities, obligations,
payments, damages (actual, punitive or consequential), charges, judgments,
fines, penalties, amounts paid in settlement, costs and expenses (including,
without limitation, interest which may be imposed in connection therewith, costs
and expenses of investigation, actions, suits, proceedings, demands, assessments
and fees, expenses and disbursements of counsel, consultants and other experts);
and (ii) each of the representations and warranties made by any party in this
Agreement and in the Ancillary Documents (other than the representation and
warranty made in subclause (a) of Section 2.8 and in Section 2.19 and 2.24 of
this Agreement) shall be deemed to have been made without the inclusion of
limitations or qualifications as to materiality, such as the words "Material
Adverse Effect," "immaterial," "material" and "in all material respects" or
words of similar import. Any payment (or deemed payment) by the Company to a
Purchaser pursuant to this Section 8 shall be treated for federal income tax
purposes as an adjustment to the price paid by such Purchaser for the Series D
Preferred Stock and the Warrants pursuant to this Agreement.
8.3. Claim Notice. A party seeking indemnification under this Section 8
shall, promptly upon becoming aware of the facts indicating that a claim for
Indemnification may be warranted, give to the party from whom indemnification is
being sought a claim notice relating to such Loss (a "Claim Notice"). Each Claim
Notice shall specify the nature of the claim, the applicable provision(s) of
this Agreement or other instrument under which the claim for indemnify arises,
and, if possible, the amount or the estimated amount thereof. No failure or
delay in giving a Claim Notice (so long as the same is given prior to expiration
of the representation or warranty upon which the claim is based) and no failure
to include any specific information relating to the claim (such as the amount or
estimated amount thereof) or any reference to any provision of this Agreement or
other instrument under which the claim arises
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shall affect the obligation of the party from whom indemnity is sought unless
such failure materially and adversely prejudices the indemnifying party.
SECTION 9. Events of Default and Remedies.
9.1. Events of Default. Each of the following shall constitute a
"Event of Default" under this Agreement:
(a) Nonpayment of Dividends on the Series D Preferred
Stock. If the Company fails to declare or pay the Common Stock dividends due
on the Series D Preferred Stock, when and as the same becomes due and payable;
or
(b) Nonpayment of Other Amounts. If the Company fails to pay
any other amount due (including, without limitation, redemption payments and
amounts due for expense reimbursement) under this Agreement or the Ancillary
Documents in full, when and as the same becomes due and payable, and such
failure shall be continuing for five (5) business days; or
(c) Voluntary Bankruptcy and Insolvency Proceedings. If the
Company or the Subsidiary shall file a petition in bankruptcy or for
reorganization or for an arrangement or any composition, readjustment
liquidation, dissolution or similar relief pursuant to the Federal Bankruptcy
Code of 1978, as amended, or under any similar present or future federal Law or
the Law of any other jurisdiction or shall be adjudicated a bankrupt or become
insolvent, or consent to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator (or other similar
official) of the Company or the Subsidiary or for all or any substantial part of
the Company's or the Subsidiary's property, or the Company or the Subsidiary
shall make an assignment for the benefit of its creditors, or shall admit in
writing its inability to pay its debts generally as they become due, or shall
take any corporate action, as the case may be, in furtherance of any of the
foregoing; or
(d) Adjudication of Bankruptcy. If a petition or answer shall
be filed proposing the adjudication of the Company or the Subsidiary as a
bankrupt or its reorganization or arrangement, or any composition, readjustment,
liquidation, dissolution or similar relief with respect to it pursuant to the
Federal Bankruptcy Code of 1978, as amended, or under any similar present or
future federal Law or the Law of any other jurisdiction applicable to the
Company or the Subsidiary, and the Company or the Subsidiary shall consent to or
acquiesce in the filing thereof, or such petition or answer shall not be
discharged or denied within 60 days after the filing thereof, or
(e) Receivership or Sequestration. If a decree or order is
entered by a court having jurisdiction (i) for the appointment of a receiver or
custodian or liquidator or trustee or sequestrator or assignee (or similar
official) in bankruptcy or insolvency of the Company or the Subsidiary or of all
or a substantial part of its property, or for the winding-up or liquidation of
its affairs, and such decree or order shall have remained in force undischarged
and unstayed for a
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period of 60 days, or (ii) for the sequestration or attachment of any property
of the Company or the Subsidiary without its return to the possession of the
Company or the Subsidiary or its release from such sequestration or attachment
within 60 days thereafter; or
(f) Defaults Under Other Agreements. The Company or the
Subsidiary shall (i) default in the payment or principal or interest on any
indebtedness of $300,000 or more beyond the applicable period of grace, if any,
(ii) fail to observe or perform any covenant or agreement contained in any
agreement(s) or instrument(s) relating to indebtedness of $300,000 or more in
the aggregate within any applicable grace period, (iii) any other event shall
occur, if the effect of such failure or other event is to accelerate, or to
permit the holder of such indebtedness or any other person to accelerate, the
maturity of $300,000 or more in the aggregate of such indebtedness; or (iv)
$300,000 or more in the aggregate of any indebtedness shall be, or if as a
result if such failure or other event may be, required to be prepaid (other than
by regularly scheduled required prepayment) in whole or in part prior to its
stated maturity;
(g) Covenants. The Company shall fail to observe or perform
any covenant or agreement contained in this Agreement or the Ancillary
Documents, except for those covenants and agreements referred to in Section
8.1(a) or 8.1(b), and, if capable of being remedied, such failure shall remain
unremedied for 30 days after the Company becomes aware of such failure;
(h) Misrepresentation. The representations and warranties of
the Company set forth in this Agreement shall not have been true and correct in
any material respect as of the date hereof and shall not be true and correct in
any material respect as of the date of the Subsequent Closing with the same
effect as though such representations and warranties had been made as of such
date;
(i) Purchaser Designee. The failure of at least one designee
of the Pequot Entities to be serving as a director of the Company, which
situation continues for a period of five days or more, provided that such
failure is not the result of the Pequot Entities failing to designate a
designee, and provided further that it shall be an Event of Default if, during
any period in which no Designee of the Pequot Entities is serving as a director
of the Company, a meeting of the Board shall be called or held or action shall
have been taken by written consent of the directors; or
(j) Judgments. A final judgment or Judgments entered by a
court of competent jurisdiction for the payment of money aggregating in excess
of $300,000 is or are outstanding against the Company or the Subsidiary and any
one such judgment in excess of $300,000 has, or such Judgments aggregating in
excess of $300,000 have, remained unpaid, unvacated, unbonded, or unstayed by
appeal or otherwise for a period of 30 days from the date of entry.
-30-
9.2. Remedy for Event of Default. In addition to the remedies set forth
herein and in the Ancillary Documents, if any Event of Default shall have
occurred and be continuing, the holders of a majority of the shares of Series D
Preferred Stock, pursuant to the procedures set forth in the Certificate of
Designation, shall be entitled to elect the smallest number of directors that
shall constitute a majority of the authorized number of directors of the Board.
9.3. Waiver. No course of dealing on the part of any holder, nor
any delay or failure on the part of any holder to exercise any of its rights,
shall operate as a waiver of such right or otherwise prejudice such holder's
rights, powers and remedies.
SECTION 10. Other Remedies. (a) In addition to those remedies
specifically set forth herein and in the Ancillary Documents, each Purchaser may
proceed to protect and enforce its rights under this Agreement and the Ancillary
Agreements either by suit in equity and/or by action at law, including, but not
limited to, an action for damages as a result of any such breach and/or an
action for specific performance of any such covenant or agreement contained in
this Agreement. No right or remedy conferred upon or reserved to the holders of
Series D Preferred Stock under this Agreement or the Ancillary Documents is
intended to be exclusive of any other right or remedy, and every right and
remedy shall be cumulative and in addition to every other right and remedy given
hereunder or under the Ancillary Documents or now and hereafter existing under
applicable law. Every right and remedy given by this Agreement or the Ancillary
Documents or by applicable law to the holders of Series D Preferred Stock may be
exercised from time to time and as often as may be deemed expedient by the
holders.
(b) Any indemnification payment by the Company to a Purchaser
in connection with a breach of the representations, warranties and covenants of
the Company shall include an additional amount such that such Purchaser suffers
no loss as a result of any diminution in the book value of the stockholders'
equity related to its investment in the Company as a result of such
indemnification payment. Any payment by the Company to a Purchaser in connection
with a breach of the representations, warranties and covenants of the company
shall be treated for federal income tax purposes as an adjustment to the price
paid by such Purchaser for the Series D Preferred Stock and the Warrants
pursuant to this Agreement.
SECTION 11. Further Assurances. At any time or from time to time after
the Closing, the Company, on the one hand, and the Purchasers, on the other
hand, agree to cooperate with each other, and at the request of the other party,
to execute and deliver any further instruments or documents and to take all such
further action as the other party may reasonably request in order to evidence or
effectuate the consummation of the transactions contemplated hereby relating to
the Purchase and to otherwise carry out the intent of the parties hereunder.
SECTION 12. Successors and Assigns. This Agreement shall bind and inure
to the benefit of the Company and the Purchasers and the respective successors,
permitted assigns, heirs and personal representatives of the Company and the
Purchasers except that the Company may not assign its rights and obligations
under this Agreement to any person without the prior
-31-
written consent of the Purchasers. In addition, and whether or not any express
assignment has been made, the provisions of this Agreement which are for each of
the Purchaser's benefit as a purchaser or holder of Series D Preferred Stock are
also for the benefit of, and enforceable by, any subsequent holder of such
Series D Preferred Stock and/or Conversion Shares.
SECTION 13. Entire Agreement. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements or understandings with
respect thereto, including the Letter of Intent, as amended.
SECTION 14. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy,
nationally recognized overnight courier or first class registered or certified
mail, return receipt requested, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be designated in
writing by such party to the other parties:
(i) if to the Company, to:
NeTegrity, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telecopy:
Attention:
with a copy to:
Xxxxxxxx, Xxxxxxx & Xxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx, Xx., Esq.
(ii) if to the Purchasers, to the address listed on
Exhibit A.
with a copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
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All such notices, requests, consents and other communications shall be
deemed to have been given when received.
SECTION 15. Amendments. The terms and provisions of this Agreement may
be modified or amended, or any of the provisions hereof waived, temporarily or
permanently, pursuant to the written consent of the Company and holders of the
majority of the Series D Preferred Stock outstanding. No waiver of any of the
provisions of this Agreement shall be deemed to or shall constitute a waiver of
any other provision hereof (whether or not similar). No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof.
SECTION 16. Counterparts. This Agreement may be executed in
any number of counterparts, and each such counterpart hereof shall be deemed to
be an original instrument, but all such counterparts together shall constitute
but one agreement.
SECTION 17. Headings. The headings of the sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement.
SECTION 18. Nouns and Pronouns. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice versa.
SECTION 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to the principles of conflicts of law. Each of the parties hereto hereby
irrevocably and unconditionally consents to submit to the exclusive jurisdiction
of the courts of the State of New York and of the United States of America, in
each case located in the County of New York, for any action, proceeding or
investigation in any court or before any governmental authority ("Litigation")
arising out of or relating to this Agreement and the Ancillary Documents and the
transactions contemplated hereby and thereby (and agrees not to commence any
Litigation relating thereto except in such courts), and further agrees that
service of any process, summons, notice or document by U.S. registered mail to
its respective address set forth in this Agreement shall be effective service of
process for any Litigation brought against it in any such court. Each of the
parties hereto hereby irrevocably and unconditionally waives any objection to
the laying of venue of any Litigation arising out of this Agreement or the
transactions contemplated hereby in the courts of the State of New York or the
United States of America, in each case located in the County of New York, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such Litigation brought in any such court has
been brought in an inconvenient forum.
SECTION 20. Publicity. Each of the parties hereto agrees that
it will make no public statement regarding the transactions contemplated hereby
unless the language and timing of such
-33-
statement has been approved by the Company and the Pequot Entities.
Notwithstanding the foregoing, each of the parties hereto may, in documents
required to be filed by it with the Commission or other regulatory bodies, make
such statements with respect to the transactions contemplated hereby as each may
be advised is legally necessary upon advice of its counsel; provided, however,
that the party making such determination shall immediately notify the other
party that it intends to make a public announcement and the parties hereto
shall, in good faith, attempt to agree on any public announcements or publicity
statements with respect thereto.
SECTION 21. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
-34-
IN WITNESS WHEREOF, the parties hereto have duly executed this Series D
Preferred Stock and Warrant Purchase Agreement as of the date first above
written.
THE COMPANY:
NETEGRITY, INC.
By:______________________________________
Name:
Title:
PURCHASERS:
PEQUOT PRIVATE EQUITY FUND, L.P.
By:______________________________________
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY FUND,
INC.
By:______________________________________
Name:
Title:
-35-
EXHIBIT A
WARRANT
To Purchase Shares of Common Stock of
NETEGRITY, INC.
Warrant No. __
No. of Shares of Common Stock:
-1-
TABLE OF CONTENTS
Section Page
1. DEFINITIONS........................................................1
2. EXERCISE OF WARRANT................................................5
2.1. Manner of Exercise........................................5
2.2. Payment of Taxes..........................................7
2.3. Fractional Shares.........................................7
2.4. Mandatory Exercise at the Company's Option................7
3. TRANSFER, DIVISION AND COMBINATION.................................7
3.1. Transfer..................................................7
3.2. Division and Combination..................................7
3.3. Expenses..................................................8
3.4. Maintenance of Books......................................8
4. ADJUSTMENTS........................................................8
4.1. Stock Dividends, Subdivisions and Combinations............8
4.2. Certain Other Distributions...............................9
4.3. Issuance of Additional Shares of Common Stock............10
4.4. Issuance of Warrants or Other Rights.....................10
4.5. Issuance of Convertible Securities.......................11
4.6. Superseding Adjustment...................................11
4.7. Other Provisions Applicable to Adjustments under this
Section..................................................12
4.8. Reorganization, Reclassification, Merger, Consolidation
or Disposition of Assets.................................15
4.9. Other Action Affecting Common Stock......................16
4.10. Certain Limitations......................................16
5. NOTICES TO WARRANT HOLDERS........................................16
5.1. Notice of Adjustments; Change in Warrant Status..........16
5.2. Notice of Corporate Action...............................17
6. RIGHTS OF HOLDERS.................................................18
6.1 No Impairment............................................18
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK; REGISTRATION
WITH OR APPROVAL OF ANY GOVERNMENTAL AUTHORITY....................19
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS................19
-i-
9. RESTRICTIONS ON TRANSFERABILITY...................................19
9.1. Restrictive Legend.......................................20
9.2. Registration Rights......................................20
10. LOSS OR MUTILATION.......................................20
11. LIMITATION OF LIABILITY..................................20
12. MISCELLANEOUS............................................20
12.1. Nonwaiver and Expenses...................................21
12.2. Notice Generally.........................................21
12.3. Remedies.................................................22
12.4. Successors and Assigns...................................22
12.5. Amendment................................................22
12.6. Severability.............................................22
12.7. Headings.................................................22
12.8. Governing Law............................................22
EXHIBITS
EXHIBIT A
EXHIBIT B
-ii-
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
No. of Shares of Common Stock: Warrant No.
WARRANT
To Purchase Shares of Common Stock of
NETEGRITY, INC.
THIS IS TO CERTIFY THAT ___________________________, or registered
assigns (the "Warrantholder"), is entitled, at any time prior to the Expiration
Date (as hereinafter defined), to purchase from NeTegrity, Inc., a Delaware
corporation (the "Company"), __________ shares of Common Stock (as hereinafter
defined and subject to adjustment as provided herein), in whole or in part, at a
purchase price of $2.00 per share, all on the terms and conditions and pursuant
to the provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the respective
meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Initial Closing Date, other than Warrant
Stock.
"Adjustment Period" shall mean the period of five consecutive Trading
Days preceding the date as of which the Fair Market Value of a security is to be
determined.
"Board of Directors" shall mean the board of directors of the Company.
"Business Day" shall mean any day that is not a Saturday or Sunday or a
day on which banks are required or permitted to be closed in the State of New
York.
"Certificate of Designation" shall mean the Certificate of Designation
establishing the Preferred Stock, dated as of the Initial Closing Date.
-i-
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, $.01 par value, of the Company as constituted on
the Initial Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of Common Stock upon any reclassification thereof which is not preferred
as to dividends or assets over any other class of stock of the Company and which
is not subject to redemption and (ii) shares of common stock of any successor or
acquiring corporation (as defined in Section 4.8) received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.8.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable or
exercisable, with or without payment of additional consideration in cash or
property, for Additional Shares of Common Stock, either immediately or upon the
occurrence of a specified date or a specified event.
"Current Market Price" when used with reference to shares of Common
Stock or other securities on any date, shall mean the closing price per share of
Common Stock or such other securities on such date and, when used with reference
to shares of Common Stock or other securities for any period shall mean the
average of the daily closing prices per share of Common Stock or such other
securities for such period. The closing price for each day shall be the last
quoted bid price in the over-the-counter market, as reported by the Nasdaq Small
Cap Market (the "NASDAQ") or such other system then in use, or, if on any such
date the Common Stock or such other securities are not quoted by any such
organization, the closing bid price as furnished by a professional market maker
making a market in the Common Stock or such other securities selected by the
Board of Directors. If the Common Stock is listed or admitted to trading on a
national securities exchange, the closing price shall be the closing bid price,
regular way, as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Common Stock or such other securities are not listed
or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Common Stock
or such other securities are listed or admitted to trading. If the Common Stock
or such other securities are not publicly held or so listed or publicly traded,
"Current Market Price" shall mean the Fair Market Value per share of Common
Stock or of such other securities as determined in good faith by the Board of
Directors based on an opinion of an independent investment banking firm
acceptable to the Majority Holders, which opinion may be based on such
assumptions as such firm shall deem to be necessary and appropriate.
-2-
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date or $2.00.
"Excluded Securities" shall have the meaning set forth in the
Certificate of Designation.
"Expiration Date" shall mean January __, 2003.
"Fair Market Value" shall mean, as to shares of Common Stock or any
other class of capital stock or securities of the Company or any other issuer
which are publicly traded, the average of the Current Market Prices of such
shares of securities for each day of the Adjustment Period. The "Fair Market
Value" of any security which is not publicly traded or of any other property
shall mean the fair value thereof as determined by an independent investment
banking or appraisal firm experienced in the valuation of such securities or
property selected in good faith by the Board of Directors or a committee thereof
and acceptable to the Majority Holders.
"Holder" shall mean the Person in whose name this Warrant is registered
on the books of the Company maintained for such purpose. "Holders" shall mean,
collectively, each Holder of a Warrant, in the event of any division of this
Warrant.
"Initial Closing Date" shall mean the date of the Initial Closing as
such term is defined in the Purchase Agreement.
"Majority Holders" shall mean the holders of Warrants exercisable for
in excess of 50% of the aggregate number of shares of Warrant Stock then
purchasable upon exercise of all Warrants.
"Other Property" shall have the meaning set forth in Section 4.8.
"Outstanding"shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock. For the purposes of Sections
4.3, 4.4, 4.5, 4.6 and 4.7, Common Stock Outstanding shall include all shares of
Common Stock issuable in respect of options or warrants to purchase, or
securities convertible into, shares of Common Stock, the exercise or conversion
price of which is less than the Current Market Price as of any date on which the
number of shares of Common Stock Outstanding is to be determined.
-3-
"Permitted Issuances" shall mean the issuance or reissuance of any
shares of Common Stock (whether treasury shares or newly issued shares) pursuant
to (i) a dividend or distribution on, or subdivision, combination or
reclassification of, the outstanding shares of Common Stock requiring an
adjustment in the conversion ratio pursuant to Section 4.1(a) or (ii) issuances
of Excluded Securities.
"Person" shall mean any individual, firm, corporation, partnership or
other entity, and shall include any successor by merger or otherwise of such
entity.
"Preferred Stock" shall mean the Company's Series D Preferred Stock,
par value $.01 per share.
"Purchase Agreement" shall mean the Preferred Stock and Warrant
Purchase Agreement, dated January 6, 1998, among the Company, Pequot Private
Equity Fund, L.P.
and Pequot Offshore Private Equity Fund, Inc.
"Registration Rights Agreement" shall mean the registration rights
agreement, dated as of the Initial Closing Date, among the Company, Pequot
Private Equity Fund, L.P. and Pequot Offshore Private Equity Fund, Inc.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Trading Day" means a Business Day or, if the Common Stock is listed or
admitted to trading on any national securities exchange, a day on which such
exchange is open for the transaction of business.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. Manner of Exercise.2.1.Manner of Exercise At any time or
from time to time from and after the Initial Closing Date and until 5:00 P.M.,
New York time, on the Expiration Date, Holder may
-4-
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 000 Xxxxxx Xxxxxx, Xxxxxxx, XX
00000 (i) a written notice of Holder's election to exercise this Warrant, which
notice shall specify the number of shares of Common Stock to be purchased, (ii)
payment of the Warrant Price and (iii) this Warrant. Such notice shall be
substantially in the form appearing at the end of this Warrant as Exhibit A,
duly executed by Holder. Upon receipt of the items specified in the second
preceding sentence, the Company shall execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be in such denomination or denominations as Holder shall request in the notice
and shall be registered in the name of Holder or, subject to Section 9, such
other name as shall be designated in the notice. This Warrant shall be deemed to
have been exercised and such certificate or certificates shall be deemed to have
been issued, and Holder or any other Person so designated shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with the Warrant Price and this Warrant, are received by
the Company as described above. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the right of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of Holder, appropriate
notation may be made on this Warrant and the same returned to Holder.
Payment of the Warrant Price shall be made at the option of Holder (i)
by certified or official bank check or (ii) by the surrender of this Warrant to
the Company, with a duly executed exercise notice marked to reflect "Net Issue
Exercise," and, in either case, specifying the number of shares of Common Stock
to be purchased, during normal business hours on any Business Day. Upon a Net
Issue Exercise, Holder shall be entitled to receive shares of Common Stock equal
to the value of this Warrant (or the portion thereof being exercised by Net
Issue Exercise) by surrender of this Warrant to the Company together with notice
of such election, in which event the Company shall issue to Holder a number of
shares of the Company's Common Stock computed as of the date of surrender of
this Warrant to the Company using the following formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued to Holder;
-5-
Y = the number of shares of Common Stock otherwise purchasable
under this Warrant (at the date of such calculation);
A = the Current Market Price of one share of the Company's
Common Stock (at the date of such calculation);
B = the Current Warrant Price (as adjusted to the date
of such calculation).
2.2. Payment of Taxes.2.2.Payment of Taxes All shares of Common Stock
issuable upon the exercise of this Warrant shall be validly issued, fully paid
and nonassessable and without any preemptive rights. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery thereof.
2.3. Fractional Shares. The Company shall not be required to issue a
fractional share of Common Stock upon exercise of this Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such
fraction in an amount equal to the same fraction of the Current Market Price per
share of Common Stock on the date of exercise.
2.4. Mandatory Exercise at the Company's Option. In the event that the
closing bid price for the Common Stock on the NASDAQ (or any exchange on which
the Common Stock is being traded) exceeds $6.00 (as adjusted for any stock
dividends, stock splits, subdivisions, reclassifications or combinations
occurring after the Initial Closing Date) for ten Trading Days in a period of 25
consecutive Trading Days at any time during the second quarter ending June 30,
1999, the Company may, by written notice to the Holders, require the Holders to
exercise the Warrants in whole (but not in part).
3. TRANSFER, DIVISION AND COMBINATION
3.1. Transfer. Subject to compliance with Section 9, Transfer of this
Warrant and all rights hereunder, in whole or in part, shall be registered on
the books of the Company to be maintained for such purpose, upon surrender of
this Warrant at the principal office of the Company referred to in Section 2.1,
together with a written assignment of this Warrant substantially in the form of
Exhibit B hereto duly executed by Holder and funds sufficient to pay any
transfer taxes payable upon the making of such Transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
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3.2. Division and Combination. Subject to Section 9, this Warrant may
be divided into multiple Warrants or combined with other Warrants upon
presentation hereof at the aforesaid office or agency of the Company, together
with a written notice specifying the names and denominations in which new
Warrants are to be issued, signed by Holder. Subject to compliance with Section
3.1 and with Section 9, as to any Transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. Expenses. The Company shall prepare, issue and deliver at
its own expense (other than transfer taxes) the new Warrant or Warrants under
this Section 3.
3.4. Maintenance of Books. The Company agrees to maintain, at its
aforesaid office, books for the registration and the registration of Transfer
of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable and/or the price at which such shares may be purchased upon exercise
of this Warrant, shall be subject to adjustment from time to time as set forth
in this Section 4. The Company shall give each Holder notice of any event
described below which requires an adjustment pursuant to this Section 4 at the
time of such event.
4.1. Stock Dividends, Subdivisions and Combinations. In case the
Company shall at any time or from time to time after the date hereof (A) take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend, or any distribution, on the outstanding shares of Common
Stock in Additional Shares of Common Stock, (B) subdivide the outstanding shares
of Common Stock, (C) combine the outstanding shares of Common Stock into a
smaller number of shares or (D) issue by reclassification of the shares of
Common Stock any shares of capital stock of the Company, then (i) the number of
shares of Common Stock for which this Warrant is exercisable immediately after
the occurrence of any such event shall be adjusted to equal the number of shares
of Common Stock which a record holder of the same number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the occurrence
of such event would own or be entitled to receive after the happening of such
event, and (ii) the Current Warrant Price per share shall be adjusted to equal
(A) the Current Warrant Price multiplied by the number of shares of Common Stock
for which this Warrant is exercisable immediately prior to the adjustment
divided by (B) the number of shares for which this Warrant is exercisable
immediately after such adjustment. An adjustment made pursuant to this Section
4.1 shall become effective (x) in the case of any such dividend or distribution,
immediately after the close of business on the record date for the determination
of holders of shares of Common Stock entitled to receive such dividend or
distribution, or (y) in the case of such subdivision, reclassification or
combination, at the close of business on the day upon which such corporate
action becomes effective.
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4.2. Certain Other Distributions. If the Company shall at any
time or from time to time after the date hereof declare, order, pay or make
a dividend or other distribution of:
(a) cash,
(b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever by way of
dividend (other than cash, Convertible Securities or Additional Shares
of Common Stock), or
(c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock),
then (i) the number of shares of Common Stock for which this Warrant is
exercisable shall be adjusted to equal the product of the number of shares of
Common Stock for which this Warrant is exercisable immediately prior to such
adjustment by a fraction (A) the numerator of which shall be the Current Market
Price per share of Common Stock for the period of 20 Trading Days preceding such
adjustment and (B) the denominator of which shall be such Current Market Price
per share of Common Stock less the Fair Market Value per share of Common Stock
of any such dividend or distribution and (ii) the Current Warrant Price shall be
adjusted to equal (A) the Current Warrant Price multiplied by the number of
shares of Common Stock for which this Warrant is exercisable immediately prior
to the adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment. A reclassification of the Common
Stock (other than a change in par value, or from par value to no par value or
from no par value to par value) into shares of Common Stock and shares of any
other class of stock shall be deemed a distribution by the Company to the
holders of its Common Stock of such shares of such other class of stock within
the meaning of this Section 4.2 and, if the outstanding shares of Common Stock
shall be changed into a larger or smaller number of shares of Common Stock as a
part of such reclassification, such change shall be deemed a subdivision or
combination, as the case may be, of the outstanding shares of Common Stock
within the meaning of Section 4.1.
4.3. Issuance of Additional Shares of Common Stock. If at any time the
Company shall (except as hereinafter provided) issue or sell any Additional
Shares of Common Stock, other than Permitted Issuances, in exchange for
consideration in an amount per Additional Share of Common Stock less than the
Current Warrant Price at the time the Additional Shares of Common Stock are
issued, then (i) the Current Warrant Price as to the number of shares for which
this Warrant is exercisable prior to such adjustment shall be reduced to a price
determined by dividing (A) an amount equal to the sum of (x) the number of
shares of Common Stock Outstanding immediately prior to such issue or sale
multiplied by the then existing Current Warrant Price, plus (y) the
consideration, if any, received by the Company upon such issue or sale, by (B)
the total number of shares of Common Stock Outstanding
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immediately after such issue or sale; and (ii) the number of shares of Common
Stock for which this Warrant is exercisable shall be adjusted to equal the
product obtained by multiplying the Current Warrant Price in effect immediately
prior to such issue or sale by the number of shares of Common Stock for which
this Warrant is exercisable immediately prior to such issue or sale and dividing
the product thereof by the Current Warrant Price resulting from the adjustment
made pursuant to clause (i) above.
4.4. Issuance of Warrants or Other Rights. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any warrants or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such Warrants or other rights or upon conversion or exchange of such
Convertible Securities shall be less than the Current Warrant Price in effect
immediately prior to the time of such issue or sale, then the number of shares
for which this Warrant is exercisable and the Current Warrant Price shall be
adjusted as provided in Section 4.3 on the basis that the maximum number of
Additional Shares of Common Stock issuable pursuant to all such warrants or
other rights or necessary to effect the conversion or exchange of all such
Convertible Securities shall be deemed to have been issued and outstanding and
the Company shall have received all of the consideration payable therefor, if
any, as of the date of the actual issuance of the number of shares for which
this Warrant is exercisable and such warrants or other rights. No further
adjustments of the Current Warrant Price shall be made upon the actual issue of
such Common Stock or of such Convertible Securities upon exercise of such
warrants or other rights or upon the actual issue of such Common Stock upon such
conversion or exchange of such Convertible Securities. Notwithstanding the
foregoing, no adjustment shall be required under this Section 4.4 solely by
reason of the issuance of stock purchase rights under a stockholder rights plan
of the Company, provided that the adjustments required by this Section 4.4 shall
be made if any "flip-in" or "flip-over" event shall occur under such stockholder
rights plan.
4.5. Issuance of Convertible Securities. If at any time the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them to receive a distribution of, or shall in any manner (whether
directly or by assumption in a merger in which the Company is the surviving
corporation) issue or sell, any Convertible Securities, whether or not the
rights to exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange shall be less than the Current Warrant Price in effect immediately
prior to the time of such issue or sale, then the number of shares for which
this Warrant is exercisable and the Current Warrant Price shall be adjusted as
provided in Section 4.3 on the basis that the maximum number of Additional
Shares of Common Stock necessary to effect the conversion or exchange of all
such Convertible Securities shall be deemed to have been issued and outstanding
and the Company shall have received all of the consideration payable therefor,
if any, as of the date of
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actual issuance of such Convertible Securities. No adjustment of the number of
shares for which this Warrant is exercisable and the Current Warrant Price shall
be made under this Section 4.5 upon the issuance of any Convertible Securities
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant to Section 4.4.
No further adjustments of the number of shares for which this Warrant is
exercisable and the Current Warrant Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities
and, if any issue or sale of such Convertible Securities is made upon exercise
of any warrant or other right to subscribe for or to purchase any such
Convertible Securities for which adjustments of the number of shares for which
this Warrant is exercisable and the Current Warrant Price have been or are to be
made pursuant to other provisions of this Section 4, no further adjustments of
the number of shares for which this Warrant is exercisable and the Current
Warrant Price shall be made by reason of such issue or sale.
4.6. Superseding Adjustment. If, at any time after any adjustment
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price shall have been made pursuant to Section 4.4 or
Section 4.5 as the result of any issuance of warrants, rights or Convertible
Securities,
(a) such warrants or rights, or the right of conversion or
exchange in such other Convertible Securities, shall expire, and all or
a portion of such warrants or rights, or the right of conversion or
exchange with respect to all or a portion of such other Convertible
Securities, as the case may be, shall not have been exercised, or
(b) the consideration per share for which shares of Common
Stock are issuable pursuant to such warrants or rights, or the terms of
such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the occurrence of a specified date or
event, then for each outstanding Warrant such previous adjustment shall
be rescinded and annulled and the Additional Shares of Common Stock
which were deemed to have been issued by virtue of the computation made
in connection with the adjustment so rescinded and annulled shall no
longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such rights
or options or other Convertible Securities on the basis of
(c) treating the number of Additional Shares of Common Stock
or other property, if any, theretofore actually issued or issuable
pursuant to the previous exercise of any such warrants or rights or any
such right of conversion or exchange, as having been issued on the date
or dates of any such exercise and for the consideration actually
received and receivable therefor, and
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(d) treating any such warrants or rights or any such other
Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such increase of the
consideration per share for which shares of Common Stock or other
property are issuable under such warrants or rights or other
Convertible Securities; whereupon a new adjustment of the number of
shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
4.7. Other Provisions Applicable to Adjustments under this Section. The
following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock for which this Warrant is exercisable and the
Current Warrant Price provided for in this Section 4:
(a) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any
warrants or other rights to subscribe for or purchase any Additional
Shares of Common Stock or any Convertible Securities shall be issued
for cash consideration, the consideration received by the Company
therefor shall be the amount of the cash received by the Company
therefor, or, if such Additional Shares of Common Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of Common Stock or
Convertible Securities are sold to underwriters or dealers for public
offering without a subscription offering, the public offering price (in
any such case subtracting any amounts paid or receivable for accrued
interest or accrued dividends and without taking into account any
compensation, discounts or expenses paid or incurred by the Company for
and in the underwriting of, or otherwise in connection with, the
issuance thereof). To the extent that such issuance shall be for a
consideration other than cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be deemed to
be the Fair Market Value of such consideration at the time of such
issuance. In case any Additional Shares of Common Stock or any
Convertible Securities or any warrants or other rights to subscribe for
or purchase such Additional Shares of Common Stock or Convertible
Securities shall be issued in connection with any merger in which the
Company issues any securities, the amount of consideration therefor
shall be deemed to be the Fair Market Value of such portion of the
assets and business of the nonsurviving corporation as such Board in
good faith shall determine to be attributable to such Additional Shares
of Common Stock, Convertible Securities, warrants or other rights, as
the case may be. The consideration for any Additional Shares of Common
Stock issuable pursuant to any warrants or other rights to subscribe
for or purchase the same shall be the consideration received by the
Company for issuing such warrants or other rights plus the additional
consideration payable to the Company upon exercise of such warrants or
other rights. The consideration for any Additional Shares of Common
Stock issuable pursuant to the terms of any Convertible Securities
shall be the consideration received by the Company
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for issuing warrants or other rights to subscribe for or purchase such
Convertible Securities, plus the consideration paid or payable to the
Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if any,
payable to the Company upon the exercise of the right of conversion or
exchange in such Convertible Securities. In case of the issuance at any
time of any Additional Shares of Common Stock or Convertible Securities
in payment or satisfaction of any dividends upon any class of stock
other than Common Stock, the Company shall be deemed to have received
for such Additional Shares of Common Stock or Convertible Securities a
consideration equal to the amount of such dividend so paid or
satisfied. If Additional Shares of Common Stock are sold as a unit with
other securities or rights of value, the aggregate consideration
received for such Additional Shares of Common Stock shall be deemed to
be net of the Fair Market Value of such other securities or rights of
value.
(b) When Adjustments to Be Made. The adjustments required by
this Section 4 shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that any adjustment
of the number of shares of Common Stock for which this Warrant is
exercisable that would otherwise be required may be postponed (except
in the case of a subdivision or combination of shares of the Common
Stock, as provided for in Section 4.1) up to, but not beyond the date
of exercise if such adjustment either by itself or with other
adjustments not previously made results in an increase or decrease of
less than 1% of the shares of Common Stock for which this Warrant is
exercisable immediately prior to the making of such adjustment;
provided, however, that such adjustment must result in an adjustment of
$.01 or more. Any adjustment representing a change of less than such
minimum amount (except as aforesaid) which is postponed shall be
carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 4 and not previously made,
would result in a minimum adjustment or on the date of exercise. For
the purpose of any adjustment, any specified event shall be deemed to
have occurred at the close of business on the date of its occurrence.
(c) Fractional Interests. In computing adjustments under
this Section 4, fractional interests in Common Stock shall be
taken into account to the nearest 1/100th of a share.
(d) When Adjustment Not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or distribution or subscription or purchase
rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.
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(e) Escrow of Warrant Stock. If, after any property becomes
distributable pursuant to this Section 4 by reason of the taking of any
record of the holders of Common Stock, but prior to the occurrence of
the event for which such record is taken, Holder exercises this
Warrant, any Additional Shares of Common Stock issuable upon exercise
by reason of such adjustment shall be deemed the last shares of Common
Stock for which this Warrant is exercised (notwithstanding any other
provision to the contrary herein) and such shares or other property
shall be held in escrow for Holder by the Company to be issued to
Holder when and to the extent that the event actually takes place, upon
payment of the then Current Warrant Price. Notwithstanding any other
provision to the contrary herein, if the event for which such record
was taken fails to occur or is rescinded, then such escrowed shares
shall be canceled by the Company and escrowed property returned.
(f) Challenge to Good Faith Determination. Whenever the Board
of Directors shall be required to make a determination in good faith of
the fair value of any item under this Section 4, such determination may
be challenged in good faith by the Majority Holders, and, after 20
Business Days in which the parties hereto shall, in good faith, attempt
to resolve any dispute related hereto, then any dispute shall be
resolved by an investment banking firm of recognized national standing
selected by the Company and acceptable to the Majority Holders.
4.8. Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock,
then Holder shall have the right thereafter to receive, upon exercise of this
Warrant and payment of the Warrant Price, the number of shares of common stock
of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of
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the Board of Directors) in order to provide for adjustments of shares of the
Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.8, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.8 shall similarly apply to successive
reorganizations, reclassifications, mergers, consolidations or disposition of
assets.
4.9. Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action in respect of its Common Stock,
other than any action described in this Section 4, then the number of shares of
Common Stock or other stock for which this Warrant is exercisable and/or the
purchase price thereof shall be adjusted in such manner as may be equitable in
the circumstances.
4.10. Certain Limitations. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction which, by reason
of any adjustmenthereunder, would cause the Current Warrant Price to be less
than the par value per share of Common Stock.
5. NOTICES TO WARRANT HOLDERS
5.1. Notice of Adjustments; Change in Warrant Status. Whenever the
number of shares of Common Stock for which this Warrant is exercisable, or
whenever the price at which a share of such Common Stock may be purchased upon
exercise of the Warrants, shall be adjusted pursuant to Section 2.1 or Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors determined
the Fair Market Value of any evidences of indebtedness, shares of stock, other
securities or property or warrants or other subscription or purchase rights
referred to in Section 4.2 or 4.7(a)), specifying the number of shares of Common
Stock for which this Warrant is exercisable and (if such adjustment was made
pursuant to Section 4.8 or 4.9) describing the number and kind of any other
shares of stock or Other Property for which this Warrant is exercisable, and any
change in the purchase price or prices thereof, after giving effect to such
adjustment or change. The Company shall promptly cause a signed copy of such
certificate to be delivered to each Holder in accordance with Section 12.2. The
Company shall keep at its principal office copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by any Holder or any prospective purchaser of a Warrant
designated by a Holder thereof.
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5.2. Notice of Corporate Action. If at any time
(a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
(other than a cash dividend payable out of earnings or earned surplus
legally available for the payment of dividends under the laws of the
jurisdiction of incorporation of the Company) or other distribution, or
any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities
or property, or to receive any other right, or
(b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any
sale, transfer or other disposition of all or substantially all the
property, assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of
such cases, the Company shall give to Holder (i) at least 20 days'
prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining
rights to vote in respect of any such reorganization, reclassification,
merger, consolidation, sale, transfer, disposition, dissolution,
liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale,
transfer, disposition, dissolution, liquidation or winding up, at least
20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall
specify (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, the date on which the
holders of Common Stock shall be entitled to any such dividend,
distribution or right, and the amount and character thereof, and (ii)
the date on which any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up is to take place and the time, if any such time is to be
fixed, as of which the holders of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or
winding up. Each such written notice shall be sufficiently given if
addressed to Holder at the last address of Holder appearing on the
books of the Company and delivered in accordance with Section 12.2.
6. RIGHTS OF HOLDERS
6.1 No Impairment. The Company shall not by any action, including,
without limitation, amending its Certificate of Incorporation or comparable
governing instruments or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
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performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form reasonably
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK;
REGISTRATION WITH OR APPROVAL OF ANY GOVERNMENTAL
AUTHORITY
From and after the Initial Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable, and not subject to preemptive
rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of a record of such holders, the Company will in each such
case take such a record and will take such record as of the close of business on
a Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
Transfer of any Warrant.
-16-
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. Restrictive Legend. Except as otherwise provided in this Section
9, each Warrant and each certificate for Warrant Stock initially issued upon the
exercise of a Warrant, and each certificate for Warrant Stock issued to any
subsequent transferee of any such certificate, shall be stamped or otherwise
imprinted with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH SUCH ACT."
9.2. Registration Rights. The holders of Warrants and Warrant
Stock shall have the registration rights set forth in the Registration Rights
Agreement.
10. LOSS OR MUTILATION
Upon receipt by the Company from any Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it, and in
case of mutilation upon surrender and cancellation hereof, the Company will
execute and deliver in lieu hereof a new Warrant of like tenor to such Holder;
provided, in the case of mutilation, no indemnity shall be required if this
Warrant in identifiable form is surrendered to the Company for cancellation.
11. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of such Holder for
the purchase price of any Common Stock or as a stockholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
12. MISCELLANEOUS
12.1. Nonwaiver and Expenses. No course of dealing or any delay or
failure to exercise any right hereunder on the part of Holder shall operate as
a waiver of such right or
-17-
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, but not limited
to, reasonable attorneys' fees, including those of appellate proceedings,
incurred by Holder in collecting any amounts due pursuant hereto or in otherwise
enforcing any of its rights, powers or remedies hereunder.
12.2. Notice Generally. Any notice, demand, request, consent, approval,
declaration, delivery or other communication hereunder to be made pursuant to
the provisions of this Warrant shall be sufficiently given or made if in writing
and either delivered in person with receipt acknowledged or sent by registered
or certified mail, return receipt requested, postage prepaid, or by a nationally
recognized overnight courier or by telecopy and confirmed by telecopy
answerback, addressed as follows:
(a) If to any Holder or holder of Warrant Stock, at its last
known address appearing on the books of the Company maintained for such
purpose.
(b) If to the Company at
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention:
Telecopy Number:
or at such other address as may be substituted by notice given as herein
provided. The giving of any notice required hereunder may be waived in writing
by the party entitled to receive such notice. Every notice, demand, request,
consent, approval, declaration, delivery or other communication hereunder shall
be deemed to have been duly given or served on the date on which personally
delivered, with receipt acknowledged, telecopied and confirmed by telecopy
answerback, two (2) Business Days after the same shall have been deposited with
a nationally recognized overnight courier or three (3) Business Days after the
same shall have been deposited in the United States mail. Failure or delay in
delivering copies of any notice, demand, request, approval, declaration,
delivery or other communication to the Person designated above to receive a copy
shall in no way adversely affect the effectiveness of such notice, demand,
request, approval, declaration, delivery or other communication.
12.3. Remedies. Each holder of Warrant and Warrant Stock, in addition
to being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under of this
Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Warrant and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
-18-
12.4. Successors and Assigns. Subject to the provisions of Sections
3.1, this Warrant and the rights evidenced hereby shall inure to the benefit of
and be binding upon the successors of the Company and the successors and assigns
of Holder. The provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant and, with respect to Section 9
hereof, holders of Warrant Stock, and shall be enforceable by any such Holder or
holder of Warrant Stock.
12.5. Amendment. This Warrant and all other Warrants may be modified or
amended or the provisions hereof waived with the written consent of the Company
and the Majority Holders, provided that no such Warrant may be modified or
amended to reduce the number of shares of Common Stock for which such Warrant is
exercisable or to increase the price at which such shares may be purchased upon
exercise of such Warrant (before giving effect to any adjustment as provided
therein) without the prior written consent of the Holder thereof.
12.6. Severability. Wherever possible, each provision of this Warrant
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
12.7. Headings. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
12.8. Governing Law. This Warrant shall be governed by the laws of
the State of New York, without regard to the provisions thereof relating to
conflict of laws.
-19-
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: January __, 1998
NETEGRITY, INC.
By:______________________________
Name:
Title:
Attest:
By:___________________________
Name:
Title:
-20-
EXHIBIT A
EXERCISE FORM
[To be executed only upon exercise of Warrant]
Net Issue Exercise _____No ______Yes
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of _____ Shares of Common Stock of NeTegrity, Inc.
and herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant and requests that certificates for the
shares of Common Stock hereby purchased (and any securities or other property
issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is ________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
(Name of Registered Owner)
(Signature of Registered Owner)
(Street Address)
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name
as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
-21-
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ________________
attorney-in-fact to register such transfer on the books of NeTegrity, Inc.
maintained for the purpose, with full power of substitution in the premises.
Dated:_______________ Print Name:
Signature:
Witness:
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular,
without alteration or enlargement or any change whatsoever.
-22-
EXHIBIT B-1
SCHEDULE OF PURCHASERS
INITIAL CLOSING
Series D Shares Warrants
Investor Name Purchased (#) Purchased (#) Cash
Tendered*
($)
Pequot Private Equity Fund L.P. 1,479,363 666,062 2,219,044.50
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxxx X. Xxxxxxx, Xx.
Phone: (000) 000-0000
Fax: (000) 000-0000
Pequot Offshore Private Equity Fund, Inc. 187,304 84,331 280,956.00
c/o Hemisphere Management Limited
Xxxxxxxxxx Xxxxx
0 Xxxxxx Xxxxxx
P.O. Box HM951
Xxxxxxxx XX OX Bermuda
Attention: Xxxxxx X. Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
Total Purchase Price: 1,666,667 750,393 $2,500,000.50
========= ======= =============
Purchase Price Per Share: $1.50
-23-
EXHIBIT B-2
SCHEDULE OF PURCHASERS
SUBSEQUENT CLOSING
Series D Shares Warrants
Investor Name Purchased (#) Purchased (#) Cash
Tendered*
($)
Pequot Private Equity Fund L.P. 1,479,363 666,062 2,219,044.50
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000
Attention: Xxxxxxxx X. Xxxxxxx, Xx.
Phone: (000) 000-0000
Fax: (000) 000-0000
Pequot Offshore Private Equity Fund, Inc. 187,304 84,331 280,956.00
c/o Hemisphere Management Limited
Xxxxxxxxxx Xxxxx
0 Xxxxxx Xxxxxx
P.O. Box HM951
Xxxxxxxx XX OX Bermuda
Attention: Xxxxxx X. Xxxxx
Phone: (000) 000-0000
Fax: (000) 000-0000
Total Purchase Price: 1,666,667 750,393 $2,500,000.50
========= ======= =============
Purchase Price Per Share: $1.50
-24-
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
among
NETEGRlTY, INC.,
PEQUOT PRIVATE EQUITY FUND, L.P. and
PEQUOT OFFSHORE PRIVATE EQUITY FUND, INC.
Dated as of January 7, 1998
- 25 -
TABLE OF CONTENTS
Page
1. Certain Definitions...............................................1
2. Registration Rights...............................................2
2.1. Demand Registrations.....................................2
2.2. Piggyback Registrations..................................5
2.3. Allocation of Securities Included in Registration
Statement................................................6
2.4. Registration Procedures..................................7
2.5. Registration Expenses...................................12
2.6. Certain Limitations on Registration Rights..............13
2.7. Limitations on Sale or Distribution of Other Securities.13
2.8. No Required Sale........................................14
2.9. Indemnification.........................................14
3. Underwritten Offerings...........................................17
3.1. Requested Underwritten Offerings........................17
3.2. Piggyback Underwritten Offerings........................18
4. General..........................................................18
4.1. Adjustments Affecting Registrable Securities............18
4.2. Rule 144................................................18
4.3. Nominees for Beneficial Owners..........................19
4.4. Amendments and Waivers..................................19
4.5. Notices.................................................19
4.6. Transfer or Assignment of Registration Rights...........20
4.7. Miscellaneous...........................................20
4.8. No Inconsistent Agreements..............................21
- 26 -
REGISTRATION RIGHTS AGREEMENT
This AGREEMENT, is made as of January 7, 1998, by and among NETEGRITY,
INC., a California corporation (the "Company"), PEQUOT PRIVATE EQUITY FUND,
L.P., a Delaware limited partnership ("PPE") and PEQUOT OFFSHORE PRIVATE EQUITY
FUND, INC., a British Virgin Islands corporation (together with PPE, the
"Purchasing Parties").
WHEREAS, as of the date hereof, the Company and the Purchasing Parties
are entering into a Preferred Stock and Warrant Purchase Agreement (the
"Purchase Agreement"), pursuant to which the Purchasing Parties are purchasing
shares of Series D Convertible Preferred Stock, par value $.01 per share
("Series D Preferred Stock"), of the Company, which Series D Preferred Stock is
convertible into shares of Common Stock;
WHEREAS, in connection with the Company and the Purchasing Parties
entering into the Purchase Agreement, the parties hereto desire to provide the
Purchasing Parties, pursuant to this Agreement, certain registration rights with
respect to the shares of Common Stock held by them.
ACCORDINGLY, the parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the meanings
ascribed to them below:
"Affiliate" means with respect to any Person, any other Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with, such specified Person.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company and any and all securities of any kind whatsoever of the Company which
may be issued after the date hereof in respect of, or in exchange for, shares of
Common Stock of the Company pursuant to a merger, consolidation, stock split,
stock dividend or recapitalization of the Company or otherwise.
"Common Stock Equivalents" means any securities convertible into, or
exercisable or exchangeable for, shares of Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Holder" or "Holders" means any party who is a signatory to this
Agreement and any party who shall hereafter acquire and hold Registrable
Securities.
- 1 -
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
"Preferred Stock" means the Series D Preferred Stock.
"Registrable Securities" means any (i) shares of Common Stock held by
any Purchasing Party and (ii) shares of Common Stock issued or issuable upon the
conversion, exercise or exchange of any shares of Preferred Stock or any other
Common Stock Equivalents held by any Purchasing Party and (iii) any shares of
Common Stock issued or issuable, directly or indirectly, with respect to the
Common Stock referenced in clauses (i) or (ii) above by way of stock dividend,
stock split or combination of shares. As to any particular Registrable
Securities, such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement or (ii) such
securities shall have been sold (other than in a privately negotiated sale)
pursuant to Rule 144 (or any successor provision) under the Securities Act and
in compliance with the requirements of paragraphs (f) and (g) of Rule 144
(notwithstanding the provisions of paragraph (k) of such Rule).
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
2. Registration Rights.
2.1. Demand Registrations.
(a) (i) Subject to Sections 2.1 (b) and 2.3 below, at any time
and from time to time, so long as any Holder holds Registrable Securities
constituting in excess of 5% of the outstanding shares of Common Stock (assuming
for purposes of making this computation that any shares of Preferred Stock held
by such Holder have been converted into shares of Common Stock), each Holder
shall have the right to require the Company to file a registration statement
under the Securities Act covering all or any part of their respective
Registrable Securities, by delivering a written request therefor to the Company
specifying the number of Registrable Securities to be included in such
registration by such Holder(s) and the intended method of distribution thereof.
All such requests by any Holder pursuant to this Section 2.1 (a)(i) are referred
to herein as "Demand Registration Requests," and the registrations so requested
are referred to herein as "Demand Registrations" (with respect to any Demand
Registration, the Holder(s) making such demand for registration being referred
to as the "Initiating Holder"). As promptly as practicable, but no later than
ten days after receipt of a Demand Registration Request, the Company shall give
written notice (the "Demand Exercise
- 2 -
Notice") of such Demand Registration Request to all Holders of record of
Registrable Securities.
(ii) The Company, subject to Sections 2.3 and
2.6, shall include in such Demand Registration (x) the Registrable Securities
of the Initiating Holder and (y) the Registrable Securities of any other
Holder which shall have made a written request to the Company for inclusion in
such registration (which request shall specify the maximum number of
Registrable Securities intended to be disposed of by such Holder) within
15 days after the receipt of the Demand Exercise Notice.
(iii) The Company shall, as expeditiously as
possible, use its best efforts to (x) effect the registration under the
Securities Act (including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act if so requested
and if the Company is then eligible to use such a registration) of the
Registrable Securities which the Company has been so requested to register,
for distribution in accordance with such intended method of distribution and
(y) if requested by the Initiating Holder, obtain acceleration of the
effective date of the registration statement relating to such registration.
(b) The Demand Registration rights granted in Section 2.1 (a)
to the Holders are subject to the following limitations: (i) each registration
in respect of a Demand Registration Request shall be made on Form S-3 or any
equivalent form then in effect (or, if Form S-3 or any equivalent form is not
available, on a Form S-1 or S-2 as determined by the Company, if the use of such
forms is then available) and must include, in the aggregate (based on the Common
Stock included in such registration by all Holders), shares of Common Stock
representing, in the aggregate, 1.0% or more of the amount of shares of Common
Stock outstanding immediately prior to such registration; (ii) the Company shall
not be required to cause a registration pursuant to Section 2.1 (a)(i) to be
declared effective within a period of 180 days after the date any registration
statement of the Company declared effective pursuant to a Demand Registration
Request was filed; (iii) if the Board of Directors of the Company, in its good
faith judgment, determines that any registration of Registrable Securities
should not be made or continued because it would materially interfere with any
material financing, acquisition, corporate reorganization or merger or other
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), (x) the Company may postpone filing a registration statement relating
to a Demand Registration Request until such Valid Business Reason no longer
exists, but in no event for more than 120 days, and (y) in case a registration
statement has been filed relating to a Demand Registration Request, if the Valid
Business Reason has not resulted from actions taken by the Company, the Company
may cause such registration statement to be withdrawn and its effectiveness
terminated or may postpone amending or supplementing such registration statement
until such Valid Business Reason no longer exists, but in no event for more than
four months (such period of postponement or withdrawal under subclause(s) (x) or
(y) of this clause (iii), the "Postponement Period"); and the Company shall give
written notice of its determination to postpone or withdraw a registration
statement and of the fact that the Valid Business Reason for such postponement
or
- 3 -
withdrawal no longer exists, in each case, promptly after the occurrence
thereof, provided, however, the Company shall not be permitted to postpone or
withdraw a registration statement after the expiration of any Postponement
Period until 9 months after the expiration of such Postponement Period; and (iv)
the Company shall not be required to effect an effective registration with
respect to more than two Demand Registration Requests pursuant to this
Agreement.
If the Company shall give any notice of postponement or withdrawal of
any registration statement, the Company shall not, during the period of
postponement or withdrawal, register any Common Stock, other than pursuant to a
registration statement on Form S-4 or S-8 (or an equivalent registration form
then in effect). Each Holder of Registrable Securities agrees that, upon receipt
of any notice from the Company that the Company has determined to withdraw any
registration statement pursuant to clause (iii) above, such Holder will
discontinue its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the prospectus covering such Registrable
Securities that was in effect at the time of receipt of such notice. If the
Company shall have withdrawn or prematurely terminated a registration statement
filed under Section 2.1 (a)(i) (whether pursuant to clause (iii) above or as a
result of any stop order, injunction or other order or requirement of the SEC or
any other governmental agency or court), the Company shall not be considered to
have effected an effective registration for the purposes of this Agreement until
the Company shall have filed a new registration statement covering the
Registrable Securities covered by the withdrawn registration statement and such
registration statement shall have been declared effective and shall not have
been withdrawn. If the Company shall give any notice of withdrawal or
postponement of a registration statement, the Company shall, at such time as the
Valid Business Reason that caused such withdrawal or postponement no longer
exists (but in no event later than four months after the date of the
postponement or withdrawal), use its best efforts to effect the registration
under the Securities Act of the Registrable Securities covered by the withdrawn
or postponed registration statement in accordance with this Section 2.1 (unless
the Initiating Holder shall have withdrawn such request, in which case the
Company shall not be considered to have effected an effective registration for
the purposes of this Agreement).
(c) The Company, subject to Sections 2.3 and 2.6, may elect to
include in any registration statement and offering made pursuant to Section 2.1
(a)(i), authorized but unissued shares of Common Stock or shares of Common Stock
held by the Company as treasury shares; provided, however, that such inclusion
shall be permitted only to the extent that it is pursuant to and subject to the
terms of the underwriting agreement or arrangements, if any, entered into by the
Initiating Holder.
(d) In connection with any Demand Registration, the
Initiating Holder participating in such registration shall have the right to
designate the lead managing
- 4 -
underwriter for such registration and each other managing underwriter for such
registration, provided that each such managing underwriter is reasonably
satisfactory to the Company.
2.2. Piggyback Registration.
(a) If, at any time, the Company proposes or is required to
register any of its equity securities (including pursuant to any registration
statement which generally registers equity and debt securities without
specifying the type of security or the amount) under the Securities Act (other
than pursuant to (i) registrations on such form or similar form(s) solely for
registration of securities in connection with an employee benefit plan or
dividend reinvestment plan or a merger or consolidation or (ii) a Demand
Registration under Section 2.1) on a registration statement on Form S-1, Form
S-2 or Form S-3 (or an equivalent general registration form then in effect),
whether or not for its own account, the Company shall give prompt written notice
of its intention to do so to each of the Holders of record of Registrable
Securities. Upon the written request of any Holder, made within 15 days
following the receipt of any such written notice (which request shall specify
the maximum number of Registrable Securities intended to be disposed of by such
Holder and the intended method of distribution thereof), the Company shall,
subject to Sections 2.2(b), 2.3 and 2.6 hereof, use its best efforts to cause
all such Registrable Securities, the Holders of which have so requested the
registration thereof, to be registered under the Securities Act (with the
securities which the Company at the time proposes to register) to permit the
sale or other disposition by the Holders (in accordance with the intended method
of distribution thereof) of the Registrable Securities to be so registered.
There is no limitation on the number of such piggyback registrations pursuant to
the preceding sentence which the Company is obligated to effect. No registration
effected under this Section 2.2(a) shall relieve the Company of its obligations
to effect Demand Registrations hereby.
(b) If, at any time after giving written notice of its
intention to register any equity securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register or to delay registration
of such equity securities, the Company may, at its election, give written notice
of such determination to all Holders of record of Registrable Securities who
have requested registration of the Registrable Securities pursuant to this
Section 2.2 and in the case of a determination not to register, shall be
relieved of its obligation to register any Registrable Securities in connection
with such abandoned registration, without prejudice, however, to the rights of
Holders under Section 2. 1.
(c) Any Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any registration statement
pursuant to this Section 2.2 by giving written notice to the Company of its
request to withdraw; provided, however, that (i) such request must be made in
writing prior to the earlier of the execution of the underwriting agreement or
the execution of the custody agreement with respect to such registration and
(ii) such withdrawal shall be irrevocable and, after making such withdrawal, a
Holder shall no
- 5 -
longer have any right to include Registrable Securities in the registration as
to which such withdrawal was made.
2.3. Allocation of Securities Included in Registration Statement.
(a) If any requested registration pursuant to Section 2.1
involves an underwritten offering and the lead managing underwriter of such
offering (the "Manager") shall advise the Company that, in its view, the number
of securities requested to be included in such registration by the Holders or
any other Persons (including those shares of Common Stock requested by the
Company to be included in such registration) exceeds the largest number (the
"Section 2.1 Sale Number") that can be sold in an orderly manner in such
offering within a price range acceptable to the Initiating Holder, the Company
shall include in such registration:
(i) all Registrable Securities requested to be
included in such registration by Holders of Registrable Securities; provided,
however, that, if the number of such Registrable Securities exceeds the
Section 2.1 Sale Number, the number of such Registrable Securities (not to
exceed the Section 2.1 Sale Number) to be included in such registration shall
be allocated on a pro rata basis among all Holders requesting that
Registrable Securities be included in such registration, based on the number
of Registrable Securities then owned by each such Holder requesting
inclusion in relation to the number of Registrable Securities then owned by
all such Holders requesting inclusion; and
(ii) to the extent that the number of
Registrable Securities to be included by all Holders is less than the
Section 2.1 Sale Number, shares of Common Stock that the Company proposes to
register.
If, as a result of the proration provisions of this Section 2.3(a), any
Holder shall not be entitled to include all Registrable Securities in a
registration that such Holder has requested be included, such Holder may elect
to withdraw his request to include Registrable Securities in such registration
or may reduce the number requested to be included; provided, however, that (x)
such request must be made in writing prior to the earlier of the execution of
the underwriting agreement or the execution of the custody agreement with
respect to such registration and (y) such withdrawal shall be irrevocable and,
after making such withdrawal, a Holder shall no longer have any right to include
Registrable Securities in the registration as to which such withdrawal was made.
(b) If any registration pursuant to Section 2.2 involves an
underwritten offering and the Manager shall advise the Company that, in its
view, the number of securities requested to be included in such registration
exceeds the number (the "Section 2.2 Sale Number") that can be sold in an
orderly manner in such registration within a price range acceptable to the
Company, the Company shall include in such registration:
- 6 -
(i) all Common Stock or Common Stock
Equivalents that the Company proposes to register for its own account (the
"Company Securities"); and
(ii) to the extent that the number of Company
Securities is less than the Section 2.2 Sale Number, the remaining
shares to be included in such registration shall be allocated on a pro rata
basis among all Holders requesting that Registrable Securities be included
in such registration, based on the number of Registrable Securities owned by
each such Holder requesting inclusion in relation to the number of
Registrable Securities then owned by all such Holders requesting inclusion.
Notwithstanding the foregoing, in all underwritten offerings subsequent
to the first underwritten offering made after the date hereof, no reduction
pursuant to this Section 2.3(b) shall reduce the amount of securities of the
Holders included in the registration below ten percent (10%) of the total amount
of securities included in such registration.
2.4. Registration Procedures. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect or cause
the registration of any Registrable Securities under the Securities Act as
provided in this Agreement, the Company shall, as expeditiously as possible (but
in any event, within 120 days after a Demand Registration Request in the case of
Section 2.4(a)):
(a) prepare and file with the SEC a registration statement on
an appropriate registration form of the SEC for the disposition of such
Registrable Securities in accordance with the intended method of disposition
thereof, which form (i) shall be selected by the Company and (ii) shall, in the
case of a shelf registration, be available for the sale of the Registrable
Securities by the selling Holders thereof and such registration statement shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the SEC to be
filed therewith, and the Company shall use its best efforts to cause such
registration statement to become and remain effective (provided, however, that
before filing a registration statement or prospectus or any amendments or
supplements thereto, or comparable statements under securities or blue sky laws
of any jurisdiction, the Company will furnish to one counsel for the Holders
participating in the planned offering (selected by the Initiating Holder, in the
case of a registration pursuant to Section 2.1, and selected by the Holders of a
majority of the Registrable Securities included in such registration, in the
case of a registration pursuant to Section 2.2) and the underwriters, if any,
copies of all such documents proposed to be filed (including all exhibits
thereto), which documents will be subject to the reasonable review and
reasonable comment of such counsel, and the Company shall not file any
registration statement or amendment thereto or any prospectus or supplement
thereto to which the holders of a majority of the Registrable Securities covered
by such registration statement or the underwriters, if any, shall reasonably
object in writing);
- 7 -
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period (which shall not be required to exceed 180 days in the case of a
registration pursuant to Section 2.1 or 120 days in the case of a registration
pursuant to Section 2.2, unless reasonably requested by any underwriter pursuant
to an underwritten offering) as any seller of Registrable Securities pursuant to
such registration statement shall request and to comply with the provisions of
the Securities Act with respect to the sale or other disposition of all
Registrable Securities covered by such registration statement in accordance with
the intended methods of disposition by the seller or sellers thereof set forth
in such registration statement;
(c) furnish, without charge, to each seller of such
Registrable Securities and each underwriter, if any, of the securities covered
by such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits), and the prospectus included in such registration statement (including
each preliminary prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such seller and underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such seller (the Company hereby
consenting to the use in accordance with all applicable law of each such
registration statement (or amendment or posteffective amendment thereto) and
each such prospectus (or preliminary prospectus or supplement thereto) by each
such seller of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such registration statement or prospectus);
(d) use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or "blue sky" laws of such jurisdictions as any sellers of
Registrable Securities or any managing underwriter, if any, shall reasonably
request, and do any and all other acts and things which may be reasonably
necessary or advisable to enable such sellers or underwriter, if any, to
consummate the disposition of the Registrable Securities in such jurisdictions,
except that in no event shall the Company be required to qualify to do business
as a foreign corporation in any jurisdiction where it would not, but for the
requirements of this paragraph (d), be required to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general service of
process in any such jurisdiction;
(e) promptly notify each Holder selling Registrable Securities
covered by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment, the prospectus
or any prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of
- 8 -
the registration statement or the initiation of any proceedings for that
purpose; (iv) of the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale under
the securities or blue sky laws of any jurisdiction or the initiation of any
proceeding for such purpose; (v) of the existence of any fact of which the
Company becomes aware which results in the registration statement, the
prospectus related thereto or any document incorporated therein by reference
containing an untrue statement of a material fact or omitting to state a
material fact required to be stated therein or necessary to make any statement
therein not misleading; and (vi) if at any time the representations and
warranties contemplated by any underwriting agreement, securities sale
agreement, or other similar agreement relating to the offering shall cease to be
true and correct in all material respects; and, if the notification relates to
an event described in clause (v), the Company shall promptly prepare and furnish
to each such seller and each underwriter, if any, a reasonable number of copies
of a prospectus supplemented or amended so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein in the light of
the circumstances under which they were made not misleading;
(f) comply with all applicable rules and regulations of the
SEC, and make generally available to its security holders, as soon as reasonably
practicable after the effective date of the registration statement (and in any
event within 16 months thereafter), an earnings statement (which need not be
audited) covering the period of at least twelve consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(g) (i) cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities exchange on
which similar securities issued by the Company are then listed (if any), if the
listing of such Registrable Securities is then permitted under the rules of such
exchange or (ii) if no similar securities are then so listed, to either cause
all such Registrable Securities to be listed on a national securities exchange
or to secure designation of all such Registrable Securities as a National
Association of Securities Dealers, Inc. (the "NASD") Automated Quotation System
("NASDAQ") "national market system security" within the meaning of Rule 11Aa2-1
of the Exchange Act or, failing that, secure NASDAQ authorization for such
shares and, without limiting the generality of the foregoing, take all actions
that may be required by the Company as the issuer of such Registrable Securities
in order to facilitate the managing underwriter's arranging for the registration
of at least two market makers as such with respect to such shares with the NASD;
(h) provide and cause to be maintained a transfer agent and
registrar for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement;
- 9 -
(i) enter into such customary agreements (including, if
applicable, an underwriting agreement) and take such other actions as the
Holders of a majority of the Registrable Securities participating in such
offering shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities. The Holders of the Registrable
Securities which are to be distributed by such underwriters shall be parties to
such underwriting agreement and may, at their option, require that the Company
make to and for the benefit of such Holders the representations, warranties and
covenants of the Company which are being made to and for the benefit of such
underwriters and which are of the type customarily provided to institutional
investors in secondary offerings;
(j) obtain an opinion from the Company's counsel and a "cold
comfort" letter from the Company's independent public accountants in customary
form and covering such matters as are customarily covered by such opinions and
"cold comfort" letters delivered to underwriters in underwritten public
offerings, which opinion and letter shall be reasonably satisfactory to the
underwriter, if any, and to the Holders of a majority of the Registrable
Securities participating in such offering, and furnish to each Holder
participating in the offering and to each underwriter, if any, a copy of such
opinion and letter addressed to such Holder or underwriter;
(k) deliver promptly to each Holder participating in the
offering and each underwriter, if any, copies of all correspondence between the
SEC and the Company, its counsel or auditors and all memoranda relating to
discussions with the SEC or its staff with respect to the registration
statement, other than those portions of any such memoranda which contain
information subject to attorney-client privilege with respect to the Company,
and, upon receipt of such confidentiality agreements as the Company may
reasonably request, make reasonably available for inspection by any seller of
such Registrable Securities covered by such registration statement, by any
underwriter, if any, participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent financial and
other records, pertinent corporate documents and properties of the Company, and
cause all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(l) use its best efforts to obtain the withdrawal of an
order suspending the effectiveness of the registration statement;
(m) provide a CUSIP number for all Registrable
Securities, not later than the effective date of the registration statement;
(n) make reasonably available to its employees and
personnel and otherwise provide reasonable assistance to the underwriters
(taking into account the needs of the
- 10 -
Company's businesses and the requirements of the marketing process) in the
marketing of Registrable Securities in any underwritten offering;
(o) promptly prior to the filing of any document which is to
be incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement) provide copies of such
document to counsel for the selling holders of Registrable Securities and to
each managing underwriter, if any, and make the Company's representatives
reasonably available for discussion of such document and make such changes in
such document concerning the selling holders prior to the filing thereof as
counsel for such selling holders or underwriters may reasonably request;
(p) furnish to each Holder participating in the offering and
the managing underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendments thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(q) cooperate with the selling Holders of Registrable
Securities and the managing underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such Registrable
Securities to be issued in such denominations and registered in such names in
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the underwriters or, if not an underwritten offering, in
accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities and instruct any transfer agent and registrar of Registrable
Securities to release any stop transfer orders in respect thereto; and
(r) take all such other commercially reasonable actions as are
necessary or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
The Company may require as a condition precedent to the Company's
obligations under this Section 2.4 that each seller of Registrable Securities as
to which any registration is being effected furnish the Company such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request provided that such information shall be
used only in connection with such registration.
Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause (v) of paragraph (e) of this Section 2.4, such Holder will discontinue
such Holder's disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by paragraph
(e) of this Section 2.4 and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies,
then in such Holder's possession of the prospectus covering such Registrable
Securities that was in effect at
- 11 -
the time of receipt of such notice. In the event the Company shall give any such
notice, the applicable period mentioned in paragraph (b) of this Section 2.4
shall be extended by the number of days during such period from and including
the date of the giving of such notice to and including the date when each seller
of any Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
paragraph (e) of this Section 2.4.
If any such registration statement or comparable statement under "blue
sky" laws refers to any Holder by name or otherwise as the Holder of any
securities of the Company, then such Holder shall have the right to require (i)
the insertion therein of language, in form and substance satisfactory to such
Holder and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company or (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder.
2.5. Registration Expenses.
(a) "Expenses" shall mean any and all fees and expenses
incident to the Company's performance of or compliance with this Article 2,
including, without limitation: (i) SEC, stock exchange or NASD registration and
filing fees and all listing fees and fees with respect to the inclusion of
securities in NASDAQ, (ii) fees and expenses of compliance with state securities
or "blue sky" laws and in connection with the preparation of a "blue sky"
survey, including without limitation, reasonable fees and expenses of blue sky
counsel, (iii) printing and copying expenses, (iv) messenger and delivery
expenses, (v) expenses incurred in connection with any road show, (vi) fees and
disbursements of counsel for the Company, (vii) with respect to each
registration, the fees and disbursements of one counsel for the selling
Holder(s) (selected by the Initiating Holder, in the case of a registration
pursuant to Section 2.1, and selected by the Holders of a majority of the
Registrable Securities included in such registration, in the case of a
registration pursuant to Section 2.2), (viii) fees and disbursements of all
independent public accountants (including the expenses of any audit and/or "cold
comfort" letter) and fees and expenses of other Persons, including special
experts, retained by the Company, (ix) fees and expenses payable to a Qualified
Independent Underwriter (as such term is defined in Conduct Rule 2720 of the
NASD's By-Laws) and (x) any other fees and disbursements of underwriters, if
any, customarily paid by issuers or sellers of securities.
(b) The Company shall pay all Expenses with respect to any
Demand Registration whether or not such Demand Registration becomes effective or
does not remain effective for the period contemplated by Section 2.4(b) and with
respect to any registration effected under Section 2.2.
- 12 -
(c) Notwithstanding the foregoing, (x) the provisions of this
Section 2.5 shall be deemed amended to the extent necessary to cause these
expense provisions to comply with "blue sky" laws of each state in which the
offering is made and (y) in connection with any registration hereunder, each
Holder of Registrable Securities being registered shall pay all underwriting
discounts and commissions and any transfer taxes, if any, attributable to the
sale of such Registrable Securities, pro rata with respect to payments of
discounts and commissions in accordance with the number of shares sold in the
offering by such Holder and (z) the Company shall, in the case of all
registrations under this Article 2, be responsible for all its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties).
2.6. Certain Limitations on Registration Rights. In the case of any
registration under Section 2.1 pursuant to an underwritten offering, or in the
case of a registration under Section 2.2 if the Company has determined to enter
into an underwriting agreement in connection therewith, all securities to be
included in such registration shall be subject to an underwriting agreement and
no Person may participate in such registration unless such Person agrees to sell
such Person's securities on the basis provided therein and completes and
executes all reasonable questionnaires, and other documents (other than powers
of attorney) which must be executed in connection therewith, and provides such
other information to the Company or the underwriter as may be necessary to
register such Person's securities.
2.7 Limitations on Sale or Distribution of Other Securities.
(a) To the extent requested in writing by a managing
underwriter, if any, of any registration effected pursuant to Section 2.1, each
Holder of Registrable Securities agrees not to sell, transfer or otherwise
dispose of, including any sale pursuant to Rule 144 under the Securities Act,
any Common Stock, or any other equity security of the Company or any security
convertible into or exchangeable or exercisable for any equity security of the
Company (other than as part of such underwritten public offering) during the
time period (following the effectiveness of the Registration Statement)
reasonably requested by the managing underwriter, not to exceed 180 days (and
the Company hereby also so agrees (except that the Company may effect any sale
or distribution of any such securities pursuant to a registration on Form S-4
(if reasonably acceptable to such managing underwriter) or Form S- 8, or any
successor or similar form which is then in effect or upon the conversion,
exchange or exercise of any then outstanding Common Stock Equivalent) to use its
reasonable best efforts to cause each holder of any equity security or any
security convertible into or exchangeable or exercisable for any equity security
of the Company purchased from the Company at any time other than in a public
offering so to agree).
(b) The Company hereby agrees that, if it shall previously
have received a request for registration pursuant to Section 2.1 or 2.2, and if
such previous registration shall not have been withdrawn or abandoned, the
Company shall not, without the prior written consent of the Holders of a
majority of the Registrable Shares, sell, transfer, or otherwise
- 13 -
dispose of, any Common Stock, or any other equity security of the Company or any
security convertible into or exchangeable or exercisable for any equity security
of the Company (other than as part of such underwritten public offering, a
registration on Form S-4 or Form S-8 or any successor or similar form which is
then in effect or upon the conversion, exchange or exercise of any then
outstanding Common Stock Equivalent), until a period of 180 days shall have
elapsed from the effective date of such previous registration; and the Company
shall so provide in any registration rights agreements hereafter entered into
with respect to any of its securities.
2.8. No Required Sale. Nothing in this Agreement shall be deemed
to create an independent obligation on the part of any Holder to sell any
Registrable Securities pursuant to any effective registration statement.
2.9. Indemnification.
(a) In the event of any registration of any securities of the
Company under the Securities Act pursuant to this Article 2, the Company will,
and hereby does, indemnify and hold harmless, to the fullest extent permitted by
law, each Holder of Registrable Securities, its directors, officers,
fiduciaries, employees and stockholders or general and limited partners (and the
directors, officers, employees and stockholders thereof), each other Person who
participates as an underwriter or a Qualified Independent Underwriter, if any,
in the offering or sale of such securities, each officer, director, employee,
stockholder or partner of such underwriter or Qualified Independent Underwriter,
and each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, against any and all losses, claims,
damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof ("Claims") and expenses (including
reasonable fees of counsel and any amounts paid in any settlement effected with
the Company's consent, which consent shall not be unreasonably withheld or
delayed) to which each such indemnified party may become subject under the
Securities Act or otherwise, insofar as such Claims or expenses arise out of or
are based upon (i) any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which such
securities were registered under the Securities Act or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus or any amendment or supplement thereto,
together with the documents incorporated by reference therein, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading or (iii) any
violation by the Company of any federal, state or common law rule or regulation
applicable to the Company and relating to action required of or inaction by the
Company in connection with any such registration, and the Company will reimburse
any such indemnified party for any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
Claim as such
- 14 -
expenses are incurred; provided, however, that the Company shall not be liable
to any such indemnified party in any such case to the extent such Claim or
expense arises out of or is based upon any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission of a material fact
made in such registration statement or amendment thereof or supplement thereto
or in any such prospectus or any preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such indemnified party specifically for use therein.
Such indemnity and reimbursement of expenses shall remain in full force and
effect regardless of any investigation made by as on behalf of such indemnified
party and shall survive the transfer of such securities by such Holder.
(b) Each Holder of Registrable Securities that are included in
the securities as to which any registration under Section 2.1 or 2.2 is being
effected (and, if the Company requires as a condition to including any
Registrable Securities in any registration statement filed in accordance with
Section 2.1 or 2.2, any underwriter and Qualified Independent Underwriter, if
any) shall, severally and not jointly, indemnify and hold harmless (in the same
manner and to the same extent as set forth in paragraph (a) of this Section 2.9)
to the fullest extent permitted by law the Company, its officers and directors,
each Person controlling the Company within the meaning of the Securities Act and
all other prospective sellers and their directors, officers, general and limited
partners and respective controlling Persons with respect to any untrue statement
or alleged untrue statement of any material fact in, or omission or alleged
omission of any material fact from, such registration statement, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, if such statement or alleged statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or its representatives by or on behalf of
such Holder or underwriter or Qualified Independent Underwriter, if any,
specifically for use therein and reimburse such indemnified party for any legal
or other expenses reasonably incurred in connection with investigating or
defending any such Claim as such expenses are incurred; provided, however, that
the aggregate amount which any such Holder shall be required to pay pursuant to
this Section 2.9(b) and Sections 2.9(c) and (e) shall in no case be greater than
the amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities pursuant to the registration statement giving rise to
such claim. Such indemnity and reimbursement of expenses shall remain in full
force and effect regardless of any investigation made by or on behalf of such
indemnified party and shall survive the transfer of such securities by such
Holder.
(c) Indemnification similar to that specified in the preceding
paragraphs (a) and (b) of this Section 2.9 (with appropriate modifications)
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any state securities and "blue sky" laws.
(d) Any Person entitled to indemnification under this
Agreement shall notify promptly the indemnifying party in writing of the
commencement of any action or proceeding
- 15 -
with respect to which a claim for indemnification may be made pursuant to this
Section 2.9, but the failure of any indemnified party to provide such notice
shall not relieve the indemnifying party of its obligations under the preceding
paragraphs of this Section 2.9, except to the extent the indemnifying party is
materially prejudiced thereby and shall not relieve the indemnifying party from
any liability which it may have to any indemnified party otherwise than under
this Article 2. In case any action or proceeding is brought against an
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and,
unless in the reasonable opinion of outside counsel to the indemnified party a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim, to assume the defense thereof jointly with any other
indemnifying party similarly notified, to the extent that it chooses, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party that it so chooses, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that (i) if the indemnifying party fails to take reasonable steps
necessary to defend diligently the action or proceeding within 20 days after
receiving notice from such indemnified party; or (ii) if such indemnified party
who is a defendant in any action or proceeding which is also brought against the
indemnifying party reasonably shall have concluded that there may be one or more
legal defenses available to such indemnified party which are not available to
the indemnifying party; or (iii) if representation of both parties by the same
counsel is otherwise inappropriate under applicable standards of professional
conduct, then, in any such case, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the
extent any indemnified party or parties reasonably shall have concluded that
there may be legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any expenses therefor. No indemnifying party shall, without the
written consent of the indemnified party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
(e) If for any reason the foregoing indemnity is unavailable
or is insufficient to hold harmless an indemnified party under Sections 2.9(a),
(b) or (c), then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative fault of the indemnifying party, on the
one hand, and the indemnified party, on the other hand, with respect to such
- 16 -
offering of securities. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. If, however, the
allocation provided in the second preceding sentence is not permitted by
applicable law, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative faults but also the relative benefits of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The parties hereto agree that it would not be just and
equitable if contributions pursuant to this Section 2.9(e) were to be determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the preceding sentences
of this Section 2.9(e). The amount paid or payable in respect of any Claim shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. Notwithstanding
anything in this Section 2.9(e) to the contrary, no indemnifying party (other
than the Company) shall be required pursuant to this Section 2.9(e) to
contribute any amount in excess of the net proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the Claims of the indemnified parties relate, less the amount of any
indemnification payment made by such indemnifying party pursuant to Sections
2.9(b) and (c).
(f) The indemnification and contribution agreements contained
herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party and shall
survive the transfer of the Registrable Securities by any such party.
(g) The indemnification and contribution required by this
Section 2.9 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
3. Underwritten Offerings.
3.1. Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by the Holders pursuant to a Demand
Registration under Section 2.1, the Company shall enter into a customary
underwriting agreement with the underwriters. Such underwriting agreement
shall be satisfactory in form and substance to the Initiating Holder and
shall contain such representations and warranties by, and such other agreements
on the part of, the Company and such other terms as are generally prevailing
in agreements of that type, including, without limitation, indemnities and
contribution agreements. Any Holder
- 17 -
participating in the offering shall be a party to such underwriting agreement
and may, at its option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Holder and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement be conditions precedent
to the obligations of such Holder; provided, however, that the Company shall not
be required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
registration statement. Such underwriting agreement shall also contain such
representations and warranties by the participating Holders as are customary in
agreements of that type.
3.2. Piggyback Underwritten Offerings. In the case of a registration
pursuant to Section 2.2 hereof, if the Company shall have determined to enter
into an underwriting agreement in connection therewith, all of the Holders'
Registrable Securities to be included in such registration shall be subject to
such underwriting agreement. Any Holder participating in such registration may,
at its option, require that any or all of the representations and warranties by,
and the other agreements on the part of, the Company to and for the benefit of
such underwriters shall also be made to and for the benefit of such Holder and
that any or all of the conditions precedent to the obligations of such
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Holder. Such underwriting agreement shall also contain such
representations and warranties by the participating Holders as are customary in
agreements of that type.
4. General.
4.1. Adjustments Affecting Registrable Securities. The Company agrees
that it shall not effect or permit to occur any combination or subdivision of
shares which would adversely affect the ability of the Holder of any Registrable
Securities to include such Registrable Securities in any registration
contemplated by this Agreement or the marketability of such Registrable
Securities in any such registration. The Company agrees that it will take all
reasonable steps necessary to effect a subdivision of shares if in the
reasonable judgment of (a) the Initiating Holder of a Demand Registration
Request or (b) the managing underwriter for the offering in respect of such
Demand Registration Request, such subdivision would enhance the marketability of
the Registrable Securities. Each Holder agrees to vote all of its shares of
capital stock in a manner, and to take all other actions necessary, to permit
the Company to carry out the intent of the preceding sentence including, without
limitation, voting in favor of an amendment to the Company's Certificate of
Incorporation in order to increase the number of authorized shares of capital
stock of the Company.
4.2. Rule 144. The Company covenants that (i) so long as it remains
subject to the reporting provisions of the Exchange Act, it will timely file the
reports required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule
- 18 -
144 under the Securities Act), and (ii) will take such further action as any
Holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (A) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (B) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4.3. Nominees for Beneficial Owners. If Registrable Securities are held
by a nominee for the beneficial owner thereof, the beneficial owner thereof may,
at its option, be treated as the Holder of such Registrable Securities for
purposes of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement (or any determination of any number or
percentage of shares constituting Registrable Securities held by any Holder or
Holders of Registrable Securities contemplated by this Agreement), provided that
the Company shall have received assurances reasonably satisfactory to it of such
beneficial ownership.
4.4. Amendments and Waivers. This Agreement may be amended,
modified, supplemented or waived only upon the written agreement of the party
against whom enforcement of such amendment, modification, supplement or waiver
is sought.
4.5. Notices. Except as otherwise provided in this Agreement, all
notices, requests, consents and other communications hereunder to any party
shall be deemed to be sufficient if contained in a written instrument delivered
in person or by telecopy, nationally recognized overnight courier or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed to such party at the address set forth below or such other address as
may hereafter be designated in writing by such party to the other parties:
(i) if to the Company, to:
NeTegrity
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telecopy:
Attention:
with a copy to:
Xxxxxxxx, Xxxxxxx & Xxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx, Xx., Esq.
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Telecopy: 000-000-0000
(ii) if to the Purchasing Parties, to:
Dawson Samberg Capital Management, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
Attention: Xxxxxxxx X. Xxxxxxx, Xx.
with a copy to:
Fried, Frank, Harris, Xxxxxxx & Xxxxxxxx
Xxx Xxx Xxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
4.6. Transfer or Assignment of Registration Rights. The rights to cause
the Company to register securities granted to a Holder by the Company under this
Agreement may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 50,000 shares of Registrable Securities (as presently
constituted and subject to subsequent adjustments for stock splits, stock
dividends, reverse stock splits and the like); provided, however, that, a Holder
may transfer such rights to affiliates or associates of such Holder without the
foregoing share restriction.
4.7. Miscellaneous.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and the respective
successors, personal representatives and assigns of the parties hereto, whether
so expressed or not. If any Person shall acquire Registrable Securities from any
Holder, in any manner, whether by operation of law or otherwise, such transferee
shall promptly notify the Company and such Registrable Securities acquired from
such Holder shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be entitled to
receive the benefits of and be conclusively deemed to have agreed to be bound by
and to perform all of the terms and provisions of this Agreement. If the Company
shall so request, any such successor or assign shall agree in writing to acquire
and hold the Registrable Securities acquired from such Holder subject to all of
the terms hereof. If any Holder shall acquire
- 20 -
additional Registrable Securities, such Registrable Securities shall be subject
to all of the terms, and entitled to all the benefits, of this Agreement.
(b) This Agreement (with the documents referred to herein or
delivered pursuant hereto) embodies the entire agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(c) This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York without giving
effect to the conflicts of law principles thereof.
(d) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. All
section references are to this Agreement unless otherwise expressly provided.
(e) This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
(f) Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
(g) The parties hereto acknowledge that there would be no
adequate remedy at law if any party fails to perform any of its obligations
hereunder, and accordingly agree that each party, in addition to any other
remedy to which it may be entitled at law or in equity, shall be entitled to
injunctive relief, including specific performance, to enforce such obligations
without the posting of any bond, and, if any action should be brought in equity
to enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
(h) Each party hereto shall do and perform or cause to be done
and performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
4.8. No Inconsistent Agreements. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with any other agreements to which the Company is a party or by
which it is bound. Without the prior written consent of PPE, the Company will
not, on or after the date of this Agreement, enter into any agreement with
respect to its securities which is inconsistent with the rights granted in
- 21 -
this Agreement or otherwise conflicts with the provisions hereof, other than any
lock-up agreement with the underwriters in connection with any registered
offering effected hereunder, pursuant to which the Company shall agree not to
register for sale, and the Company shall agree not to sell or otherwise dispose
of, Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, for a specified period following the registered
offering. The Company further agrees that if any other registration rights
agreement entered into after the date of this Agreement with respect to any of
its securities contains terms which are more favorable to, or less restrictive
on, the other party thereto than the terms and conditions in this Agreement are
(insofar as they are applicable) to the Purchasing Parties, then the terms and
conditions of this Agreement shall immediately be deemed to have been amended
without further action by the Company or any of the Holders of Registrable
Securities so that the Purchasing Parties shall be entitled to the benefit of
any such more favorable or less restrictive terms or conditions.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date set forth above.
COMPANY:
NETEGRITY, INC.
By:______________________________
Name:
Title:
PURCHASING PARTIES:
PEQUOT PRIVATE EQUITY FUND, L.P.
By:______________________________
Name:
Title:
PEQUOT OFFSHORE PRIVATE EQUITY
FUND, INC.
By:______________________________
Name:
Title:
- 22 -
SCHEDULE I
Stockholder Notice Informatian
- 23 -
EXHIBIT D
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES D CONVERTIBLE
PREFERRED STOCK
OF
NETEGRITY, INC.
We, Xxxxx X. Xxxxxx and Xxxxx X'Xxxxxx, Jr., the President and
Assistant Secretary of NeTegrity, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), do hereby certify
that, pursuant to the authority confirmed upon the Board of Directors by the
Certificate of Incorporation of the Corporation, as amended and restated, the
Board of Directors on December 23, 1997, adopted the following resolution
creating a series of 5,000,000 shares of Preferred Stock designated as Series D
Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the
Corporation's Certificate of Incorporation, as amended and restated, a series of
Preferred Stock of the Corporation be and it hereby is created, and that the
designation and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereof are as follows:
1. Designation and Number. (a) There is hereby designated a series of
Preferred Stock to be known as "Series D Preferred Stock." The number of shares
constituting the Series D Preferred Stock shall be 5,000,000, which number may
not be increased without a vote of the holders of the Series D Preferred Stock.
(b) The Series D Preferred Stock shall, except as provided in
Section 9 hereof, with respect to dividend rights and rights on liquidation,
dissolution or winding up, (i) rank senior to the Common Stock, par value $.01
per share, of the Corporation (the "Common Stock") and (ii) rank senior to other
series of convertible preferred stock of the Corporation designated by the Board
of Directors of the Corporation prior to, on or after the date hereof.
2. Dividends. (a) The holders of the shares of Series D
Preferred Stock, in preference to the holders of Common Stock and of any shares
of other capital stock of the Corporation ranking junior to the Series D
Preferred Stock as to payment of dividends, shall be entitled to receive, when,
as and if declared by the Board of Directors, cumulative
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dividends ("Stock Dividends") in the form of Common Stock ("Dividend Shares") at
an annual rate 7.5% from and after the Issue Date (as defined in Section
6(c)(ii)) as long as the shares of Series D Preferred Stock remain outstanding.
Dividends shall be computed on the basis of the Preferred Amount Per Share (as
defined in Section 11), and shall accrue quarterly, on March 31, June 30,
September 30 and December 31 in each year or, if not a Business Day (as defined
in Section 11), on the next Business Day (each such date being referred to
herein as a "Quarterly Dividend Accrual Date"), commencing on the first
Quarterly Dividend Accrual Date following the Issue Date.
(b) The Corporation shall deliver to each holder its
cumulative Stock Dividends immediately before the date of a Liquidation or
immediately before the Redemption. No fractional Dividend Shares shall be
issued; the Corporation shall, in lieu thereof, either issue a number of
Dividend Shares which reflects a rounding up to the next whole number of shares
or pay such amount in cash. Dividend Shares shall be fully paid and
nonassessable, free and clear of all Encumbrances (as defined in Section 11)
imposed by or through the Corporation.
(c) No dividend or distribution in cash, shares of stock or
other property on the capital stock of the Corporation (other than the Dividend
Shares) shall be declared or paid or set apart for payment.
3. Voting Rights. (a) In addition to any voting rights provided by law
and the special voting rights provided in Section 3(c) and Section 9 below, the
holder of each share of Series D Preferred Stock shall be entitled to vote upon
all matters upon which holders of the Common Stock have the right to vote, and
the shares of Series D Preferred Stock held by each such holder shall be
entitled to the number of votes equal to the largest number of full shares of
Common Stock into which such shares of Series D Preferred Stock could be
converted pursuant to the provisions of Section 6 of this Certificate of
Designation at the record date for the determination of the shareholders
entitled to vote on such matters or, if no such record date is established, at
the date such vote is taken or any written consent of shareholders is solicited.
Except as required by law or as otherwise set forth in this Certificate of
Designation, the holders of shares of Series D Preferred Stock and Common Stock
shall vote together as a single class and not as separate classes.
(b) The Board of Directors of the Corporation shall consist of
a maximum of 13 members. Except with respect to the special voting rights set
forth in clause (c) below, the number of directors at any such time constituting
the Board of Directors may not exceed the number which is 7 less than the
maximum number of directors specified in the previous sentence.
(c) So long as any shares of Series D Preferred Stock remain
outstanding, the holders of the Series D Preferred Stock shall have, in addition
to the other voting rights set forth herein, the exclusive right, voting
separately as a single class, (i) prior to the occurrence
- 2 -
of either an Event of Default or a Performance Default (each as defined in
Section 11), to elect one director of the Corporation, with the remaining
directors to be elected by the other classes of stock entitled to vote therefore
at each meeting of shareholders held for the purpose of electing directors (the
"Series D Preferred Director") and, (ii) after an occurrence of either an Event
of Default (as defined in Article 11) or Performance Default (as defined in
Article 11), to elect the smallest number of directors (which number shall
include the Series D Preferred Director) that shall constitute a majority of the
maximum number of directors of the Board of Directors of the Corporation (the
"Default Series D Preferred Directors"), with the remaining directors to be
elected by the other classes of stock entitled to vote therefore at each meeting
of shareholders held for the purpose of electing directors. The right of the
holders of Series D Preferred Stock to vote for the election of directors may be
exercised at any annual meeting or at any special meeting called for such
purpose or at any adjournment thereof, or by the written consent, delivered to
the Secretary of the Corporation, of the holders of a majority of all shares of
Series D Preferred Stock outstanding as of the record date of such written
consent.
(d) (i) With respect to the Series D Preferred Director,
immediately after the date of the Issue Date, and (ii) with respect to the
Default Series D Preferred Directors, immediately after such Event of Default or
Performance Default has occurred, the Board of Directors of the Corporation
shall call for a special meeting or written consent of the holders of shares of
Series D Preferred Stock to elect the Series D Preferred Director or Default
Series D Preferred Directors, as the case may be. Each director, and any
subsequent director elected pursuant to this paragraph, shall serve as a
director until his successor is elected and qualified. In the event of a vacancy
in respect of any directorship elected by the holders of shares of Series D
Preferred Stock pursuant to this clause (d), the Corporation agrees to call a
special meeting of the holders of shares of Series D Preferred Stock at the
request of the majority of the holders of outstanding Series D Preferred Stock,
in order that the holders of the Series D Preferred Stock may elect a successor
director, and at which meeting the holders of Series D Preferred Stock shall be
entitled to the same voting rights as provided in the first sentence of the
prior paragraph.
(e) The voting rights with respect to the Default Series D
Preferred Directors will terminate when the Event of Default is cured, provided
that an Event of Default triggered the election of the Default Series D
Preferred Directors. The holders of the Series D Preferred Stock will continue
to be entitled to vote for the Series D Preferred Director after an Event of
Default has been cured.
4. No Reissuance of Shares. Shares of Series D Preferred Stock
converted, purchased, or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the conversion, purchase
or acquisition thereof. None of such shares of Series D Preferred Stock shall be
reissued by the Corporation.
5. Liquidation, Dissolution or Winding Up. (a) In the event of
any voluntary or involuntary liquidation, distribution of assets (other than
the payment of dividends),
- 3 -
dissolution or winding up of the Corporation (each, a "Liquidation"), the
holders of the shares of the Series D Preferred Stock shall be entitled to
receive and to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment or distribution shall be
made on any Junior Stock (as defined in Section 11), the Preferred Amount Per
Share, plus all cumulative and unpaid Stock Dividends, with respect to each
outstanding share of Series D Preferred Stock. If, upon any such Liquidation,
whether voluntary or involuntary, the assets to be distributed to the holders of
the Series D Preferred Stock shall be insufficient to permit payment of the full
amount of the Preferred Amount Per Share with respect to each share of Series D
Preferred Stock, then the entire assets of the Corporation to be distributed
among the holders of the Series D Preferred Stock shall be distributed ratably
among such holders.
(b) Upon the completion of the distribution required by
Section 5(a), the remaining assets of the Corporation available for distribution
to shareholders shall be distributed among the holders of the Series D Preferred
Stock and the Common Stock pro rata based on the number of shares of Common
Stock held by each (assuming conversion of all such Series D Preferred Stock at
the then effective Conversion Price (as defined in Section 11)); provided,
however, that the holders of the Series D Preferred Stock shall not receive (i)
an amount greater than 150% multiplied by the Preferred Amount Per Share
(including amounts paid pursuant to Section 2(a)) where such Liquidation occurs
on or before six months after the Issue Date, (ii) an amount greater then 200%
multiplied by the Preferred Amount Per Share (including amounts paid pursuant to
Section 2(a)) where such Liquidation occurs on or before twelve months after,
but more than six months after, the Issue Date, (iii) an amount greater than
250% multiplied by the Preferred Amount Per Share (including amounts paid
pursuant to Section 2(a)) where such Liquidation occurs on or before 18 months
after, but more than twelve months after, the Issue Date, and (iv) an amount
greater than 300% multiplied by the Preferred Amount Per Share (including
amounts paid pursuant to Section 2(a)) where such Liquidation occurs after 18
months after the Issue Date; thereafter, if assets remain in this Corporation,
the holders of the Common Stock shall receive all of the remaining assets of
this Corporation pro rata based on the number of shares of Common Stock held by
each.
(c) After the payment to the holders of shares of the Series D
Preferred Stock of the full amount of any liquidating distribution to which they
are entitled under this Section 5, the holders of the Series D Preferred Stock
as such shall have no right or claim to any of the remaining assets of the
Corporation.
(d) At the option of the holders of a majority of the Shares
of Series D Preferred Stock, the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined in
Section 11) or Persons or the sale of all or substantially all the assets of the
Corporation shall be deemed to be a Liquidation for purposes of this Certificate
of Designation and shareholders of the Corporation will be entitled to receive
in cash and securities the amount they would have upon liquidation.
- 4 -
(e) In any of such events, if the consideration received by
this Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter
or other similar restrictions on free marketability:
(A) If traded on a securities exchange
or through NASDAQ, the value shall be deemed to be the average of the
closing prices of the securities on such exchange or market over the 30-day
period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter,
the value shall be deemed to be the average of the closing bid or sale
prices (whichever is applicable) over the 30-day period ending three (3)
days prior to the closing;
and
(C) If there is no active public market,
the value shall be the fair market value thereof, as determined by the Board of
Directors in good faith.
(ii) The method of valuation of securities
subject to investment letter or other restrictions on free marketability
(other than restrictions arising solely by virtue of a shareholder's status
as an affiliate or former affiliate) shall be to make an appropriate discount
from the market value determined as above in subsection 5(e)(i)(A), (B) or
(C) to reflect the approximate fair market value thereof, as determined by
the Board of Directors in good faith.
6. Conversion. (a) Each share of Series D Preferred Stock shall
automatically be converted into a number of shares of Common Stock, equal to the
quotient of the Preferred Amount Per Share divided by the Conversion Price (such
quotient being referred to herein as the "Conversion Ratio"), (i) on the date of
and upon the closing of a firm commitment underwritten public offering pursuant
to an effective registration statement under the Securities Act (as defined in
Section 11) covering the offering and sale of the Corporation's Common Stock for
the account of the Corporation in which the aggregate gross proceeds received by
the Corporation equal or exceed $15,000,000 and the price per share of which
exceeds $3.00 per share (as adjusted for any stock dividends, stock splits,
subdivisions, reclassifications or combinations occurring after the Issue Date),
(ii) at the close of business on the Trading Day which is the tenth Trading Day
in a period of 25 consecutive Trading Days at any time during the second quarter
ending June 30, 1999, in which the closing bid price for the Common Stock on
NASDAQ (or any exchange on which the Common Stock is then being traded) shall
have exceeded $4.50 per share (as adjusted for any stock dividends, stock
splits, subdivisions, reclassifications or combinations occurring after the
Issue Date) or (iii) on the date on which two-thirds (2/3) of the shares of
Series D Preferred Stock issued and outstanding immediately following the
Initial Closing (or if there shall occur a Subsequent Closing, the Subsequent
Closing), shall no longer be issued and outstanding, whether converted at the
option of the holder thereof, redeemed pursuant hereto or otherwise (each of the
events described in (i), (ii)
- 5 -
and (iii) are referred to herein as an "Automatic Conversion Event"). In
addition, at the option of the holder of any shares of Series D Preferred Stock,
such holder shall have the right, at any time and from time to time, by written
notice to the Corporation, to convert any share of Series D Preferred Stock
owned by such holder into a number of shares of Common Stock, at the then
effective Conversion Ratio.
(b) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Series D Preferred Stock and
payment of Stock Dividends on Series D Preferred Stock pursuant to Section 3(b),
free from any preemptive rights, such number of its authorized but unissued
shares of Common Stock as will from time to time be necessary to permit the
conversion of all outstanding shares of Series D Preferred Stock into shares of
Common Stock and the payment of Stock Dividends on Series D Preferred Stock, and
shall take all action required to increase the authorized number of shares of
Common Stock if necessary to permit the conversion of all outstanding shares of
Series D Preferred Stock and the payment of Stock Dividends.
(c) The Conversion Price shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall at any time or
from time to time after the date hereof (A) pay any dividend, or make any
distribution, on the outstanding shares of Common Stock in shares of Common
Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the
outstanding shares of Common Stock into a smaller number of shares or (D)
issue by reclassification of the shares of Common Stock any shares of capital
stock of the Corporation, then, and in each such case, the Conversion Price
in effect on the record date therefor, if applicable, or the effective date'
thereof, whichever is earlier, shall be adjusted so that the holder of any
shares of Series D Preferred Stock thereafter convertible into Common Stock
pursuant to this Certificate of Designation shall be entitled to receive
the number and type of shares of Common Stock or other
securities of the Corporation which such holder would have owned or have been
entitled to receive after the happening of any of the events described above,
had such shares of Series D Preferred Stock been converted into Common Stock
immediately prior to the happening of such event or the record date therefor, as
applicable. An adjustment made pursuant to this clause (i) shall become
effective (x) in the case of any such dividend or distribution, immediately
after the close of business on the record date for the determination of holders
of shares of Common Stock entitled to receive such dividend or distribution, or
(y) in the case of such subdivision, reclassification or combination, at the
close of business on the day upon which such corporate action becomes effective.
(ii) Except with respect to Excluded Securities
(as defined below), in case the Corporation shall issue or sell any shares
of Common Stock (or Common Stock Equivalents (as defined in Section 11) after
the date hereof (the "Issue Date") at a price per share (or having a conversion
or exercise price per share) less than the Conversion Price then in effect,
in each such case, the Conversion Price shall be appropriately reduced to a
price
- 6 -
(calculated to the nearest cent) determined by multiplying the Conversion Price
then in effect by a fraction (x) the numerator of which is the sum of (A) the
number of shares of Common Stock outstanding (calculated as set forth in Section
6(c)(iii) hereof) immediately prior to such issuance or sale plus (B) the number
of shares of Common Stock Equivalents which the aggregate consideration received
in respect of such issuance or sale would purchase at such Conversion Price and
(y) the denominator of which is the total number of shares of Common Stock
outstanding (calculated as set forth in Section 6(c)(iii) hereof) after giving
effect to such issuance or sale; provided, however that such fraction will in no
event be greater than 1. An adjustment made pursuant to this clause (ii) shall
be made on the next Business Day following the date on which any such issuance
is made and shall be effective retroactively to the close of business on the
date of such issuance. For purposes of this clause (ii), the consideration
receivable by the Corporation in connection with the issuance of additional
shares of Common Stock or of Common Stock Equivalents since the Issue Date shall
be deemed to be equal to the sum of the aggregate offering price (before
deduction of underwriting discounts or commissions and expenses payable to third
parties, if any) of all such Common Stock and/or Common Stock Equivalents plus
the minimum aggregate amount, if any, payable upon conversion, exchange or
exercise of any such Common Stock Equivalents. The issuance or reissuance of any
shares of Common Stock (whether treasury shares or newly issued shares) pursuant
to a dividend or distribution on, or subdivision, combination or
reclassification of, the outstanding shares of Common Stock requiring an
adjustment in the Conversion Price pursuant to clause (i) of this paragraph (c)
of this Section 6 of this Certificate of Designation, shall not be deemed to
constitute an issuance of Common Stock or Common Stock Equivalents by the
Corporation to which this clause (ii) applies. "Excluded Securities" shall mean
(i) shares of Common Stock and/or Common Stock Equivalents issuable or issued to
employees, outside directors or consultants of the Corporation directly or
pursuant to the Corporation's existing stock option plan, stock incentive plan
or any future stock option plan approved by the Board of Directors of the
Corporation and (h) shares of Common Stock and/or Common Stock Equivalents
issued or issuable as direct consideration for the acquisition by the
Corporation of capital stock or assets of another business entity or in
connection with a merger or consolidation to the extent such issuances are
approved by a majority of the members of the Board of Directors of the
Corporation that are not employees ("Outside Directors").
(iii) For purposes of this paragraph (c) of this
Section 6 of this Certificate of Designation, the number of shares of Common
Stock at any time outstanding shall mean the aggregate of all shares of
Common Stock then outstanding (other than any shares of Common Stock then
owned or held by or for the account of the Corporation) treating for purposes
of this calculation all Common Stock Equivalents then outstanding as having
been converted, exchanged or exercised.
(iv) If the Corporation shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive
a dividend or other distribution and shall thereafter, and before such
dividend or distribution is paid or delivered to stockholders entitled thereto,
legally abandon its plan to pay or deliver such dividend or distribution, then
- 7 -
no adjustment in the Conversion Price then in effect shall be made by reason of
the taking of such record, and any such adjustment previously made as a result
of the taking of such record shall be reversed.
(d) The issuance of certificates for shares of Common Stock
upon conversion of the Series D 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 Series D Preferred Stock which is
being converted.
(e) The Corporation will at no time close its transfer books
against the transfer of any Series D Preferred Stock, or of any shares of Common
Stock issued or issuable upon the conversion of any shares of Series D Preferred
Stock in any manner which interferes with the timely conversion of such Series D
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
(f) As used in this paragraph 6, the term "Common Stock" shall
mean and include the Corporation's authorized Common Stock, as constituted on
the date of filing of this Certificate of Designation, and shall also include
any capital stock of any class of the Corporation thereafter authorized which
shall neither be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends nor be entitled to a
preference in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, provided that the
shares of Common Stock receivable upon conversion of shares of Series D
Preferred Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets to be issued in exchange for such Common Stock pursuant
thereto.
(g) In the case of a Sale of the Corporation (as defined in
Section 11) or a proposed reorganization of the Corporation or a proposed
reclassification or recapitalization of the capital stock of the Corporation
(except a transaction for which provision for adjustment is otherwise made in
this Section 6), each share of Series D Preferred Stock shall thereafter be
convertible into the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series D Preferred Stock would have been
entitled upon such Sale of the Corporation, reorganization, reclassification or
recapitalization; and, in any such case, appropriate adjustment (as determined
by the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the Series D Preferred Stock. The Corporation shall not effect any
such Sale of the Corporation unless prior to or simultaneously with the
consummation thereof the successor corporation or purchaser, as the case may be,
shall assume by written instrument the obligation to deliver to the holders of
the Series D Preferred Stock such shares of stock,
- 8 -
securities or assets as, in accordance with the foregoing provisions, each such
holder is entitled to receive.
(h) The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 6 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series D Preferred Stock against impairment.
(i) Upon the occurrence of an Automatic Conversion Event, the
outstanding shares of Series D Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue to any such holder certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such shares of
Series D Preferred Stock are either delivered to the Corporation or any transfer
agent of the Corporation. The holder of any shares of Series D Preferred Stock
may exercise the optional conversion right specified in paragraph 6(a) as to any
part thereof by surrendering to the Corporation or any transfer agent of the
Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects to convert all or a
specified portion of the shares represented thereby. Conversion shall be deemed
to have been effected (i) in the case of an Automatic Conversion Event, on the
date of the occurrence of such event or (ii) in any other case, on the date when
delivery of notice of an election to convert and certificates for shares is
made, and any such date is referred to herein as the "Conversion Date." As
promptly as practicable thereafter (and after surrender of the certificate or
certificates representing shares of Series D Preferred Stock to the
Corporation), the Corporation shall issue and deliver to or upon the written
order of such holder a certificate or certificates for the number of full shares
of Common Stock to which such holder is entitled and a check or cash with
respect to any fractional interest in a share of Common Stock. The Person in
whose name the certificate or certificates for Common Stock are to be issued
shall be deemed to have become a holder of record of such Common Stock on the
applicable Conversion Date. Subject to the provisions of Section 6(a), upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Series D Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Series D
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(j) No fractional shares of Common Stock or scrip shall
be issued upon conversion of shares of Series D Preferred Stock. If more than
one share of Series D
- 9 -
Preferred Stock shall be surrendered for conversion at any one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series D Preferred Stock so surrendered. Instead of any fractional shares of
Common Stock which would otherwise be issuable upon conversion of any shares of
Series D Preferred Stock, the Corporation shall pay a cash adjustment in respect
of such fractional interest in an amount equal to that fractional interest of
the then Current Market Price (as defined in Section 11).
7. Reports as to Adjustment. Upon any adjustment of the Conversion
Price pursuant to the provisions of Section 6 of this Certificate of
Designation, then, and in each such case, the Corporation shall promptly deliver
to the Transfer Agent of the Series D Preferred Stock and the Common Stock and
to each of the holders of the Series D Preferred Stock and the Common Stock, a
certificate signed by the President or a Vice President and by the Treasurer or
an Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event requiring the
adjustment, the method by which such adjustment was calculated and the
Conversion Price in effect following such adjustment. Where appropriate, such
notice to holders of the Series D Preferred Stock may be given in advance.
8. Certain Covenants. Any registered holder of Series D
Preferred Stock may proceed to protect and enforce its rights and the rights of
any other holders of Series D Preferred Stock with any and all remedies
available at law or in equity.
9. Protective Provisions. So long as shares of Series D Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written consent, as provided by law) of the holders of at least a
majority of the then outstanding shares of Series D Preferred Stock:
(a) alter or change the rights, preference or privileges of
the shares of Series D Preferred Stock or otherwise amend this Certificate of
Designation or the Amended and Restated Certificate of Incorporation of the
Corporation so as to affect adversely the shares of Series D Preferred Stock;
(b) increase the authorized number of shares of Series D
Preferred Stock or issue additional shares of Series D Preferred Stock (except
pursuant to Section 6 hereof);
(c) create or designate, or authorize the issuance of, any new
class or series of stock (i) ranking senior or having a preference over, or
being on a parity with, the Series D Preferred Stock with respect to dividends
or upon liquidation, (ii) having rights similar to any rights of the Series D
Preferred Stock under Section 3 hereof or (iii) convertible into any such class
or series of stock;
(d) change the authorized number of directors of the
Corporation;
- 10 -
(e) sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) of
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is transferred;
(f) enter into any transaction with any director or Affiliate
(as defined below) of the Corporation unless the terms of such transaction are
at least as favorable to the Corporation than those which might be obtained at
the time from persons who are not Affiliates and, in the case of a single
transaction or series of transactions involving more than $50,000, has been
approved by a written resolution duly adopted prior to such transaction by a
majority of the Outside Directors. For purposes hereof, an "Affiliate" shall
mean a holder of more than five percent of the existing Common Stock of the
Corporation (on a fully diluted basis after giving effect to the conversion of
exercise of any Common Stock Equivalents) or a member of the Board of Directors
of the Corporation;
(g) incur indebtedness for borrowed money in excess of $50,000
at any one time outstanding (excluding short term or revolving credit borrowing
the proceeds of which are used to finance current assets, to repay current
liabilities or for working capital); or
(h) redeem, purchase or otherwise acquire for value (or pay
into or set aside for a sinking fund for such purpose) (i) any share or shares
of Preferred Stock otherwise than by redemption in accordance with Section 10
hereof or conversion in accordance with Section 6 hereof or (ii) any of the
Common Stock.
10. Redemption. (a) At the individual option of each holder of shares
of Series D Preferred, the Corporation shall redeem, on the fifth anniversary of
the Issue Date (the "Redemption Date"), the number of shares of Series D
Preferred held by such holder that is specified in a request for redemption
delivered to the Corporation by the holder on or prior to 30 days immediately
preceding the Redemption Date, by paying in cash therefor the Issue Price per
share of Series D Preferred (as adjusted for any stock dividends, stock splits,
subdivisions, reclassifications or combinations with respect to such shares)
plus all cumulative (whether declared or not) but unpaid Stock Dividends on such
shares (the "Redemption Price").
(b) At least fifteen (15) but no more than thirty (30) days
prior to the Redemption Date, written notice (the "Redemption Notice") shall be
mailed, first class postage prepaid, to each holder of record (at the close of
business on the business day next preceding the day on which notice is given) of
the Series D Preferred to be redeemed, at the address last shown on the records
of the Corporation for such holder, notifying such holder of the redemption to
be effected, specifying the number of shares to be redeemed from such holder,
the Redemption Date, the Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his, her or its certificate or certificates
representing the shares to be redeemed.
- 11 -
Except as provided in subsection (6)(c) on or after the Redemption Date, each
holder of Series D Preferred to be redeemed shall surrender to the Corporation
the certificate or certificates representing such shares, in the manner and at
the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be canceled. In the event less than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares.
(c) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of shares of Series D Preferred designated for redemption in the
Redemption Notice as holders of Series D Preferred (except the right to receive
the Redemption Price without interest upon surrender of their certificate or
certificates) 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 Series D Preferred on the Redemption Date
are insufficient to redeem the total number of shares of Series D Preferred to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon their holdings of Series D Preferred.
The shares of Series D Preferred not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of shares of Series D Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the Corporation
has become obliged to redeem on the Redemption Date but which it has not
redeemed.
11. Definitions. In addition to any other terms defined herein,
for purposes of this Section 11 of this Certificate of Designation, the
following terms shall have the meanings indicated:
"Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the State of California are
authorized or obligated by law or executive order to close.
"Common Stock Equivalent" shall mean securities convertible
into, or exchangeable or exercisable for, shares of Common Stock.
"Conversion Price," determined as of any date, shall initially
equal $1.50 and shall be subject to adjustment as provided in paragraph (c) of
Section 6 hereof.
- 12 -
"Current Market Price" shall mean the average of the daily
closing prices per share of Common Stock for the 30 consecutive Trading Days
ending on the day in question. The closing price for each day shall be the last
reported sales price regular way or, in the case no such reported sales take
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or if not listed or admitted to
trading on any national securities exchange, the average of the highest bid and
the lowest asked prices quoted on the NASDAQ or, if not so quoted, as reported
by the National Quotation Bureau, Inc.
The term "distribution" shall include the transfer of cash or
property to the holders of a class of capital stock of the Corporation, without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of such class of stock), or the purchase or redemption of shares of the
Corporation, for cash or property, including such transfer, purchase or
redemption by a subsidiary of the Corporation. The time of any distribution by
way of dividends shall be the date of declaration thereof, and the time of any
distribution by purchase or redemption of shares shall be the date on which cash
or property is transferred by the Corporation, whether or not pursuant to a
contract of an earlier date; provided, however, that, where a debt security is
issued in exchange for shares, the time of the distribution is the date when the
Corporation acquires the shares for such exchange.
"Encumbrances" shall mean any mortgages, judgments, claims,
liens, security interests, pledges, escrows, charges or other encumbrances of
any kind or character whatsoever.
"Event of Default" shall have the meaning set forth in the
Preferred Stock and Warrant Purchase Agreement, dated January 6, 1998, by and
among the Corporation and the signatories thereto.
"Junior Stock" shall mean any capital stock of the Corporation
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock.
"Performance Default" shall mean the following: the closing
bid price for the Common Stock on the NASDAQ (or any exchange on which the
Common Stock is being traded) did not exceed $4.50 per share (as adjusted for
any stock dividends, stock splits, subdivisions, reclassifications or
combinations occurring after Issue Date) for ten Trading Days in a period of 25
consecutive Trading Days at any time during the second quarter ending June 30,
1999.
"Person" shall mean any individual, firm, corporation,
partnership or other entity, and shall include any successor (by merger or
otherwise) of such entity.
- 13 -
"Preferred Amount Per Share" shall mean, with respect to each
share of Series D Preferred Stock, $1.50 (as adjusted to reflect stock
dividends, stock splits, subdivisions, reclassifications or combinations
occurring after the Issue Date).
"Purchase Agreement" shall mean the Preferred Stock and
Warrant Purchase Agreement, dated January 6, 1998, by and among the Corporation,
Pequot Private Equity Fund, L.P. and Pequot Offshore Private Equity Fund, Inc.
"Sale of the Corporation" shall mean consolidation or merger
of the Corporation with or into any other corporation or corporations, or a
sale, conveyance or disposition of all or substantially all of the assets of the
Corporation.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Trading Day" means a Business Day or, if the Common Stock is
listed or admitted to trading on any national securities exchange or the NASDAQ,
a day on which such exchange is open for the transaction of business.
- 14 -
IN WITNESS WHEREOF, we have executed and subscribed this Certificate
this ___ day of January, 1998.
NETEGRITY, INC.
By:______________________________
Name:
Title:
ATTEST:
------------------------------
Name:
Title: Assistant Secretary
- 15 -
EXHIBIT F
CONSULTING AGREEMENT
AGREEMENT (this "Agreement"), dated as of January 7,1998, by and
between NeTegrity, Inc., a Delaware corporation (the "Company") and Xx. Xxxxx
XxXxxx.
WHEREAS, the Company desires to retain Xx. XxXxxx to render advisory
and consulting services and Xx. XxXxxx desires to render such services on the
terms and conditions provided herein;
WHEREAS, this Agreement is a condition to the closing of the Preferred
Stock and Warrant Purchase Agreement, dated as of January 6, 1998, by and
between the Company and the parties signatory thereto.
NOW, THEREFORE, in consideration of the premises and the respective
covenants and agreements of the parties contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Retention as a Consultant. The Company shall retain Xx.
XxXxxx and Xx. XxXxxx shall serve the Company as an independent consultant,
on the terms and conditions set forth herein.
2. Term. This Agreement shall commence on the date hereof (the
"Effective Date"), and shall expire six months from the Effective Date, unless
earlier terminated by reason of Xx. XxXxxx'x death, by the Company for Cause or
by Xx. XxXxxx in accordance with the immediately following sentence (the
"Consulting Period"). At any time after the third month anniversary of the
Effective Date, Xx. XxXxxx may terminate this Agreement on thirty days prior
written notice to the Company. After termination of this Agreement, the
Company's sole obligation hereunder shall be to pay Xx. XxXxxx any earned and
unpaid monthly payments (including reimbursement of expenses) attributable to
prior portions of the Consulting Period. "Cause" shall mean (i) a willful act by
Xx. XxXxxx which constitutes gross misconduct or fraud and which is materially
injurious to the Company, (ii) conviction of, or a plea of "guilty" or "no
contest" to, a felony or (iii) a material failure of Xx. XxXxxx to perform his
duties under this Agreement. No act, or failure to act, by Xx. XxXxxx shall be
considered "willful" unless committed without good faith and without a
reasonable belief that the act or omission was in the Company's best interest.
No Cause shall be deemed to exist unless the Company's Board of Directors (the
"Board") has determined, by a resolution adopted with the affirmative votes of
at least two-thirds of its members, that Cause exists. Following the termination
of this Agreement, subject to the third sentence of this Section 2 and the last
sentence of Section 5(a) hereof, the Company's and Xx. XxXxxx'x obligations
under this Agreement shall cease.
- 1 -
3. Duties. During the Consulting Period, Xx. XxXxxx shall render such
consulting services to the Company as Xx. XxXxxx and the Company agree upon from
time to time including, but not limited to, providing advice to the Company on
distribution strategy and assisting the Company in establishing strategic
relationships with key strategic partners; provided, however, that Xx. XxXxxx
will not be required to, but may at his sole discretion and at the Company's
request, devote more than five days per month to the performance of such
services during the Consulting Period. In this regard, the Company shall provide
Xx. XxXxxx reasonable notice of such consulting obligations and Xx. XxXxxx shall
have the right to reschedule commitments to the Company to accommodate the
requirements of his other outside interests.
4. Place of Performance. Xx. XxXxxx shall perform his duties
hereunder at such locations as are acceptable to him and the Company or by
telephone consultation. To facilitate Xx. XxXxxx'x performance during the
Consulting Period, the Company shall furnish Xx. XxXxxx, at no more than a
reasonable cost to the Company, an office and secretary reasonably satisfactory
to Xx. XxXxxx which is located on the premises of the Company's headquarters.
Xx. XxXxxx shall be allowed full use of facilities and other clerical
assistance at the Company's offices of a quality, nature and to the extent
made available to executive employees of the Company from time to time.
5. Compensation and Related Matters. As compensation for the
services to be rendered by Xx. XxXxxx hereunder and for providing the
non-competition covenant set forth in Section 6 hereof, the Company shall make
the following payments and provide the following benefits to Xx. XxXxxx:
(a) Consulting and Non-Competition Fees. Subject to Section 2
hereof, in consideration for Xx. XxXxxx providing consulting services hereunder
and the non-competition covenant set forth in Section 6 hereof, the Company
shall pay Xx. XxXxxx a total of $10,000 per month during the Consulting Period,
such payment to be made on the first day of every month beginning with February
1; provided, however, in the event that Xx. XxXxxx works more than five days per
month for the benefit of the Company pursuant to this Agreement, the Company
will pay Xx. XxXxxx $2,000 per day for each additional day worked, such payment
to be made on the first day of the month following the additional day worked.
Xx. XxXxxx'x obligations pursuant to Section 6 hereof shall continue for one
year after the Effective Date notwithstanding that the Company is not required
to make any payments hereunder.
(b) Reimbursement of Expenses. The Company shall reimburse Xx.
XxXxxx for reasonable business expenses incurred in the performance of Xx.
XxXxxx'x duties hereunder, including, but not limited to reasonable and
necessary travel, entertainment or similar incidental expenses in connection
with the provision of consulting services; provided, that such expenses shall be
incurred and accounted for in accordance with the policies and procedures
established by the Company from time to time for its senior executives.
- 2 -
(c) Warrant. Upon signing of this Agreement, the Company shall
grant Xx. XxXxxx a warrant to purchase 100,000 shares of the Company's common
stock, par value $.01 per share (the "Warrant"), substantially in the form of
Appendix A.
In the event that the grant of the Warrant to Xx. XxXxxx causes an increase in
the amount of federal, state or local income taxes paid by Xx. XxXxxx, the
Company will reimburse Xx.
XxXxxx for any such increase in income taxes paid.
6. Non-Competition. (a) Subject to Section 2 hereof, for a period of
one (1) year after the Effective Date, Xx. XxXxxx shall not, directly or
indirectly, without the prior written consent of the Company, own, manage,
operate, join, control, be employed by or participate in the ownership,
management, operation or control of, or be connected with (as a stockholder,
partner, or otherwise), any business, individual, partner, firm, corporation, or
other entity that is in the business (i) of the kind conducted by the Company
(or any affiliate of the Company) on the Effective Date (which business shall be
defined as providing software to commercial and governmental organizations for
primarily single sign-on and fine-grain access control capabilities), and (ii)
in the states where the Company (or any affiliate of the Company) operates its
business on the Effective Date; provided, however, that the "beneficial
ownership" by Xx. XxXxxx, either individually or as a member of a "group," as
such terms are used in Rule 13d of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), of not more
than five percent (5%) of the voting stock of any publicly held corporation
shall not be a violation of this Agreement. It is further expressly agreed that
the Company and its affiliates would suffer irreparable injury if Xx. XxXxxx
were to compete with the Company or any affiliate of the Company in violation of
this Agreement and that the Company and its affiliates would by reason of such
competition be entitled to injunctive relief in a court of appropriate
jurisdiction, and Xx. XxXxxx further consents and stipulates to the entry of
such injunctive relief in such a court prohibiting Xx. XxXxxx from competing
with the Company or any affiliate of the Company in violation of this Agreement.
(b) If it is determined by a court of competent jurisdiction
in any state that the non-competition covenant in this Section 6 is excessive in
duration or scope or is unreasonable or unenforceable under the laws of that
state, it is the intention of the parties that such restriction may be modified
or amended by the court to render it enforceable to the maximum extent permitted
by the law of that state.
7. Successors; Binding Agreement. (a) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company and each entity that, directly or indirectly, becomes a parent
corporation of the Company, by agreement in form and substance satisfactory to
Xx. XxXxxx, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the
- 3 -
Company as herein before defined and any successor to its business and/or assets
and each entity that, directly or indirectly, becomes a parent corporation of
the Company.
(b) This Agreement and all rights of Xx. XxXxxx hereunder
shall inure to the benefit of and be enforceable by Xx. XxXxxx'x personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Xx. XxXxxx should die while any amounts
would still be payable or benefits would still be provided to him and/or his
family hereunder if he had continued to live, all such amounts and benefits,
unless otherwise provided herein, shall be paid or provided in accordance with
the terms of this Agreement to Xx. XxXxxx'x devisees, legatees, or other
designees or, if there be no such designee, to Xx. XxXxxx'x estate.
8. Notice. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to Xx. XxXxxx:
XxXxxx Group
00 Xxxxxxx Xxxxx
Xxxx Xxxx, XX 00000
If to the Company:
NeTegrity, Inc.
000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telecopy:
Attention:
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of changes of address shall
be effective in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
9. Modification of Agreement: Governing Law. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by Xx. XxXxxx and such officer
of the Company as may be specifically designated by the Board. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
- 4 -
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of New
York without regard to its conflicts of law principles.
10. Validity. The validity or enforceability of any provision or
provisions of this Agreement shall not be affected by the invalidity or
unenforceability of any other provision of this Agreement, and such valid and
enforceable provisions shall remain in full force and effect.
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
12. Entire Agreement. This Agreement and the Appendix attached hereto
set forth the entire agreement of the parties hereto with respect to the
performance of consulting services and the covenant not to compete contained
herein, and supersede all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto regarding such
consulting services and covenant not to compete; and any prior agreement of the
parties hereto in respect of such subject matters is hereby terminated and
canceled.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
NETEGRITY, INC.
By:______________________________
Name:
Title:
------------------------------
XXXXX XxXXXX
260384-1
- 5 -
EXHIBIT G
ALLOCATION OF PURCHASE PRICE
The Purchase Price shall be allocated as follows:
1. $4,750,000.96 to the Series D Preferred Stock and $250,000.04 to the
Warrants if the Subsequent Closing occurs.
2. $2,375,000.48 to the Series D Preferred Stock and $125,000.02 to the
Warrants if the Subsequent Closing does not occur.
- 6 -
