1
EXHIBIT 3.4
STATEMENT OF RIGHTS AND PREFERENCES OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
CAYENNE SOFTWARE, INC.
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as the Series B Convertible Preferred Stock
(the "Preferred Stock"), and the number of shares so designated shall be 150,000
(which shall not be subject to increase). Each share of Preferred Stock shall
have a par value of $1.00 per share and a stated value of $20 per share (the
"Stated Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors of the Company (the
"Board of Directors") out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a percentage of the
Stated Value per share) equal to 5% per annum, payable, at the Company's option,
in cash or shares of Common Stock, in arrears at such time as the Company shall
determine, but in no event later than the Conversion Date (as hereinafter
defined). Dividends on the Preferred Stock shall accrue daily commencing the
Original Issue Date (as defined in Section 7), and shall be deemed to accrue on
such date whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The party that holds the Preferred Stock on an applicable record
date for any dividend payment will be entitled to receive such dividend payment
and any other accrued and unpaid dividends which accrued prior to such dividend
payment date, without regard to any sale or disposition of such Preferred Stock
subsequent to the applicable record date but prior to the applicable dividend
payment date. Except as otherwise provided herein, if at any time the Company
pays less than the total amount of dividends then accrued on account of the
Preferred Stock, such payment shall be distributed ratably among the holders of
the Preferred Stock based upon the number of shares held by each holder. Payment
of dividends on the Preferred Stock is further subject to the provisions of
Section 5(c)(i).
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in payment of dividends
on the Preferred Stock if:
(i) the number of shares of Common Stock at the
time authorized, unissued and unreserved for all purposes, or held as treasury
stock, is insufficient to issue such dividends to be paid in shares of Common
Stock;
(ii) the shares of Common Stock to be issued in
respect of such dividends are not registered for resale pursuant to an effective
registration statement that names the recipient of such dividend as a selling
stockholder thereunder;
E-2
2
(iii) the shares of Common Stock to be issued in
respect of such dividends are not listed on the Nasdaq National Market, and any
other exchange on which the Common Stock is then listed for trading; or
(iv) the issuance of such shares would result in
the recipient thereof beneficially owning more than 4.9% of the issued and
outstanding shares of Common Stock.
(c) So long as any Preferred Stock shall remain
outstanding, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities (as
defined in Section 7), nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution (other than a dividend or
distribution described in Section 5) upon, nor shall any distribution be made in
respect of, any Junior Securities, nor shall any monies be set aside for or
applied to the purchase or redemption (through a sinking fund or otherwise) of
any Junior Securities unless all dividends on the Preferred Stock for all past
dividend periods shall have been paid.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, each holder of Preferred Stock shall be
entitled to vote on all matters submitted to the shareholders of the Corporation
for their consideration and shall be entitled to cast that number of votes equal
to the largest number of whole shares of Common Stock into which such holder's
shares of Preferred Stock could be converted, pursuant to the provisions of
Section 5 hereof, at the record date for the determination of shareholders
entitled to vote on such matter. Except as otherwise required by law or
expressly provided herein, the holders of shares of Preferred Stock, Series A
Preferred Stock and Common Stock shall vote together as a single class on all
matters submitted to the shareholders of the Corporation for their
consideration. So long as any shares of Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of a majority of
the shares of the Preferred Stock then outstanding, (a) alter or change
adversely the powers, preferences or rights given to the Preferred Stock or (b)
authorize or create any class of stock ranking as to dividends or distribution
of assets upon a Liquidation (as defined in Section 4) senior to, prior to or
pari passu with the Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value plus all accrued but unpaid
dividends per share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the assets of the
Company shall be insufficient to pay in full such amounts, then the entire
assets to be distributed shall be distributed among the holders of Preferred
Stock ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A sale, conveyance
or disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
E-3
3
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each record holder of Preferred Stock.
Section 5. Conversion.
(a) (i) Each share of Preferred Stock shall be convertible into
shares of Common Stock (subject to reduction pursuant to Section 5(a)(iv)) at
the Conversion Ratio (as defined in Section 7) at the option of the holder in
whole or in part at any time after the Original Issue Date. The holder shall
effect conversions by surrendering the certificate or certificates representing
the shares of Preferred Stock to be converted to the Company, together with the
form of conversion notice attached hereto as Exhibit A (the "Holder Conversion
Notice"). Each Holder Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion is to be
effected, which date may not be prior to the date the holder delivers such
Holder Conversion Notice by facsimile (the "Holder Conversion Date"). If no
Holder Conversion Date is specified in a Holder Conversion Notice, the Holder
Conversion Date shall be the date that the Holder Conversion Notice is deemed
delivered pursuant to Section 5(h). Subject to Sections 5(b) and 5(a)(iv) and,
as to the original holder (or its designee), subject to Section 4.13 of the
Purchase Agreement (as defined in Section 7), each Holder Conversion Notice,
once given, shall be irrevocable. If the holder is converting less than all
shares of Preferred Stock represented by the certificate or certificates
tendered by the holder with the Holder Conversion Notice, the Company shall
promptly deliver to such holder a certificate for such number of shares as have
not been converted.
(ii) Subject to the conditions set forth in this Section 5(a)(ii),
all outstanding and unconverted shares of Preferred Stock may be converted, at
the option of the Company, into shares of Common Stock at the Conversion Ratio
(subject to reduction pursuant to Section 5(a)(iv)) on or after the second
anniversary of the date on which the Underlying Shares Registration Statement
(defined in Section 7) has been declared effective by the Securities and
Exchange Commission (the "Commission"), provided, that such Underlying Shares
Registration Statement is effective on the Company Conversion Date (defined
below) and that the Underlying Shares are then listed on the Nasdaq National
Market, Nasdaq SmallCap Market and each other securities exchange or market on
which the Common Stock is then listed. The conversion date for any conversion
pursuant to this Section 5(a)(ii) (the "Company Conversion Date") shall be not
earlier than 20 days nor later than 5 days prior to the date on which the
Company shall deliver to the holders of such outstanding and unconverted shares
of Preferred Stock a notice of such conversion in the form attached hereto as
Exhibit B (the "Company Conversion Notice"). A Holder Conversion Date and a
Company Conversion Date are sometimes collectively referred to herein as the
"Conversion Date" and a Holder Conversion Notice and a Company Conversion
Notice are sometimes collectively referred to as a "Conversion Notice." Any
conversion pursuant to this Section 5(a)(ii) shall be subject to Section 5(b)
with respect to consequences of the Company's failure to deliver shares of
Common Stock in respect of a conversion under this Section, to Section
5(a)(iv), and, as to the original holder (or its designee), Section 4.13 of the
Purchase Agreement.
E-4
4
(iii) (A) If the Company has satisfied the conditions set forth in
(B) below, then upon the first closing of a public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the primary offer and sale of Common Stock for the account of the
Company to the public, which closing is at a price of at least $7.00 per share
and which public offering results in net proceeds to the Company of at least
$10,000,000, each share of Preferred Stock shall automatically be converted
into the number of shares of Common Stock at the Conversion Ratio, provided,
however, that for purposes of determining the Conversion Ratio, the Conversion
Price shall be determined as of the date of the first closing of the public
offering hereunder.
(B) Conversion under Section 5(a)(iii)(A) shall only be
permitted if (I) the Company shall have provided all of the holders of
Preferred Stock with written notice of the filing of the registration statement
contemplated under Section 5(a)(iii)(A); (II) such registration statement shall
not have been declared effective (and the Company shall not have filed an
acceleration request with the Commission requesting such effectiveness) for a
period not less than sixty (60) days from the date the Company delivers the
notice set forth in (I) above; and (III) at all times from the date the Company
delivers the notice set forth in (I) above until the date of conversion
hereunder, an Underlying Shares Registration Statement covering all Underlying
Shares and Warrant Shares shall be effective.
(iv) Certain Regulatory Approval. If on the Conversion Date
applicable to any conversion under this Section 5(a), (A) the Common Stock is
then listed for trading on the Nasdaq National Market and (B) the Conversion
Price then in effect is such that the aggregate number of shares of Common
Stock that would then be issuable upon conversion of all outstanding shares of
Preferred Stock, together with any shares of Common Stock previously issued
upon conversion of Preferred Stock, would exceed 20% of the number of shares of
Common Stock outstanding on the Original Issue Date (the "Issuable Maximum"),
and the Company has not previously obtained "Shareholder Approval" (as defined
below), then the Company shall issue to the converting holder of the Preferred
Stock an amount of shares of Common Stock equal to the Issuable Maximum and,
with respect to any shares of Common Stock that would be issuable to such
holder in respect of the Conversion Notice at issue in excess of the Issuable
Maximum, (I) if the Conversion Price is equal to or less than $1.00 per share,
the Company shall have the option or (II) if the Conversion Price is greater
than $1.00 per share, the converting holder shall have the option to require
the Company, to either (1) as promptly as possible, but in no event later than
60 days after such Conversion Date, convene a meeting of the holders of the
Common Stock and obtain the Shareholder Approval or (2) redeem, from funds
legally available therefor at the time of such redemption, the balance of the
Preferred Stock subject to such Conversion Notice at a price per share equal to
the product of (i) the average Per Share Market Value for the ten (10) Trading
Days immediately preceding (1) the Conversion Date or (2) the date of payment
in full by the Company of such redemption price, whichever is greater, and (ii)
the Conversion Ratio calculated on (1) the Conversion Date or (2) calculated as
if the Conversion Date (for purposes of determining the Conversion Price) were
the date of payment by the Company of such redemption price, whichever date
yields a lower Conversion Price denominator for the determination of the
Conversion Ratio;
E-5
5
provided, however, that if the Company shall elect to obtain Shareholder
Approval under paragraph (1) above and the Company fails for any reason to
obtain such Shareholder Approval within the time period set forth in (1) above,
the Company shall be obligated to redeem the Preferred Stock not converted as a
result of the provisions of this Section in accordance with the provisions of
paragraph (2) above, and in such case the interest contemplated by the
immediately succeeding sentence shall be deemed to accrue from the Conversion
Date. If the Company shall elect to redeem shares of Preferred Stock pursuant to
this Section and fails for any reason to pay the redemption price under (2)
above within seven days after the Conversion Date, the Company will pay interest
on such redemption price at a rate of 15% per annum to the converting holder of
Preferred Stock, accruing from the Conversion Date until the redemption price
plus any accrued interest thereon is paid in full. The entire redemption price,
including interest thereon, shall be paid in cash. "Shareholder Approval" means
the approval by a majority of the total votes cast on the proposal, in person or
by proxy, at a meeting of the shareholders of the Company held in accordance
with the Company's Articles of Organization and by-laws, of the issuance by the
Company of shares of Common Stock exceeding the Issuable Maximum as a
consequence of the conversion of Preferred Stock into Common Stock at a price
less than the greater of the book or market value on the Original Issue Date as
and to the extent required pursuant to Rule 4460(i) of the Nasdaq Stock Market
(or any successor or replacement provision thereof).
(b) Not later than three Trading Days after the Conversion
Date, the Company will deliver to the holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those then required by law and as set forth in the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(iv)) and (ii) one or more certificates representing the number of
shares of Preferred Stock not converted; provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion of any shares of Preferred Stock until
certificates evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond (or
other adequate security reasonably acceptable to the Company) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the holder of the
Preferred Stock, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section. If such certificate
or certificates are not delivered by the date required under this Section 5(b),
the holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
If the Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of Common
Stock to be issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, by the 7th Trading Day after the Conversion Date, the
Company shall pay to such holder, in cash, as liquidated damages and not as a
penalty, $1,500 for each such Subsequent Trading Day after the Conversion Date
until such certificates are delivered. If the Company fails to deliver to the
E-6
6
holder such certificate or certificates pursuant to this Section prior to the
30th day after the Conversion Date, the Company shall, at the holder's option
(i) redeem, from funds legally available therefor at the time of such
redemption, such number of shares of Preferred Stock then held by such holder,
as requested by such holder, and (ii) pay all accrued but unpaid dividends on
account of the Preferred Stock for which the Company shall have failed to issue
Common Stock certificates hereunder, in cash. The redemption price per share
shall be equal to the product of (A) the average Per Share Market Value for the
ten (10) Trading Days immediately preceding (1) the Conversion Date or (2) the
date of payment in full by the Company of such redemption price, whichever is
greater, and (ii) the Conversion Ratio calculated on (1) the Conversion Date or
(2) calculated as if the Conversion Date (for purposes of determining the
Conversion Price) were the date of payment by the Company of such redemption
price, whichever date yields a lower Conversion Price denominator for the
determination of the Conversion Ratio. If the holder has requested that the
Company redeem shares of Preferred Stock pursuant to this Section and the
Company fails for any reason to pay the redemption price under (2) above within
seven days after such notice, the Company will pay interest on the redemption
price at a rate of 15% per annum, in cash to such holder, accruing from such
seventh day until the redemption price and any accrued interest thereon is paid
in full.
(c) (i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the lesser of (a)
the average Per Share Market Value for the ten (10) Trading Days immediately
preceding the Original Issue Date (the "Initial Conversion Price") and (b) the
average of the five (5) lowest closing bid prices of the Common Stock for the
thirty (30) consecutive Trading Day period immediately preceding the Conversion
Date.
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities payable in
shares of Common Stock, (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Initial Conversion Price
shall be multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(ii) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall issue rights or warrants to all holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the Initial Conversion Price shall be multiplied
by a fraction, of which the denominator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance
of such rights or warrants plus the number
E-7
7
of additional shares of Common Stock offered for subscription or purchase, and
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Initial Conversion Price pursuant to this
Section 5(c)(iii), if any such right or warrant shall expire and shall not have
been exercised, the Initial Conversion Price shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Initial Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the adjustment
of the Initial Conversion Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase only
that number of shares of Common Stock actually purchased upon the exercise of
such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to
holders of Preferred Stock) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those referred
to in Sections 5(c)(ii) and (iii) above), then in each such case the Initial
Conversion Price at which each share of Preferred Stock shall thereafter be
convertible shall be determined by multiplying the Initial Conversion Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which the
denominator shall be the Per Share Market Value of Common Stock determined as
of the record date mentioned above, and of which the numerator shall be such
Per Share Market Value of the Common Stock on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided, however,
that in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may be
the firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
the shares of Preferred Stock then outstanding; and provided, further, that the
Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in good faith, in which case the fair
market value shall be equal to the average of the determinations by each such
Appraiser. In either case the adjustments shall be described in a statement
provided to the holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
E-8
8
(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Initial Conversion Price is adjusted pursuant to
Section 5(c)(ii),(iii) or (iv), the Company shall promptly mail to each holder
of Preferred Stock, a notice setting forth the Initial Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring such
adjustment.
(vii) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person pursuant to
which the Company will not be the surviving entity, the sale or transfer of all
or substantially all of the assets of the Company or any compulsory share
exchange pursuant to which the Common Stock is converted into other securities,
cash or property, the holders of the Preferred Stock then outstanding shall
have the right thereafter to, at their option, (A) convert such shares only
into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, sale, transfer or share exchange, and
the holders of the Preferred Stock shall be entitled upon such event to receive
such amount of securities, cash or property as the shares of the Common Stock
of the Company into which such shares of Preferred Stock could have been
converted immediately prior to such reclassification, consolidation, merger,
sale, transfer or share exchange would have been entitled. The terms of any
such consolidation, merger, sale, transfer or share exchange shall include such
terms so as to continue to give to the holder of Preferred Stock the right to
receive the securities, cash or property set forth in this Section 5(c)(vii)
upon any conversion following such consolidation, merger, sale, transfer or
share exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(viii) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe
for or purchase any shares of capital stock of any
class or of any rights; or
D. the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company, any consolidation
or merger to which the Company is a party, any sale or
transfer of all or substantially all of the assets of
the Company, of any
E-9
9
compulsory share of exchange whereby the Common Stock
is converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs
of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Preferred Stock, and shall cause to be mailed to
the holders of Preferred Stock at their last addresses as they shall appear upon
the stock books of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. Holders are entitled to convert shares of Preferred Stock during
the 30-day period commencing the date of such notice to the effective date of
the event triggering such notice.
(d) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
holders of Preferred Stock, such number of shares of Common Stock as shall be
issuable (taking into account the adjustments and restrictions of Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock and payment of
dividends hereunder. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid, nonassessable and freely tradeable.
(e) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that
E-10
10
the Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the holder of such shares of
Preferred Stock so converted and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
(g) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued shares of
undesignated stock.
(h) Any and all notices or other communications or deliveries
to be provided by the holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the attention of the Chief Financial Officer of the Company at the facsimile
telephone number or address of the principal place of business of the Company as
set forth in the Purchase Agreement. Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each holder of Preferred Stock at the facsimile telephone number or
address of such holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal place of
business of the holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 4:30 p.m. (Eastern
Time), (ii) the date after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section later than 4:30 p.m. (Eastern Time) on any date and
earlier than 11:59 p.m. (Eastern Time) on such date, (iii) four days after
deposit in the United States mails, (iv) the Business Day following the date of
mailing, if send by nationally recognized overnight courier service, or (v) upon
actual receipt by the party to whom such notice is required to be given.
Section 6. Redemptions.
(a) The Company shall have the right, exercisable at any time
upon 30 Trading Days notice to the holders of the Preferred Stock given at any
time on or after the third anniversary after the Original Issue Date, to redeem,
from funds legally available therefor at the time of such redemption, all or any
portion of the shares of Preferred Stock which have not previously been
converted or redeemed, at a price per share equal to the product of (i) the
average Per Share Market Value for the ten (10) Trading Days immediately
preceding (1) the date of the redemption notice referenced above or (2) the date
of payment in full by the Company of the redemption price hereunder, whichever
is greater, and (ii) the Conversion Ratio calculated as if the Conversion Date
(for purposes of determining the Conversion Price) were (1) the date of such
redemption notice or (2) the date of payment by the Company of such redemption
price, whichever date yields a lower
E-11
11
Conversion Price denominator for the determination of the Conversion Ratio. The
entire redemption price shall be paid in cash. Holders of Preferred Stock may
convert any shares of Preferred Stock, including shares subject to a redemption
notice given under this Section, during the period from the date of such
redemption notice through the 30th Trading Day thereafter.
(b) The Company shall have the right, exercisable at any time
upon 30 Trading Days notice to the Purchaser, given at any time after the
Company has announced publicly a merger or consolidation in which the Company
will not be the surviving entity, to redeem, from funds legally available
therefor at the time of such redemption, all (but not less than all) of the then
outstanding and unconverted shares of Preferred Stock. The redemption price for
shares of Preferred Stock to be redeemed pursuant to this Section will be
determined in accordance with Section 6(a) above and the payment of such
redemption price shall be subject to the provisions of Section 6(c) below.
Holders of Preferred Stock may convert any shares of Preferred Stock, including
shares subject to a redemption notice given under this Section, during the
period from the date of such redemption notice through the 30th Trading Day
thereafter.
(c) If any portion of the redemption price under Section 6(a)
or (b) shall not be paid by the Company within 7 calendar days after the date
due under such Sections, such redemption price shall be increased by 15% per
annum until paid (which amount shall be paid as liquidated damages and not as a
penalty). In addition, if any portion of such redemption price remains unpaid
for more than 7 calendar days after the date due, the holder of the Preferred
Stock subject to such redemption may elect, by written notice to the Company
given within 45 days after the date due, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section 5
of all of the shares of Preferred Stock for which such redemption price, plus
accrued liquidated damages thereof, has not been paid in full (the "Unpaid
Redemption Shares"), in which event the Per Share Market Value for such shares
shall be the lower of the Per Share Market Value calculated on the date such
redemption price was originally due and the Per Share Market Value as of the
holder's written demand for conversion, or (ii) invalidate ab initio such
redemption, notwithstanding anything herein contained to the contrary. If the
holder elects option (i) above, the Company shall within five Trading Days of
its receipt of such election deliver to the holder the shares of Common Stock
issuable upon conversion of the Unpaid Redemption Shares subject to such holder
conversion demand and otherwise perform its obligations hereunder with respect
thereto; or, if the Holder elects option (ii) above, the Company shall promptly,
and in any event not later than five Trading Days from receipt of holder's
notice of such election, return to the holder all of the Unpaid Redemption
Shares. If, upon a holder election under option (i) above, the Company fails to
deliver the shares of Common Stock issuable upon conversion of the Unpaid
Redemption Shares within the time period set forth in this Section, the Company
shall pay to the holder in cash, as liquidated damages and not as a penalty,
$1,500 per day until the Company delivers such Common Stock to the holder.
Section 7. Definitions. For the purposes hereof, the
following terms shall have the following meanings:
E-12
12
"Business Day" means any day of the year on which commercial
banks are not required or authorized to be closed in New York, New York.
"Common Stock" means shares now or hereafter authorized of the
class of Common Stock, par value $0.01 per share, of the Company and stock of
any other class into which such shares may hereafter have been reclassified or
changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon), and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company, except the Series A Convertible Preferred
Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the number of
transfers of any particular shares of Preferred Stock and regardless of the
number of certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
National Market or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the closing bid price on
such exchange on the date nearest preceding such date, or (b) if the Common
Stock is not listed on the Nasdaq National Market or any stock exchange, the
closing bid price for a share of Common Stock in the over-the-counter market, as
reported by the Nasdaq Stock Market at the close of business on such date, or
(c) if the Common Stock is not quoted on the Nasdaq Stock Market, the closing
bid price for a share of Common Stock in the over-the-counter market as reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), or (d) if the Common Stock is
not reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant conversion period, as
determined in good faith by the holder, or (e) if the Common Stock is not
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holders of a majority in interest
of the shares of the Preferred Stock; provided, however, that the Company, after
receipt of the determination by such Appraiser, shall have the right to select
an additional Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, between the Company and
the original holder of the Preferred Stock.
E-13
13
"Registration Rights Agreement" means the Registration Rights
Agreement, dated the Original Issue Date, by and between the Company and the
original holder of Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq National Market or principal national securities exchange
or market on which the Common Stock has been listed, or (b) if the Common Stock
is not listed on the Nasdaq National Market or any stock exchange or market, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted on
the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions of
reporting prices).
"Underlying Shares" means the number of shares of Common Stock
into which the Shares are convertible in accordance with the terms hereof and
the Purchase Agreement.
"Underlying Shares Registration Statement" means the
registration statement filed by the Company, pursuant to the Registration Rights
Agreement, covering the Underlying Shares and the Warrant Shares.
"Warrant Shares" means the number of shares of Common Stock
issuable upon the exercise in full of the Warrants.
"Warrants" means the Common Stock purchase warrants issued by
the Company to Southbrook International Investments, Ltd. ("Southbrook"), who
intends to assign a portion of such Warrants to Brown Simpson, LLC ("Brown
Simpson") simultaneously with the closing of the purchase of Preferred Stock
under the Purchase Agreement, pursuant to which the holders of the Warrants
shall, collectively, have the right to acquire an aggregate of 350,000 shares of
Common Stock at the exercise price per share set forth in each of the Warrants.
Section 8. Waiver. Any right or power of the holders of
Preferred Stock may be waived with respect to any transaction by an instrument
in writing signed by the holders of not less than two-thirds (2/3) of the
then-outstanding shares of Preferred Stock (excluding any shares then held by
the Company or any subsidiary of the Company).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
E-14
14
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby irrevocably elects to convert the number of shares of
Series B Convertible Preferred Stock indicated below, into shares of Common
Stock, par value $[ ] per share (the "Common Stock"), of Cayenne Software, Inc.
(the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Signature
Name:
Address:
The Company undertakes to promptly upon its receipt of this conversion notice
(and, in any case prior to the time it effects the conversion requested hereby),
notify the converting holder by facsimile of the number of shares of Common
Stock outstanding on such date and the number of shares of Common Stock which
would be issuable to the holder if the conversion requested in this conversion
notice were effected in full, whereupon, the holder hereby consents to the
revocation of the conversion requested hereby to the extent that it determines
that such conversion would result in it owning in excess of 4.9% of the
outstanding shares of Common Stock on such date, and the Company shall issue to
the holder one or more certificates representing shares of Preferred Stock which
have not been converted as a result of this provision.
E-15
15
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Cayenne Software, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to convert [ ] shares of its Series B Convertible
Preferred Stock (the "Preferred Stock") held by the Holder into shares of Common
Stock, par value $[ ] per share (the "Common Stock") of the Company according to
the terms hereof, as of the date written below. No fee will be charged to the
Holder for any conversion hereunder, except for such transfer taxes, if any
which may be incurred by the Company if shares are to be issued in the name of a
person other than the person to whom this notice is addressed.
Conversion calculations:
Date to effect Conversion
Number of shares of Preferred Stock to be Converted
Number of shares of Common Stock to be Issued
Applicable Conversion Price
Name of Holder:
Address of Holder:
E-16