1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
DALEEN TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
2
(DALEEN LOGO)
April , 2001
Dear Daleen Stockholders,
You are cordially invited to attend the annual meeting of stockholders of
Daleen Technologies, Inc. (the "Company") to be held on Tuesday, June 5, 2001.
The meeting will begin promptly at 10:00 a.m. local time, at the offices of the
Company, 1750 Clint Moore Road, Boca Raton, Florida 33487.
At this meeting, you will be asked to consider and approve a proposed
private placement by the Company of shares of convertible preferred stock and
warrants to purchase shares of convertible preferred stock. If approved, the
investors will pay to the Company $27.5 million for the preferred stock and
warrants in accordance with the applicable agreements. This transaction will
bring much needed capital to the Company, strengthen our balance sheet and
provide us with greater financial and operating flexibility. The private
placement and related transactions are described in Proposal 1 set forth in the
attached Proxy Statement.
In a related proposal, we are asking you to approve an amendment to the
Company's Certificate of Incorporation to increase the number of authorized
shares of common stock. This amendment is described in Proposal 2 set forth in
the attached Proxy Statement. The stockholders must approve both Proposal 1 and
Proposal 2 in order for the Company to consummate the private placement
transaction. We are asking our stockholders to approve Proposals 1 and 2 in
accordance with the rules of The Nasdaq Stock Market and in accordance with the
Company's Certificate of Incorporation and the laws of the State of Delaware. WE
WILL NOT COMPLETE THE PRIVATE PLACEMENT TRANSACTION AND THE COMPANY WILL NOT
RECEIVE THE $27.5 MILLION AND ISSUE THE CONVERTIBLE PREFERRED STOCK AND WARRANTS
UNLESS THE COMPANY'S STOCKHOLDERS APPROVE BOTH PROPOSAL 1 AND PROPOSAL 2.
In addition to Proposals 1 and 2, you will be asked to vote upon a proposal
to amend our Certificate of Incorporation to clarify the provisions relating to
the creation of "blank check" preferred stock to specifically permit the Board
of Directors to designate and authorize the issuance of new series of preferred
stock with voting rights (Proposal 3) and a proposal to elect three nominees to
serve as directors of the Company (Proposal 4).
The notice of the meeting and proxy statement on the following pages
contain information on the formal business of the meeting. We urge you to read
the entire proxy statement carefully.
Your Board of Directors has approved the private placement and related
amendment to the Company's Certificate of Incorporation to increase the
authorized shares of common stock and has determined that the transaction is
fair to, and in the best interest of the Company and its stockholders. The Board
of Directors recommends that you vote FOR the private placement proposals
(Proposals 1 and 2) and each of the other proposals set forth in the attached
proxy statement.
IN ORDER TO OBTAIN APPROVAL OF THE PRIVATE PLACEMENT, PURSUANT TO THE
COMPANY'S CERTIFICATE OF INCORPORATION, THE HOLDERS OF AT LEAST 66 2/3% OF THE
COMPANY'S OUTSTANDING COMMON STOCK MUST VOTE FOR PROPOSALS 1 AND 2. ACCORDINGLY,
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE TO
ASSURE YOUR STOCK WILL BE REPRESENTED AT THE MEETING. NOT DOING SO MAY HAVE THE
UNINTENDED RESULT OF STOCKHOLDER DISAPPROVAL FOR CERTAIN PROPOSALS, INCLUDING
PROPOSALS 1 AND 2. IF YOU DECIDE TO ATTEND THE ANNUAL MEETING, YOU WILL HAVE THE
OPPORTUNITY TO REVOKE YOUR PROXY AND VOTE IN PERSON.
If you have any questions please call our proxy solicitation firm,
MacKenzie Partners, Inc., at (800) 322-2885 or our corporate secretary, Stephen
M. Wagman, at (561) 999-8000.
3
>The continuing interest of our stockholders in the business of the Company is
gratefully appreciated. We hope many will attend the meeting.
Sincerely,
/s/ James Daleen
JAMES DALEEN
Chairman of the Board and
Chief Executive Officer
EXECUTIVE OFFICES: 1750 CLINT MOORE ROAD, BOCA RATON, FL 33487
PHONE: (561) 999-8000 FACSIMILE: (561) 999-8080 HTTP://WWW.DALEEN.COM
4
DALEEN TECHNOLOGIES, INC.
1750 CLINT MOORE ROAD
BOCA RATON, FLORIDA 33487
(561) 999-8000
------------------------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 2001
------------------------------------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Daleen
Technologies, Inc. (the "Company") will be held at the offices of the Company,
1750 Clint Moore Road, Boca Raton, Florida 33487, at 10:00 a.m. local time, on
June 5, 2001, to consider and act upon:
1. a proposal to approve a Securities Purchase Agreement dated as of
March 30, 2001, between the Company and the investors named therein, to
approve an amendment to the Company's Certificate of Incorporation to
authorize and designate the rights, preferences and designations of the
Series F convertible preferred stock to be sold to the investors pursuant
to the Securities Purchase Agreement, and to approve the performance by the
Company of all of the transactions contemplated by the Securities Purchase
Agreement, including the issuance and sale to the investors, for a total
purchase price of $27.5 million, of up to 247,882 shares of Series F
convertible preferred stock and warrants to purchase 99,153 additional
shares of Series F convertible preferred stock, the issuance of a warrant
to purchase a specified number of shares of Series F convertible preferred
stock to the Company's placement agent, and the issuance of shares of
common stock upon conversion of the Series F convertible preferred stock;
2. a proposal to amend the Company's Certificate of Incorporation to
increase the number of authorized shares of common stock from 70 million to
200 million;
3. a proposal to approve an amendment to the Company's Certificate of
Incorporation to clarify the provisions relating to the Company's "blank
check" preferred stock to specifically permit the Board of Directors to
designate voting rights on new series of preferred stock;
4. a proposal to elect three nominees to serve as directors of the
Company; and
5. such other business as may properly come before the annual meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on April 20, 2001,
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the annual meeting. Only stockholders of record at the close of
business on that date will be entitled to notice of, and to vote at, the annual
meeting or any adjournment or postponement thereof. A list of stockholders
entitled to vote at the annual meeting will be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of ten days before the meeting at the Company's offices at
1750 Clint Moore Road, Boca Raton, Florida 33487, and at the time and place of
the meeting during the whole time of the meeting.
By Order of the Board of Directors,
/s/ Stephen M. Wagman
Stephen M. Wagman
Secretary
April , 2001
Boca Raton, Florida
5
IMPORTANT
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE MARK, DATE
AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENVELOPE WHICH HAS BEEN
PROVIDED. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES. IN THE EVENT
YOU ARE ABLE TO ATTEND THE MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR
SHARES IN PERSON.
6
TABLE OF CONTENTS
PAGE
----
Information Concerning Solicitation and Voting.............. 1
Stockholders Meeting...................................... 1
Proposals................................................. 1
Stockholders Entitled to Vote and Quorum.................. 2
Counting of Votes......................................... 2
Proxies................................................... 3
Proposal 1. Proposal to Approve Private Placement
Transaction............................................... 5
General................................................... 5
Proposal.................................................. 5
Summary................................................... 6
Some Possible Effects of the Private Placement
Transaction............................................ 12
Overview of the Private Placement Transaction............. 15
Reasons for the Private Placement Transaction............. 16
Relationship between the Company and the Investors and
Their Affiliates....................................... 16
Company Evaluation of Financing Alternatives.............. 16
Description of Transaction Documents........................ 18
Description of Securities Purchase Agreement.............. 18
Description of Escrow Agreement........................... 21
Description of Series F Preferred Stock................... 21
Description of Warrants................................... 24
Description of Registration Rights Agreement.............. 25
Requirement of Stockholder Approval......................... 28
Approval of the Private Placement Transaction............... 28
Proposal 2. Proposal to Approve an Amendment to Our
Certificate of Incorporation to Increase the Number of
Authorized Shares of Common Stock......................... 28
General................................................... 28
Proposal.................................................. 29
Purpose................................................... 29
Proposal 3. Proposal to Approve an Amendment to Our
Certificate of Incorporation with Respect to Our "Blank
Check" Preferred Stock.................................... 31
General................................................... 31
Proposal.................................................. 31
Summary................................................... 32
Proposal 4. Election of Directors........................... 33
Introduction.............................................. 33
Information Concerning the Directors...................... 33
Meetings of the Board of Directors........................ 34
Committees of the Board of Directors...................... 34
Report of the Audit Committee............................. 35
Compensation of Directors................................. 36
Executive Compensation.................................... 37
Employment Agreements..................................... 40
Stock Option and Other Compensation Plans................. 41
Limitation of Liability and Indemnification of Officers
and Directors.......................................... 42
Compensation Committee Interlocks and Insider
Participation.......................................... 42
Compensation Committee Report on Executive Compensation... 42
i
7
PAGE
----
Section 16(a) Beneficial Ownership Reporting Compliance... 44
Security Ownership of Certain Beneficial Owners and
Management............................................. 45
Stock Performance Graph................................... 47
Certain Transactions........................................ 48
Issuance of Common Stock in Acquisition of Inlogic........ 48
Related Party Transactions................................ 48
Information Regarding Our Independent Accountants........... 50
Audit Fees................................................ 50
Financial Information Systems Design and Implementation
Fees................................................... 50
All Other Fees............................................ 50
Other Matters............................................... 50
Incorporation of Information by Reference................... 51
Appendix A Securities Purchase Agreement
Appendix B Form of Certificate of Amendment
Appendix C Form of Warrant
Appendix D Escrow Agreement
Appendix E Registration Rights Agreement
Appendix F Audit Committee Charter
ii
8
DALEEN TECHNOLOGIES, INC.
1750 CLINT MOORE ROAD
BOCA RATON, FLORIDA 33487
(561) 999-8000
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 2001
------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
STOCKHOLDERS MEETING
This proxy statement and the enclosed proxy card are furnished on behalf of
the Board of Directors of Daleen Technologies, Inc., a Delaware corporation (the
"Company," "we," "our" or "us"), for use at the Annual Meeting of Stockholders
to be held on June 5, 2001 at 10:00 a.m., Eastern time (the "Annual Meeting"),
or at any adjournment or postponement thereof, for the purposes set forth herein
and in the accompanying Notice of Annual Meeting. The Annual Meeting will be
held at the offices of the Company, 1750 Clint Moore Road, Boca Raton, Florida
33487. We intend to mail this proxy statement and the accompanying proxy card on
or about April , 2001, to all stockholders entitled to vote at
the Annual Meeting.
PROPOSALS
At the Annual Meeting, we will request that the stockholders consider and
vote upon each of the following proposals:
PRIVATE PLACEMENT PROPOSALS (PROPOSALS 1 AND 2). Proposal 1 is a proposal
to approve a Securities Purchase Agreement dated as of March 30, 2001 (the
"Purchase Agreement"), between the Company and the investors named therein (the
"Investors"), to approve an amendment to our Certificate of Incorporation to
authorize and designate the rights, preferences and designations of the Series F
convertible preferred stock (the "Series F preferred stock") to be sold to the
Investors pursuant to the Purchase Agreement, and to approve the performance by
the Company of all of the transactions contemplated by the Purchase Agreement. A
copy of the Purchase Agreement is attached as Appendix A to this Proxy
Statement. The transactions contemplated by the Purchase Agreement, including
the amendments to the Certificate of Incorporation described in Proposal 1, are
referred to collectively as the "Private Placement Transaction." The Private
Placement Transaction will include the following transactions:
- the amendment to our Certificate of Incorporation to authorize and
designate the rights, preferences and designations of the Series F
preferred stock, which rights, preferences and designations are included
in the form of Certificate of Amendment attached as Appendix B to this
Proxy Statement;
- an amendment to the first paragraph of Article FOURTH of our Certificate
of Incorporation authorizing 356,950 shares of Series F preferred stock
as set forth in the Certificate of Amendment attached as Appendix B to
this Proxy Statement;
- the issuance and sale by the Company to the Investors, for a total
purchase price of $27.5 million, of 247,882 shares of Series F preferred
stock and warrants to purchase 99,153 additional shares of Series F
preferred stock;
1
9
- the issuance by the Company to Robertson Stephens, Inc., which acted as
placement agent to the Company in the Private Placement Transaction, of a
Warrant to purchase 9,915 shares of Series F preferred stock (the
"Placement Agent Warrant" and together with the warrants to be issued to
the Investors, the "Warrants"); and
- the issuance of shares of common stock upon conversion of the Series F
preferred stock.
Proposal 2 is to amend our Certificate of Incorporation to increase the
number of authorized shares of common stock from 70 million shares to 200
million shares. The increase in the number of authorized shares of common stock
is required as part of the Private Placement Transaction in order to insure that
there are a sufficient number of authorized shares of common stock available for
issuance upon conversion of all of the Series F preferred stock. Accordingly,
approval of both Proposal 1 and Proposal 2 is necessary for the Company to
consummate the Private Placement Transaction. Proposals 1 and 2 are referred to
collectively as the "Private Placement Proposals."
AMENDMENT TO CERTIFICATE OF INCORPORATION WITH RESPECT TO "BLANK CHECK"
PREFERRED STOCK (PROPOSAL 3). Proposal 3 is to amend Section VII of Part B of
Article FOURTH of the Certificate of Incorporation relating to the issuance of
"blank check" preferred stock to redesignate the section as Section VIII and to
clarify that the Board of Directors has the authority to provide voting rights
with respect to any new series of preferred stock.
ELECTION OF DIRECTORS (PROPOSAL 4). Proposal 4 is to elect three directors
to our Board of Directors to serve a term expiring at the 2004 annual meeting of
stockholders.
STOCKHOLDERS ENTITLED TO VOTE AND QUORUM
Only holders of record of our common stock at the close of business on
April 20, 2001, will be entitled to notice of and to vote at the Annual Meeting
(the "Record Date"). At the close of business on the Record Date, we had
outstanding and entitled to vote shares of common stock. Each holder of
record of common stock on such date will be entitled to one vote for each share
held on all matters to be voted upon at the Annual Meeting. The holders of a
majority of the total shares of common stock outstanding on the record date,
whether present at the Annual Meeting in person or represented by proxy, will
constitute a quorum for the transaction of business at the Annual Meeting. The
shares held by each stockholder who signs and returns the enclosed proxy card
will be counted for the purposes of determining the presence of a quorum at the
meeting, whether or not the stockholder abstains on all or any matter to be
acted on at the meeting. Abstentions and broker non-votes both will be counted
toward fulfillment of quorum requirements. Broker-dealers who hold their
customers' shares in street name may, under the applicable rules of the
exchanges and other self-regulatory organizations of which the broker-dealers
are members, vote the shares of their customers on routine proposals, which
under such rules typically includes the election of directors, when they have
not received instructions from the customer. Under these rules, brokers may not
vote shares of their customers on non-routine matters without instructions from
their customers. A broker non-vote occurs with respect to any proposal when a
broker holds shares of a customer in its name and is not permitted to vote on
that proposal without instruction from the beneficial owner of the shares and no
instruction is given.
COUNTING OF VOTES
The purpose of the Annual Meeting is to consider and act upon the matters
that are listed in the accompanying Notice of Annual Meeting and set forth in
this Proxy Statement. The shares represented by each proxy card will be voted in
accordance with the stockholder's directions. A quorum must be present at the
Annual Meeting, including representation by proxy.
PRIVATE PLACEMENT PROPOSALS (PROPOSALS 1 AND 2). The enclosed proxy card
provides a means for a stockholder to vote for, against or abstain from voting
on Proposals 1 and 2.
The voting requirements for Proposal 1 are governed by two sets of rules.
First, The Nasdaq Stock Market requires that Proposal 1 be approved by the
affirmative vote of a majority of the votes cast at the
2
10
Annual Meeting, either in person or by proxy, assuming a quorum is present at
the meeting. Second, pursuant to our Certificate of Incorporation, the
amendments to the Certificate of Incorporation included in Proposal 1 must be
approved by the holders of at least 66 2/3% of our outstanding common stock
entitled to vote at the Annual Meeting. As a result, the holders of at least
66 2/3% of our outstanding common stock must approve Proposal 1 in order for the
Company to consummate the Private Placement Transaction.
Similarly, the amendment to our Certificate of Incorporation to increase
the number of authorized shares of common stock as contemplated by Proposal 2
must be approved by the holders of at least 66 2/3% of our outstanding common
stock entitled to vote at the Annual Meeting. The approval of both Proposal 1
and Proposal 2 are required for consummation of the Private Placement
Transaction.
Because Proposals 1 and 2 must be approved by the holders of at least
66 2/3% of our outstanding common stock, abstentions and broker non-votes will
have the same effect as a vote against each of the Private Placement Proposals.
Certain of our stockholders, including stockholders that are Investors, as
well as our directors and their affiliates and certain members of our senior
management, have agreed to vote their shares of common stock in favor of each of
the Private Placement Proposals. These stockholders also have agreed not to
dispose of their shares of common stock prior to the vote on the Private
Placement Proposals. These stockholders own approximately 51.4% of the
outstanding common stock entitled to vote at the Annual Meeting.
AMENDMENT TO CERTIFICATE OF INCORPORATION WITH RESPECT TO "BLANK CHECK"
PREFERRED STOCK (PROPOSAL 3). The enclosed proxy card provides a means for a
stockholder to vote for, against or abstain from voting on Proposal 3. The
amendment to our Certificate of Incorporation contemplated by Proposal 3 must be
approved by the holders of at least 66 2/3% of our outstanding common stock
entitled to vote at the Annual Meeting. Because the stockholders are asked in
Proposal 1 to approve an amendment to our Certificate of Incorporation to
designate the terms of the Series F preferred stock, the approval of Proposal 3
is not required for consummation of the Private Placement Transaction.
Because Proposal 3 must be approved by the holders of at least 66 2/3% of
our outstanding common stock, abstentions and broker non-votes will have the
same effect as a vote against this proposal.
ELECTION OF DIRECTORS (PROPOSAL 4). The enclosed proxy card provides a
means for a stockholder to vote for all of the nominees for director listed
thereon or to withhold authority to vote for one or more of such nominees. Our
bylaws provide that directors are elected by a plurality of the votes cast.
Accordingly, the withholding of authority by a stockholder (including broker
non-votes) will not be counted in computing a plurality and thus will have no
effect on the results of the election of such nominees.
PROXIES
Proxies for use at the Annual Meeting are being solicited by our Board of
Directors from our stockholders. The Company will pay the cost of this proxy
solicitation. In addition to the solicitation of proxies by use of the mails,
officers and other employees of the Company and its subsidiaries may solicit
proxies by personal interview, telephone, facsimile, e-mail and telegram. None
of these individuals will receive compensation for such services, which will be
performed in addition to their regular duties. We also expect to make
arrangements with brokerage firms, banks, custodians, nominees and other
fiduciaries to forward proxy solicitation material for shares held of record by
them to the beneficial owners of the shares. We will reimburse such persons for
their reasonable out-of-pocket expenses in forwarding the material. We will use
the services of MacKenzie Partners, Inc. to aid in the solicitation of proxies
at a fee not expected to exceed approximately $7,000, plus such firm's
reasonable out-of-pocket expenses.
When the enclosed proxy card is properly signed and returned, the shares
that it represents will be voted at the Annual Meeting in accordance with the
instructions noted thereon. IN THE ABSENCE OF SUCH INSTRUCTIONS, THE SHARES
REPRESENTED BY A SIGNED PROXY CARD WILL BE VOTED IN FAVOR OF THE APPROVAL OF
PROPOSALS 1, 2 AND 3 AND IN FAVOR OF THE NOMINEES FOR ELECTION TO THE BOARD OF
DIRECTORS AS SET FORTH IN PROPOSAL 4.
3
11
Discretionary authority is provided in the proxy card as to any matters not
specifically referred to in the proxy card or the Proxy Statement. The Board of
Directors is not aware of any other matters that are likely to be brought before
the Annual Meeting. If any other matter is properly presented at the Annual
Meeting for action, including a proposal to adjourn or postpone the Annual
Meeting to permit the Company to solicit additional proxies in favor of any
proposal, the persons named in the accompanying proxy will vote on such matter
in their own discretion.
Stockholders who hold their shares through an intermediary must provide
instructions on voting as requested by their bank or broker. A stockholder who
signs and returns a proxy card may revoke it at any time before it is voted by
taking one of the following three actions: (i) giving written notice of the
revocation to the Secretary of the Company; (ii) executing and delivering a
proxy card with a later date; or (iii) voting in person at the Annual Meeting.
If you have any questions, please call our proxy solicitation firm,
McKenzie Partners, Inc., at (800) 322-2885 or our corporate secretary, Stephen
M. Wagman, at (561) 999-8000.
Our executive offices are located at 1750 Clint Moore Road, Boca Raton,
Florida 33487, and our telephone number is (561) 999-8000.
4
12
PROPOSAL 1
PROPOSAL TO APPROVE PRIVATE PLACEMENT TRANSACTION
GENERAL
On March 30, 2001, we entered into definitive agreements for the sale of
$27.5 million of the Series F preferred stock and the Warrants. The terms of the
Private Placement Transaction, including the terms of the Series F preferred
stock and the Warrants are set forth in the Purchase Agreement attached as
Appendix A hereto, the form of Certificate of Amendment to the Certificate of
Incorporation attached as Appendix B hereto (the "Certificate of Amendment"),
the form of Warrant attached as Appendix C hereto, the Escrow Agreement dated as
of March 30, 2001, between the Company, the Investors, Robertson Stephens, Inc.
and SunTrust Bank, as escrow agent attached as Appendix D hereto, and the
Registration Rights Agreement between the Company, the Investors and Robertson
Stephens, Inc., as placement agent, attached as Appendix E hereto. These
agreements and documents are referred to collectively as the "Transaction
Documents." On March 30, 2001, the Investors deposited the full $27.5 million
purchase price for the Series F preferred stock and the Warrants into escrow
with SunTrust Bank as escrow agent. The only condition to the release of the
escrowed funds to the Company is the receipt of the requisite stockholder
approval of the Private Placement Proposals (Proposals 1 and 2) by July 30,
2001, or such later date as the Company and the Investors may agree in writing.
If we do not obtain the requisite stockholder approval on or before July 30,
2001, or such later date as the Company and the Investors may agree in writing,
our obligation to sell, and the Investors' obligations to purchase, the Series F
preferred stock and the Warrants will be deemed null and void. The approval of
the holders of at least 66 2/3% of our outstanding common stock will be required
to approve each of the Private Placement Proposals.
PROPOSAL
If the stockholders approve Proposal 1, the stockholders will have
approved:
- the Purchase Agreement and the transactions contemplated thereby,
including the issuance and sale by the Company to the Investors, for a
total purchase price of $27.5 million, of 247,882 shares of Series F
preferred stock and Warrants to purchase 99,153 additional shares of
Series F preferred stock, the issuance by the Company to the placement
agent in the Private Placement Transaction of the Placement Agent
Warrant, and the issuance of shares of common stock upon conversion of
the Series F preferred stock;
- an amendment to the first paragraph of Article FOURTH of our Certificate
of Incorporation authorizing 356,950 shares of Series F preferred stock
as set forth in the Certificate of Amendment attached as Appendix B to
this Proxy Statement; and
- an amendment to our Certificate of Incorporation to redesignate current
Section VII of Part B of Article FOURTH as new Section VIII and inserting
as new Section VII the rights, preferences and designations of the Series
F preferred stock as set forth in the Certificate of Amendment attached
as Appendix B to this Proxy Statement.
If the stockholders approve Proposal 1, then Section VII of Part B of
Article FOURTH of our current Certificate of Incorporation will be redesignated
as Section VIII. Further, if the stockholders approve Proposal 3, that Section
will be redesignated and amended as contemplated by Proposal 3. However,
stockholder approval of Proposal 3 is not a condition to the closing of the
Private Placement Transaction.
5
13
SUMMARY
The following is a summary in question and answer format of more detailed
information concerning the Private Placement Transaction and the Transaction
Documents contained elsewhere in this Proxy Statement, including the Appendices
and the portions of the accompanying Annual Report on Form 10-K for the year
ended December 31, 2000 that are incorporated by reference into this Proxy
Statement. You are urged to read carefully this Proxy Statement, including the
Appendices and the incorporated information in its entirety.
Q: What is the Private Placement Transaction that the stockholders are
being asked to approve?
A: The Investors will invest $27.5 million in the Company by purchasing an
aggregate of 247,882 shares of Series F preferred stock and Warrants to
purchase up to an aggregate of 99,153 additional shares of Series F
preferred stock. The Warrants have an exercise price of $166.41 per
share of Series F preferred stock.
Q: What will be the purchase price per share of Series F preferred stock?
A: The purchase price for each share of Series F preferred stock sold
under the Purchase Agreement will be $110.94. Although a portion of the
purchase price will be allocated to the Warrants, we will not receive
any additional consideration for the grant of the Warrants. The per
share purchase price is equal to (A) $1.1094, the average closing price
of our common stock for the ten trading days ending on March 30, 2001,
multiplied by (B) 100, the number of shares of our common stock
initially issuable upon conversion of a share of Series F preferred
stock. March 30, 2001 is the date on which the Company and the
Investors entered into the Purchase Agreement.
Q: Why does the Company wish to complete the Private Placement
Transaction?
A: Our current cash and cash equivalents will not be sufficient to fund
our operations for the remainder of 2001. As a result of our liquidity
issues, our independent auditors delivered a going concern
qualification in its report on our audited financial statements for the
year ended December 31, 2000. Accordingly, the consummation of the
Private Placement Transaction is extremely important to our ability to
continue our operations. If approved, the Private Placement Transaction
will address our liquidity issues and strengthen our balance sheet. We
have not been able to obtain needed capital from other sources on terms
we consider to be as favorable as the terms of the Private Placement
Transaction. A more detailed discussion of the reasons for the Private
Placement transaction is set forth in "Overview of the Private
Placement Transaction -- Reasons for Private Placement Transaction"
below.
Q: Will the Company need additional financing prior to the closing of the
Private Placement Transaction?
A: Although the Company intends to carefully manage its uses of cash, it
is possible that the Company will be required to seek alternative
sources of capital prior to the Company's receipt of the funds from the
Private Placement Transaction. The alternative sources of capital
likely will be in the form of debt securities, possibly with an equity
component. The Company has not yet identified the source of this
additional financing nor can it predict whether additional financing
can be obtained or, if obtained, the terms of such financing.
Q: For what uses will the Company apply the net proceeds from the Private
Placement Transaction?
A: We will use the net proceeds to fund capital expenditures and for
working capital purposes, including continued developments and
enhancements to our products and technology, marketing and sales,
expansion of our strategic alliances and expansion of our international
operations.
6
14
Q: Who will invest in the Series F preferred stock and the Warrants?
A: The Investors are HarbourVest Partners VI - Direct Fund, L.P., SAIC
Venture Capital Corporation, Royal Wulff Ventures, LLC, St. Paul
Venture Capital VI, LLC, ABX Fund, L.P., ABS Ventures IV, L.P., Halifax
Fund, L.P., Baystar Capital, L.P., Baystar International Ltd., Special
Situations Private Equity Fund, L.P., and Special Situations Caymen
Fund, L.P. Certain of the Investors are current stockholders of the
Company or affiliates of current stockholders of the Company.
Additionally, two of our directors are affiliates of Investors. A more
detailed discussion of the relationship between the Company and these
Investors is set forth in "Overview of the Private Placement
Transaction -- Relationship between the Company and the Investors and
Their Affiliates" below.
Q: What securities will the Company issue in the Private Placement
Transaction?
A: We will issue to the Investors two different types of securities:
- 247,882 shares of Series F preferred stock which are convertible
into shares of our common stock; and
- Warrants to purchase up to an additional 99,153 shares of Series F
preferred stock.
Additionally, we will grant to the placement agent the Placement Agent
Warrant. As a result, if the Investors and the placement agent
exercise the Warrants in full, we will issue an aggregate of 356,950
shares of Series F preferred stock.
Q: Will the Company be required to issue and sell all 247,882 shares of
the Series F preferred stock and all of the Warrants?
A: Yes. If the stockholders approve both Private Placement Proposals
(Proposals 1 and 2), we expect the closing of the Private Placement
Transaction will take place within two business days following the
Annual Meeting. The Purchase Agreement provides that, upon receipt of
the requisite stockholder approval, the Company will issue and sell,
and the Investors will purchase, 247,882 shares of Series F preferred
stock and Warrants to purchase an additional 99,153 shares of Series F
preferred stock at the closing. Additionally, we will be required to
issue to the placement agent the Placement Agent Warrant.
Q: Will the Company issue Series F preferred stock or Warrants if the
stockholders do not approve both Private Placement Proposals?
A: No. If the stockholders do not approve both Private Placement Proposals
by July 30, 2001, or by such later date as the Company and the
Investors may agree in writing, pursuant to the terms of the Purchase
Agreement and the Escrow Agreement, all of the $27.5 million purchase
price held by the escrow agent, together with all earnings thereon,
will be returned to the Investors and the Company will not issue any of
the Series F preferred stock or the Warrants.
Q: Is the Series F preferred stock convertible into common stock?
A: Yes. The Series F preferred stock, including the shares issuable upon
exercise of the Warrants, is convertible at any time at the option of
the holder into shares of our common stock. The number of shares of our
common stock issuable upon conversion of a single share of Series F
preferred stock is determined by dividing the original price per share
of the Series F preferred stock, which is $110.94, by the conversion
price in effect on the date of conversion. The initial conversion price
is $1.1094; however, the conversion price is subject to certain
adjustments as set forth in the Certificate of Amendment, including the
"Reset" of the conversion price discussed below.
7
15
Q: What percentage of the outstanding shares of our common stock will
holders of the Series F preferred stock and the Warrants be entitled to
acquire upon their conversion and exercise of those securities?
A: The initial conversion price of the Series F preferred stock is
$1.1094. As a result, each share of Series F preferred stock initially
will be convertible into 100 shares of our common stock. Based on the
initial conversion price, and assuming that the Investors and the
placement agent exercise the Warrants in full and convert all of their
shares of Series F preferred stock, we would issue an aggregate of
35,695,000 shares of our common stock. Based on the number of shares of
common stock outstanding on April 5, 2001 (21,792,425 shares), this
would represent 62.1% of our outstanding common stock. However, as
described in response to the next question, the conversion price of the
Series F preferred stock is subject to a one-time "Reset" as well as
certain other adjustment provisions that may result in the issuance of
more than 100 shares of common stock upon conversion of each share of
Series F preferred stock. The minimum and maximum percentages of common
stock ownership will depend on a number of factors, including the
following:
- the effect of the Reset provisions in the Certificate of Amendment;
and
- the occurrence of anti-dilution adjustments to the conversion price
of the Series F preferred stock, which will increase the number of
common shares issuable upon the conversion of the Series F preferred
stock, including the shares issuable upon the exercise of the
Warrants;
Based on these factors, the holders of the Series F preferred stock
and the Warrants will become entitled to acquire, in the aggregate, a
substantial majority of the outstanding common stock of the Company.
Q: What is the "Reset" and how does it work?
A: Pursuant to the terms of the Series F preferred stock, the conversion
price and, as a result, the number of shares of common stock issuable
upon conversion, is subject to a one-time adjustment, or Reset, as
follows:
- in the event the average market price (based on the closing price
per share as reported by The Nasdaq Stock Market) per share of our
common stock for the ten consecutive trading days following the date
on which we issue an earnings release (as defined below) for the
quarter ended June 30, 2001 (the "Reset Price") is less than the
conversion price (initially, $1.1094), the conversion price will be
adjusted automatically to the higher of (A) the Reset Price or (B)
$0.8321 (75% of the initial conversion price);
- if we issue more than one earnings release with respect to the
quarter ended June 30, 2001, a Reset Price will be calculated for
the ten trading days following each earnings release, and the lowest
Reset Price will be used for the purpose of determining the adjusted
conversion price;
- the effective date for the Reset will follow our final earnings
release for the June 30, 2001 quarter;
- the term "earnings release" means (A) a press release issued by the
Company after March 30, 2001, providing any material financial
metrics regarding revenue or estimated revenue or earnings or
estimated earnings for the quarter ended June 30, 2001, including
announcements regarding consolidation and expense reduction plans
implemented or to be implemented by the Company, or (B) a press
release issued by the Company announcing its actual total revenue
for the quarter ended June 30, 2001;
- if the Company does not issue an earnings release on or before the
date of the Company files with the Com-
8
16
mission its Quarterly Report on Form 10-Q for the quarter ended June
30, 2001, the filing of the Quarterly Report on Form 10-Q will be
deemed to be the earnings release.
As a result of the Reset, the conversion price could be reduced to as
low as $0.8321. In that event, each share of Series F preferred stock
would be convertible into 133.3253 shares of common stock. If the
conversion price is $0.8321, and assuming that the Investors and the
placement agent exercise the Warrants in full and convert all of their
shares of Series F preferred stock, we would issue an aggregate of
47,590,466 shares of common stock. Based on the number of shares of
common stock outstanding on April 5, 2001, this would represent 68.6%
of our outstanding common stock.
Q: Has the Company issued an "earnings release" since March 30, 2001, that
will give rise to the calculation of a Reset Price and a Reset?
A: Yes. On April 10, 2001, we issued a press release announcing a
consolidation and expense reduction plan that constitutes an "earnings
release" for purposes of the Reset. The Reset Price with respect to
this earnings release is $ . As a result, following our final
earnings release for the June 30, 2001 quarter, the conversion price
will be adjusted to $ unless there is a lower Reset Price
following a subsequent earnings release. In no event will the
conversion price be less than $0.8321 as a result of a Reset. In the
event the conversion price is reduced to $ , each share of
Series F preferred stock would be convertible into
shares of our common stock. Based on that conversion price, and
assuming that the Investors and the placement agent exercise the
Warrants in full and convert all of their shares of Series F preferred
stock, we would issue an aggregate of shares of our
common stock upon conversion of the Series F preferred stock. Based on
the number of shares of our common stock outstanding on April 5, 2001,
this would represent % of our outstanding common stock.
Q: Will the conversion price change as a result of future issuances of
common stock or other securities?
A: The conversion price will be reduced if we issue common stock or
options, warrants or other rights to acquire common stock at a price
per share of common stock that is less than the conversion price of the
Series F preferred stock in effect at the time of such issuance. In
that event, the conversion price will be reduced to be equal to the
consideration per share received by the Company for such common stock,
options, warrants or other rights to acquire common stock. However,
there will be no adjustment of the conversion price with respect to our
issuance of:
- common stock, options or convertible securities to our employees,
consultants, officers or directors pursuant to any stock-based
incentive plan or agreement that has been duly approved by our Board
of Directors, including pursuant to our Amended & Restated 1999
Stock Incentive Plan (the "1999 Plan");
- no more than $5.0 million of common stock, options or convertible
securities to investors whom the Board of Directors determines to be
strategic to the future success of the Company;
- common stock, options or convertible securities in transactions
where we are acquiring all or substantially all of a third-parties'
assets or voting securities in a transaction that would constitute a
change of control for such third party; or
- common stock upon the exercise or conversion of options, convertible
securities, warrants or other securities or instruments convertible
into common stock granted or issued prior to March 30, 2001.
9
17
Q: When will the Series F preferred stock be issued and convertible into
common stock and the Warrants exercisable for preferred stock?
A: We will issue the shares of Series F preferred stock and the Warrants
within approximately two business days after we receive the requisite
stockholder approval of the Private Placement Proposals. Shares of
Series F preferred stock will be convertible into common stock at the
holder's option at any time when those shares are outstanding. The
Warrants will be exercisable for Series F preferred stock at any time
at the holder's option during a 5-year exercise period beginning on the
date the Warrant is issued.
Q: Will the shares of Series F preferred stock ever be automatically
converted into common stock?
A: Beginning on and continuing after March 30, 2002, each share of Series
F preferred stock will automatically be converted, without the payment
of any additional cash consideration, into shares of our common stock
at the then effective conversion price on the first date after the
common stock has traded on The Nasdaq National Market or a national
securities exchange at a closing price equal to or above $3.3282 per
share (appropriately adjusted for any stock split, dividend,
combination, recapitalization or the like with respect to our common
stock) for ten trading days within any 20 trading day period. The
automatic conversion provision will not apply, and the Series F
preferred stock will not be automatically converted, if the common
stock is not listed for trading on The Nasdaq National Market or on a
national securities exchange.
Q: Will the Company be required to pay dividends on the Series F preferred
stock?
A: No. We are not required to pay dividends on the Series F preferred
stock. However, if we pay dividends on our common stock, we will be
required to pay dividends on the Series F preferred stock on an
as-if-converted to common stock basis.
Q: Will the holders of Series F preferred stock have liquidation rights
and preferences?
A: Yes. In the event of a dissolution, liquidation or winding up of the
Company, after payment or provision for payment of debts, but before
any distribution to the holders of common stock, the holders of the
Series F preferred stock then outstanding will be entitled to receive a
preferential amount of $110.94 per share (the "Preferential Amount")
which is equal to the original price per share. The liquidation
preference provisions also provide that if the amount distributable on
each share of common stock upon liquidation, dissolution or winding up
of the Company (after taking into account all distributions that would
be necessary to satisfy the Preferential Amounts due to holders of the
Series F preferred stock) is greater than the Preferential Amount
payable on the Series F preferred stock, then the Company, in lieu of
distributing the Preferential Amount to the holders of Series F
preferred stock, shall make a distribution in an amount per share to
the holders of Series F preferred stock (on an as-if converted basis)
equal to the amount per share distributed to the holders of common
stock.
Q: What are the redemption provisions of the Series F preferred stock?
A: Generally, neither the Company nor the holders of the Series F
preferred stock will have the right to require redemption of the Series
F preferred stock. However, unless otherwise agreed by the holders of
at least a majority of the outstanding shares of Series F preferred
stock, in the event of the sale of the Company, we must redeem the
shares of Series F preferred stock for a redemption price equal to the
Preferential Amount. A "sale of the Company" means: (i) the acquisition
of the Company by another entity by means of merger or consolidation
resulting in the exchange of at least
10
18
50% of the outstanding shares of capital stock of the Company for
securities issued or other consideration paid by the acquiring entity
or any parent or subsidiary of such acquiring entity (except for a
merger or consolidation after the consummation of which the
stockholders of the Company immediately prior to such merger or
consolidation own in excess of 50% of the voting securities of the
surviving corporation or its parent corporation); or (ii) the sale or
other disposition by the Company of substantially all of its assets.
Q: Will the holders of Series F preferred stock have voting rights?
A: Yes. The holders of the Series F preferred stock will have voting
rights entitling them to vote together with the holders of our common
stock as a single class on all matters presented for a vote to the
common stockholders. Each holder of Series F preferred stock will be
entitled to cast 100 votes for each share of Series F preferred stock
held by such holder, subject to adjustment for any stock split, stock
dividend, reverse stock split, reclassification or consolidation of or
on our common stock. Additionally, so long as 50% of the issued Series
F preferred stock is still outstanding, holders of the Series F
preferred stock will also be entitled to have a class vote on certain
matters, including the following:
- the authorization or issuance of any other class or series of
preferred stock ranking senior to or equal with the Series F
preferred stock as to payment of amounts distributable upon
dissolution, liquidation or winding up of the Company;
- the issuance of any additional shares of Series F preferred stock;
- the reclassification of any capital stock into shares having
preferences or priorities senior to or equal with the Series F
preferred stock;
- the amendment, alteration, or repeal of any rights of the Series F
preferred stock; and
- the payment of dividends on any other class or series of capital
stock of the Company, including the payment of dividends on the
common stock.
Therefore, even if the holders of our common stock approve the
amendment to our Certificate of Incorporation contemplated by Proposal 3,
our Board of Directors may still be limited as to the designation and
issuance of any other class or series of preferred stock ranking senior to
or equal with the Series F preferred stock.
Q: Will the holders of securities issued under the Purchase Agreement be
entitled to registration rights?
A: Yes. On or before May 14, 2001, we will be required to file a
registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), to register the continuous offering and resale
of the shares of our common stock issuable upon conversion of the
Series F preferred stock. We also granted to the holders of the Series
F preferred stock:
- the right to demand that we effect up to three underwritten public
offerings of the common stock underlying the Series F preferred
stock, including the Series F preferred stock issuable upon exercise
of the Warrants; and
- "piggyback" registration rights allowing the holders to include
their shares of common stock in other registration statements that
we may subsequently file.
We previously granted "piggyback" registration rights to a number of
our other stockholders, including our largest stockholders, some of
which are Investors or affiliates of Investors. It is anticipated that
these stockholders will exercise their right to include their existing
shares of common stock in the registration statement to be filed in
connection with the Private Placement Transaction. In the event that
all of the holders of these "piggyback" registration rights elect to
include their shares of common stock in the registration statement, we
may be required to register in excess of 60
11
19
million shares of common stock, including the shares issuable upon
conversion of the Series F preferred stock after giving full effect to
the Reset. Registration of these shares will permit the resale of the
shares without limitation under the securities laws.
Q: What are the conditions to closing under the Purchase Agreement?
A: The only closing condition is that we obtain the requisite stockholder
approval of the Private Placement Proposals (Proposals 1 and 2) on or
before July 30, 2001, or such later date as the Company and the
Investors may agree in writing.
Q: Why has the Board of Directors recommended that I vote to approve the
Private Placement Proposals?
A: The disinterested members of the Board of Directors have unanimously
determined that the terms of the Purchase Agreement and the Private
Placement Transaction are fair to, and in the best interests of the
Company and its stockholders, and the disinterested members of the
Board of Directors have unanimously recommended that the stockholders
vote FOR approval of each of the Private Placement Proposals.
Q: Why is a stockholder vote necessary to approve the Private Placement
Transaction?
A: The Company is required to obtain stockholder approval under the rules
of The Nasdaq Stock Market that are applicable to companies which, like
the Company, have a class of equity securities listed on The Nasdaq
Stock Market. This is based upon Nasdaq's MarketPlace Rules governing
the issuance of voting stock in an amount equal to or above 20% of the
then outstanding voting stock, sales of securities to affiliates and
sales of securities in a transaction that may constitute a change of
control. In addition, pursuant to our Certificate of Incorporation and
Delaware law, the amendments to our Certificate of Incorporation
included in the Private Placement Proposals must be approved by the
holders of at least 66 2/3% of our outstanding common stock.
Q: What action will the Company take if the stockholders do not approve
the Private Placement Proposals?
A: The Company will not complete the Private Placement Transaction if the
stockholders do not approve the Private Placement Proposals on or
before July 30, 2001, or such later date as the Company and the
Investors may agree in writing. In this event, the escrow agent will be
required to immediately return all of the escrowed funds to the
Investors. If the Private Placement Transaction is not completed, the
Company will be required to immediately seek alternative sources of
financing. The Company cannot assure you on what terms alternative
financing might be available or that it will be able to secure
alternative sources of financing at all.
Q: What do I need to do now?
A: Please mark your vote on, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may
be represented at the Annual Meeting. Your vote is very important to
the future of the Company.
Q: If my shares are held in "street name" by my broker, will my broker
vote my shares for me with respect to the Private Placement Proposals?
A: Your broker will vote your shares with respect to the Proposals 1 and 2
ONLY if you provide instructions on how to vote. You should follow the
directions provided by your broker on how to instruct your broker to
vote your shares.
SOME POSSIBLE EFFECTS OF THE PRIVATE PLACEMENT TRANSACTION
Although the disinterested members of our Board of Directors unanimously
recommended approval of the Private Placement Transaction and believe the
Private Placement Transaction is fair to and in the best
12
20
interests of the Company and its stockholders, you should consider the following
possible effects of the Private Placement Transaction in evaluating the Private
Placement Proposals.
THE HOLDERS OF THE SERIES F PREFERRED STOCK WILL HAVE RIGHTS THAT ARE
SENIOR TO THOSE OF THE HOLDERS OF THE COMMON STOCK. The holders of the Series F
preferred stock will have a claim against our assets senior to the claim of the
holders of our common stock in the event of our liquidation, dissolution or
winding up. The aggregate amount of that senior claim will be at least $27.5
million.
The holders of the Series F preferred stock also will have voting rights
entitling them to vote together with the holders of our common stock as a single
class and on the basis of 100 votes per share of Series F preferred stock,
subject to adjustment for any stock split, stock dividend, reverse stock split,
reclassification or consolidation of or on our common stock. Assuming the
issuance of the Series F preferred stock and Warrants, as of April 5, 2001, the
voting rights of the holders of Series F preferred stock, excluding shares of
common stock currently owned by Investors, would constitute 53.2% of the entire
voting class of common stock, or 62.1% if the Investors and the placement agent
exercise the Warrants. Following the conversion of the Series F preferred stock,
the holders will be entitled to vote the number of shares of common stock issued
upon conversion. As a result, the holders of Series F preferred stock will have
a significant ability to determine the outcome of matters submitted to the
stockholders of the Company for a vote. Additionally, the holders of the Series
F preferred stock will be entitled to vote as a separate class on certain
matters, including:
- the authorization or issuance of any other class or series of preferred
stock ranking senior to or equal with the Series F preferred stock as to
payment of amounts distributable upon dissolution, liquidation or winding
up of the Company;
- the issuance of any additional shares of Series F preferred stock;
- the reclassification of any capital stock into shares having preferences
or priorities senior to or equal with the Series F preferred stock;
- the amendment, alteration, or repeal of any rights of the Series F
preferred stock; and
- the payment of dividends on any other class or series of capital stock of
the Company, including the payment of dividends on the common stock.
As a result of these preferences and senior rights, the holders of the
Series F preferred stock will have rights that are senior to the common stock in
numerous respects.
The holders of the Series F preferred stock will have other rights and
preferences described in this proxy statement, including the right to convert
the Series F preferred stock into an increased number of shares of common stock
as a result of the Reset and antidilution adjustments.
THE PRIVATE PLACEMENT TRANSACTION WILL PROVIDE THE INVESTORS WITH
SUBSTANTIAL EQUITY OWNERSHIP IN THE COMPANY AND WILL HAVE A SIGNIFICANT DILUTIVE
EFFECT ON EXISTING STOCKHOLDERS. Upon the closing of the Private Placement
Transaction following receipt of the requisite stockholder approval, the
Investors will own Series F preferred stock that is convertible at any time into
a substantial percentage of the outstanding shares of our common stock. The
actual percentage of the Investors' potential ownership of the common stock, and
the extent of dilution to existing stockholders, will depend on a number of
factors, including the following:
The occurrence of the Reset provisions to the conversion price. As a
result of the Reset provision, the conversion price of the Series F preferred
stock could be reduced to as low as $0.8321. In that case, each share of Series
F preferred stock would be convertible into 133.3253 shares of common stock. If
the conversion price is $0.8321, and assuming that the Investors and the
placement agent exercise the Warrants in full and convert all of their shares of
Series F preferred stock into shares of common stock, we would issue an
aggregate of 47,590,466 shares of common stock. Based on the number of shares of
our common stock outstanding on April 5, 2001, this would represent 68.6% of our
outstanding common stock. On April 5, 2001, we had 21,792,425 shares of our
common stock issued and outstanding.
13
21
On April 10, 2001, we issued a press release announcing a consolidation and
expense reduction plan that constitutes an "earnings release" for purposes of
the Reset. The Reset Price with respect to this earnings release is $ .
As a result, following our final earnings release for the June 30, 2001 quarter,
the conversion price will be adjusted to $ unless there is a lower
Reset Price following a subsequent earnings release. In no event will the
conversion price be less than $0.8321 as a result of a Reset. In the event the
conversion price is reduced to $ , each share of Series F preferred
stock would be convertible into shares of our common stock. Based
on that conversion price, and assuming that the Investors and the placement
agent exercise the Warrants in full and convert all of their shares of Series F
preferred stock, we would issue an aggregate of shares of common
stock. Based on the number of shares of common stock outstanding on April 5,
2001, this would represent % of our outstanding common stock.
The occurrence of antidilution adjustments to the conversion
price. Subject to certain exceptions, the conversion price of the Series F
preferred stock will be reduced each time, if any, that we issue common stock,
or options, warrants or other rights to acquire common stock at a price per
share of common stock which is less than the conversion price of the Series F
preferred stock then in effect. A reduction in the conversion price of the
Series F preferred stock will increase the number of shares of common stock
issuable upon conversion of the Series F preferred stock.
The Series F preferred stock could be outstanding indefinitely. The Series
F preferred stock will convert automatically into common stock only if, after
March 30, 2002, the closing price of our common stock on The Nasdaq National
Market or a national securities exchange is at least $3.3282 per share for ten
out of any 20 trading day period. Otherwise, the shares of Series F preferred
stock are convertible only at the option of the holder. Further, the Series F
preferred stock is not subject to automatic conversion if our common stock is
not listed for trading on The Nasdaq National Market or a national securities
exchange. Each Warrant will be exercisable for Series F preferred stock in whole
or in part at any time during a five-year exercise period at the sole discretion
of the Warrant holder and will not be convertible or callable at the election of
the Company.
THE PRIVATE PLACEMENT TRANSACTION MAY RESULT IN THE INVESTORS ACQUIRING
VOTING POWER OF OUR CAPITAL STOCK SUFFICIENT TO ENABLE THE INVESTORS TO CONTROL
ALL MAJOR CORPORATE DECISIONS. The Investors will become entitled under the
Purchase Agreement to acquire a percentage of the voting power of our capital
stock that will enable the Investors to elect directors and to control to a
significant extent major corporate decisions involving the Company and its
assets that are subject to a vote of our stockholders. If the Private Placement
Transaction closes as contemplated by the Purchase Agreement, the voting rights
of the holders of the Series F preferred stock, when combined with the common
stock owned by their affiliates will represent approximately 74.6% of the voting
power of the Company, assuming the exercise of the Warrants and outstanding
warrants to purchase common stock held by an affiliate of one of the Investors.
One of the Investors, HarbourVest Partners VI-Direct Fund, L.P., is managed
by HarbourVest Partners, LLC ("HarbourVest"), which also manages HarbourVest
Partners V-Direct Fund, L.P. HarbourVest Partners V-Direct Fund, L.P. currently
beneficially owns approximately 22% of our common stock (including a warrant to
purchase 1,250,000 shares of our common stock). As a result of the Private
Placement Transaction, HarbourVest, through funds it manages, would beneficially
own approximately 34.4% of our common stock, assuming conversion of the Series F
preferred stock and exercise of all of its Warrants and outstanding warrants to
purchase our common stock. As a result of its ownership of such a considerable
percentage of our voting stock, the issuance of the Series F preferred stock to
HarbourVest Partners VI-Direct Fund, L.P. may be deemed to be a change of
control of the Company under the MarketPlace Rules of The Nasdaq National Market
and, at a minimum, represents an ability of HarbourVest to affect significant
corporate decisions. See "-- Requirement of Stockholder Approval" below.
Additionally, SAIC Venture Capital Corporation currently owns approximately
10.3% of our outstanding common stock. Pursuant to the Purchase Agreement, SAIC
Venture Capital Corporation has agreed to purchase 67,604 shares of Series F
preferred stock and Warrants to purchase an additional
14
22
27,042 shares of Series F preferred stock in the Private Placement Transaction.
As a result, upon closing of the Private Placement Transaction, SAIC Venture
Capital Corporation would beneficially own approximately 23.8% of our
outstanding common stock, assuming conversion of the Series F preferred stock
and exercise of its Warrants. Based on its ownership of such a significant
percentage of our voting stock, the issuance of the Series F preferred stock and
Warrants to SAIC Venture Capital Corporation may be deemed to be a change of
control of the Company under the MarketPlace Rules of The Nasdaq Stock Market
and, at a minimum, represents a significant ability of SAIC Venture Capital
Corporation to affect significant corporate decisions. See "-- Requirement of
Stockholder Approval" below.
SALES OF THE UNDERLYING COMMON STOCK IN THE PUBLIC MARKET COULD LOWER OUR
STOCK PRICE AND IMPAIR OUR ABILITY TO RAISE FUNDS IN NEW STOCK
OFFERINGS. Future sales of a substantial number of shares of our common stock
in the public market, or the perception that such sales could occur, could
adversely affect the prevailing market price of our common stock and could make
it more difficult for us to raise additional capital through the sale of equity
securities. We entered into a Registration Rights Agreement with the Investors
that will obligate the Company to register for resale under the Securities Act
the common stock issuable upon conversion of the Series F preferred stock. We
will be required under the Registration Rights Agreement to file and maintain
one or more effective shelf registration statements that will permit the holders
of those securities to sell the securities in the public market from time to
time until all of the securities are sold or the securities otherwise may be
transferred without restriction under the securities laws. Additionally, in the
event we do not file the shelf registration statement, or the Commission does
not declare the registration statement to be effective, in each case by the
deadlines set forth in the Registration Rights Agreement, the Company will be
required to pay to the Investors liquidated damages in an amount equal to 1% a
month of the purchase price of the registrable securities not so registered.
We will also grant the holders of the Series F preferred stock piggyback
registration rights entitling such holders to have the common stock issuable
upon conversion of the Series F preferred stock included in other registrations
that we file covering the public offering of common stock for our account or the
account of other stockholders. The exercise of these piggyback registration
rights will be subject to notice requirements, timing restrictions and volume
limitations which may be imposed by the underwriters of an offering. For more
information about these registration rights, see "Description of Transaction
Documents -- Description of the Registration Rights Agreement."
In addition to the registration of the shares of common stock issuable upon
conversion of the Series F preferred stock the holders of up to approximately 13
million shares of our common stock and warrants to purchase common stock will be
entitled to have those shares included in the shelf registration we are required
to file pursuant to the Registration Rights Agreement. We anticipate that
substantially all holders of these "piggyback" registration rights will exercise
these rights in connection with our filing of the registration statement.
Holders of these registration rights include HarbourVest Partners V-Direct Fund,
L.P., SAIC Venture Capital Corporation and St. Paul Venture Capital VI, LLC,
which in the aggregate beneficially own 8,132,741 shares of our common stock.
OVERVIEW OF THE PRIVATE PLACEMENT TRANSACTION
In accordance with the Purchase Agreement, the Private Placement
Transaction provides that the Investors will purchase from the Company for an
aggregate purchase price of $27.5 million:
- 247,882 shares of Series F preferred stock; and
- Warrants to purchase 99,153 shares of the Series F preferred stock having
an exercise price of $166.41 per share.
On March 30, 2001, the Investors deposited the $27.5 million purchase price
into escrow with SunTrust Bank, as escrow agent. The only condition to the
release of the escrowed funds to the Company is receipt of stockholder approval
of the Private Placement Proposals (Proposals 1 and 2) on or before July 30,
2001, or such later date as the Company and the Investors may agree in writing.
As soon as
15
23
practicable after receipt of the requisite stockholder approval, we will issue
and sell the Series F preferred stock and the Warrants pursuant to the Purchase
Agreement.
REASONS FOR THE PRIVATE PLACEMENT TRANSACTION
We decided to pursue the Private Placement Transaction following an
evaluation and review of our financial condition, funding requirements and
prospects in light of adverse developments in the public and private capital
markets and our inability to obtain from other sources the capital needed to
fund our business plan and operations.
We believe that current cash and cash equivalents will be insufficient to
fund our operations for the remainder of 2001. As a result, KPMG LLP, our
independent accountants, issued a going concern qualification on its report on
our audited financial statements for the year ended December 31, 2000. We need
the net proceeds from the Private Placement Transaction to address our liquidity
issues, support our working capital requirements, strengthen our balance sheet
and support our international and business development efforts in accordance
with our business plan. Our current business plan requires us to continue to
make significant expenditures in research and development and sales and
marketing.
RELATIONSHIP BETWEEN THE COMPANY AND THE INVESTORS AND THEIR AFFILIATES
The Investors purchasing shares of the Series F preferred stock and
Warrants include SAIC Venture Capital Corporation and St. Paul Venture Capital
VI, LLC, which are current stockholders of the Company. Other purchasers include
a venture capital fund, HarbourVest Partners VI - Direct Fund, L.P., managed by
HarbourVest. HarbourVest also is the managing partner of HarbourVest Partners
V - Direct Fund L.P. which currently beneficially owns approximately 22% of our
outstanding common stock (including a warrant to purchase 1,250,000 shares of
our common stock). As a result of the proposed transaction, based on a Series F
preferred stock conversion price of $1.1094, SAIC Venture Capital Corporation
would beneficially own approximately 23.8% of our common stock (assuming
exercise of its Warrants), HarbourVest, through the funds that it manages, would
beneficially own approximately 34.4% of our common stock (assuming exercise of
its Warrants), and St. Paul Venture Capital VI, LLC would beneficially own
approximately 7.7% of the issued and outstanding common stock (assuming exercise
of its Warrants) in each case treating the Series F preferred stock and Warrants
on an as-if-converted and exercised basis. William A. Roper is the Chairman of
the Board of SAIC Venture Capital Corporation and Ofer Nemirovsky is a managing
director of HarbourVest. Mr. Roper and Mr. Nemirovsky are directors of the
Company.
COMPANY EVALUATION OF FINANCING ALTERNATIVES
Cash and cash equivalents at December 31, 2000, were $22.3 million. Cash
used in operations in 2000 was $30 million. During this period, we incurred
significant costs related to the acquisition of Inlogic Software Inc.,
development of our products, entrance into international markets, formation of
our subsidiaries and increases in headcount. Current cash and cash equivalents
(approximately $9.5 million at March 31, 2001) will be insufficient to fund
operations for the remainder of 2001. The purpose of the Private Placement
Transaction is to address our liquidity issues, support our working capital
requirements, strengthen our balance sheet and support our international and
business development efforts. We expect to reduce our fixed operating expenses
through the implementation of our "profitability acceleration plan" in the first
quarter of 2001, and our "expense reduction and consolidation plan" that we
announced in April 2001. Both of these plans include workforce reductions,
downsizing and closing of facilities and other miscellaneous cost reductions. We
are also considering additional expense reductions to further reduce our fixed
operating expenses.
As we have developed and implemented our business strategy, we recognized
that to achieve our operating goals we would need to address our liquidity issue
and strengthen our balance sheet. To that end, we engaged Robertson Stephens,
Inc., as an advisor to investigate the possibility of a capital raising effort
and other strategic alternatives.
16
24
Beginning in April 2000, and continuing into the first quarter of 2001, the
public capital markets as a source of funds for software companies experienced a
significant deterioration. Valuations of companies such as the Company were
adversely affected. The closing sale price of our common stock as reported on
The Nasdaq Stock Market declined from $20.75 at March 31, 2000, to $3.75 at
December 29, 2000, the last trading day in 2000. It was our view that under
these market conditions, we would not be able to raise additional funds from
public sales of our common stock. Based on these circumstances, our Board of
Directors felt it was in the best interest of the Company and our stockholders
to investigate the possibility of a private placement of preferred stock to a
limited number of investors, including both current and new investors. Beginning
in November 2000, we began discussing possible transactions with our placement
agent and later with our current investors who had shown an interest in such an
investment, including HarbourVest and SAIC Venture Capital Corporation. However,
not until March 2001, did a possible transaction materialize. In addition, in
order to secure the commitment of HarbourVest to participate in the Private
Placement Transaction, we were required to obtain a minimum of $5 million of
commitments from new investors.
We believe that current cash and cash equivalents will be insufficient to
fund our operations for the remainder of 2001. As a result, KPMG LLP, our
independent accountants, issued a going concern qualification on its report on
our audited financial statements for the year ended December 31, 2000. Although
the Company intends to carefully manage its uses of cash, it is possible that
the Company will be required to seek alternative sources of capital prior to the
closing of the Private Placement Transaction. This capital likely will be in the
form of debt securities, possibly with an equity component. The Company has not
yet identified the source of this additional financing, nor can it predict
whether additional financing can be obtained or, if obtained, the terms of such
financing.
Unless we obtain adequate additional funding, we will be required to
further reduce or modify our capital expenditures and to reduce our operations.
These changes resulting from a lack of capital would adversely affect our
business, results of operations and financial condition and will significantly
impact our status as a going concern.
We believe that our cash on hand, revenue and the net proceeds from the
Private Placement Transaction, together with the reduction of costs achieved by
the successful execution of our January and April 2001 consolidation and expense
reduction activities will be sufficient to meet our anticipated cash needs for
the remainder of 2001.
17
25
DESCRIPTION OF TRANSACTION DOCUMENTS
The following summary of the material terms and provisions of the
Transaction Documents is qualified in its entirety by reference to the
Transaction Documents. The Transaction Documents are attached as Appendices A to
E to this Proxy Statement and are considered part of this Proxy Statement. While
we believe that these descriptions cover the material terms of these agreements,
these summaries may not contain all of the information that is important to you.
DESCRIPTION OF SECURITIES PURCHASE AGREEMENT
OVERVIEW. The Purchase Agreement provides that, upon the terms and
conditions set forth in the Purchase Agreement, the Investors will purchase for
a purchase price of $27.5 million:
- 247,882 shares of our Series F preferred stock; and
- Warrants to purchase 99,153 shares of Series F preferred stock at an
exercise price of $166.41 per share.
We have agreed to issue to Robertson Stephens, Inc., our placement agent in
the Private Placement Transaction, the Placement Agent Warrant on the same terms
and conditions as the Warrants to be issued to the Investors. We also have
agreed to pay Robertson Stephens, Inc. a cash fee of $1,218,750.
The principle powers, preferences and rights of the Series F preferred
stock are summarized below under "Description of Series F Preferred Stock" and
the principle terms of the Warrants are summarized below under "Description of
Warrants."
INITIAL CLOSING. On March 30, 2001, the Company and the Investors executed
the Purchase Agreement, the Escrow Agreement and the Registration Rights
Agreement and conducted the initial closing of the Private Placement
Transaction. At the initial closing, we deposited with SunTrust Bank as escrow
agent:
- undated certificates in the name of each Investor that, upon the escrow
closing discussed below, will represent the number of shares of Series F
preferred stock purchased by each Investor;
- undated Warrants, that upon the escrow closing discussed below, will
represent each Investor's Warrants; and
- irrevocable instructions addressed to our transfer agent instructing the
transfer agent to cause the Series F preferred stock and the Warrants to
be issued to the Investors at the escrow closing.
The Investors delivered to the escrow agent the $27.5 million purchase
price for the Series F preferred stock and the Warrants. Additionally, the
Company and the Investors exchanged certificates and other documentation
customarily delivered at such closings.
ESCROW CLOSING. If our stockholders approve the Private Placement
Proposals as set forth in Proposals 1 and 2 herein on or prior to July 30, 2001,
or such later date as the Company and the Investors may agree in writing, we
will deliver to the escrow agent a notice of disbursement advising the escrow
agent that we have received the requisite stockholder approval required to close
the Private Placement Transaction and issue the Series F preferred stock and the
Warrants. Upon the receipt of the notice of disbursement, the escrow agent will
deliver to our transfer agent the irrevocable instructions held in escrow, the
certificates representing the Series F preferred stock and the Warrants duly
executed on behalf of the Company and registered in the name of each Investor.
The escrow agent will transfer to the placement agent the placement agent fees
and to the Company the balance of the purchase price held by the escrow agent,
plus all interest earned thereon while held in escrow, as payment in full for
the Series F preferred stock and the Warrants. Pursuant to the irrevocable
instructions, our transfer agent will cause the Series F preferred stock and the
Warrants to be issued and delivered to the Investors. For more information on
the Escrow Agreement and duties of the escrow agent, see "Description of
Transaction Documents -- Description of Escrow Agreement."
18
26
TERMINATION OF ESCROW AND THE PRIVATE PLACEMENT TRANSACTION. If the escrow
agent has not received the notice of disbursement on or before July 30, 2001, or
such later date as the Company and the Investors may agree in writing, then the
escrow agent shall within two business days after such date, and without any
further instruction or direction from the Company or the Investors, return to
each Investor by wire transfer the full purchase price deposited with the escrow
agent by such Investor, plus all interest earned thereon while in escrow, and
shall immediately return to the Company the Series F preferred stock
certificates and the Warrants. In such event, the obligations of the Company and
the Investors will be terminated without penalty and the Private Placement
Transaction will not close.
REPRESENTATIONS AND WARRANTIES.
Representations and Warranties by the Company. The Purchase Agreement
contains various representations and warranties by the Company relating to,
among other things, the following:
- the corporate organization, existence and good standing of the Company
and its subsidiaries;
- the corporate power and authority to carry on our business as it is
currently conducted;
- the corporate power and authority to execute and deliver the Transaction
Documents and related documents and to complete the Private Placement
Transaction;
- the ownership of the capital stock and other equity interests of our
subsidiaries and our lack of such ownership of other entities;
- the capitalization of the Company;
- the accuracy of our financial statements;
- the liabilities, including debt, of the Company;
- the conduct of our operations in the ordinary course of business;
- taxes;
- labor matters;
- employee benefit plans;
- material contracts;
- restrictions on conduct of our business;
- insurance matters;
- indebtedness to affiliates;
- litigation;
- consents, approvals and qualifications necessary for the completion of
the Private Placement Transaction;
- title to properties and assets;
- leases;
- intellectual property;
- corporate records and minutes;
- compliance with laws;
- environmental and safety laws that apply to the Company;
- registration rights held by our current stockholders;
- obligations to related parties;
19
27
- filings and reports with the Commission; and
- compliance and listing with respect to National Association of Securities
Dealers, Inc. regulations.
Representations and Warranties by the Investors. The Purchase Agreement
contains various representations and warranties by the Investors relating to,
among other things, the following:
- organization of each of the Investors;
- authority of the Investors to enter into the Private Placement
Transaction;
- investment intent of each Investor;
- each Investor's status as an accredited investor;
- investment experience of each Investor;
- ability of each Investor to bear the risk of investment in the Company;
- access to and receipt by Investors of information related to the Company;
- opportunity of each Investor to seek and receive professional advice with
respect to its investment in the Company; and
- limitations on transfer and sale of the Series F preferred stock and the
Warrants.
COVENANTS AND AGREEMENTS. The Purchase Agreement contains covenants that
obligate the Company and the Investors to take specified actions in connection
with the Private Placement Transaction. In accordance with these covenants:
- we are required to make certain securities filings with respect to the
issuance and sale of the Series F preferred stock and the Warrants and to
make all filings and reports relating to the offer and sale of each of
the Series F preferred stock and the Warrants;
- we must continue to file all reports that are required to be filed with
the Commission pursuant to the Exchange Act and not terminate our status
as an issuer required to file reports under the Exchange Act;
- we are required to send to each Investor copies of any notices or other
information made available or provided to our stockholders;
- we are required to list all of our common stock issuable upon conversion
of Series F preferred stock on The Nasdaq Stock Market;
- we are required to pay the legal fees of the attorneys for certain of the
Investors and the placement agent;
- each of the Investors have agreed not to sell any shares of common stock
held by such Investor, including "short sales," during the ten trading
day period following each "earnings release" regarding the results of our
quarter ending June 30, 2001;
- the Company and the Investors are required to modify the Certificate of
Amendment attached to the Purchase Agreement to adjust the conversion
price in accordance with the terms of the Purchase Agreement in the event
of certain actions;
- we are required to permit representatives of the Investors to visit and
inspect any of our properties, examine our corporate financial and
operating records and have other inspection rights;
- we are required to issue instructions to our transfer agent to issue
certificates, registered in the name of each Investor for our common
stock issuable upon conversion of the Series F preferred stock in such
amounts as specified from time to time by the Investors upon conversion
of the Series F preferred stock;
20
28
- we are required to convene a meeting of our stockholders for the purpose
of obtaining the requisite stockholder approval, including any and all
approvals required by the applicable policies, rules or regulations of
The Nasdaq Stock Market; and
- each of the Investors agreed to vote all of its shares of our common
stock in favor of the Private Placement Proposals (Proposals 1 and 2).
AMENDMENT AND WAIVER. Any provision of the Purchase Agreement may be
waived or amended upon written instruction signed by both the Company and the
Investors or, in the case of a waiver, by the party against whom the enforcement
of the waiver would be sought.
DESCRIPTION OF ESCROW AGREEMENT
The following summary of the material terms and provisions of the Escrow
Agreement is qualified in its entirety by reference to the Escrow Agreement,
which is attached as Appendix D to this Proxy Statement and is considered a part
of this document.
On March 30, 2001, the Company, the Investors, Robertson Stephens, Inc. and
SunTrust Bank, a Georgia banking corporation, as escrow agent, entered into the
Escrow Agreement pursuant to which:
- the Company placed in escrow signed but undated certificates representing
the Series F preferred stock and signed but undated Warrants being
purchased by the Investors, as well as irrevocable instructions to our
transfer agent regarding the execution, dating and delivery of the Series
F preferred stock certificates and the Warrants; and
- the Investors deposited into escrow $27.5 million in funds equaling the
aggregate purchase price for the Series F preferred stock and the
Warrants.
The receipt of the requisite stockholder approval on or before July 30,
2001, or such later date as the Company and the Investors may agree in writing,
is the only condition to each of the certificates and the Warrants being
distributed to the transfer agent for subsequent distribution to the Investors
and the escrowed funds being wired by the escrow agent to the Company.
In accordance with the terms of the Escrow Agreement, upon the receipt of
the requisite stockholder approval, the Company is to deliver to the escrow
agent a notice of disbursement acknowledging the receipt of the requisite
stockholder approval, and directing the escrow agent to disburse the Series F
preferred stock certificates, the Warrants and the funds in accordance with the
terms of the Escrow Agreement.
In the event the notice of disbursement is not received by the escrow agent
by July 30, 2001, or if the stockholders do not approve of the Private Placement
Proposals, within two days of such date the escrow agent will return to the
Company the escrowed Series F preferred stock certificates and Warrants, and
will return to the Investors the full purchase price deposited by each Investor
with the escrow agent plus each Investor's pro rata share of interest income
earned on the escrow funds while held by the escrow agent. Additionally, the
Escrow Agreement contains such other terms and provisions that are customary and
appropriate to escrow agreements of this type.
DESCRIPTION OF SERIES F PREFERRED STOCK
The following is a summary of the principal terms of the Certificate of
Amendment setting forth the powers, preferences and relative, participating,
optional and other special rights of the Series F preferred stock and the
qualifications, limitations and restrictions thereof. The following summary is
qualified in its entirety by reference to the form of Certificate of Amendment,
which is attached as Appendix B to this Proxy Statement and is considered a part
of this document.
CONVERSION AND CONVERSION PRICE. Each share of Series F preferred stock
will be convertible at any time at the option of the holder. The number of
shares issuable upon conversion of a single share of Series F preferred stock is
determined by dividing the original price per share of the Series F preferred
21
29
stock, or $110.94 (the "Original Price"), by the "conversion price", as defined
in the terms of the Series F preferred stock. The initial conversion price is
$1.1094. As a result, each share of Series F preferred stock initially will be
convertible into 100 shares of our common stock subject to the Reset discussed
below. The conversion price will be subject to adjustment as described below.
RESET OF CONVERSION PRICE. The conversion price will be subject to a
one-time adjustment (the "Reset") as follows:
In the event the average market price (based on the closing price per share
reported by The Nasdaq National Market) per share of our common stock for
the ten consecutive trading days beginning with the next trading day
immediately following the date on which we issue an earnings release (as
defined below) for the quarter ended June 30, 2001 (the "Reset Price") is
less than the conversion price then in effect, the conversion price will be
adjusted automatically to the higher of (A) the Reset Price or (B) $0.8321.
If we issue more than one earnings release with respect to the quarter
ended June 30, 2001 (such as a pre-announcement press release followed by
the final earnings press release), a Reset Price will be calculated for the
ten trading days following each earnings release, and the lowest Reset
Price will be used for the purpose of determining the adjusted conversion
price. The effective date for the Reset, if any, will follow our final
earnings release. "Earnings release" means (y) a press release issued by us
after March 30, 2001, providing any material financial metrics regarding
revenue or estimated revenue or earnings or estimated earnings for the
quarter ended June 30, 2001, or (z) a press release issued by us announcing
our actual total revenue for the quarter ended June 30, 2001. If we do not
issue an earnings release on or before the date of filing with the
Commission of our Quarterly Report on Form 10-Q for the quarter ended June
30, 2001, the filing of the Quarterly Report on Form 10-Q will be deemed to
be the earnings release.
On April 10, 2001, we issued a press release announcing a consolidation and
expense reduction plan that constitutes an "earnings release" for purposes of
the Reset. The Reset Price with respect to this earnings release is $ . As
a result, following our final earnings release for the June 30, 2001 quarter,
the conversion price will be adjusted to $ unless there is a lower Reset
Price following a subsequent earnings release. In no event will the conversion
price be less than $0.8321 as a result of a Reset. In the event the conversion
price is reduced to $ , each share of Series F preferred stock would be
convertible into shares of our common stock. Based on that conversion
price, and assuming that the Investors and the placement agent exercise the
Warrants in full and convert all of their shares of Series F preferred stock, we
would issue an aggregate of shares of common stock. Based on the
number of shares of common stock outstanding on April 5, 2001, this would
represent % of our outstanding common stock.
ANTI-DILUTION ADJUSTMENTS TO CONVERSION PRICE. In the event that after
March 30, 2001, we issue common stock, options, warrants or other securities
convertible into common stock at a price per share less than the conversion
price, the conversion price will be reduced to be equal to the price per share
of the securities we sold.
However, there will be no adjustment of the conversion price pursuant to
that provision:
- upon our issuance of common stock, options, warrants or other securities
convertible into common stock to any of our employees, consultants,
officers or directors pursuant to any stock-based incentive plan or
agreement that has been duly approved by our Board of Directors
(including, without limitation, the 1999 Plan);
- upon our issuance of no more than $5,000,000 of common stock, options,
warrants or other securities convertible into common stock to investors
who our Board of Directors determines are strategic to our future
success;
- upon our issuance of common stock, options, warrants or other securities
convertible into common stock in transactions where we are acquiring all
or substantially all of a third-parties' assets or voting securities in a
transaction that would constitute a change of control for the third
party;
22
30
- upon conversion of the Series F preferred stock or upon exercise of the
Warrants; or
- upon the exercise of conversion of common stock, options, warrants or
other securities convertible into common stock granted prior to March 31,
2001.
The conversion price also will be subject to adjustment as a result of any
stock split, stock dividend, reverse stock split, reclassification or
consolidation of or on our common stock.
AUTOMATIC CONVERSION. The Series F preferred stock will automatically
convert into common stock at any time after March 30, 2002, if our common stock
trades on The Nasdaq National Market or a national securities exchange at a
price per share of at least $3.3282 (three times the initial conversion price)
for ten trading days within any 20 trading day period. If the common stock is
not listed for trading on The Nasdaq National Market or a national securities
exchange, it will not be subject to automatic conversion.
VOTING RIGHTS. The Series F preferred stock will entitle the holders
thereof to vote with the common stock on the basis of 100 votes for each share
of Series F preferred stock, subject to adjustment for any stock split, stock
dividend, reverse stock split, reclassification or consolidation of or on our
common stock. Additionally, so long as at least 50% of the shares of Series F
preferred stock that are ever outstanding at any one time remain outstanding, we
will be prevented from the following activities unless we first obtain the
approval of a majority of the outstanding shares of Series F preferred stock:
- authorize or issue any other class or series of preferred stock ranking
senior to or equal with the Series F preferred stock as to payment of
amounts distributable upon dissolution, liquidation or winding up of the
Company or issue any additional shares of Series F preferred stock;
- reclassify any capital stock into shares having preferences or priorities
senior to or equal with the Series F preferred stock;
- amend, alter or repeal any rights of the Series F preferred stock; or
- pay dividends on any other class or series of capital stock.
DIVIDENDS. Holders of Series F preferred stock will have rights to the
payment of dividends only when and if dividends are declared on our common
stock. In the event we pay dividends on our common stock, the holders of Series
F preferred stock would be entitled to dividends on an as-if-converted basis.
LIQUIDATION PREFERENCE. In the event of a dissolution, liquidation or
winding up of the Company, after payment or provision for payment of debts, but
before any distribution to the holders of our common stock or any other class or
series of our then outstanding capital stock ranking junior to the Series F
preferred stock, the holders of the Series F preferred stock then outstanding
will be entitled to receive a preferential amount of $110.94 per share (the
"Preferential Amount"), which is equal to the original price per share; provided
however, that (i) if the assets to be distributed to the holders of the Series F
preferred stock are insufficient to permit the payment to such holders of the
full Preferential Amount, then all of the assets of the Company to be
distributed will be distributed ratably to the holders of the Series F preferred
stock, and (ii) if the amount distributable on each share of our common stock
upon liquidation, dissolution or winding up (after taking into account all
distributions that would be necessary to satisfy the Preferential Amounts due to
holders of the Series F preferred stock) is greater than the Preferential Amount
payable on the Series F preferred stock, the Company, in lieu of distributing
the Preferential Amount to the holders of Series F preferred stock, will make a
distribution in an amount per share to the holders of Series F preferred stock
(on an as-converted basis) equal to the amount per share distributed to the
holders of our common stock.
REDEMPTION RIGHTS. Unless otherwise agreed by the holders of at least a
majority of the outstanding shares of Series F preferred stock, voting or
consenting as a separate class, in the event of a "sale of the Company," we will
be required to redeem all of the issued and outstanding shares of Series F
preferred stock for a redemption price equal to the Preferential Amount. A "sale
of the Company" means: (i) the acquisition of the Company by another entity by
means of merger or consolidation resulting in the exchange of at least 50% of
the outstanding shares of capital stock of the Company for securities issued or
23
31
other consideration paid by the acquiring entity or any parent or subsidiary
thereof (except for a merger or consolidation after the consummation of which
the stockholders of the Company immediately prior to such merger or
consolidation own in excess of 50% of the voting securities of the surviving
corporation or its parent corporation); or (ii) the sale or other disposition by
the Company of substantially all of its assets (other than a sale or transfer of
assets to one or more wholly-owned subsidiaries of the Company).
RESTRICTIONS ON TRANSFER OF THE SERIES F PREFERRED STOCK AND
WARRANTS. Except as provided in the Registration Rights Agreement as to the
registration of the shares of common stock issuable upon conversion of the
Series F preferred stock, the Series F preferred stock and the Warrants have not
been and are not being registered under the Securities Act or any state
securities laws, and the Series F preferred stock and the Warrants may not be
offered for sale, sold, assigned or transferred unless:
- the Series F preferred stock and the Warrants are subsequently registered
under the Securities Act and applicable state securities laws;
- the Investor or such other holder of the Series F preferred stock and the
Warrants delivers to the Company an opinion of legal counsel, in a
generally acceptable form, to the effect that such Series F preferred
stock and Warrants to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from registration under
the Securities Act; or
- the Investor or such other holder of the Series F preferred stock and the
Warrants provides the Company with reasonable assurance that the Series F
preferred stock and the Warrants can be sold, assigned or transferred in
accordance with Rule 144 or Rule 144A under the Securities Act.
Each of the certificates and other instruments representing the Series F
preferred stock and the Warrants, and, until such time that the common stock
issuable upon conversion of the Series F preferred stock has been registered
under the Securities Act as contemplated by the Registration Rights Agreement,
the stock certificates representing our common stock, will bear a restrictive
legend with respect to the above-discussed limitation on transfer of the Series
F preferred stock and the Warrants.
DESCRIPTION OF WARRANTS
The following is a summary of the principal terms of the Warrants that are
being issued and sold together with shares of Series F preferred stock under the
Purchase Agreement. The following summary is qualified in its entirety by
reference to the form of Warrant, which is attached as Appendix C to this Proxy
Statement and is considered a part of this document.
GENERAL. We will issue to the Investors Warrants to purchase an aggregate
of 99,153 shares of Series F preferred stock. Additionally, we will issue to the
placement agent the Placement Agent Warrant. The terms of the placement agent
Warrant are identical to the Warrants to be granted to the Investors.
TERM. The Warrants will be exercisable for Series F preferred stock at any
time and from time to time for a period of five years from the date of issuance.
EXERCISE PRICE. The Warrants will have an exercise price of $166.41 per
share of Series F preferred stock. The exercise price is equal to 150% of the
Original Price per share of the Series F preferred stock. The exercise price is
subject to adjustment in the event of any dividend, reverse stock split,
reclassification or consolidation of or on the Series F preferred stock.
METHOD OF EXERCISE. The Warrants may be exercised by surrendering to the
Company the Warrant agreement evidencing such Warrants with an accompanying
notice of exercise, properly completed and executed, together with payment of
the exercise price. Payment of the exercise price by a holder may be made in the
form of cash or a certified or official bank check payable to the order of the
Company, by wire transfer for the account of the Company, or, to effect a
"cashless exercise", by the surrender of unexercised Warrants, together with a
written notice of election to effect such a cashless exercise. Upon surrender of
the Warrant certificate and payment of the exercise price, we will deliver or
cause to be delivered, to or upon the written order of such holder, stock
certificates representing the number of shares of Series F preferred stock or
other securities to which such holder is entitled pursuant to such exercise. If
24
32
less than all of the Warrants evidenced by a Warrant are to be exercised, a new
Warrant will be issued for the remaining number of Warrants. No service charge
will be made for registration of transfer or exchange upon surrender of any
Warrant to the Company, except that we may require payment to cover any tax that
may be payable in connection with any transfer involved in the issuance and
delivery of any certificate in a name other than the name of the holder of such
Warrant.
DESCRIPTION OF REGISTRATION RIGHTS AGREEMENT
The following summary of the material terms and provisions of the
Registration Rights Agreement is qualified in its entirety by reference to the
Registration Rights Agreement, which is attached as Appendix E to this Proxy
Statement and is considered a part hereof.
SECURITIES SUBJECT TO AGREEMENT. The Registration Rights Agreement
obligates the Company to register under the Securities Act the resale in the
public market by the Investors of the shares of common stock issuable upon
conversion of the Series F preferred stock, including shares issuable upon
exercise of the Warrants. This common stock is referred to as the "registrable
securities."
The registrable securities will cease to be "registrable securities"
entitled to registration rights on the date and to the extent that:
- the holder has disposed of such registrable securities pursuant to an
effective registration statement under the Securities Act;
- the holder has distributed such registrable securities to the public in
accordance with Rule 144 under the Securities Act;
- such registrable securities are proposed to be sold or distributed by a
holder not entitled to the registration rights granted by the
Registration Rights Agreement; or
- all such registrable securities held by any holder entitled to
registration rights may be sold by such holder without any time, volume
or manner limitations in accordance with Rule 144(k) under the Securities
Act.
Notwithstanding the foregoing, any Investor which, individually or in the
aggregate with its affiliates, holds registrable securities representing more
than three percent of the total outstanding equity securities of the Company
shall continue to have the right to require the Company to prepare an
underwritten offering and shall continue to have "piggyback" registration rights
as described below.
HOLDERS ENTITLED TO REGISTRATION RIGHTS. Each of the Investors will be
entitled to the benefits of the Registration Rights Agreement. Any permitted
transferee of registrable securities under the Registration Rights Agreement
will also be entitled to the benefits of the Registration Rights Agreement if
immediately after the transfer the further disposition of such securities by
such transferee is restricted under the Securities Act and such transferee
agrees in writing to be bound by the provisions of the Registration Rights
Agreement.
MANNER OF REGISTRATION.
Shelf Registration. The shelf registration rights under the Registration
Rights Agreement will permit the Investors and any other holders of registrable
securities to sell those securities in the public market or in private
transactions from time to time.
Pursuant to the Registration Rights Agreement, we are required to file a
registration statement with the Commission on or before May 14, 2001 (the
"Filing Deadline") to register the registrable securities. In the event the
Commission, pursuant to its rules, regulations or otherwise, prohibits the
Company from filing a registration statement prior to the actual issuance of the
Series F preferred stock pursuant to the Purchase Agreement, then the Filing
Deadline will be the later of (i) the business day following the issuance of the
Series F preferred stock, or (ii) the date the Commission, pursuant to its
rules, regulations or otherwise, permits such filing. We have agreed to use our
best efforts to cause the registration statement
25
33
to be declared effective by the Commission as soon as practicable after its
filing, but in no event later than September 26, 2001 or such later date as the
Company and the holders of a majority of the registrable securities (with the
holders of Series F preferred stock and/or Warrants consenting on an
as-converted and as-exercised basis) may agree in writing (the "Effectiveness
Deadline"). In the event the Filing Deadline is delayed by the Commission,
pursuant to its rules, regulations, or otherwise, then the Effectiveness
Deadline will be the date that is the later of (i) September 26, 2001 or (ii)
100 days after the Filing Deadline as extended.
If, other than as a result of a delay which is the result of an Investor,
we do not file a registration statement covering all of the registrable
securities on or prior to the Filing Deadline or the registration statement has
not been declared effective by the Commission on or prior to the Effectiveness
Deadline, then we will be required to pay each Investor liquidated damages in
cash in an amount equal to one percent of the aggregate purchase price paid by
such Investor for the Series F preferred stock and Warrants that are convertible
or exercisable for the registrable securities not included in the registration
statement per calendar month, including a pro rata portion thereof for any
partial calendar month, that such default continues as limited by the
Registration Rights Agreement.
In addition to the registration of the shares of common stock issuable upon
conversion of the Series F preferred stock, the holders of up to approximately
13 million shares of our outstanding common stock and warrants to purchase
common stock will be entitled to have their shares of common stock included in
the registration statement we are required to file pursuant to the Registration
Rights Agreement. We anticipate that substantially all holders of these
"piggyback" registration rights will exercise these rights prior to our filing
of the registration statement. Holders of these registration rights include
HarbourVest Partners V-Direct Fund, L.P., SAIC Venture Capital Corporation and
St. Paul Venture Capital VI, LLC, which in the aggregate beneficially own
8,132,741 shares of our common stock.
Piggyback Registration. The holders of registrable securities will be
entitled to have their registrable securities included in other registration
statements filed by the Company covering the public offering of common stock for
the Company's account or the account of other stockholders. The exercise of
these piggyback registration rights will be subject to notice requirements,
timing restrictions and volume limitations which may be imposed by the
underwriters of the applicable offering.
Demand Registration. At any time after the effective date of the shelf
registration, the holders of 40% in interest of the registrable securities on an
as-converted and as-exercised basis, may request up to three times that we file
a registration statement under the Securities Act covering the sale by them of
registrable securities and all other common stock or other securities
convertible or exercisable into common stock of which such demanding holder is a
holder for the purpose of selling such Securities through a firm commitment
underwritten offering.
Pursuant to the Registration Rights Agreement, we may, and may allow other
holders of securities of the Company to, include securities in a demand
registration if, but only if, the managing underwriter of the registration
concludes that such inclusion will not interfere with the successful marketing
of all the registrable securities requested to be included in such demand
registration. If, in the good faith judgment of the managing underwriter,
marketing factors require a limitation of the number of registrable securities
to be underwritten, the number of shares of registrable securities to be
included in such demand registration shall be reduced in accordance with the
terms of the Registration Rights Agreement as follows:
- first, all securities that are not contractually entitled by the
Registration Rights Agreement to be included in such demand registration
will be excluded;
- second, all securities that are entitled to be included in such demand
registration pursuant to contractual commitments made by the Company
other than pursuant to the Registration Rights Agreement shall be
excluded;
26
34
- third, securities that are entitled to be included in such demand
registration pursuant to the exercise of piggyback rights shall be
excluded, with such number of excluded securities to be allocated on a
pro rata basis among the holders of such piggyback rights in accordance
with the number of registrable securities then outstanding and held by
each such Investor;
- fourth, pro rata based on the number of demand securities owned by each
demanding stockholder (for the purpose of this cutback, demand securities
will also include the securities which are held by existing stockholders
and considered "demand securities" as discussed below).
Additionally, pursuant to the Registration Rights Agreement, if certain of
our existing holders of registration rights, comprised of the former holders of
our Series A, Series D, Series D-1 and Series E convertible preferred stock and
the holder of our Series B Warrant, including SAIC Venture Capital Corporation,
HarbourVest Partners V-Direct Fund, L.P. and St. Paul Venture Capital VI, LLC,
elect to exercise their incidental registration rights with respect to their
stock, the stock of those stockholders will be considered "demand securities"
for purposes of the Registration Rights Agreement and the provisions relating to
priority in demand registrations as discussed above.
The Registration Rights Agreement also provides that we will be required to
engage in certain activities related to the demand registration including:
- preparation and filing of all post-effective amendments and other
necessary filings;
- permit legal counsel to the holders of registrable securities to review
and comment upon the registration statement;
- register and qualify the registrable securities under applicable
securities or "blue sky" laws; and
- cause our officers to be reasonably available to participate in "road
shows," due diligence inquiries and other information meetings reasonably
requested by the managing underwriters.
BLACKOUT PERIODS; LOCK-UPS. We will have the right to postpone the filing
or effectiveness of a registration statement for a period not to exceed 30 days
if we determine that such registration and distribution would require disclosure
of specified non-public material information that we have a bona fide business
purpose for preserving as confidential. Additionally, we will be entitled to
postpone the filing for up to a total of 90 days in any 12-month period.
The Registration Rights Agreement also provides that, if requested by the
managing underwriter of any securities offering by the Company and if all of our
executive officers, directors, and holders in excess of 5% of our outstanding
stock execute a similar agreement, each holder of registrable securities and its
affiliates will not dispose of or transfer any registrable securities or related
securities, except for registrable securities included in the offering, during
the 90 days following the effective date of the registration statement for the
offering.
REGISTRATION EXPENSES. We will be required to pay all expenses of
registering the registrable securities and in connection with the offering and
sale thereof, other than any underwriting discounts or commissions and any stock
transfer taxes.
INDEMNIFICATION. The Registration Rights Agreement contains customary
provisions that obligate us to indemnify each holder of registrable securities
and its controlling persons, and, to a limited extent, obligates each holder of
registrable securities to indemnify us, our directors and officers, our
controlling persons and all other holders, against specified liabilities,
including specified liabilities under the Securities Act.
27
35
REQUIREMENT OF STOCKHOLDER APPROVAL
We are asking our stockholders to approve the Private Placement Proposals
in accordance with the MarketPlace Rules of The Nasdaq Stock Market that are
applicable to companies which, like the Company, have a class of equity
securities listed on The Nasdaq Stock Market. These rules include the following:
- Rule 4350(i)(1)(D), which requires stockholder approval by a majority of
the outstanding shares entitled to vote, prior to the issuance of
securities under specified circumstances, including in connection with a
transaction other than a public offering involving our sale or issuance
of common stock, or securities convertible into or exercisable for common
stock, equal to 20% or more of the common stock or 20% or more of the
voting power of securities outstanding before the issuance at a price (or
in the case of convertible securities, a conversion price) less than the
greater of the book or market value of the common stock;
- Rule 4350(i)(1)(A), which requires stockholder approval when an
arrangement is made pursuant to which stock of the issuing company may be
acquired by officers or directors of that company; and
- Rule 4350(i)(1)(B), which requires stockholder approval of the issuance
of securities that would result in a change of control of the Company.
Although Rule 4350(i)(1)(B) does not define when a change of control of an
issuer may be deemed to have occurred, the Company is seeking stockholder
approval of the Private Placement Proposals to ensure compliance with that rule
as well as with the other rules for which stockholder approval is or may be
required in connection with the Private Placement Transaction.
In addition to the Nasdaq stockholder approval requirement, our Certificate
of Incorporation requires the approval of the holders of at least 66 2/3% of our
outstanding common stock in relation to the proposal to amend our Certificate of
Incorporation and for the creation, authorization and designation of the Series
F preferred stock. The stockholders must approve both Private Placement
Proposals (Proposals 1 and 2) in order for us to close the Private Placement
Transaction.
APPROVAL OF THE PRIVATE PLACEMENT TRANSACTION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"FOR" THIS PROPOSAL 1.
PROPOSAL 2
PROPOSAL TO APPROVE AN AMENDMENT TO OUR
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK
GENERAL
Our Board of Directors has approved an amendment to our Certificate of
Incorporation to increase the number of authorized shares of common stock from
70 million shares to 200 million shares and the related increase in the total
number of authorized shares of capital stock from 91,877,236 to 221,877,236. Our
Board of Directors recommends that our stockholders approve this amendment.
Of the 70 million shares of common stock currently authorized, as of April
5, 2001, 21,792,425 shares were issued and outstanding, 1,729,147 shares were
reserved for issuance upon exercise of outstanding warrants, and 7,214,697
shares of common stock were reserved for issuance under the 1999 Plan and other
stock-based employee benefit plans. As a result, only 39,263,731 shares of
common stock remain available for future issuance. If the stockholders approve
the Private Placement Proposals (Proposals 1 and 2), we will reserve up to
47,590,466 additional shares of common stock for issuance upon the conversion of
the
28
36
Series F preferred stock after giving full effect to the Reset of the conversion
price of the Series F preferred stock. Accordingly, an increase in the number of
authorized shares of common stock is necessary in order to insure a sufficient
number of shares are available for issuance upon conversion of the Series F
preferred stock and for other purposes.
IF OUR STOCKHOLDERS DO NOT APPROVE THIS PROPOSAL 2, WE WILL NOT BE ABLE TO
COMPLETE THE PRIVATE PLACEMENT TRANSACTION.
PROPOSAL
Under the proposed amendment, the first sentence of Article FOURTH would be
amended and restated as follows:
"The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is Two Hundred Twenty-One
Million Eight Hundred Seventy-Seven Thousand Two Hundred Thirty-Six
(221,877,236) shares, of which Two Hundred Million (200,000,000) shall be
Common Stock, having a par value of $0.01 per share (the "Common Stock"),
and Twenty-One Million Eight Hundred Seventy-Seven Thousand Two Hundred
Thirty-Six (21,877,236) shares shall be classified as Preferred Stock, par
value $0.01 per share (the "Preferred Stock")."
The proposed amendment does not change the number of authorized shares of
preferred stock. Our Board of Directors has recommended that our stockholders
approve the amendment to the Certificate of Incorporation. The proposed
amendment would provide a sufficient number of shares for issuance upon
conversion of the Series F preferred stock and would provide the Board with the
ability to issue additional shares of common stock without requiring stockholder
approval of such issuances except as otherwise may be required by applicable law
or the rules of any stock exchange or trading system on which the securities may
be listed or traded, including The Nasdaq Stock Market.
PURPOSE
Our Board of Directors believes that it is in the best interests of the
Company and our stockholders to increase the number of authorized shares of our
common stock to insure that we have a sufficient number of shares for future
issuance, including for issuance upon conversion of the Series F preferred
stock. The availability of such shares will provide us with flexibility to issue
common stock to meet our business and financial needs, such as stock dividends
(including stock splits in the form of stock dividends), financings,
acquisitions, or strategic business relationships. Further, our Board of
Directors believes the availability of additional shares of common stock will
enable us to attract and retain talented employees through the grant of stock
options or other stock-based incentives. In addition, in order to complete the
Private Placement Transaction discussed in Proposal 1 above, a sufficient amount
of common stock must be reserved for issuance pursuant to the terms of the
proposed Series F preferred stock. Both the issuance of common stock, including
the Series F preferred stock, for any of the general or corporate purposes
described above or in the Private Placement Transaction would have a dilutive
affect on our earnings per share and book value per share, and, for a person who
does not purchase additional shares to maintain his or her pro rata interest, on
a stockholder's percentage voting power.
The authorized shares of our common stock in excess of those already issued
and outstanding will be available for issuance at such times and for such
corporate purposes as our Board of Directors may deem advisable without further
action by our stockholders, except as may be required by applicable laws or the
rules of any stock exchange or trading system on which the securities may be
listed or traded, including The Nasdaq Stock Market. Upon issuance, such shares
will have the same rights as outstanding shares of common stock. Holders of
common stock do not have any pre-emptive rights. Our Board of Directors does not
intend to issue any common stock except on the terms which the Board deems to be
in the best interest of the Company and our stockholders.
Our Board of Directors does not recommend this proposed amendment with the
intent to discourage tender offers or takeover attempts. However, the subsequent
issuance of shares of our common stock could
29
37
render more difficult or discourage a merger, tender offer, proxy contest or
other attempt to gain control of the Company. The proposed amendment is not in
response to any effort on the part of any party to accumulate material amounts
of common stock, other than in the Private Placement Transaction, or to acquire
control of the Company by means of merger, tender offer, proxy contest or
otherwise, or to change the Company's management. In addition, the proposal is
not part of any plan by management to recommend a series of similar amendments
to the Board of Directors and the stockholders.
The approval of the amendment to the Certificate of Incorporation requires
the affirmative vote of holders of at least 66 2/3% of the outstanding shares of
our common stock. If the amendment is not approved, our authorized common stock
will not change and we will be prevented from consummating the Private Placement
Transaction. Accordingly, stockholder approval is very important to the future
of our Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS OF THE COMPANY VOTE
"FOR" THIS PROPOSAL 2.
30
38
PROPOSAL 3
PROPOSAL TO APPROVE AN AMENDMENT TO OUR
CERTIFICATE OF INCORPORATION
WITH RESPECT TO OUR "BLANK CHECK" PREFERRED STOCK
GENERAL
In accordance with our Certificate of Incorporation, we have 21,877,236
shares of preferred stock, par value $.01 per share, authorized for issuance, of
which an aggregate of 11,877,236 shares have been designated Series A
convertible preferred stock, Series B convertible preferred stock, Series C
convertible preferred stock, Series D convertible preferred stock, Series D-1
convertible preferred stock and Series F convertible preferred stock. Currently,
no shares of preferred stock are issued and outstanding. If our stockholders
approve the Private Placement Proposals (Proposals 1 and 2) and we consummate
the Private Placement Transaction, 356,950 shares of our preferred stock will be
designated as Series F preferred stock, of which 247,882 shares will be issued
and outstanding and 109,068 shares will be reserved for issuance pursuant to the
exercise of the Warrants.
Pursuant to Section VII of Part B of Article FOURTH of our Certificate of
Incorporation which is currently in effect, our Board of Directors has the
authority to issue shares of preferred stock with such preferences, privileges
and restrictions as it determines. Notwithstanding this provision, our
Certificate of Incorporation does not specifically provide that our Board of
Directors has the authority to issue future series of preferred stock with
voting powers without receiving the approval of our stockholders.
Therefore, our Board of Directors has approved an amendment to our
Certificate of Incorporation redesignating Section VII of Part B of Article
FOURTH of our Certificate of Incorporation and amending such provision to
specifically authorize our Board of Directors to designate and issue any
undesignated shares of preferred stock with such rights and preferences as our
Board of Directors may determine, and more clearly setting forth that our Board
of Directors may include voting powers as part of the rights and preferences of
a series of preferred stock, in each case, without the approval of the holders
of our common stock.
If approved, the shares of preferred stock that are not designated will be
available for issuance from time to time for such purposes and consideration as
our Board of Directors may approve. No further vote of our stockholders will be
required, except as provided under Delaware law or the rules of the NASD for
Nasdaq National Market securities. The availability of preferred shares for
issuance, without the delay and expense of obtaining the approval of our common
stockholders at a special meeting, will afford the Company the means of raising
additional capital. Furthermore, preferred shares could be utilized by our Board
of Directors for purposes of defending against any potential hostile or abusive
takeover threats. Notwithstanding this proposal to amend our Certificate of
Incorporation, however, as described in more detail below, if the Company issues
the Series F preferred stock, the Company would, under certain circumstances,
have to obtain the consent of the holders of a majority of the outstanding
shares of Series F preferred stock in order to issue any new series of preferred
stock with certain rights and preferences that are senior to or equal with the
rights and preferences of the Series F preferred stock.
PROPOSAL
An amendment to our Certificate of Incorporation redesignating current
Section VII of PART B of Article FOURTH as a new Section VIII of PART B of
Article FOURTH and amending such section so that it reads as follows:
"VIII. PREFERRED STOCK WITHOUT DESIGNATIONS AND PREFERENCES
Shares of preferred stock (other than preferred stock comprising the
Preferred, as defined herein) may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors
of the Corporation hereby is authorized, by resolution or resolutions
thereof, to fix or alter the rights, voting powers (if any), preferences,
privileges and restrictions granted to or
31
39
imposed upon each series of preferred stock, and the number of shares
constituting any such series and the designation thereof, or of any of
them. The rights, powers, privileges, preferences and restrictions of any
such additional series may be subordinated to, pari passu with (including,
without limitation, inclusion in provisions with respect to liquidation and
acquisition preferences, redemption and/or approval of matters by vote), or
senior to any of those of any present or future class or series of
preferred stock or Common Stock. Our Board of Directors also is authorized
to increase or decrease the number of shares of any series prior or
subsequent to the issue of that series, but not below the number of shares
of such series then outstanding. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series."(1)
- ---------------
(1) Emphasis added to indicate the changes made to the existing language of the
section.
SUMMARY
Our Board of Directors currently has the authority to issue one or more
series of preferred stock with rights and preferences determined by the Board of
Directors, including dividend or interest rates, conversion prices, redemption
provisions, maturity dates, and other rights, preferences and limitations. Our
Board of Directors has the authority to determine these rights and preferences
in its discretion without approval of the holders of common stock. Our Board of
Directors also has the authority to issue such shares of preferred stock with
such rights and preferences to whomever and for whatever purposes it may deem
appropriate without the approval of the holders of common stock. The proposed
amendment clarifies that the Board of Directors has the authority to establish
the voting rights of any new series of preferred stock. The amendment does not
change the number of authorized shares of preferred stock.
Our Board of Directors believes that permitting the Board to authorize the
issuance of shares of "blank check" preferred stock with voting rights provides
the Company with more flexibility to address potential future financing needs
and by creating a series of preferred stock for other corporate purposes, such
as to implement joint ventures, strategic alliances or to make acquisitions.
Notwithstanding that the "blank check" preferred stock will be issuable as
determined by our Board of Directors in its discretion without approval of the
holders of common stock, if we issue Series F preferred stock in the Private
Placement Transaction, the holders of the Series F preferred stock will have
certain rights with respect to the designation and issuance of additional shares
of preferred stock. So long as 50% of the shares of Series F preferred stock
that was ever issued and outstanding at one time is still outstanding, holders
of the Series F preferred stock will be entitled to have a class vote on certain
matters, including the following:
- the authorization or issuance of any other class or series of preferred
stock ranking senior to or equal with the Series F preferred stock as to
payment of amounts distributable upon dissolution, liquidation or winding
up of the Company; and
- the reclassification of any capital stock into shares having preferences
or priorities senior to or equal with the Series F preferred stock.
Therefore, even if the holders of our common stock approve this amendment
to our Certificate of Incorporation, our Board of Directors may still be limited
as to the designation and issuance of any other class or series of preferred
stock ranking senior to or equal with the Series F preferred stock.
The approval of the amendment to the Certificate of Incorporation requires
the affirmative vote of the holders of at least 66 2/3% of the outstanding
shares of our common stock.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY VOTE "FOR" THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION SET FORTH
IN THIS PROPOSAL 3.
32
40
PROPOSAL 4
ELECTION OF DIRECTORS
INTRODUCTION
Our Board of Directors is divided into three classes, each of whose members
serve for a staggered three-year term. At each annual meeting of stockholders, a
class of directors is elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. Our bylaws provide that each class
of directors will be elected by a plurality of all votes cast at the meeting.
At the Annual Meeting, three directors are to be elected for the terms
described below. The Board is currently comprised of three Class I directors
(Paul G. Cataford, William A. Roper, Jr. and P.J. Hilbert), three Class II
directors (Neil E. Cox, David B. Corey and Daniel J. Foreman), and three Class
III directors (James Daleen, Ofer Nemirovsky and Stephen J. Getsy). At each
annual meeting of stockholders, a class of directors will be elected for a
three-year term to succeed the directors of the same class whose terms are then
expiring. The terms of the Class II directors, Class III directors and Class I
directors will expire upon the election and qualification of successor directors
at the 2001, 2002 and 2003 annual meeting of stockholders, respectively. There
are no family relationships among any of the directors or director nominees of
the Company. Mr. Roper and Mr. Nemirovsky are affiliates of Investors in the
Private Placement Transaction.
Shares represented by executed Proxies will be voted, if authority to do so
is not withheld, for the election of each nominee named below. In the event that
a nominee should be unavailable for election as a result of an unexpected
occurrence, such shares will be voted for the election of such substitute
nominee as the Board of Directors may select. Alternatively, the Board of
Directors may choose to leave such vacancy open or fill the vacancy subsequent
to the Annual Meeting. The nominees for re-election as Class II Directors,
Messrs. Corey, Cox and Foreman, have agreed to serve as directors if elected,
and management has no reason to believe that they will be unable to serve. If
elected, the nominees will serve for a three-year term expiring at the 2004
annual meeting of stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH NAMED NOMINEE.
INFORMATION CONCERNING THE DIRECTORS
The name and age, principal occupation or employment, and other data
regarding each director, including nominees for director, based on information
received from the respective director, are set forth below:
Nominees to Serve as Class II Directors until the 2004 Annual Meeting
DAVID B. COREY, age 41, has served as president and chief operating officer
of the Company since February 1998 and as a director since June 1998. Before
joining the Company, Mr. Corey served as senior vice president of Global
Marketing for Westell, Inc., a telecommunications equipment company, from
November 1996 until February 1998, and as vice president and managing
director/Asia Pacific for Westell International, a telecommunications company,
from January 1994 to November 1996.
NEIL E. COX, age 51, has served as a director of the Company since August
1999. Mr. Cox retired in February 2001. From January 1998 until February 2001,
Mr. Cox served as the president of SecurityLink from Ameritech, a business unit
of Ameritech Corporation that provides international security, monitoring and
networked home services. From 1987 until January 1998, Mr. Cox served in various
management capacities at Ameritech, a full-service communications company, last
serving as president of information industry services-telecommunications.
DANIEL J. FOREMAN, age 42, has served as a director since July 1998. Mr.
Foreman has served as a managing director of ABN AMRO, Inc., an investment firm,
since October 1997 and was previously vice president of investments and
acquisitions for Ameritech Corporation, a communications company, from October
1987 until October 1997.
33
41
Current Directors
The directors of the Company continuing in office as Class III Directors,
previously elected to serve until the 2002 Annual Meeting, are as follows:
JAMES DALEEN, age 41, our founder, has served as chairman of the board and
chief executive officer of the Company since our inception in 1989. Mr. Daleen
served as president and chief executive officer of Sound Impulse Company, an
electrical construction company, from 1983 until 1995.
STEPHEN J. GETSY, age 56, has served as a director of the Company since
October 1997. Mr. Getsy has been the president and chief executive officer of
On-Line Ventures, Inc., a business consulting and investment company, from
November 1993 to present.
OFER NEMIROVSKY, age 43, has served as a director of the Company since
September 1997. Mr. Nemirovsky has been a managing director of HarbourVest since
January 1997. HarbourVest Partners, LLC was formed by the management team of
Hancock Venture Partners, of which Mr. Nemirovsky had served in various
capacities, including managing director and vice president, since 1986. Mr.
Nemirovsky is a director of The Ultimate Software Group. HarbourVest manages
HarbourVest Partners VI-Direct Fund, L.P., one of the Investors in the Private
Placement Transaction.
The directors of the Company continuing in office as Class I Directors,
elected to serve until the 2003 Annual Meeting, are as follows:
PAUL G. CATAFORD, age 37, has served as a director of the Company since
August 1998. Mr. Cataford has served as managing director and president for BCE
Capital, Inc., a management company charged with all venture capital activities
of Bell Canada, since August 1997. From January 1994 until August 1997, Mr.
Cataford was the team leader of investments of Working Ventures Canadian Fund, a
venture capital fund. Mr. Cataford also serves on the board of directors of
Sierra Wireless Inc., iVest Technologies, Inc., Bulldog Group, Inc. and
ChanneLogics, Inc.
P.J. HILBERT, age 45, has served as a director of the Company since October
2000. Ms. Hilbert has worked for AT&T since 1979 in various management
capacities. Since July 2000 she has served as vice president of customer
relationship management for AT&T Business Services. From April 1999 until August
2000 she served as vice president of marketing and sales operations. From
November 1996 until March 1999 she served as vice president of customer care.
From March 1996 until October 1996 she served as director of business
integration services.
WILLIAM A. ROPER, JR., age 55, has served as a director of the Company
since July 1999. Mr. Roper has been a corporate executive vice president of
Science Applications International Corporation, or SAIC, a technology research
and development company, since October 2000. From October 1999 until October
2000 he served as executive vice president and chief financial officer of SAIC.
From April 1990 until October 1999, he was senior vice president and chief
financial officer of SAIC. Mr. Roper also is chairman of the board of directors
of SAIC Venture Capital Corporation, a wholly-owned subsidiary of SAIC and an
Investor in the Private Placement Transaction.
MEETINGS OF THE BOARD OF DIRECTORS
During 2000, our Board of Directors held eight meetings. During intervals
between meetings, the directors engage in informal discussions among themselves
and management of the Company, and in some instances, take action by consent in
lieu of meeting. In 2000, our Board of Directors took action by unanimous
written consent three times. All of the incumbent directors attended at least
75% of the aggregate total number of meetings of the Board of Directors and
meetings of committees of the Board of Directors on which they served.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors, which consists of Mr.
Getsy, the chairman, and Messrs. Cox and Nemirovsky, took action by unanimous
written consent 49 times during 2000,
34
42
primarily in connection with the grant of options to new employees. Each of the
members of the Compensation Committee was a member of the Board of Directors
during 2000 and none of the members is an executive officer of the Company. The
Compensation Committee reviews and evaluates the compensation and benefits of
all of our officers, reviews general policy matters relating to compensation and
benefits of our employees and makes recommendations concerning these matters to
the Board of Directors. The Compensation Committee also administers our stock
incentive plans.
The Audit Committee of the Board of Directors, which consists of Mr.
Foreman, the chairman, and Messrs. Cataford and Roper held four meetings during
2000. The Audit Committee reviews the scope and timing of our audit services and
any other services our independent auditors are asked to perform. In addition,
the Audit Committee reviews and evaluates our audit and control functions and
makes recommendations to our Board of Directors for the selection of independent
auditors for the following year.
Our Board of Directors acts as the Nominating Committee for selecting the
nominees for election of directors in accordance with our bylaws. While our
Board of Directors will consider nominees recommended by stockholders, it has
not actively solicited recommendations from our stockholders for nominees nor,
subject to the procedural requirements set forth in our Certificate of
Incorporation and our bylaws, has it established any procedures for this
purpose. During 2000, our Board of Directors met once as the Nominating
Committee.
REPORT OF THE AUDIT COMMITTEE
The following report of the Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent the Company specifically incorporates this
report by reference therein.
As set forth in more detail in the Audit Committee Charter which is
attached as Appendix F to this Proxy Statement, the Audit Committee's primary
responsibilities include:
- monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance;
- monitor the independence and performance of the Company's independent
auditors; and
- provide an avenue of communication among the independent auditors,
management and the Board of Directors.
The Audit Committee recommends the selection of the Company's independent
auditors to the Board of Directors and meets with the Company's independent
auditors to discuss the scope and to review the results of the annual audit as
well as the results of the independent auditor's quarterly reviews.
The Audit Committee has implemented procedures to ensure that during the
course of each fiscal year it devotes the attention that it deems necessary or
appropriate to each of the matters assigned to it under the Committee's charter.
To carry out its responsibilities, the Audit Committee met four times during
2000.
Each of the directors who serve on this committee are "Independent" for
purposes of the National Association of Securities Dealers, Inc.'s listing
standards. That is, the Board of Directors has determined that each of the
members of the Audit Committee does not have any relationship to the Company
that may interfere with the Audit Committee's independence from the Company and
its management.
The Audit Committee has reviewed the Company's consolidated financial
statements and met with both management and KPMG LLP, the Company's independent
auditors, to discuss those consolidated financial statements, including the
independent auditor's delivery of a going concern qualification in its report of
our audited consolidated financial statements for the year ended December 31,
2000. Management has represented to the Audit Committee that the consolidated
financial statements were prepared in accordance with generally accepted
accounting principles.
35
43
The Audit Committee has received from and discussed with KPMG LLP the
written disclosure and the letter required by Independence Standards Board
Standard No. 1 (Independence Discussions with Audit Committees). These items
relate to that firm's independence from the Company. The Audit Committee has
also discussed with KPMG LLP any matters required to be discussed by Statement
on Auditing Standards No. 61 (Communication with Audit Committees).
On the basis of these reviews and discussions, the Committee recommended to
the Board of Directors that the Board approve inclusion of the Company's audited
consolidated financial statements in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000, for filing with the Commission.
Audit Committee
Daniel J. Foreman, Chairman
Paul G. Cataford
William A. Roper, Jr.
COMPENSATION OF DIRECTORS
Neither employee nor non-employee directors receive compensation for
services performed in their capacity as directors except as provided below. We
reimburse each director for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and any of its committees. In
addition, it is our policy that non-employee directors who are not employed by
venture capital firms are eligible to receive options to purchase our common
stock under the 1999 Plan. We generally issue to these non-employee directors
options to purchase 50,000 shares of common stock upon initial election to our
Board of Directors and 15,000 options per year thereafter. The disinterested
members of our Board of Directors determine the vesting schedule for options
granted to non-employee directors.
36
44
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table presents the total
compensation for the three years ended December 31, 2000, for our chairman and
chief executive officer and our four other most highly compensated executive
officers who were serving as executive officers and two persons who were
executive officers during 2000 but are no longer deemed to be executive officer
(collectively, the "Named Executive Officers").
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------------------- NUMBER OF
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION(2)
- --------------------------- ---- -------- -------- --------------- ------------ ---------------
James Daleen..................... 2000 $328,900 $180,895 -- 72,500 $ 3,611(3)
Chairman of the Board and 1999 286,000 214,500 -- 125,000 2,587(3)
Chief Executive Officer 1998 260,000 136,500 -- 201,459 2,500(3)
David B. Corey(4)................ 2000 $253,000 $123,338 -- 48,500 3,611(5)
President and Chief Operating 1999 220,000 165,000 -- 79,000 2,587(5)
Officer 1998 176,154 93,500 -- 304,500 104,007(5)
Stephen M. Wagman(6)............. 2000 $220,000 $113,226 -- 88,750 2,200(7)
Chief Financial Officer, 1999 93,500 57,288 -- 137,500 49,058(7)
Treasurer and Secretary 1998 -- -- -- -- --
Steven Kim(8).................... 2000 $124,500 $ 86,371 -- 106,472 38,906(9)
Executive Vice President of 1999 -- -- -- -- --
Products and Technologies 1998 -- -- -- -- --
Richard A. Schell................ 2000 $208,725 $ 83,490 -- 29,750 3,611(10)
Former Executive Vice 1999 181,500 136,125 -- 38,500 2,474(10)
President and Chief 1998 165,000 86,625 -- 81,000 1,348(10)
Financial Officer
Timothy C. Moss(11).............. 2000 $175,000 $ 91,776 -- 78,750 3,500(12)
Vice President -- Operations 1999 144,231 71,394 -- 102,236 36,799(12)
1998 -- -- -- -- --
David J. McTarnaghan(13)......... 2000 $175,000 $ 80,636 -- 88,750 3,495(14)
Senior Vice President of Sales 1999 150,000 66,500 -- 22,250 2,587(14)
1998 75,385 31,525 -- -- 35,975(14)
- ---------------
(1) In accordance with the rules of the Commission, other compensation received
in the form of perquisites and personal benefits has been omitted because
such perquisites and other personal benefits constituted less than the
lesser of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officers for such year.
(2) All other compensation for each of the Named Executive Officers includes,
among other things, the dollar value of insurance premiums paid by the
Company with respect to term life insurance. There is no arrangement or
understanding that any Named Executive Officer has or will receive or be
allocated an interest in any cash surrender value under any such policies.
(3) All Other Compensation for Mr. Daleen in 1998 included payment of $2,500 in
401(k) matching contributions. In 1999, 401(k) Plan match was $2,500 and
$87 related to term life insurance premiums. In 2000, $3,500 related to
401(k) Plan match and $111 related to term life insurance premiums.
(4) Mr. Corey commenced employment with the Company on February 10, 1998. His
annualized base salary for fiscal 1998 was $200,000.
(5) All Other Compensation for Mr. Corey in 1998 included $101,725 in
relocation costs paid by the Company and $2,282 in 401(k) Plan matching
contributions. In 1999, 401(k) Plan matching
37
45
contributions were $2,500 and $87 related to term life insurance premiums.
In 2000, $3,500 related to 401(k) Plan matching contributions and $111
related to term life insurance premiums.
(6) Mr. Wagman commenced employment with the Company on June 9, 1999. His
annualized base salary for fiscal 1999 was $195,000.
(7) All Other Compensation for Mr. Wagman in 1999 included $48,611 of
relocation costs, $401 related to 401(k) Plan matching contributions and
$46 in term life insurance premiums. In 2000, $2,089 related to 401(k) Plan
matching contributions and $111 related to term life insurance premiums.
(8) Mr. Kim commenced employment with the Company on April 24, 2000. His
annualized base salary for fiscal 2000 was $185,000 through September 3,
2000 and then increased to $200,000 through December 31, 2000.
(9) All Other Compensation for Mr. Kim in 2000 included $38,850 of relocation
costs and $56 of term life insurance premiums.
(10) Mr. Schell resigned as executive vice president and chief financial officer
of the Company in January 2001. All other compensation for Mr. Schell in
1998 included payment of $1,261 in 401(k) Plan matching contributions and
$87 in term life insurance premiums. In 1999, payments on 401(k) Plan
matching contributions were $2,387 and $87 related to term life insurance
premiums. In 2000, $3,500 related to 401(k) Plan matching contributions and
$111 in term life premiums.
(11) Mr. Moss commenced employment with the Company on January 1, 1999.
(12) All Other Compensation for Mr. Moss in 1999 was $34,722 for relocation
costs and $2,077 of 401(k) Plan matching contributions. In 2000 payments
included $3,500 of 401(k) Plan matching contributions.
(13) Mr. McTarnaghan commenced employment with the Company on June 15, 1998. His
annualized base salary for fiscal 1998 was $140,000. In connection with our
Board of Directors action in June 2000, Mr. McTarnaghan is no longer deemed
to be an executive officer of the Company.
(14) All other compensation for Mr. McTarnaghan in 1998 included $35,975 of
relocation costs paid by the Company. In 1999, 401(k) Plan matching
contributions were $2,500 and $87 related to term life insurance premiums.
In 2000, 401(k) Plan matching contributions were $3,384 and $111 related to
term life insurance premiums.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth all individual grants of stock options
during the year ended December 31, 2000, to each of the Named Executive
Officers:
INDIVIDUAL GRANTS
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(1)
UNDERLYING OPTION EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ----------------- ------------- ----------- ---------- -------- -----------
James Daleen.............. 10,000 0.37% $13.25 4/24/10 $83,329 $ 211,171
62,500 2.31 9.44 10/20/10 371,048 940,308
David B. Corey............ 10,000 0.37 13.25 4/24/10 83,329 211,171
37,500 1.39 9.44 10/20/10 222,629 564,185
1,000 0.04 10.38 11/1/10 6,528 16,543
Stephen M. Wagman......... 10,000 0.37 13.25 4/24/10 83,329 211,171
60,000 2.22 16.75 6/5/10 632,039 1,601,711
18,750 0.69 9.44 10/20/10 111,314 282,092
Steven Kim................ 70,000 2.59 13.63 4/26/10 599,458 1,519,682
30,000 1.11 17.06 7/26/10 321,868 815,677
6,472 0.24 9.44 10/20/10 38,423 97,371
38
46
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENT OF ANNUAL RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED TO EXERCISE OR FOR OPTION TERM(1)
UNDERLYING OPTION EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ----------------- ------------- ----------- ---------- -------- -----------
Richard A. Schell......... 10,000 0.37 13.25 4/26/10 83,329 211,171
1,000 0.04 16.63 8/2/10 10,459 26,504
18,750 0.69 9.44 10/20/10 111,314 282,092
Timothy C. Moss........... 50,000 1.85 21.88 3/29/10 83,329 1,742,906
10,000 0.37 13.25 4/24/10 83,329 211,171
18,750 0.69 9.44 10/20/10 111,314 282,092
David J. McTarnaghan...... 5,000 0.19 13.25 4/24/10 41,664 105,585
10,000 0.37 15.06 8/23/10 94,712 240,018
55,000 2.04 7.72 10/18/10 267,029 676,703
18,750 0.69 9.44 10/20/10 111,314 282,092
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on the fair market value per share on the date of grant and
assumed rates of stock price appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date.
These assumptions are mandated by the rules of the Commission and are not
intended to forecast future appreciation of our stock price. The potential
realizable value computation is net of the applicable exercise price, but
does not take into account federal or state income tax consequences and
other expenses of option exercises or sales of appreciated stock. Actual
gains, if any, are dependent upon the timing of such exercise and the future
performance of our common stock. There can be no assurance that the rates of
appreciation in this table can be achieved. This table does not take into
account any appreciation in the price of our common stock to date.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table summarizes the number of shares and value realized by
each of the Named Executive Officers upon the exercise of options during 2000
and the value of the outstanding options held by the Named Executive Officers at
December 31, 2000:
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
James Daleen................ 49,682 $478,438 93,153 259,288 $30,952 $46,519
David B. Corey.............. 23,462 278,611 176,107 185,770 93,179 39,010
Stephen M. Wagman........... 0 0 34,375 191,875 0 0
Richard A. Schell........... 0 0 144,791 128,414 69,283 34,895
Steven Kim.................. 0 0 0 106,472 0 0
Timothy C. Moss............. 5,000 67,500 20,559 155,427 3,750 18,750
David J. McTarnaghan........ 0 0 63,062 142,938 27,500 20,000
- ---------------
(1) Amounts disclosed in this column do not reflect amounts actually received by
the Named Executive Officers but are calculated based on the difference
between the fair market value on the date of exercise of the options and the
exercise price of the options. The Named Executive Officers will receive
cash only if and when they sell the common stock issued upon exercise of the
options, and the amount of cash received by such individuals is dependent on
the price of our common stock at the time of such sale.
39
47
(2) Based on the fair market value of our common stock as of December 31, 2000,
of $3.75 per share as reported on The Nasdaq Stock Market, less the exercise
price payable upon exercise of such options.
EMPLOYMENT AGREEMENTS
We entered into a five-year employment agreement with James Daleen, our
chief executive officer, on December 1, 1994, which was amended on September 5,
1997 and March 1, 1999. Upon expiration of the initial term in December 1999,
the agreement automatically renews for additional terms of three years each
unless either party notifies the other of its intent to terminate the employment
agreement. The employment agreement provides for a base salary of $328,900 in
2000 and in 2001 and an annual bonus to be determined by our Compensation
Committee, with the annual bonus targeted at 50% of Mr. Daleen's base salary.
The employment agreement also provides for annual salary increases, as
determined by our Compensation Committee, and option grants under our stock
option plans, as determined by our board of directors. In the event of the
termination of Mr. Daleen's employment without substantial cause, Mr. Daleen is
entitled to a severance payment equal to two years' base salary in effect at the
time of termination and a bonus in addition to the payment of all related
excise, federal or state income taxes incurred by the executive as a result of
the lump sum cash payment. In the event of a change of control of the Company,
Mr. Daleen will, for a period of two years after such event, have the right to
resign and receive a change of control payment. This payment will be equal to
two years base salary and prorated performance bonus.
We entered into an employment agreement with David Corey, our president and
chief operating officer, on January 31, 1998. This agreement may be terminated
by either party at any time. The employment agreement provides for a base salary
of $253,000 in 2000 and in 2001, an annual salary increase to be determined by
our Compensation Committee, and an annual bonus to be determined by our
Compensation Committee, with the annual bonus targeted at 50% of Mr. Corey's
base salary. In the event of the termination of Mr. Corey's employment without
substantial cause, Mr. Corey will be entitled to a severance payment equal to
one year's base salary in effect at the time of termination. We can elect to pay
Mr. Corey only six months of severance if we release him from his non-compete
agreement.
We entered into an employment agreement with Stephen Wagman, our chief
financial officer, treasurer and secretary on April 28, 1999. At the time, Mr.
Wagman was our executive vice president of corporate development. The employment
agreement can be terminated by either party at any time. The employment
agreement provides for an annual base salary in 2000 of $195,000. In connection
with Mr. Wagman's promotion to chief financial officer of the Company in June
2000, his annual base salary was adjusted to $220,000 through the end of the
year. In 2001, his annual base salary will be determined by our Compensation
Committee, with the annual bonus targeted at 50% of Mr. Wagman's base salary.
Mr. Wagman has a draw agreement with the Company, whereby his compensation in
2000 and 2001 includes a $30,000 draw for each year. This draw is offset against
his bonus earned during the year and is paid out in 26 installments. In the
event of the termination of his employment agreement without substantial cause,
Mr. Wagman will be entitled to a severance payment equal to one year's base
salary in effect at the time of termination. We can elect to pay Mr. Wagman only
six months of severance if we release him from his non-compete agreement.
We entered into an employment agreement with Steven Kim, our executive vice
president of products and technologies in April 2000. The employment agreement
may be terminated by either party at any time. The employment agreement provides
for a base salary of $185,000 in 2000 and $200,000 in 2001. In the event of
termination of Mr. Kim's employment agreement without cause, Mr. Kim will be
entitled to a severance payment equal to three months of base salary in effect
at the time of termination. We can elect to pay Mr. Kim no severance if we
release him from his non-compete agreement.
We entered into a three-year employment agreement with Richard Schell, our
former chief financial officer and treasurer, on November 15, 1994, which was
amended on January 31, 1997. Pursuant to the employment agreement, we paid Mr.
Schell a base salary of $208,725 in 2000. Upon Mr. Schell's resignation from the
Company in January 2001, we entered into a severance agreement effective
40
48
January 19, 2001, pursuant to which he is entitled to a severance payment equal
to one year's base salary in effect at the time of termination ($208,725) and
his options will continue to vest for one year.
We entered into an employment agreement with Timothy C. Moss, our vice
president of operations, on December 15, 1998. At the time, Mr. Moss was our
vice president of professional services. The agreement can be terminated by
either party at any time. The employment agreement provides for a base salary of
$175,000 in 2000 and 2001 and an annual bonus targeted at 33% of Mr. Moss' base
salary. In the event of the termination of his employment agreement without
cause, Mr. Moss is entitled to a severance payment equal to one year's base
salary in effect at the time of termination. We can elect to pay Mr. Moss no
severance if we release him from his non-compete agreement.
We entered into an employment agreement with David J. McTarnaghan, our
senior vice president of sales, in June 1998. The agreement can be terminated by
either party at any time. The employment agreement provides for a base salary of
$175,000 in 2000 and in 2001 and an annual bonus to be determined by our
Compensation Committee. The employment agreement also provides for annual salary
increases, as determined by our Compensation Committee, and option grants under
our stock option plans, as determined by our Board of Directors. In the event of
the termination of his employment without substantial cause, Mr. McTarnaghan is
entitled to a lump sum severance payment equal to six months of base pay.
Our executive officers and some of our other employees have signed
invention assignment and confidentiality agreements as well as non-compete
agreements. Under the invention assignment and confidentiality agreement, these
individuals have assigned to us all of their copyrights, trade secrets and
patent rights that relate to our business. Under the terms of the non-compete
agreement, each of these individuals has agreed not to compete, directly or
indirectly, with us in the billing and customer care industry during the term of
their employment and for one year after termination of employment. Each also has
agreed not to solicit our customers or employees, directly or indirectly, during
the period of employment and for one year following termination of employment.
STOCK OPTION AND OTHER COMPENSATION PLANS
Amended & Restated 1999 Stock Incentive Plan. We have established the 1999
Plan to promote our interests by providing employees and key persons the
opportunity to purchase shares of common stock and to receive compensation based
upon appreciation in the value of those shares. We have reserved 5,759,458
shares of common stock for issuance under the 1999 Plan. As of December 31,
2000, options to purchase an aggregate of 4,070,367 shares of common stock were
outstanding under the 1999 Plan. An aggregate of 89,423 shares of common stock
have been issued upon exercise of options granted under the 1999 Plan. If we
sell 80% or more of our capital stock or assets, or if we agree to convert 80%
or more of the outstanding shares of capital stock into another security; then
the vesting schedule of each option grant will accelerate by two years.
Prior Stock Option Plans. We adopted six other stock option plans between
1994 and 1998. Some of these plans provided for incentive stock options within
the meaning of Subsection 422 of the Internal Revenue Code while others provided
for non-qualified stock options.
Our seven stock option plans are as follows: the 1994 Employee
Non-Qualified Stock Option Plan (the "1994 Plan"), the 1995 Qualified Employee
Incentive Stock Option Plan (the "1995 Plan"), the 1996 Employee Non-Qualified
Stock Option Plan ("the 1996 Plan"), the 1997 Employee Incentive Stock Option
Plan (the "1997 Plan"), the 1998 Non-Qualified Employee Stock Option Plan (the
"1998 Plan"), the 1998 Qualified Employee Incentive Stock Option Plan (the "1998
ISO Plan") and the 1999 Plan. Each plan provides that the exercise price of the
options granted will be issued at no less than the fair market value of the
underlying common stock at the date of grant.
As of December 31, 2000, options to purchase an aggregate of 5,420,963
shares of common stock were outstanding under these plans at a weighted average
exercise price of $11.75 per share. 391,006
41
49
shares of common stock have been issued upon exercise of options granted under
these plans. We are not authorized to issue any more options or other awards
under any of these plans except the 1999 Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our Certificate of Incorporation provides that the liability of our
directors for monetary damages shall be eliminated to the fullest extent
permissible under Delaware law and that we shall indemnify our directors,
officers, employees and agents to the fullest extent permitted under the
Delaware law. Our Certificate of Incorporation provides that our directors will
not be personally liable to the Company or any stockholder for monetary damages
for breach of fiduciary duty as a director, except if the director:
- is liable under Section 174 of the Delaware General Corporation Law;
- has breached the director's duty of loyalty to the Company or our
stockholders;
- has acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, has acted in a manner involving
intentional misconduct or a knowing violation of law; or
- has derived an improper personal benefit.
If Delaware law is amended to provide for further limitations on the
personal liability of directors of corporations for breach of duty of care or
other duty as a director, then the personal liability of the directors will be
so further limited to the greatest extent permitted by Delaware law.
We maintain a directors' and officers' liability insurance policy.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors were the members of the Compensation
Committee of the Board of Directors during 2000: Messrs. Getsy, the chairman,
Cox and Nemirovsky. None of the members of the Compensation Committee is an
executive officer of the Company. Mr. Nemirovsky is affiliated with HarbourVest
Partners VI-Direct Fund, L.P., one of the Investors of our Series F preferred
stock, as described below under "Certain Transactions -- Related Party
Transactions" and as more fully described in the Private Placement Proposals
(Proposals 1 and 2).
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
GENERAL. The Compensation Committee of our Board of Directors has
furnished the following report on executive compensation in accordance with the
rules and regulations of the Commission. This report outlines the duties of the
Compensation Committee with respect to executive compensation, the various
components of the Company's compensation program for executive officers and
other key employees, and the basis on which the 2000 compensation was determined
for the executive officers of the Company.
The Compensation Committee of the Board of Directors is responsible for
establishing compensation levels for the executive officers of the Company,
including the annual bonus plan for executive officers and for administering the
Company's stock option plans. The Compensation Committee is comprised of three
non-employee directors: Stephen J. Getsy, the chairman; Ofer Nemirovsky; and
Neil E. Cox. The Compensation Committee's overall objective is to establish a
compensation policy that will (i) attract, retain and reward executives who
contribute to achieving the Company's business objectives; (ii) motivate
executives to obtain these objectives; and (iii) align the interests of
executives with those of the Company's long-term investors. The Company
compensates executive officers with a combination of salary and incentives
designed to focus their efforts on maximizing both the near-term and long-term
financial performance of the Company. In addition, the Company's compensation
program rewards individual performance that furthers Company goals. The
executive compensation program includes the following: (i) base salary; (ii)
incentive bonuses; (iii) long-term equity incentive awards in the form of stock
option
42
50
grants; and (iv) other benefits. Each executive officer's compensation package
is designed to provide an appropriately weighted mix of these elements which
cumulatively provide a level of compensation roughly equivalent to that paid by
companies of similar size and complexity.
COMPENSATION OF EXECUTIVE OFFICERS GENERALLY.
Base Salary. Base salary levels for each of the Company's executive
officers, including the chief executive officer, are generally set within a
range of base salaries that the Compensation Committee believes are paid to
similar executive officers at companies deemed comparable based on the
similarity in revenue level, industry segment and competitive employment market
to the Company. In addition, the Compensation Committee generally takes into
account the Company's past financial performance and future expectations, as
well as the performance of the executives and changes in the executives'
responsibilities.
In 2001, the Compensation Committee determined that no annual salary
increases would be provided to the executive officers until the Company achieves
profitability. This freeze does not apply to one executive who received an eight
percent salary increase associated with his assuming additional duties and
responsibilities. Further, there will be no retroactive application of the
annual salary increases to the executive officers for any period of fiscal 2001
that precedes the date by which the Company achieves its profitability goal.
Incentive Bonuses. The Compensation Committee recommends the payment of
bonuses to provide an incentive to executive officers to be productive over the
course of each fiscal year. These bonuses are awarded only if the Company and
the executives achieve or exceed certain pre-established performance objectives.
In 2000, incentive bonuses were based 50% on the 2000 Achievement to Strategic
Objectives and Team Award Scoring, and the remaining 50% on individual
achievements during the year. In 2001, incentive bonuses will be based on the
Company's and the executives' achievement of pre-established performance
objectives.
Equity Incentives. Stock options are used by the Company for payment of
long-term compensation to provide a stock-based incentive to improve the
Company's financial performance and to assist in the recruitment, retention and
motivation of professional, managerial and other personnel. Generally, stock
options are granted to executive officers from time to time based primarily upon
the individual's actual and/or potential contributions to the Company and the
Company's financial performance. Stock options are designed to align the
interests of the Company's executive officers with those of its stockholders by
encouraging executive officers to enhance the value of the Company, the price of
the common stock, and hence, the stockholders' return. In addition, the vesting
of stock options over a period of time is designed to create an incentive for
the individual to remain with the Company. The Company has granted options to
the executives on an ongoing basis to provide continuing incentives to the
executives to meet future performance goals and to remain with the Company.
Generally, ongoing option grants occur at year-end and in connection with
promotions or an executive's acceptance of significant new and additional
responsibilities. During the fiscal year ended December 31, 2000, options to
purchase an aggregate of 345,972 shares of common stock were granted to the
Company's current executive officers.
Other Benefits. Benefits offered to the Company's executive officers are
provided to serve as a safety net of protection against the financial
catastrophes that can result from illness, disability, or death. Benefits
offered to the Company's executive officers are substantially the same as those
offered to all of the Company's regular employees. In January 1994, the Company
established a tax-qualified deferred compensation 401(k) Savings Plan (the
"401(k) Plan") covering all of the Company's eligible full-time employees. Under
the 401(k) Plan, participants may elect to contribute, through salary
reductions, up to 15% of their annual compensation subject to a statutory
maximum. In 1999, the Company provided additional matching contributions in the
amount of 25% up to the first 8% contributed under the 401(k) Plan. In 2000, the
Company's matching contribution was changed to 25% up to the first 8%
contributed under the 401(k) Plan. The 401(k) Plan is designed to qualify under
Section 401 of the Internal Revenue Code so that the contributions by employees
or by the Company to the 401(k) Plan, and income earned
43
51
on plan contributions, are not taxable to employees until withdrawn from the
401(k) Plan, and so that contributions by the Company will be deductible by the
Company when made.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The Compensation Committee
annually reviews the performance and compensation of the chief executive officer
based on the assessment of his past performance and its expectation of his
future contributions to the Company's performance. James Daleen has served as
the Company's chief executive officer since our founding in 1989. In 2000, Mr.
Daleen's base salary was set at $328,900 and he received a bonus of $180,895.
His bonus was based on the Company achieving certain revenue, earnings and other
performance related objectives. The Compensation Committee believes the
compensation paid to Mr. Daleen was reasonable.
POLICY WITH RESPECT TO QUALIFYING COMPENSATION FOR
DEDUCTIBILITY. Section 162(m) of the Internal Revenue Code imposes a limit on
tax deductions for annual compensation (other than performance-based
compensation) in excess of one million dollars paid by a corporation to its
Chief Executive Officer and the other four most highly compensated executive
officers of a corporation. The Company has not established a policy with regard
to Section 162(m) of the Code, since the Company has not and does not currently
anticipate paying cash compensation in excess of one million dollars per annum
to any employee. None of the compensation paid by the Company in 1999 was
subject to the limitations on deductibility. The Board of Directors will
continue to assess the impact of Section 162(m) on its compensation practices
and determine what further action, if any, is appropriate.
Compensation Committee
Stephen J. Getsy, Chairman
Neil E. Cox
Ofer Nemirovsky
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder
requires our directors and executive officers and persons who own beneficially
more than 10% of our Common Stock to file reports of ownership and changes in
ownership of such stock with the Commission. Based solely upon a review of such
reports, we believe that all our directors, executive officers and 10%
stockholders complied with all applicable Section 16(a) filing requirements
during the last fiscal year.
44
52
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the amount and percent of shares of common
stock that, as of April 20, 2001, are deemed under the rules of the Commission
to be "beneficially owned" by any person or "group" (as that term is used in the
Securities Act of 1934, as amended) known to us as of that date to be a
"beneficial owner" of more than 5% of the outstanding shares of common stock of
the Company, by each of our Named Executive Officers, by each member of our
Board of Directors, by each nominee to become a member of the Board of
Directors, and by all of our directors and executive officers as a group.
COMMON STOCK
BENEFICIALLY OWNED(2)
-------------------------
NUMBER OF PERCENTAGE
SHARES OF OF
NAME OF BENEFICIAL OWNER(1) COMMON STOCK CLASS
- --------------------------- ------------ ----------
HarbourVest Partners V -- Direct Fund L.P.(3)............... 5,068,063 22.0%
SAIC Venture Capital Corporation(4)......................... 2,246,615 10.3%
Mohammad Aamir(5)........................................... 1,403,876 6.4%
James Daleen(6)............................................. 1,047,621 4.8%
David B. Corey(7)........................................... 242,929 1.1%
Paul G. Cataford(8)......................................... 654,750 3.0%
Neil E. Cox(9).............................................. 18,371 *
Daniel J. Foreman(10)....................................... 886,677 4.1%
Stephen J. Getsy(11)........................................ 109,673 *
P.J. Hilbert................................................ * *
Ofer Nemirovsky(12)......................................... 5,068,063 22.0%
William A. Roper, Jr.(13)................................... 2,251,615 10.3%
Stephen M. Wagman(14)....................................... 36,875 *
Steven Kim(15).............................................. 17,500 *
David McTarnaghan(16)....................................... 67,311 *
Timothy C. Moss(17)......................................... 49,059 *
Richard A. Schell(18)....................................... 243,067 1.1%
All current directors and executive officers as a group (11
persons)(19).............................................. 10,334,074 44.2%
- ---------------
* Less than 1% of the outstanding Common Stock
(1) Except as set forth herein, the street address of the named beneficial
owner is c/o Daleen Technologies, Inc., 1750 Clint Moore Road, Boca Raton,
Florida 33487.
(2) For purposes of calculating the percentage beneficially owned, the number
of shares of common stock deemed outstanding include (i) 21,792,425 shares
outstanding as of April 5, 2001, (ii) a warrant for 1,250,000 as described
in footnote (3) below, and (iii) 579,805 shares issuable by us pursuant to
options held by the respective person or group which may be exercised
within 60 days following April 5, 2001 ("Presently Exercisable Options").
The warrant and the Presently Exercisable Options are considered to be
outstanding and to be beneficially owned by the person or group holding
such warrant and options for the purpose of computing the percentage
ownership of such person or group but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person or
group.
(3) Includes 1,250,000 shares issuable upon exercise of a warrant. The street
address of the named beneficial owner is One Financial Center, 44th Floor,
Boston, MA 02111.
(4) The street address of the named beneficial owner is 3753 Howard Hughes
Parkway, Suite 200, Las Vegas, NV 89109.
(5) Includes 452,096 shares held by 1303949 Ontario Inc. Mr. Aamir is the
President and sole director and a minority shareholder of 1303949 Ontario,
Inc. The street address of the named beneficial owner is 819-123 Scadding
Avenue, Toronto, Ontario, M5A 4J3, Canada.
(6) Includes 901,945 shares held by J.D. Investment Limited Partnership
("JDLP"). Mr. Daleen is the President of J.D. Management, Inc., the
managing general partner of JDLP. Also includes 95,652 shares issuable upon
exercise of options that will be exercisable within 60 days of April 5,
2001,
45
53
48,220 shares held by the James Daleen Irrevocable Trust and 1,804 shares
held by Mr. Daleen's wife. Mr. Daleen disclaims beneficial ownership of the
shares held by JDLP, the trust and his wife.
(7) Includes 178,606 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001. Also includes 10,600 shares
held by The Luke Corey Irrevocable Trust and 10,600 shares held by The
Sydney Corey Irrevocable Trust. Mr. Corey disclaims beneficial ownership of
the shares held by each of the trusts.
(8) Includes 654,450 shares held by Bell Canada and 300 shares held by Mr.
Cataford. Mr. Cataford is the managing director and president for BCE
Capital, Inc., a management company charged with all venture capital
activities of Bell Canada and BCE, Inc., and therefore may be considered to
share beneficial ownership of the shares of Bell Canada.
(9) Consists of 18,371 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001.
(10) Consists of 620,669 shares held by ABN AMRO Inc., 224,614 shares held by I
Eagle Trust and 41,394 shares held by Burnham Capital, LLC. I Eagle Trust
and Burnham Capital, LLC are affiliates of ABN AMRO Inc. Mr. Foreman is a
managing director of ABN AMRO Inc. and therefore may be considered to share
beneficial ownership of these shares.
(11) Includes 100,973 shares held by the Stephen Getsy Living Trust. Also
includes 8,700 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001.
(12) Consists of 3,818,063 shares and 1,250,000 shares issuable upon exercise of
a warrant, all held by HarbourVest Partners V-Direct Fund L.P. HarbourVest
Partners, LLC is the managing member of the general partner of HarbourVest
Partners V-Direct Fund L.P. Mr. Nemirovsky is a managing director of
HarbourVest Partners, LLC and a member of the general partner of
HarbourVest Partners V-Direct Fund L.P. and therefore may be considered to
share beneficial ownership of the shares held by HarbourVest Partners
V-Direct Fund, L.P. Mr. Nemirovsky disclaims beneficial ownership of these
shares.
(13) Includes 2,246,615 shares held by SAIC Venture Capital Corporation, of
which Mr. Roper is Chairman of the Board.
(14) Consists of 36,875 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001.
(15) Includes 17,500 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001.
(16) Includes 64,311 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001.
(17) Includes 48,059 shares issuable upon exercise of options that will be
exercisable within 60 days of April 5, 2001.
(18) Includes 30,000 shares held by Mr. Schell's wife and 147,290 shares
issuable upon exercise of options that will be exercisable within 60 days
of April 5, 2001, 900 shares held by the Nicole K. Schell Irrevocable
Trust, 900 shares held by the Ginger Schell Irrevocable Trust and 900
shares held by the Richard R. Schell Irrevocable Trust. Mr. Schell
disclaims beneficial ownership of the shares held by his wife and each of
the trusts.
(19) Includes 1,250,000 shares issuable upon exercise of a warrant and 355,704
shares issuable upon exercise of options that will be exercisable within 60
days of April 5, 2001. See also footnotes (2), (6), (7), (9), (10), (15)
and (16) above.
46
54
STOCK PERFORMANCE GRAPH
The following graph presents the Company's total stockholder return of an
investment of $100 in cash on October 1, 1999(1) for (i) the Company's common
stock, (ii) the Nasdaq Stock Market -- U.S. Index (the "Nasdaq Index")(2), and
(iii) the Nasdaq Computer & Data Processing Services Stocks represented by
companies in SIC code 737 (the "Computer & Data Processing Index").(2) All
values and returns assume reinvestment of the full amount of all dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
FOR THE PERIOD FROM 10/1/99 THROUGH 12/29/00
AMONG DALEEN TECHNOLOGIES, INC., THE NASDAQ INDEX AND
THE COMPUTER & DATA PROCESSING INDEX
[STOCK PERFORMANCE GRAPH]
COMPUTER AND DATA
DALEEN TECHNOLOGIES, INC. NASDAQ INDEX PROCESSING INDEX
------------------------- ------------ -----------------
10/01/99 100.00 100.00 100.00
12/31/99 182.29 148.28 169.38
3/31/00 171.35 166.41 167.49
6/30/00 128.65 144.68 136.84
9/29/00 123.44 133.13 126.63
12/29/00 31.25 89.22 78.34
- ---------------
(1) The Company completed the initial public offering of common stock on October
1, 1999. The Company's 2000 fiscal year ended on December 31, 2000. This
"Performance Graph" assumes that $100 was invested on October 1, 1999, in
the Company's common stock at the initial public offering price of $12.00
per share and at the closing sales price for each index on that date. No
cash dividends have been declared on the common stock. Stockholder returns
over the indicated periods should not be considered indicative of future
stockholder returns.
(2) The Nasdaq Index and the Computer & Data Processing Index are calculated by
the Center for Research in Securities Prices.
The information presented in the graph above was obtained by the Company
from outside sources it considers to be reliable but has not been independently
verified by the Company.
The Stock Performance Graph shall not be deemed incorporated by reference
by any general statement incorporating by reference this proxy statement into
any filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (collectively, the "Acts"), except to the
extent that the Company specifically incorporates this information by reference,
and shall not otherwise be deemed filed under such Acts.
47
55
CERTAIN TRANSACTIONS
ISSUANCE OF COMMON STOCK IN ACQUISITION OF INLOGIC
Effective December 16, 1999, we acquired all of the issued and outstanding
capital shares of Inlogic Software Inc., a Nova Scotia corporation ("Inlogic").
We acquired the capital shares of Inlogic in exchange for an aggregate of
2,160,239 exchangeable shares (the "Exchangeable Shares") and 57,435 shares of
the Company's common stock. The Exchangeable Shares were issued by our
wholly-owned subsidiary, Daleen Canada Corporation, but were exchangeable at any
time into shares of our common stock on a one-for-one basis. All of the
Exchangeable Shares were converted into shares of our common stock during 2000.
We also issued options to acquire an aggregate of 167,326 shares of our common
stock in exchange for all of the outstanding options to acquire capital shares
of Inlogic. The terms of the transaction are set forth in a Share Purchase
Agreement as well as certain other transaction documents which are filed as
Exhibits to our Current Report on Form 8-K filed on December 30, 1999.
RELATED PARTY TRANSACTIONS
Transactions with Companies Associated with SAIC
Mr. Roper, a member of our Board of Directors, is a corporate executive
vice president of SAIC. SAIC Venture Capital Corporation, a wholly-owned
subsidiary of SAIC, is a significant stockholder of the Company. Mr. Roper is
the chairman of the board of SAIC Venture Capital Corporation. We derived
$391,464 in revenue from SAIC pursuant to a license agreement between SAIC and
the Company. In addition, SAIC owns 43% of all voting stock of Danet, Inc. and
100% of the voting stock of Telcordia. Danet is both a customer of ours as well
as a distributor of our products. Sales to Danet for the years ended December
31, 1999 and 2000 amounted to $1,031,350, and $0, respectively. We paid Danet,
in its capacity as distributor of our products, $99,468 and $144,862 for the
years ended December 31, 1999 and 2000. We have a strategic alliance
relationship with Telcordia. We did not receive any revenue from, or make any
payments to, Telcordia in connection with this relationship during 1999 or 2000.
In September 2000, we entered into a service agreement with Danet pursuant
to which Danet agreed to perform work on behalf of the Company. It is
anticipated that during 2001 the Company will pay to Danet $240,000 for services
under this agreement.
As described in the Private Placement Proposals (Proposals 1 and 2) above,
SAIC Venture Capital Corporation has agreed to purchase, for an aggregate
purchase price of $7.5 million, 67,604 shares of Series F preferred stock and
Warrants to purchase 27,042 shares of Series F preferred stock pursuant to the
Purchase Agreement. In the event the stockholders approve the Private Placement
Proposals and the Private Placement Transaction is consummated, SAIC Venture
Capital Corporation will beneficially own % of our common stock.
Private Placement Transaction
On March 30, 2001, we entered into the Purchase Agreement, and related
agreements, with the Investors in connection with the Private Placement
Transaction. Pursuant to the Purchase Agreement, HarbourVest Partners
VI -- Direct Fund, L.P., a venture capital fund managed by HarbourVest, agreed
to purchase, for an aggregate purchase price of $10 million, 90,139 shares of
Series F preferred stock and Warrants for the purchase of 36,056 shares of
Series F preferred stock. HarbourVest also is the managing partner of
HarbourVest Partners V-Direct Fund L.P. which currently beneficially owns
approximately 22% of our outstanding common stock, including warrants to
purchase 1,250,000 shares of common stock. In the event the Private Placement
Transaction is consummated and assuming a Series F preferred stock conversion
price of $1.1094, HarbourVest, through the funds that it manages, would
beneficially own approximately 34.4% of our outstanding common stock assuming
conversion of the Series F preferred stock and exercise of its warrants. Ofer
Nemirovsky, a director of the Company, is a managing director of HarbourVest.
Pursuant to the Purchase Agreement, SAIC Venture Capital Corporation, a
wholly-owned subsidiary of SAIC, has agreed to purchase, for an aggregate
purchase price of $7.5 million, 67,604 shares of
48
56
Series F preferred stock and warrants to purchase 27,042 shares of Series F
preferred stock. SAIC Venture Capital Corporation currently owns approximately
10.3% of our outstanding common stock. In the event the Private Placement
Transaction is consummated, SAIC Venture Capital Corporation will beneficially
own 23.8% of our outstanding common stock assuming conversion of the Series F
preferred stock and exercise of its Warrants. William A. Roper, a director of
the Company, is a corporate executive vice president of SAIC and chairman of the
board of SAIC Venture Capital Corporation.
Pursuant to the Purchase Agreement, St. Paul Venture Capital Corporation
("St. Paul") has agreed to purchase, for an aggregate purchase price of $2
million, 18,028 shares of Series F preferred stock and Warrants to purchase
7,211 shares of Series F preferred stock. St. Paul currently owns 3.8% of our
outstanding common stock. In the event the Private Placement Transaction is
consummated, St. Paul will beneficially own 7.7% of our outstanding common stock
assuming conversion of the Series F preferred stock and exercise of its
Warrants.
For additional information regarding the Private Placement Proposals and
the Private Placement Transaction, see "Proposal 1. Proposal to Approve Private
Placement Transaction" and "Proposal 2. Proposal to Approve Amendment to Our
Certificate of Incorporation to Increase the Number of Authorized Shares of
Common Stock" above.
Loans to Executives
In January 2001, we loaned Mr. Daleen, our chairman and chief executive
officer, and his wholly-owned limited partnership J.D. Investment Limited
Partnership ("JDLP") $1,237,823. The loan bears interest at a rate of 8.75% per
annum. The principal and any unpaid accrued interest are payable in full January
31, 2006. The loan is secured by 901,941 shares of the Company's common stock,
and is non-recourse to Mr. Daleen and JDLP except to the extent of the
collateral.
We made loans to Richard Schell in the principal amounts of $54,347,
$61,907 and $35,000 on June 1, 1999, October 1, 1999 and April 1, 2000,
respectively. We also made a loan to Mr. Corey in the amount of $64,777 on
August 31, 2000. The loans are evidenced by promissory notes that bear interest
at a rate of 8.75% per year and that require interest to be paid annually. All
principal and accrued interest payable under the notes is due no later than five
years after the date of the loan and all principal and accrued interest payable
on the notes will be due five years from the date of the loans. The executive
officers are fully liable and each officer has pledged his shares of our common
stock as security for his loan and has agreed to repay the portion of the
principal and unpaid interest for any shares of the pledged stock that he may
transfer before the repayment of the entire principal and interest amounts owed.
Our Board of Directors considered and approved the loan requests and forms of
the loan documents.
Other Transactions
We entered into indemnification agreements with each of our executive
officers and directors containing provisions that may require us to indemnify
these individuals against liabilities that may arise by reason of their status
or service as officers and directors, other than liabilities arising from
willful misconduct of a culpable nature, and to advance expenses incurred as a
result of any proceedings against them for which they could be indemnified.
Policy on Future Transactions
Our Board of Directors has adopted a resolution providing that all
transactions with related parties, including our officers, directors, principal
stockholders or affiliates, must be approved by a majority of our Board of
Directors, including a majority of the independent and disinterested members of
our Board of Directors, or a majority of the disinterested stockholders and must
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.
49
57
INFORMATION REGARDING OUR INDEPENDENT ACCOUNTANTS
On April 9, 2001, our Board of Directors approved the appointment of KPMG
LLP as our independent accountants for the fiscal year ended December 31, 2001.
The appointment of this firm was recommended to our Board of Directors by our
Audit Committee. KPMG LLP has been our independent accountants since 1993.
A representative of KPMG LLP is expected to be present at the Annual
Meeting to make a statement if he or she desires to do so, and such
representative is expected to be available to respond to appropriate questions.
AUDIT FEES
The aggregate fees billed by our independent auditors for professional
services rendered for the audit of our annual financial statements included in
our Annual Report on Form 10-K for the fiscal year ended December 31, 2000, as
well as for the review of our financial statements included in our Quarterly
Reports on Form 10-Q during the fiscal year ended December 31, 2000, totaled
$265,000 (excluding expenses reimbursed by us).
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES
No fees other than those described above under the caption "Audit Fees" and
those described below under the caption "All Other Fees" were billed to us by
KPMG LLP for professional services in the fiscal year ended December 31, 2000.
ALL OTHER FEES
The aggregate fees billed by KPMG LLP for professional services rendered
other than as stated above under the captions "Audit Fees" and "Financial
Information Systems Design and Implementation of Fees" above totaled $343,000 in
fiscal 2000. The Audit Committee considers the provision of these services to be
compatible with maintaining the independence of KPMG LLP.
OTHER MATTERS
Proposals Intended to be Presented at Next Annual Meeting. Rules of the
Commission and our Bylaws require that any proposal by a stockholder for
consideration at the 2002 Annual Meeting of Stockholders must be received by us
no later than , 2002, if any such proposal is to be eligible for
inclusion in our proxy materials for, and to be presented for consideration at,
our 2002 Annual Meeting. Under such rules, we are not required to include
stockholder proposals in our proxy materials unless certain other conditions
specified in such rules are met.
Other Matters. We know of no business that will be presented for
consideration at the Annual Meeting other than as stated in the Notice of
meeting. If, however, other matters are properly brought before the meeting, it
is the intention of the persons named in the accompanying form of proxy to vote
the shares represented thereby on such matters in accordance with their own
discretion.
Annual Report. A copy of our Annual Report on Form 10-K is being delivered
to each stockholder with this Proxy Statement. We will provide a copy of our
Annual Report on Form 10-K for the year ended December 31, 2000, without charge,
to any stockholder who makes a written request to Stephen M. Wagman, Secretary,
Daleen Technologies, Inc., 1750 Clint Moore Road, Boca Raton, FL 33487.
50
58
INCORPORATION OF INFORMATION BY REFERENCE
This Proxy Statement is accompanied by the Company's 2000 Annual Report to
Stockholders, which includes a copy of the Company's Annual Report on Form 10-K
for the year ended December 31, 2000. The following portions of the Annual
Report on Form 10-K are incorporated by reference into this proxy statement and
are considered a part of this document:
- Item 6. Selected Financial Data;
- Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations;
- Item 7A. Quantitative and Qualitative Disclosures About Market Risk;
- Item 8. Financial Statements and Supplementary Data; and
- Item 9. Changes in and Disagreements with Accounts on Accounting and
Financial Disclosure
Stockholders are urged to read carefully these portions of the annual
report.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ STEPHEN M. WAGMAN
--------------------------------------
Stephen M. Wagman
Secretary
51
59
APPENDIX A
- --------------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT
BETWEEN
DALEEN TECHNOLOGIES, INC.
AND
THE ESCROW PURCHASERS NAMED HEREIN
DATED AS OF MARCH 30, 2001
- --------------------------------------------------------------------------------
60
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of March 30, 2001 (this
"AGREEMENT"), between DALEEN TECHNOLOGIES, INC., a Delaware corporation (the
"COMPANY"), and the purchasers identified in Exhibit A to this Agreement (each
individually an "ESCROW PURCHASER," and collectively the "ESCROW PURCHASERS").
RECITALS
A. Upon and subject to the terms and conditions set forth in this
Agreement, the Company proposes to issue and sell to the Escrow Purchasers, and
the Escrow Purchasers desire to purchase from the Company (i) an aggregate of
247,882 shares, par value $.01 per share, of Series F Convertible Preferred
Stock of the Company (the "SERIES F PREFERRED"), and (ii) warrants
(collectively, the "ESCROW WARRANTS") to purchase, subject to the terms and
conditions thereof, an aggregate of 99,153 shares of Series F Preferred at an
exercise price of $166.41 per share, containing the terms and conditions set
forth in the form of warrant attached hereto as Exhibit B.
B. Each share of Series F Preferred is convertible into shares of
common stock, par value $.01 per share, of the Company (the "COMMON STOCK").
C. The Company and the Escrow Purchasers are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 of Regulation D ("REGULATION D") as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form attached hereto as Exhibit C (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act, and the rules and
regulations promulgated thereunder, and applicable state securities laws.
E. Pursuant to the MarketPlace Rules of the Nasdaq National
Market (the "NNM"), and the Delaware General Corporation Law, the Company is
required to obtain common stockholder approval for the issuance and sale of
Series F Preferred and Escrow Warrants and the other transactions contemplated
by the Transaction Documents (as hereinafter defined) (i) to the extent such
shares of Series F Preferred and Warrant Shares (as defined herein) are
convertible into a number of shares of Common Stock equal to 20% or more of the
outstanding shares of Common Stock on the date hereof, (ii) to certain
affiliates of the Company and (iii) to the extent that the issuance and sale of
the Series F Preferred and Escrow Warrants constitute a change of control under
the MarketPlace Rules. Additionally, the Company will be required to obtain
stockholder approval of an amendment to the Company's Certificate of
Incorporation (i) to the
-2-
61
authorize, create and designate the Series F Preferred and (ii) to increase the
total number of authorized shares of capital stock to 221,877,236 and to
increase to 200,000,000 the total number of shares of Common Stock authorized to
be issued in order to have a sufficient number of shares of authorized Common
Stock for issuance upon conversion of all of the Series F Preferred (such
amendments to the Certificate of Incorporation are referred to as the
"CERTIFICATE OF AMENDMENT", and the stockholder approval of the Certificate of
Amendment together with the stockholder approval required by the MarketPlace
Rules of The Nasdaq National Market, hereinafter are referred to collectively as
the "REQUISITE STOCKHOLDER APPROVAL"). As a result, contemporaneously with the
execution and delivery of this Agreement, the Company, the Escrow Purchasers and
SunTrust Bank, a Georgia banking corporation, as escrow agent (the "ESCROW
AGENT"), are executing an Escrow Agreement substantially in the form attached
hereto as Exhibit D (the "ESCROW AGREEMENT") pursuant to which the Purchase
Price (as hereinafter defined) payable by the Escrow Purchasers for the Escrow
Shares (as hereinafter defined) and Escrow Warrants shall be placed in escrow
pending the Company's receipt of the Requisite Stockholder Approval.
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANTS
1.1 Purchase and Sale
(a) Purchase and Sale Pursuant to Escrow. Subject to the
terms and conditions of this Agreement, at the Escrow Closing the Company shall
issue and sell to the Escrow Purchasers and the Escrow Purchasers shall purchase
from the Company, such number of shares of Series F Preferred and the Escrow
Warrants to purchase the aggregate number of shares of Series F Preferred in the
respective amounts set forth opposite each Escrow Purchaser's name on Exhibit A
hereto and identified therein as "ESCROW SHARES" and "WARRANT SHARES",
respectively, for the purchase price set forth opposite such Escrow Purchaser's
name on Exhibit A (the shares of Series F Preferred and Escrow Warrants set
forth opposite the Escrow Purchasers' names on Exhibit A and identified as
Escrow Shares and Warrant Shares are referred to as the "ESCROW SHARES" and the
"WARRANT SHARES", respectively). Notwithstanding the foregoing, if the Company
does not obtain the Requisite Stockholder Approval on or before July 30, 2001,
or such later date as the Company and the Escrow Purchasers shall agree in
writing (the "APPROVAL DATE"), the Company's obligation to sell, and the Escrow
Purchasers' obligations to purchase, the Escrow Shares and Escrow Warrants
pursuant to this Section 1.1(a) shall be deemed null and void. The parties
hereto expressly understand and agree that satisfaction of the Company's
obligations under Section 1.3(b)(i)(A) and (B) and the receipt by the Company of
the Requisite Stockholder Approval on or before the Approval Date, shall be the
only condition to
-3-
62
the release of the Escrow Funds (as defined below) to the Company and the
issuance and sale of the Escrow Shares and Escrow Warrants to the Escrow
Purchasers.
(b) Allocation of Purchase Price. The parties agree that
the aggregate fair market value of the Escrow Warrants for purposes of IRC
Treasury Regulations Section 1.1273-2(h) shall be $________. The Company and the
Escrow Purchasers agree to use the fair market value as so determined for U.S.
federal tax purposes with respect to the transactions contemplated by this
Agreement (unless otherwise required by final determination by the Internal
Revenue Service or a court of competent jurisdiction); provided, however, that
the fair market value of the Escrow Warrants for purposes of financial reporting
shall be in accordance with generally accepted accounting principles
consistently applied ("GAAP").
1.2 Authorization of Preferred Stock. The Company shall, upon
receipt of the Requisite Stockholder Approval and prior to the Escrow Closing
(as hereinafter defined), file with the Secretary of State of the State of
Delaware the Certificate of Amendment containing amendment to the Certificate of
Incorporation increasing the number of authorized shares of capital stock and
the number of authorized shares of Common Stock and the rights, preferences,
privileges, and limitations of the Series F Preferred, in the form attached
hereto as Exhibit E (the "CERTIFICATE OF AMENDMENT").
1.3 The Closing.
(a) Time and Place. The closing (the "INITIAL CLOSING")
of the delivery to the Escrow Agent of the Escrow Shares and the Escrow Warrants
to be issued and sold pursuant to Section 1.1(a) above shall take place at the
offices of Morris, Manning & Martin, L.L.P., 1600 Atlanta Financial Center, 3343
Peachtree Road, N.E., Atlanta, Georgia 30326 on March 30, 2001. The closing (the
"ESCROW CLOSING") of the purchase and sale of the Escrow Shares and the Escrow
Warrants issued and sold pursuant to Section 1.1(a) above shall take place at
such offices of Morris, Manning & Martin, L.L.P. on the Business Day (as defined
below) immediately following the date the Company receives the Requisite
Stockholder Approval or such later date as the Company and the Escrow Purchasers
shall agree in writing. The date of the Initial Closing is referred to in this
Agreement as the "CLOSING DATE."
(b) Deliveries. (i) At the Initial Closing, subject to
the terms and conditions of this Agreement,
(A) the Company shall deliver to each Escrow Purchaser
the Escrow Agreement duly executed on behalf of the Company;
(B) the Company shall deposit with the Escrow Agent (1)
undated certificates in the name of each Escrow Purchaser (collectively, the
"CERTIFICATES") representing the number of Escrow Shares set forth opposite such
Escrow Purchaser's name on Exhibit A hereto, (2) undated Escrow Warrants
representing the right to purchase the number of Warrant Shares set forth
opposite such Escrow Purchaser's name on Exhibit A hereto and (3) the
irrevocable instructions set forth in Exhibit B of the Escrow Agreement (the
"IRREVOCABLE INSTRUCTIONS") instructing SunTrust Bank, as transfer agent for the
Series F Preferred (the
-4-
63
"TRANSFER AGENT"), to date and deliver final definitive Certificates and Escrow
Warrants pursuant to the provisions of Section 4(a) of the Escrow Agreement. The
Company and the Escrow Purchasers understand and agree that the Escrow Shares
represented by the Certificates and the Escrow Warrants shall not be issued by
the Company until the Escrow Closing;
(C) Each Escrow Purchaser shall deliver to the Company
(1) the Registration Rights Agreement, duly executed on behalf of the Escrow
Purchaser and (2) all documents, instruments, and writings required to have been
delivered at or prior to the Initial Closing by the Escrow Purchasers pursuant
to this Agreement;
(D) Each Escrow Purchaser shall deliver to Escrow Agent
(1) funds in the respective amounts set forth opposite each such Escrow
Purchaser's name under the column "AGGREGATE PURCHASE PRICE" on Exhibit A
hereto, in United States dollars in immediately available funds by wire transfer
to an account designated in writing by the Escrow Agent for such purpose on or
prior to the Closing Date (the Aggregate Purchase Price deposited in the escrow
by the Escrow Purchasers, plus all earnings thereon is referred to as the
"ESCROW FUNDS" and the purchase price is referred to individually as the
"PURCHASE PRICE") to be held pursuant to the Escrow Agreement, and (2) a
completed and signed U.S. Internal Revenue Series Form W-9 (or substitute Form
W-9 satisfactory to the Escrow Agent); and
(E) Each Escrow Purchaser shall deliver to the Company
and the Escrow Agent the Escrow Agreement duly executed on behalf of the Escrow
Purchaser.
(ii) At the Escrow Closing, subject to the terms and
conditions of this Agreement and the Escrow Agreement,
(A) If the Company has delivered to the Escrow Agent the
Notice of Disbursement (as defined in the Escrow Agreement) on or prior to the
Expiration Date, the Escrow Agent shall deliver to the Transfer Agent the
Irrevocable Instructions;
(B) Simultaneously with the wiring of the Escrow Funds to
the Company pursuant to this Section 1.3(b), the Escrow Agent shall (i)
immediately deliver to Transfer Agent (1) the Irrevocable Instructions, (2)
Certificates in definitive form representing each Escrow Purchaser's Escrow
Shares as indicated opposite such Escrow Purchaser's name on Exhibit A hereto,
duly executed on behalf of the Company and registered in the name of such Escrow
Purchaser, (3) each Escrow Purchaser's Escrow Warrants duly executed on behalf
of the Company and registered in the name of such Escrow Purchaser and (4) the
Placement Agent Warrant (as such term is defined herein);
(C) The Escrow Agent shall (i) deliver to the Company the
Escrow Funds in United States dollars in immediately available funds by wire
transfer to an account designated in writing by the Company for such purpose on
or prior to the date of the Escrow Closing and (ii) deliver to the Placement
Agent (as such term is defined herein) such funds in accordance with Section 5.1
hereof and the Escrow Agreement; and
(D) The Company shall take all such action as is
necessary to cause the Transfer Agent to issue the Escrow Shares and Escrow
Warrants to the Escrow Purchasers in accordance with the Irrevocable
Instructions, the Escrow Agreement and this Agreement.
1.4 Expiration of Escrow.
-5-
64
Notwithstanding anything to the contrary contained herein and
in the Escrow Agreement, if Escrow Agent shall not have received a Notice of
Disbursement (as such term is defined in the Escrow Agreement) on or before
August 1, 2001 (the "EXPIRATION DATE"), the Escrow Agent shall, within two (2)
business days after the Expiration Date, without any further instruction or
direction from the Company or the Escrow Purchasers, (x) return to each Escrow
Purchaser, by wire transfer of immediately available funds to such Escrow
Purchaser's Account set forth on Exhibit D of the Escrow Agreement, the Purchase
Price deposited with the Escrow Agent by such Escrow Purchaser and such Escrow
Purchaser's share of income, if any, earned on the Escrow Funds, each such share
of income to be calculated on a pro rata basis and (y) return to the Company the
Certificates and Escrow Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company.
Except to the extent set forth on the Company's Schedule of Exceptions attached
hereto (the "SCHEDULE OF EXCEPTIONS"), the Company hereby makes the following
representations and warranties to the Escrow Purchasers:
(a) Organization and Standing, Certificate of
Incorporation and Bylaws. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware.
Each of the Subsidiaries (as hereinafter defined) is a corporation, limited
liability company, foreign corporation or a Nova Scotia unlimited liability
company duly incorporated or organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated or organized. The
Company and each of the Subsidiaries is duly qualified to do business as a
foreign corporation and is in good standing as a foreign corporation in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the business or properties of the Company and the Subsidiaries, taken
as a whole. The Company has not elected to be a "S Corporation" as described in
Section 1361 of the Internal Revenue Code of 1986, as amended. The Company has
furnished the Escrow Purchasers with complete and correct copies of its
Certificate of Incorporation and Bylaws and, in each case, all amendments to the
date of this Agreement.
(b) Corporate Power. Each of the Company and its
Subsidiaries has all requisite corporate power and authority to own the
properties owned by it and to carry on its business as now conducted or
contemplated. The Company has all requisite corporate power and authority to
enter into this Agreement, the Escrow Warrants, the Registration Rights
Agreement and the Escrow Agreement (collectively, the "TRANSACTION DOCUMENTS").
Upon receipt of the Requisite Stockholder Approval, the Company will have at the
Escrow Closing all requisite corporate power to issue and sell the Escrow Shares
and the Escrow Warrants, to issue the Warrant Shares upon exercise of the Escrow
Warrants, to issue the Common Stock issuable upon conversion of (i) the Escrow
Shares and, (ii) the Warrant Shares and to carry out and perform its
-6-
65
obligations under the terms of this Agreement relating to the issuance and sale
of the Escrow Shares and the Escrow Warrants.
(c) Subsidiaries. Other than as specified in Schedule
2.1(c) to the Schedule of Exceptions, the Company has no subsidiaries and does
not own of record or beneficially any capital stock or equity interest or
investment in any corporation, association, partnership, limited liability
company or business entity. The companies identified as "Subsidiaries" on
Schedule 2.1(c) to the Schedule of Exceptions are referred to herein as the
"SUBSIDIARIES". Schedule 2.1(c) to the Schedule of Exceptions contains a
complete and correct description of the percentage ownership of each Subsidiary
of the Company.
(d) Capitalization. The Company's authorized capital
stock consists of (i) 70,000,000 shares of Common Stock, of which 21,787,049
shares are issued and outstanding, (ii) 21,877,236 shares of Preferred Stock,
par value $.01 per share, of which 3,000,000 shares have been designated Series
A Convertible Preferred Stock, none of which are issued and outstanding,
1,250,000 shares have been designated Series B Convertible Preferred Stock, none
of which are issued and outstanding, 1,222,222 shares have been designated
Series C Convertible Preferred Stock, none of which are issued and outstanding,
4,221,846 shares have been designated Series D Convertible Preferred Stock, none
of which are issued and outstanding, 686,553 shares have been designated Series
D-1 Convertible Preferred Stock, none of which are issued and outstanding,
1,496,615 shares have been designated Series E Convertible Preferred Stock, none
of which are issued and outstanding, and 356,950 shares will, following receipt
of the Requisite Stockholder Approval but prior to the Escrow Closing will be,
designated as Series F Convertible Preferred Stock, all of which will have been
reserved for issuance pursuant to this Agreement and the Escrow Warrants. All
the aforesaid issued and outstanding shares of Common Stock are duly authorized
and validly issued, fully paid and nonassessable and have been offered, issued,
sold and delivered by the Company in compliance with applicable federal and
state securities laws, except where such noncompliance would not have a material
adverse effect on the Company. Except as set forth in Schedule 2.1(d) to the
Schedule of Exceptions, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon the
Company or any of its Subsidiaries for the purchase or acquisition of any shares
of its capital stock. The Company holds no shares of its capital stock in its
treasury.
(e) Authorization. Except as set forth in Schedule 2.1(e)
to the Schedule of Exceptions and except for receipt of the Requisite
Stockholder Approval and the filing of the Certificate of Amendment with the
Secretary of State of the State of Delaware, all corporate action on the part of
the Company, its directors and stockholders necessary for the due authorization,
execution, delivery and performance by the Company of the Transaction Documents
and the consummation of the transactions contemplated therein. Upon receipt of
the Requisite Stockholder Approval, all corporate action on the part of the
Company, its directors and stockholders necessary for the due authorization,
issuance and delivery to the Escrow Purchasers of the Escrow Shares, the Escrow
Warrants, the Warrant Shares and the Common Stock issuable upon conversion of
the Escrow Shares and the Warrant Shares underlying the Escrow Warrants will
have been taken.
-7-
66
The Transaction Documents, when executed and delivered by the Company,
will be legal, valid and binding obligations of the Company, enforceable in
accordance with their terms, subject to applicable bankruptcy, insolvency,
reorganization and moratorium laws and other laws of general application
affecting enforcement of creditors' rights generally, and assuming the due
authorization, execution and delivery of the Transaction Documents by each other
party thereto. Assuming the accuracy of the representations and warranties of
each of the Escrow Purchasers set forth in Section 2.2 hereto, the execution,
delivery and performance by the Company of the Transaction Documents and
compliance hereby and thereby and the issuance and sale of the Escrow Shares and
the Escrow Warrants and the issuance of the Warrant Shares upon exercise of the
Escrow Warrants and the issuance of the Common Stock issuable upon conversion of
the Escrow Shares and the Warrant Shares, in each case in accordance with the
terms hereof, will not result in any violation of or be in conflict with, or
result in a breach of, or constitute a default or trigger any change of control
provisions under, any term or provision of any state or Federal law, ordinance,
rule or regulation to which the Company is subject, or the Company's Certificate
of Incorporation or Bylaws, as amended and in effect on the date hereof, or any
mortgage, indenture, agreement, instrument, judgment, decree, order or other
similar restriction to which the Company or any of its Subsidiaries is a party
or by which it is bound, or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or any of its Subsidiaries pursuant to any such term, except for the Requisite
Stockholder Approval, in each case, except as would not have a material adverse
effect on the Company or its Subsidiaries, taken as a whole, or materially
impair the ability of the Company to perform its obligations hereunder. No
stockholder has any preemptive right or rights of first refusal by reason of the
issuance of the Escrow Shares or Escrow Warrants. The Escrow Shares, when issued
in compliance with the provisions of this Agreement, and the Warrant Shares,
when issued upon exercise of the Escrow Warrants, will be validly issued, fully
paid and nonassessable, and the Escrow Shares will be free of any liens or
encumbrances. Subject to the receipt of the Requisite Stockholder Approval, the
Warrant Shares and the Common Stock issuable upon conversion of the Escrow
Shares and the Escrow Warrants (and the Warrant Shares upon the conversion of
the Escrow Warrants) delivered at the Escrow Closing will have been duly
authorized and validly reserved, will not be subject to any preemptive rights or
rights of first refusal and, upon issuance in accordance with the terms of the
Escrow Warrants and the Escrow Shares, as the case may be, will be validly
issued, fully paid and nonassessable.
(f) Financial Information. The Company has furnished each
Escrow Purchaser with (i) its unaudited consolidated balance sheet as of
December 31, 2000, and consolidated statements of operations, consolidated
statements of redeemable preferred stock and stockholders' equity (deficit), and
consolidated statements of cash flows, in each case, for the twelve months ended
December 31, 2000, and (ii) its audited consolidated balance sheet as of
December 31, 1999, and its consolidated statements of operations, consolidated
statements of redeemable preferred stock and stockholders' (deficit) equity, and
consolidated statements of cash flows, in each case, for the twelve months ended
December 31, 1999 (all of the financial statements identified in clauses (i) and
(ii) are collectively referred to as the "FINANCIAL STATEMENTS"). The Financial
Statements present fairly the financial position and results of operations of
the Company at the dates and for the periods to which they relate, have been
prepared in accordance with generally accepted accounting principles
consistently followed
-8-
67
throughout the periods involved and show all material liabilities, absolute or
contingent, of the Company required to be recorded thereon in accordance with
generally accepted accounting principles as at the respective dates thereof.
(g) Outstanding Debt. Except as set forth in Schedule
2.1(g) to the Schedule of Exceptions, the Company and its Subsidiaries do not
have any outstanding indebtedness for borrowed money except as reflected on the
Financial Statements and are not guarantors or otherwise contingently liable for
any such indebtedness. There exists no default under the provisions of any
instrument evidencing any such indebtedness.
(h) Absence of Liabilities. The Company and its
Subsidiaries do not have any liabilities (fixed or contingent, including without
limitation any tax liabilities due or to become due) which are not fully
reflected or provided for on the Financial Statements, except as listed in
Schedule 2.1(h) to the Schedule of Exceptions and except for liabilities that
are not material to the Company and to its Subsidiaries, taken as a whole.
(i) Ordinary Course of Business. Except as set forth on
Schedule 2.1(i) to the Schedule of Exceptions and except for the transactions
contemplated hereby, since the date of the Financial Statements, the Company has
not (i) made any declaration, setting aside or payment or other distribution in
respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase or other acquisition of any of such stock by the Company or
its Subsidiaries; (ii) increased the compensation of any of its officers or the
rate of pay of any of its employees, except as part of increases in the ordinary
course of business; (iii) made any loans or advances to any person in excess of
ten thousand dollars ($10,000), other than ordinary advances for travel
expenses; (iv) created or assumed any lien on a material asset of the Company;
(v) sold, exchanged or otherwise disposed of any material assets or rights other
than the sale of inventory in the ordinary course of its business; (vi) made a
material change in the Company's accounting principles or practices or received
notice from the Company's auditors respecting any material weakness in the
Company's financial controls; (vii) entered into any transactions with any of
its officers, directors or employees or any entity controlled by any of such
individuals; (vii) incurred any damage, destruction or loss of any of the
properties or assets of the Company and its Subsidiaries (whether or not covered
by insurance) materially adversely affecting the business or plans of the
Company and its Subsidiaries, taken as a whole; (ix) suffered any labor trouble,
or any event or condition of any character, materially adversely affecting the
business or plans of the Company and its Subsidiaries, taken as a whole; or (x)
suffered any material adverse change in the condition, assets, liabilities or
business of the Company and its Subsidiaries, taken as a whole. Specifically,
but not by way of limitation, the respective balance sheets of the Financial
Statements disclose all of the Company's material debts, liabilities and
obligations of any nature, whether due or to become due, as of their respective
dates (including without limitation, absolute liabilities, secured liabilities,
and contingent liabilities) to the extent such debts, liabilities and
obligations would be required to be disclosed on a modified cash-accrual basis.
The Company has good and marketable title to all assets set forth on the balance
sheets of the Financial Statements, except for such assets as have been spent,
sold or transferred in the ordinary course of business since their respective
dates.
-9-
68
(j) Taxes. Except as set forth in Schedule 2.1(j) to the
Schedule of Exceptions, the Company and each of its Subsidiaries has duly filed
within the time prescribed by law (including extensions of time approved by the
appropriate taxing authority) all tax returns and reports required to be filed
with the United States Internal Revenue Service and with the State of Delaware,
and (except to the extent that the failure to file or pay, or to the extent such
returns are not true and correct, would not have a material adverse effect on
the condition or operations of the Company) with all other jurisdictions where
such filing is required by law; all such tax returns are true and correct in all
material respects; and the Company and each of its Subsidiaries has paid all
taxes, interest, penalties, assessments or deficiencies shown to be due or
claimed to be due or in respect of such tax returns and reports (except to the
extent that the failure to file or pay, or such returns are not true and correct
would not have a material adverse effect on the condition or operations of the
Company). The Company has withheld or collected from each payment made to each
of its employees the amount of all taxes, including, but not limited to, federal
income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment
Tax Act taxes required to be withheld or collected therefrom, and has paid the
same to the proper tax receiving officers or authorized depositories. The
Company knows of (i) no other tax returns or reports which were previously
required to be filed which have not been so filed (ii) no audits that have been
or being currently audited on any of its returns as of the date hereof and (iii)
no unpaid assessment for additional taxes for any fiscal period or any basis
therefor, except to the extent that the failure to file or pay would not have a
material adverse effect, on the conditions or operations of the Company. The
Company's federal income tax returns have not been audited by the Internal
Revenue Service.
(k) Employee Benefits; ERISA. (i) With respect to each
employee benefit plan (as such term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (an "EMPLOYEE
BENEFIT PLAN") maintained by the Company or an "ERISA Affiliate" (as defined
below): (A) such plan has been administered and operated in compliance with its
terms and the applicable requirements of ERISA and the Internal Revenue Code of
1986, as amended (the "CODE"); (B) to the knowledge of the Company no event has
occurred and there exists no circumstance under which the Company could
reasonably be expected to incur liability under ERISA or the Code (other than
for contributions or benefits paid or payable in the ordinary course of
operation of such plan); (C) there are no actions, suits or claims pending or
threatened with respect to any Employee Benefit Plan or against the assets or a
fiduciary of any Employee Benefit Plan; (D) no "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) which is not
covered by an applicable exemption has occurred; (E) no "reportable event" (as
defined in Section 4043 of ERISA) has occurred; (F) all contributions and
premiums due have been paid on a timely basis; and (G) all contributions made
under any Employee Benefit Plan intended to be tax deductible meet the
requirements for deductibility under the Code, except, in the case of each of
clauses (A) through (G), as would not have a material adverse effect on the
Company. As used herein, the term "ERISA Affiliate" refers to any organization
that is (x) a member of a "controlled group" of which the Company is a member or
(y) under "common control" with the Company within the meaning of Section 414(b)
and (c) of the Code.
-10-
69
(ii) Each Employee Benefit Plan maintained by the
Company or an ERISA Affiliate that is intended to qualify under Section 401(a)
of the Code has received a favorable letter of determination from the Internal
Revenue Service that it so qualifies and that its related trust is exempt from
taxation under Section 501(a) of the Code. No event has occurred that will or
could reasonably be expected to give rise to disqualification or loss of
tax-exempt status of any such Employee Benefit Plan or trust under Sections
401(a) or 501(a) of the Code.
(iii) No Company or ERISA Affiliate benefit plan
is a "defined benefit plan" within the meaning of Section 3(35) of ERISA, a
"multiemployer plan" within the meaning of Section 3(37) of ERISA, or a
"multiple employer plan" within the meaning of Section 413 of the Code.
(iv) Except as set forth in Schedule 2.1(k) to
the Schedule of Exceptions, neither the approval or execution of this Agreement
nor the consummation of the transactions contemplated by this Agreement will (A)
entitle any individual to severance pay or (B) accelerate the time of payment or
vesting of, or increase the amount of, compensation due to any individual.
(l) Contracts; Insurance. Except as set forth in Schedule
2.1(l) to the Schedule of Exceptions, the Company and its Subsidiaries do not
have any currently existing contract, obligation, agreement, plan, arrangement,
commitment or the like (written or oral) that was not entered into in the
ordinary course of business and is material to the Company and its Subsidiaries,
taken as a whole (within the meaning of Regulation S-K, Item 601, Section 10),
including without limitation the following:
(i) Employment, bonus or consulting agreements,
pension, profit sharing, deferred compensation, incentive compensation,
perquisite, stock bonus, retirement, stock option, stock purchase, severance or
termination pay plan, phantom stock or similar plans, including agreements
evidencing rights to purchase securities of the Company or its Subsidiaries and
agreements among stockholders and the Company or its Subsidiaries or any
Employee Benefit Plan;
(ii) Loan or other agreements, notes, indentures,
or instruments relating to or evidencing indebtedness for borrowed money, or
mortgaging, pledging or granting or creating a lien or security interest or
other encumbrance on any of the Company's or its Subsidiaries' property or any
agreement or instrument evidencing any guaranty by the Company or its
Subsidiaries of payment or performance by any other person;
(iii) Agreements with dealers, sales
representatives, brokers or other distributors, advertisers or sales agencies;
(iv) Agreements with any labor union or
collective bargaining organization or other labor agreements;
(v) Any contract or series of contracts with the
same person for the
-11-
70
furnishing or purchase of machinery, equipment, goods or services, including
without limitation agreements with processors and subcontractors;
(vi) Any indenture, agreement or other document
(including private placement brochures) relating to the sale or repurchase of
shares;
(vii) Any joint venture contract or arrangement or
other agreement involving a sharing of profits or expenses to which the Company
or its Subsidiaries are a party;
(viii) Agreements limiting the freedom of the
Company or its Subsidiaries to compete in any line of business or in any
geographic area or with any person;
(ix) Agreements providing for disposition of the
business, assets or shares of the Company or its Subsidiaries, agreements of
merger or consolidation to which the Company or its Subsidiaries are a party or
letters of intent with respect to the foregoing;
(x) Licenses, agreements or arrangements
providing for the use of or limiting the use of any trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and other intellectual property rights necessary
to conduct the Company's and its Subsidiaries' businesses as now conducted
(collectively, the "INTELLECTUAL PROPERTY");
(xi) Letters of intent or agreements with respect
to the acquisition of the business, assets or shares of any other business; and
(xii) Insurance policies, health insurance plans,
medical plans or any benefit plans.
The Company and its Subsidiaries have complied with all said contracts,
obligations, licenses, agreements, plans, arrangements, and commitments and are
not in default thereunder, except where the failure to so comply would not have
a material adverse effect on the Company and its Subsidiaries when taken as a
whole.
The Escrow Purchasers have been supplied with a true and correct copy
of each of the written contracts and a true and correct description of the oral
contracts which are referred to on Schedule 2.1(l) to the Schedule of
Exceptions, together with all material amendments, waivers or other changes to
all such documents.
The Company has and will continue to maintain insurance for itself and
its Subsidiaries which the Company believes is customary in its industry.
-12-
71
(m) 5% Stockholders, Directors and Officers;
Indebtedness. Set forth in Schedule 2.1(m) to the Schedule of Exceptions is a
correct and complete list or description of all indebtedness of the Company and
its Subsidiaries to their respective officers, directors or 5% stockholders or
any of their respective spouses or relatives, and of all indebtedness of such
persons to the Company and its Subsidiaries and of all contractual arrangements
between the Company and its Subsidiaries and any officer, director or 5%
stockholder of the Company or any of their respective spouses or relatives.
(n) Litigation. Except as set forth in Schedule 2.1(n) to
the Schedule of Exceptions, there is no pending or, to the Company's knowledge,
threatened action, suit, proceeding or claim, or any basis therefor, whether or
not purportedly on behalf of the Company and its Subsidiaries, to which the
Company or its Subsidiaries is or, to the Company's knowledge, may be named as a
party or its property is or may be subject and in which an unfavorable outcome,
ruling or finding in any such matter or for all such matters taken as a whole
would have a material adverse effect on the condition, financial or otherwise,
or operations of the Company and its Subsidiaries taken as a whole; and the
Company has no knowledge of any unasserted claim, the assertion of which is
reasonably likely and which, if asserted, will seek damages, an injunction or
other legal, equitable, monetary or nonmonetary relief which claim individually
or collectively with other such unasserted claims if granted would have a
material adverse effect on the condition, financial or otherwise, or operations
of the Company and its Subsidiaries taken as a whole.
(o) Consents. All consents, approvals, qualifications,
orders and authorizations of, and filings with, all governmental authority
required in connection with the Company's valid execution, delivery or
performance of the Transaction Documents, or the offer, issue or sale of the
Escrow Shares or Escrow Warrants by the Company, the issuance of Warrant Shares
upon exercise of the Escrow Warrants, the issuance of Common Stock upon
conversion of the Escrow Shares or the Warrant Shares, or the consummation of
any other transaction contemplated on the part of the Company hereby have been
obtained or made, except (i) the Requisite Stockholder Approval, (ii) the filing
of the Certificate of Amendment with the Secretary of State of Delaware, (iii)
the filing with the SEC of the registration statement contemplated by the
Registration Rights Agreement, (iv) the filing with the NNM the application for
listing the Common Stock issuable upon conversion of the Series F Preferred, (v)
the filing with the SEC a Form D and the filing of any notifications required in
connection with any state securities laws, (vi) the filing of proxy materials in
connection with the Requisite Stockholder Approval, and (vii) where the failure
to obtain such consent will not have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
(p) Properties; Liens and Encumbrances. The Company and
its Subsidiaries do not own any real property and they have valid and
indefeasible ownership interest in all its other property and assets which each
of the Company and its Subsidiaries purport to own, free from all mortgages,
pledges, liens, security interests, conditional sale agreements, encumbrances or
charges, except (i) as listed on Schedule 2.1(p) to the Schedule of Exceptions
hereto; or (ii) tax, materialmen's or like liens for obligations not yet due or
payable or being contested in good faith by appropriate proceedings, and, in
each case, except where the failure to have such an
-13-
72
ownership interest would not have a material adverse effect on the condition of
the Company and its Subsidiaries taken as a whole. The Company is not in
violation of any law, regulation or ordinance (including laws, regulations or
ordinances relating to building, zoning, environmental, city planning, land use
or similar matters) relating to its property or assets which violation would
have a material adverse effect on the business of the Company.
(q) Leases. Set forth on Schedule 2.1(q) to the Schedule
of Exceptions is a correct and complete list (including the amount of rents
called for and a description of the leased property) of all leases material to
the Company and its Subsidiaries (within the meaning of Reg. S-K, Item 601,
Section 10), whether for real or personal property, under which the Company or
its Subsidiaries is a lessee. The Company and its Subsidiaries are not in
default under such leases in any material respect.
(r) Business of the Company. Except as set forth on
Schedule 2.1(r) to the Schedule of Exceptions, there is no pending nor, to the
Company's knowledge, any threatened claim or litigation, or to the Company's
knowledge any basis therefor, against the Company and its Subsidiaries
contesting each of the Company and its Subsidiaries right to develop, produce,
manufacture, license, lease, sell or use any product, process, method,
substance, part or other material presently developed, produced, manufactured,
licensed, leased, sold or used or planned to be developed, produced,
manufactured, licensed, leased, sold or used by the Company and its Subsidiaries
in connection with the operations of the Company, except for claims if
determined adversely to the Company and its Subsidiaries would not have a
material adverse effect to the operations or conditions, financial or otherwise,
of the Company and its Subsidiaries, taken as a whole; and the Company has no
knowledge that (i) there exists, or there is pending or planned, any patent,
invention, device, application or principle, or any statute, rule, law,
regulation, standard or code which would materially adversely affect the
condition, financial or otherwise, or the operations of the Company and its
Subsidiaries when taken as a whole; or (ii) there is any other factor (other
than fire, flood, accident, act of war or civil commotion, or any other cause or
event beyond the control of the Company and its Subsidiaries), in each case
which would materially adversely affect the condition, financial or otherwise,
or the operations of the Company and its Subsidiaries, taken as a whole. The
Company has delivered to each Escrow Purchaser complete and correct copies of
(a) its annual report to stockholders for the fiscal year ended December 31,
1999 (the "ANNUAL REPORT") and (b) its annual report on Form 10-K (the "FORM
10-K") for such fiscal year and its Quarterly Report on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 2000, in each case as filed
with the SEC. The Form 10-K complies in all material respects with Regulation
S-K, Item 101.
(s) Intellectual Property, etc. (i) Each of the Company
and its Subsidiaries has all franchises, permits, licenses and other similar
authority necessary for the conduct of its business as now being conducted by it
and as planned to be conducted, the lack of which could materially and adversely
affect the operations or condition, financial or otherwise, of the Company and
neither the Company nor its Subsidiaries is in default in any material respect
under any of such franchises, permits, licenses or other similar authority. The
Company and its Subsidiaries are the exclusive owner of all right, title and
interest in and or has the valid and legal right to use all Intellectual
Property and proprietary rights necessary to conduct its business as
-14-
73
now being conducted and as planned to be conducted without conflict with or
infringement upon any valid rights of others, in each case, except as would not
materially and adversely affect the operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole. Neither the
Company nor any of its Subsidiaries have received any notice that the conduct of
its business infringes upon or conflicts with the asserted rights of others and
has any knowledge that any person is infringing upon or in conflict with its
asserted rights in any material respect.
(ii) Each person employed by the Company and its
Subsidiaries who develops or has access to Intellectual Property and proprietary
information of the Company and its Subsidiaries has executed and delivered to
the Company a proprietary information and inventions agreement substantially in
the form of Exhibit G hereto.
(t) Minute Books. The minute books of the Company
provided to Escrow Purchasers' legal counsel contain minutes of all meetings of
directors and stockholders since the date of the Company's initial public
offering except for a meeting of the Board of Directors held on March 22, 2001,
meeting of the Special Committee of the Board of Directors held on January 29,
2001, and a meeting of the Offering Committee of the Board of Directors held on
March 28, 2001 with respect to which the Company has provided to the Escrow
Purchasers information on actions taken, if any, and matters discussed.
(u) Offering. Subject to the accuracy of the
representations and warranties of each Escrow Purchaser set forth in Section 2.2
hereto, the offer, issuance and sale of the Escrow Shares and Escrow Warrants as
contemplated by this Agreement are exempt from the registration requirements of
the Securities Act, and from any registration or filing requirements of any
applicable state securities laws, and neither the Company nor anyone acting on
its behalf will take any action hereafter that would reasonably be expected to
cause the loss of such exemption.
(v) Compliance with Other Instruments. The Company and
its Subsidiaries are not in violation of any term of each of its respective
Certificate of Incorporation or Bylaws, in each case, as in effect on the date
hereof. The Company and its Subsidiaries are not (and, upon receipt by the
Company of the Requisite Stockholder Approval, consummation of the transactions
contemplated by the Transaction Documents will not cause the Company and its
Subsidiaries to be) in violation of any term of any mortgage, indenture,
contract, agreement, instrument, judgment, decree, order, statute, rule or
regulation to which the Company and its Subsidiaries are subject and a violation
of which would have a material adverse effect on the condition, financial or
otherwise, or operations of the Company and its Subsidiaries when taken as a
whole.
(w) Employees. To the Company's knowledge, no employee of
the Company or any of its Subsidiaries is in violation of any term of any
employment contract, patent disclosure agreement or non-competition agreement.
There is no pending or, to the Company's knowledge, threatened action, suit,
proceeding or claim, or to its knowledge any basis therefor or threat thereof,
with respect to any contract, agreement, covenant or obligation referred to in
the preceding sentence. The Company and its Subsidiaries do not have any
collective bargaining
-15-
74
agreement covering any of its employees. Except as set forth on Schedule 2.1(w)
to the Schedule of Exceptions, each employee of the Company and its Subsidiaries
is an "employee at will" and may be terminated by the Company without any
contractual severance payment to such employee.
(x) Registration Rights. Except as provided for in this
Agreement and as set forth in Schedule 2.1(x) of the Schedule of Exceptions, the
Company is not under any obligation to register (under the Securities Act) any
of its currently outstanding securities or any of its securities which may
hereafter be issued and all corporate activities on the part of the Company have
been taken with respect to the registration rights in the Transaction Documents
and as set forth in Schedule 2.1(x) of the Schedule of Exceptions, so that the
execution and performance of the Transaction Documents by the Company will not
cause a conflict with, or result in a breach of, or constitute a default under
an existing agreement or obligation of the Company with respect to registration
rights as set forth herein.
(y) Environmental and Safety Laws. Neither the Company
nor any of its Subsidiaries is in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety except
violations which would not materially adversely affect the operations or
condition, financial or otherwise, of the Company and its Subsidiaries, taken as
a whole, and to its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation.
(z) Disclosure. The Transaction Documents and the
Schedule of Exceptions as read together do not contain any untrue statement of a
material fact and do not omit to state a material fact necessary in order to
make the statements contained therein or herein not misleading. Furthermore, the
information provided to the Escrow Purchasers, including Escrow Purchasers'
representatives, if any, by the Company, including its officers and directors,
in connection with such Escrow Purchaser's consideration of its investment in
the Escrow Shares and Escrow Warrants was prepared by the Company in good faith
and were true and accurate in all material respects as of the date of such
information.
(aa) Obligations to Related Parties. Except as set forth
in Schedule 2.1(aa) of the Schedule of Exceptions, There are no obligations of
the Company to any of its officers, directors, stockholders, employees and
consultants (including any members of their respective immediate families) other
than for (i) the payment of salary for services already rendered; (ii) the
reimbursement of reasonable expenses incurred on behalf of the Company and loans
of cash to pay the Company's development and operating expenses which in no
event exceed $100,000 in the aggregate; and (iii) for other standard employee
benefits made available generally to all employees (including stock option
agreements under any plan or arrangement to be approved by the Company's board
of directors).
(bb) SEC Filings. Each of the Company's SEC Reports (as
defined herein) (A) were prepared in accordance with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (B) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such amended or
-16-
75
superseded filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. "SEC Reports" as used herein is defined as each of the
reports filed by the Company with the SEC pursuant to the Exchange Act since
December 31, 1999.
(cc) Exchange Requirements. The Company's Common Stock is
registered pursuant to Section 12(g) of the Exchange Act and is listed on the
NNM. The Company is in compliance in all material respects with all NNM listing
requirements, and has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the NNM, nor has the Company received any
notification that the SEC, the National Association of Securities Dealers, Inc.
(together with its regulatory subsidiary, NASD Regulation, Inc., the "NASD") or
any other exchange is contemplating terminating such registration or listing
nor, to the knowledge of the Company, have any proceedings been instituted,
pending, contemplated or threatened by the SEC for such purposes, including,
without limitation, any investigations, inquiries, or stop orders.
2.2 Representations and Warranties of the Escrow Purchasers. Each
Escrow Purchaser severally and not jointly, and only with respect to itself,
makes the following representations and warranties to the Company:
(a) Organization; Authority. Such Escrow Purchaser is an
individual or is a corporation or other entity duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization with the requisite corporate or other power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and otherwise to carry out its obligations thereunder. The
purchase by such Escrow Purchaser of the Escrow Shares and the Escrow Warrants
hereunder has been duly authorized by all necessary action on the part of such
Escrow Purchaser. Each of the Transaction Documents to be executed by the Escrow
Purchaser pursuant to the terms hereof or thereof has been duly executed and
delivered by such Escrow Purchaser and constitutes the valid and legally binding
obligation of such Escrow Purchaser, enforceable against such Escrow Purchaser,
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity.
(b) Investment Intent. Such Escrow Purchaser is acquiring
the Escrow Shares and Escrow Warrants, and upon conversion of the Escrow Shares
and Warrant Shares or exercise of the Escrow Warrants, will acquire the Series F
Preferred or Common Stock, as the case may be, for its own account for
investment only and not with a view towards, or for resale in connection with,
the public sale or distribution thereof, except pursuant to sales registered or
exempted under the Securities Act; provided, however, that by making the
representations contained in this Section 2.2(b), such Escrow Purchaser does not
agree to hold any of the Series F Preferred, Warrant Shares or Common Stock for
any minimum or other specific term and
-17-
76
reserves the right to dispose of such securities at any time in accordance
with or to the extent allowed by this Agreement, the Registration Rights
Agreement and the Securities Act.
(c) Accredited Investor. At the time such Escrow
Purchaser was offered the Series F Preferred and the Escrow Warrant, it was, and
at the date hereof, it is, and at the Escrow Closing and each of its conversion
dates as to the Series F Preferred or exercise dates as to the Escrow Warrants,
it will be, an "accredited investor" as defined in Rule 501(a) under the
Securities Act.
(d) Experience of Escrow Purchaser. Such Escrow Purchaser
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in the
Securities, and has so evaluated the merits and risks of such investment.
(e) Ability of Escrow Purchaser to Bear Risk of
Investment. Such Escrow Purchaser acknowledges that the Series F Preferred,
Escrow Warrants, Warrant Shares, and Common Stock are speculative investments
and may involve a high degree of risk and such Escrow Purchaser is able to bear
the economic risk of an investment in the Escrow Shares and the Escrow Warrants,
and, at the present time, is able to afford a complete loss of such investment.
(f) Access to Information. Such Escrow Purchaser
acknowledges receipt of the Schedule of Exceptions and further acknowledges that
it has been afforded (i) the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Series F Preferred
and the Escrow Warrants, and the merits and risks of investing in the Series F
Preferred and the Escrow Warrants; (ii) access to information about the Company
and the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate its
investment; and (iii) the opportunity to obtain such additional information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary or advisable to make an informed investment decision
with respect to the investment and to verify the accuracy and completeness of
the information contained in the Schedule of Exceptions.
(g) Affiliate Status. Other than HarbourVest Partners VI
- - Direct Fund L.P., SAIC Venture Capital Corporation and Paul Cataford, on the
date prior to this Agreement, such Escrow Purchaser was not an Affiliate (as
defined in Rule 144(a)(1) promulgated under the Securities Act) of the Company.
(h) Professional Advice. Such Escrow Purchaser has sought
such accounting, legal and tax advice as it has considered necessary to make an
informed investment decision with respect to its acquisition of the Escrow
Shares and the Escrow Warrants.
-18-
77
(i) Transfer or Resale. Such Escrow Purchaser understands
that except as provided in the Registration Rights Agreement: (i) the Escrow
Shares and the Escrow Warrants have not been and are not being registered under
the Securities Act or any state securities laws, and may not be offered for
sale, sold, assigned or transferred unless (A) subsequently registered under the
Securities Act and applicable state securities laws, (B) such Escrow Purchaser
shall have delivered to the Company an opinion of counsel, in a generally
acceptable form, to the effect that such Escrow Shares and the Escrow Warrants
to be sold, assigned or transferred may be sold, assigned or transferred
pursuant to an exemption from such registration, (C) such Escrow Purchaser
provides the Company with reasonable assurance that such Escrow Shares and the
Escrow Warrants can be sold, assigned or transferred pursuant to Rule 144
promulgated under the Securities Act (or a successor rule thereto) ("RULE 144")
or (D) transferred in accordance with Rule 144A under the Securities Act (or any
successor rule thereto) ("RULE 144A") to a qualified institutional buyer (as
such term is defined in Rule 144A(a)(1)); (ii) any sale of the Escrow Shares and
the Escrow Warrants made in reliance on Rule 144 may be made only in accordance
with the terms of Rule 144 and further, if Rule 144 is not applicable, any
resale of the Escrow Shares and the Escrow Warrants under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the Securities Act) may require
compliance with some other exemption under the Securities Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Escrow Shares and the Escrow
Warrants under the Securities Act or any state securities laws or to comply with
the terms and conditions of any exemption thereunder.
(j) Legends. Such Escrow Purchaser understands that the
certificates or other instruments representing the Escrow Shares, the Escrow
Warrants, the Warrant Shares, and, until such time that the Common Stock
issuable upon conversion of the Escrow Shares and the Warrant Shares has been
registered under the Securities Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Escrow Shares, the Escrow
Warrants, the Warrant Shares, except as set forth below, shall bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL,
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR (II) UNLESS SOLD
PURSUANT TO EITHER RULE 144A UNDER SAID ACT TO A QUALIFIED
INSTITUTIONAL BUYER OR RULE 144 UNDER SAID ACT.
-19-
78
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the Securities
Act, or (ii) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, in a generally acceptable form to the
Company, to the effect that a public sale, assignment or transfer of such
Securities may be made without registration under the Securities Act. Such
Escrow Purchaser acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the Securities Act and
upon compliance with the prospectus delivery requirements of the Securities Act,
or (ii) advice of counsel that such sale is exempt from registration required by
Section 5 of the Securities Act; and
(k) Reliance. Such Escrow Purchaser understands and
acknowledges that (i) the Escrow Shares and the Escrow Warrants are being, and
upon conversion of the Series F Preferred and the Warrant Shares, the underlying
Common Stock and upon exercise of the Escrow Warrants, the Warrant Shares will
be, offered and sold to such Escrow Purchaser without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon, the accuracy and
truthfulness of, the foregoing representations and the Escrow Purchaser hereby
consents to such reliance.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Form D and Blue Sky. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D under the Securities
Act within the time specified in Regulation D and to provide a copy thereof to
each Escrow Purchaser promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for, or obtain exemption for
the Securities for, sale to the Escrow Purchasers at the Escrow Closing pursuant
to this Agreement under applicable state securities laws, and shall provide
evidence of any such action so taken to the Escrow Purchasers on or prior to the
Escrow Closing or, if later, the date by which such action must be taken. The
Company shall make all filings and reports relating to the offer and sale of the
Securities required under applicable state securities laws following the Escrow
Closing.
3.2 Reporting Status. Until the earlier of (i) the date which is
one year after the date on which the holders thereof may sell all of the Common
Stock issuable upon conversion of the Escrow Shares and the Warrant Shares
without restriction pursuant to Rule 144(k) under the Securities Act (or
successor thereto) and (ii) the date on which (A) the holders thereof shall have
sold all the Common Stock issuable upon conversion of the Escrow Shares and the
Warrant Shares and (B) no shares of Series F Preferred Stock and no Escrow
Warrants are outstanding
-20-
79
(the "REPORTING PERIOD"), the Company shall file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
otherwise permit such termination.
3.3 Stockholder Information. The Company agrees to send to each
Escrow Purchaser during the Reporting Period copies of any notices and other
information made available or given to the stockholders of the Company
generally, contemporaneously with the making available or giving thereof to the
stockholders. During the Reporting Period, the Company shall include each Escrow
Purchaser on the Company's distribution list for press releases and shall
provide each Escrow Purchaser with any such press releases in the same manner
and at the same time as others on such distribution list.
3.4 Listing. Following the Escrow Closing, the Company shall
promptly secure the listing of all of the Registrable Securities (as defined in
the Registration Rights Agreement) upon each national securities exchange and
automated quotation system (including NNM), if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Registrable Securities from time to time issuable under the terms
of the Transaction Documents. During the Reporting Period, the Company shall use
its reasonable best efforts to maintain the Common Stock's listing on either the
NNM, a national exchange or other market or interdealer quotation system
(including without limitation the Nasdaq SmallCap Market and the OTC Bulletin
Board). The Company shall promptly provide the Escrow Purchasers copies of any
notices it receives from the NNM regarding the continued eligibility of the
Common Stock for listing on such automated quotation system or securities
exchange, provided that the Company shall not be required to provide such
notices if the Company reasonably determines that such notices contain material
non-public information. The Company shall pay all fees and expenses in
connection with satisfying its obligations under this Section 3.4.
3.5 Expenses. At the Initial Closing, the Company shall pay the
fees of (i) O'Melveny & Myers LLP as counsel for certain of the Escrow
Purchasers and the Placement Agent and (ii) Debevoise & Plimpton as counsel to
certain of the Escrow Purchasers, solely with respect to fees related to the
negotiation and execution of the Transaction Documents and the Initial Closing,
provided that such counsel shall provide to the Company a full accounting of
such expenses, including the submission of invoices or statements for such
expenses.
3.6 Trading Restrictions. Each Escrow Purchaser agrees that during
the ten (10) trading days immediately preceding the Initial Closing Date, it
shall not sell any shares of Common Stock including by way of any "short sales"
of the Common Stock (as defined in Rule 3b-3 of the Exchange Act). Additionally,
each Escrow Purchaser agrees that during the ten (10) trading days following
each Earnings Release (as defined in the Certificate of Amendment), it shall not
sell any shares of Common Stock including by way of any "short sales" of the
Common Stock (as defined in Rule 3b-3 of the Exchange Act).
-21-
80
3.7 Transfer Agent Instructions. The Company shall issue
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificates, registered in the name of each Escrow Purchaser or its nominee(s),
for the Common Stock issuable upon conversion of the Escrow Shares or the
exercise of the Escrow Warrants in such amounts as specified from time to time
by each Escrow Purchaser to the Company upon such conversion or exercise as the
case may be (the "TRANSFER AGENT INSTRUCTIONS"). Nothing in this Section 3.7
shall affect in any way each Escrow Purchaser's obligations under the Securities
Act and agreements set forth in Section 2.2(i) herein to comply with all
applicable prospectus delivery requirements, if any, upon resale of the
Securities.
3.8 Requisite Stockholder Approval and Waiver. (a) As soon as
possible after the date hereof but in no event later than the Approval Date, the
Company shall convene a meeting of stockholders for the purpose of obtaining the
Requisite Stockholder Approval, including any and all approvals required by the
applicable policies, rules or regulations of NNM, to approve the transactions
contemplated hereby.
(b) Each of the Escrow Purchasers hereby irrevocably agrees (i) to
vote all of such Escrow Purchaser's shares of Common Stock, whether now owned or
hereafter acquired, in favor of the transactions contemplated hereby in
connection with the Requisite Stockholder Approval, including without limitation
in favor of the issuance and sale to the Escrow Purchasers of the Escrow Shares
and Escrow Warrants and the other transactions contemplated by the Transaction
Documents, and in favor of an amendment to the Company's Certificate of
Incorporation to increase the total number of authorized shares of stock to
221,877,236 shares and the total number of authorized shares of Common Stock to
200,000,000 shares and in favor of an amendment to the Company's Certificate of
Incorporation to authorize, designate and create the Series F Preferred, and
(ii) shall take no action whatsoever to agree to revoke or cause to revoke the
letter agreements referred to in Section 4.1(h) herein, or take any action the
result of which would be to prevent such Escrow Purchaser from effecting the
agreement set forth in this Section 3.8(b). Additionally, each of the Escrow
Purchasers agrees not to sell, transfer or otherwise dispose of, or transfer the
voting rights with respect to its shares of the Company's Common Stock or on or
prior to the Approval Date set forth in this Section 3.8(b).
(c) The Company shall bear all expenses in connection with the
holding of such meeting, including the costs and expenses of the preparation,
filing and distribution of the proxy statement.
3.9 Modification to and Filing Certificate of Amendment. Following
the receipt of the Requisite Stockholder Approval but prior to the Escrow
Closing, the Company shall have duly filed the Certificate of Amendment with the
Secretary of State of the State of Delaware in accordance with the General
Corporate Law of the State of Delaware. In the event that at any time after the
date hereof but prior to the filing of the Certificate of Amendment, the Company
takes any of the actions described in Sections 6(e)(ii), (iii) and (iv) of the
Certificate of Amendment, then prior to the filing of the Certificate of
Amendment, the Conversion Price set forth in Section 6(c) of the Certificate of
Amendment shall be adjusted to the Conversion Price
-22-
81
that would have been in effect had the Certificate of Amendment been filed with
the Secretary of State of Delaware and effective immediately prior to the
Company taking such actions. Notwithstanding any other provision of this
Agreement, the provisions of this Section 3.9 may be waived by the Escrow
Purchasers who have agreed herein to purchase a majority of the Escrow Shares
(as reflected on Exhibit A hereto).
3.10 Conduct of Business. Except as required by this Agreement or
as is necessary to consummate the transactions contemplated hereby, the Company
will not authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any
Series F Preferred.
3.11 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company in accordance
with generally accepted accounting principles consistently applied.
3.12 Inspection. The Company shall permit representatives of the
Escrow Purchasers to visit and inspect any of its properties, to examine its
corporate, financial and operating records and make copies thereof or abstracts
therefrom, and to discuss its affairs, finances and accounts with their
respective directors, officers and independent public accountants, all at such
reasonable times during normal business hours and as often as may be reasonably
requested upon reasonable advance notice to the Company (such rights to visit,
inspect, examine, make copies and discuss are collectively referred to as
"INSPECTION RIGHTS"); provided, however, that no such inspection, examination or
inquiry, the failure to conduct same, nor any knowledge of any Escrow Purchaser,
including any knowledge obtained by such Escrow Purchaser in connection with any
such inspection, investigation or inquiry, shall constitute a waiver of any
rights Escrow Purchasers may have under any representation, warranty, covenant,
term or agreement under any of the Transaction Documents. Notwithstanding the
foregoing, the Company shall not be required to permit representatives of the
Escrow Purchasers to exercise their Inspection Rights until such time as the
Escrow Purchaser(s) exercising its rights, and its representatives, shall have
executed a confidentiality and non-disclosure agreement in form and substance
reasonably satisfactory to the Company and which permits the Company to provide
to such Escrow Purchaser(s) or its representatives material non-public
information without violation of Regulation FD promulgated by the SEC. During
all periods when an Escrow Purchaser is in possession of material non-public
information obtained pursuant to its Inspection Rights, the Escrow Purchaser
agrees that it will not trade in the securities of the Company until such time
as the Company has publicly disclosed such material non-public information in a
manner contemplated by Regulation FD.
-23-
82
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Escrow
Purchasers to Purchase the Series F Preferred Stock. The obligation of the
Escrow Purchasers hereunder to acquire and pay for the Escrow Shares and Escrow
Warrants is subject to the satisfaction or waiver by the Escrow Purchasers, at
or before the Initial Closing, of each of the following conditions:
(a) Accuracy of the Company's Representations and
Warranties. The representations and warranties of the Company contained in this
Agreement shall be true and correct as of the Closing Date (except that any
representation and warranty that by its terms is expressly modified by
"materiality," "in all material respects" or words of similar import shall be
true in all respects as so modified), except for such representations and
warranties as are made as of a specific date, which shall be true and correct as
of such date. At the Initial Closing the Company shall deliver to the Escrow
Purchasers a certificate dated the Initial Closing Date and executed by the
President of the Company certifying the accuracy of the Company's
representations and warranties;
(b) Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration Rights
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date;
(c) No Injunction. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement relating to
the issuance or conversion of any portion of the Escrow Shares or exercise of
the Escrow Warrants;
(d) Legal Opinion. The Company shall have delivered to
the Escrow Purchasers an opinion of legal counsel to the Company in
substantially the form attached hereto as Exhibit F and dated as of the Closing
Date;
(e) Adverse Changes. Since the date of the financial
statements included in the Company's last filed Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event which has or can reasonably be expected to have
a material adverse effect on the Company and the Subsidiaries, taken as a whole,
which has not specifically been disclosed in the Schedule of Exceptions prior to
the date of this Agreement shall have occurred, nor shall there have occurred a
material adverse change in the financial condition or prospects of the Company,
which is not disclosed in the Schedule of Exceptions;
-24-
83
(f) Required Approvals. The Company shall have delivered
to the Escrow Purchasers the required consents as set forth in Schedule 2.1(e)
of the Schedule of Exceptions.
(g) Closing Certificates. The Company shall deliver to
the Escrow Purchasers a certificate, in form and substance satisfactory to the
Escrow Purchasers, dated the Closing Date and signed by the Secretary or
Assistant Secretary of the Company, certifying (x) that the Company is in good
standing with the Secretary of State of the State of Delaware, (y) that the
Certificate of Incorporation and the bylaws, copies of which have been provided
to the Escrow Purchasers, and the attached copies of the resolutions of the
Board of Directors of the Company approving this Agreement and each of the other
Transaction Documents and the transactions contemplated hereby and thereby, are
all true, complete and correct and have not been amended and are in full force
and effect and (z) as to the incumbency and specimen signature of each officer
of the Company executing this Agreement, each other Transaction Document and any
other document delivered in connection herewith on behalf of the Company.
(h) Letter Agreements. The Escrow Purchasers shall have
received letter agreements substantially in the form of Exhibit H hereto
executed by each of the persons and entities listed on Exhibit I hereto.
(i) W-9 Forms. Each Escrow Purchaser shall have delivered
to the Company and the Escrow Agent an executed Form W-9 completed with all
requested information regarding the Escrow Purchaser.
-25-
84
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Subject to Section 3.5, and except as
otherwise may be provided in the Registration Rights Agreement, each of the
parties shall pay its own fees and expenses (including the fees of any
attorneys, accountants, appraisers or others engaged by such party) in
connection with this Agreement and the transactions contemplated hereby, except
that Company shall pay to Robertson Stephens, Inc., as placement agent (the
"PLACEMENT Agent"), on the Escrow Closing Date out of the Escrow Purchase Price
such fees as due to the Placement agent pursuant to that certain engagement
letter by and between the Company and the Placement agent dated November 20,
2000, including the issuance to the Placement Agent of a warrant (the "PLACEMENT
AGENT Warrant") to purchase 9,915 shares of Series F Preferred in the form
attached to this Agreement as Exhibit J. The shares of Series F Preferred
issuable upon the exercise of the Placement Agent Warrant shall be included
within the definition of Registrable Securities under the Registration Rights
Agreement, and the Placement Agent shall be a party to the Registration Rights
Agreement. The Escrow Purchasers shall be responsible for the Escrow Purchasers'
own tax liability that may arise as a result of the investment contemplated by
the Transaction Documents.
5.2 Entire Agreement; Amendments. The Transaction Documents,
together with the exhibits and schedules hereto, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and 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 5:00 p.m. (Eastern
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 5:00 p.m.
(Eastern time) on any date and earlier than 11:59 p.m. (Eastern time) on such
date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
-26-
85
If to the Company: Daleen Technologies, Inc.
1750 Clint Moore Road
Boca Raton, Florida 33487
Facsimile No.: (561) 981-1134
Attn: Stephen M. Wagman, Chief Financial Officer
With copies to: Morris, Manning & Martin LLP
1600 Atlanta Financial Center
3343 Peachtree Road NE
Atlanta, Georgia 30326
Telephone No.: (404) 504-7613
Facsimile No.: (404) 365-9532
Attn: David M. Calhoun, Esq.
If to the Placement Agent: Robertson Stephens, Inc.
555 California Street
San Francisco, California 94104
Facsimile No.: (415) 982-1448
Attn: Mr. Matthew Seedorf / James Anderson
With copies to: O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street, 26th Floor
San Francisco, California 94111
Facsimile No.: (415) 984-8701
Attn: Peter T. Healy, Esq.
If to an Escrow Purchaser, to it at the address and facsimile number set forth
on Exhibit A, with copies to such Escrow Purchaser's representatives as set
forth on Exhibit A, or at such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party five days prior to the effectiveness of
such change.
5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Escrow Purchasers; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision, condition or requirement of
this Agreement shall be deemed to be a continuing waiver in the future or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
-27-
86
5.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. Neither the Company nor any Escrow Purchaser may assign this Agreement
or any rights or obligations hereunder without the prior written consent of the
other. The assignment by a party of this Agreement or any rights hereunder shall
not affect the obligations of such party under this Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
5.8 Governing Law. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York.
5.9 Survival. The agreements and covenants contained in Article IV
and this Article V shall survive the delivery and conversion of the Escrow
Shares pursuant to this Agreement, and the representations and warranties of the
Company and the Escrow Purchasers contained in Article II shall survive until a
date that is three years after the Closing Date.
5.10 Execution. This Agreement may be executed in any number of
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. The parties also expressly agree
that this Agreement may be executed by original signatures delivered by
facsimile.
5.11 Publicity. The Company and the Escrow Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, which consent shall
not be unreasonably withheld or delayed, except that no prior consent shall be
required if (a) such disclosure is required by law, in which case the disclosing
party shall provide the other party with prior notice of such public statement
or (b) such information is already publicly available. Notwithstanding the
generality of the foregoing, the parties agree that the Company will issue a
press release at or immediately after the Initial Closing, the contents of
which, together with all documents required to be filed therewith, will be filed
with the SEC as a current report of the Company on Form 8-K, the form of which
will be agreed to by the parties at or before the issuance thereof.
-28-
87
5.12 Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
-29-
88
[SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized persons as of the date first
indicated above.
Company:
DALEEN TECHNOLOGIES, INC.
By: /s/ James Daleen
-----------------------------------------------
Name: James Daleen
Title: Chairman and Chief Executive Officer
[PURCHASER SIGNATURES TO BEGIN ON NEXT PAGE]
89
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
PURCHASERS:
HARBOURVEST PARTNERS VI - DIRECT FUND L.P.
By: HVP VI-DIRECT ASSOCIATES, L.L.C.
Its General Partner
By: HARBOURVEST PARTNERS, LLC
Its General Partner
By: /s/ Ofer Nemirovsky
--------------------------------------------
Ofer Nemirovsky, Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
90
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
SAIC VENTURE CAPITAL CORPORATION
By: /s/ Kevin A. Werner
--------------------------------------------
Name: Kevin A. Werner
Title: President
[SIGNATURES CONTINUED ON NEXT PAGE]
91
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
ROYAL WULFF VENTURES, LLC
By: /s/ Robert E. Cook
--------------------------------------------
Name: Robert E. Cook
Title: Managing Member
[SIGNATURES CONTINUED ON NEXT PAGE]
92
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
ST. PAUL VENTURE CAPITAL VI, LLC
By: SPVC MANAGEMENT VI, LLC
Its: Managing Member
By: /s/ Patrick A. Hopf
--------------------------------------------
Name: Patrick A. Hopf
Title: Senior Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
93
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
ABS VENTURES IV, L.P.
By: CALVERT CAPITAL, LLC
Its: General Partner
By: /s/ Bruns Grayson
--------------------------------------------
Bruns Grayson, its manager
ABX FUND, L.P.
By: CALVERT CAPITAL II, LLC
Its: General Partner
By: /s/ Bruns Grayson
--------------------------------------------
Bruns Grayson, its manager
[SIGNATURES CONTINUED ON NEXT PAGE]
94
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
HALIFAX FUND, L.P.
By: /s/ Jeffrey Devers
--------------------------------------------
Name: Jeffrey Devers
Title: Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
95
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
BAYSTAR CAPITAL
By: /s/ Brian Davidson
--------------------------------------------
Name: Brian Davidson
Title:
BAYSTAR INTERNATIONAL LTD.
By: /s/ Brian Davidson
--------------------------------------------
Name: Brian Davidson
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
96
[SIGNATURE PAGE TO DALEEN SECURITIES PURCHASE AGREEMENT]
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: /s/ David Greenhouse
--------------------------------------------
Name: David Greenhouse
Title: Managing Director
SPECIAL SITUATIONS CAYMAN
FUND, L.P.
By: /s/ David Greenhouse
--------------------------------------------
Name: David Greenhouse
Title: Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
97
APPENDIX B
FORM OF
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DALEEN TECHNOLOGIES, INC.
****
Daleen Technologies, Inc., a corporation duly organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify as follows:
FIRST: In accordance with the requirements of Section 242 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation, at a meeting duly called and held pursuant to Section 141(f) of the
General Corporation Law of the State of Delaware, duly adopted resolutions: (i)
proposing and declaring advisable the amendments to the Certificate of
Incorporation set forth herein; and (ii) recommending that such amendments be
submitted to the stockholders of the Corporation for consideration, action and
approval.
SECOND: Article FOURTH of the Certificate of Incorporation of the
Corporation is hereby amended by deleting the first paragraph of such Article
FOURTH in its entirety and substituting in lieu thereof the following:
"The total number of shares of all classes of stock that the
Corporation shall have the authority to issue is Two Hundred Twenty-One
Million Eight Hundred Seventy-Seven Thousand Two Hundred Thirty-Six
(221,877,236) shares, of which Two Hundred Million (200,000,000) shall
be Common Stock, having a par value of $0.01 per share (the "Common
Stock"), and Twenty-One Million Eight Hundred Seventy-Seven Thousand
Two Hundred Thirty-Six (21,877,236) shares shall be classified as
Preferred Stock, par value $0.01 per share (the "Preferred Stock"). The
Preferred Stock shall consist of 3,000,000 shares which shall be
designated as the "Series A Convertible Preferred Stock" (the "Series A
Preferred Stock"), 1,250,000 shares which shall be designated as the
"Series B Convertible Preferred Stock" (the "Series B Preferred
Stock"), 1,222,222 shares which shall be designated as the "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock"),
4,221,846 shares which shall be designated as the "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock"), 686,553 shares which
shall be designated as the "Series D-1 Convertible Preferred Stock"
(the "Series D-1 Preferred Stock"), 1,496,615 shares which shall be
designated as the "Series E Convertible Preferred Stock" (the "Series E
Preferred Stock"), and 356,950 shares which shall be designated as the
"Series F Convertible Preferred Stock" (the "Series F Preferred
Stock"), with the remaining Preferred Stock having no designations
98
or preferences set forth herein. The Board of Directors is expressly
authorized to provide for the classification and reclassification of
any unissued shares of Common Stock or Preferred Stock and the issuance
thereof in one or more classes or series without the approval of the
stockholders of the Corporation. The designations, relative rights,
preferences and limitations of each class of shares of the Corporation
shall be as follows:"
THIRD: The Certificate of Incorporation is hereby amended by deleting
Section VII "Preferred Stock Without Designations and Preferences" of PART B of
Article FOURTH in its entirety and substituting in lieu thereof the following:
"VII. SERIES F CONVERTIBLE PREFERRED STOCK
Section 1. Ranking. All shares of Series F Preferred
Stock shall have preferences, limitations and relative rights identical
with each other; and all shares of Series F Preferred Stock shall have
such preferences and relative rights expressly provided in this
Certificate of Amendment.
Section 2. Designation of the Number of Shares. There
shall be a series of Preferred Stock that shall be designated as
"Series F Convertible Preferred Stock". The Series F Preferred Stock
shall consist of 356,950, shares shall be entitled to dividends when,
as and if declared pursuant to Section 3 hereof, shall be entitled to a
preference in liquidation as provided in Section 4 hereof, shall be
convertible as provided in Section 6 hereof, and shall be entitled to
vote as provided in Section 7 hereof.
Section 3. Dividends. If and whenever the Corporation
shall declare and pay a dividend or other distribution in respect of
its common stock, par value $.01 per share (the "COMMON STOCK"), other
than a dividend or other distribution that results in an adjustment to
the Conversion Price (as defined below) pursuant to Section 6(e)
hereof, the Corporation shall concurrently therewith declare and pay a
dividend to the holders of Series F Preferred Stock in an amount per
share equal to the amount per share of the dividend in respect of the
Common Stock multiplied by the number of shares of Common Stock into
which each share of Series F Preferred Stock is then convertible
pursuant to Section 6 hereof.
Section 4. Liquidation Preference. In the event of a
dissolution, liquidation or winding up of the Corporation (whether
voluntary or involuntary), but before any distribution to the holders
of Common Stock or any other class or series of the Corporation's then
outstanding capital stock ranking in any such event junior to the
Series F Preferred Stock, the holders of the Series F Preferred Stock
then outstanding shall be entitled to receive, and the Corporation
shall pay, the following amounts out of assets of the Corporation
legally available for distribution to the stockholders:
The holders of the Series F Preferred Stock shall
receive an amount per share equal to the "PREFERENTIAL AMOUNT"
(as hereinafter defined); provided however, that (i) if the
assets to be distributed to the holders of the Series F
Preferred Stock shall be insufficient to permit the payment to
such holders of the full Preferential Amount,
-2-
99
then all of the assets of the Corporation to be distributed to
the holders of the Series F Preferred Stock shall be
distributed ratably to the holders of the Series F Preferred
Stock; and (ii) if the assets to be distributed by the
Corporation in the event of any dissolution, liquidation or
winding-up of the Corporation (whether voluntary or
involuntary) to the holders of Common Stock, to the extent
such distribution then or theretofore made (after taking into
account all distributions that would be necessary to satisfy
the Preferential Amounts due to holders of the Series F
Preferred Stock) exceeds or would exceed an aggregate amount
per share of Common Stock equal to the Preferential Amount
divided by the number of shares of Common Stock into which
each share of Series F Preferred Stock is then convertible
pursuant to Section 6 hereof, the Corporation, in lieu of
distributing the Preferential Amount to the holders of Series
F Preferred Stock, shall concurrently with the making of such
distribution to the holders of Common Stock make a
distribution in an amount per share to the holders of Series F
Preferred Stock equal to the amount per share distributed to
the holders of Common Stock multiplied by the number of shares
of Common Stock into which each share of Series F Preferred
Stock is then convertible pursuant to Section 6 hereof, to the
end that the holders of Series F Preferred Stock shall share
equally with the holders of Common Stock, on an "as-converted"
basis, in such greater distribution. As used herein, the term
"PREFERENTIAL AMOUNT" means an amount initially equal to
$110.94 per share of Series F Preferred Stock, subject to
appropriate adjustment for any stock dividend, stock split,
recapitalization or consolidation of or on the Series F
Preferred Stock.
After the payment of all amounts required to be paid to the
holders of Series F Preferred Stock upon the liquidation, dissolution
or winding up of the Corporation as provided in this Section 4, the
Corporation shall distribute to the holders of all shares of capital
stock then outstanding ranking upon liquidation junior to the Series F
Preferred Stock the remaining assets and funds of the Corporation
legally available for distribution to its stockholders. Further, after
the payment of the Preferential Amounts required to be paid to the
holders of Series F Preferred Stock upon the liquidation, dissolution
or winding up of the Corporation pursuant to this Section 4, the
outstanding shares of Series F Preferred Stock shall be deemed to have
been redeemed and shall be cancelled and shall no longer be deemed to
be issued and outstanding and the holders of the Series F Preferred
Stock shall not be entitled to any further right or claim.
A consolidation, merger or other business combination of the
Corporation, or a sale or other disposition of substantially all of the
assets of the Corporation shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this
Section 4. Additionally, neither the sale by the Company of its
subsidiary, PartnerCommunity, Inc. (together with its successors,
"PartnerCommunity"), the distribution to the Corporation's stockholders
of the Corporation's capital stock in PartnerCommunity, any transaction
resulting in a reduction in the Corporation's ownership interest in
PartnerCommunity, nor the sale by PartnerCommunity of shares of capital
stock or assets to any other entity or person shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
-3-
100
Section 5. Redemption.
(a) No holder of Series F Preferred Stock shall have the
right solely by virtue of holding such stock to require redemption of
such shares nor, except as set forth in Section 5(b) below, shall the
Corporation have the right to call or require redemption of any shares
of Series F Preferred Stock.
(b) Unless otherwise agreed by the holders of at least a
majority of the outstanding shares of Series F Preferred Stock, voting
or consenting as a separate class, in the event of:
(i) the acquisition of the Corporation by
another entity by means of merger or consolidation resulting
in the exchange of at least 50% of the outstanding shares of
capital stock of this Corporation for securities issued or
other consideration paid by the acquiring entity or any parent
or subsidiary thereof (except for a merger or consolidation
after the consummation of which the stockholders of the
Corporation immediately prior to such merger or consolidation
own in excess of 50% of the voting securities of the surviving
corporation or its parent corporation); or
(ii) the sale or other disposition by the Company
of substantially all of its assets (other than an sale or
transfer of assets to one or more wholly-owned subsidiaries of
the Corporation),
the Corporation shall redeem all of the then issued and outstanding
shares of Series F Preferred Stock for a redemption price equal to the
Preferential Amount. Notwithstanding the foregoing, neither the sale by
the Company of PartnerCommunity, the distribution to the Corporation's
stockholders of the Corporation's capital stock in PartnerCommunity,
any transaction resulting in a reduction in the Corporation's ownership
interest in PartnerCommunity, nor the sale by PartnerCommunity of
shares of its capital stock or its assets to any other entity or person
shall be deemed to be a merger or consolidation or sale or other
disposition of substantially all of the assets of the Corporation as
contemplated by this Section 5(b).
Section 6. Conversion.
(a) Each share of Series F Preferred Stock shall
be convertible into Common Stock, at the then applicable Conversion
Price (as hereinafter defined), at any time and from time to time, at
the option of the holder thereof in accordance with this Section 6(a)
without the need for the payment of any additional cash consideration.
Before any holder of Series F Preferred Stock shall be entitled to
convert such stock into shares of Common Stock, the holder thereof
shall surrender the certificate or certificates therefor (or in the
case of any lost, stolen or destroyed certificate or certificates the
delivery of an affidavit to that effect accompanied by any indemnity
bond, in each case, reasonably required by the Corporation), duly
endorsed, to the Corporation and shall give written notice, duly
executed, to the Corporation of such election to convert the same and
shall state the number of shares of Series F Preferred Stock being
converted. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of the surrender
of the certificate
-4-
101
or certificates representing the shares of Series F Preferred Stock to
be converted, and the holder of such shares shall be treated for all
purposes as the record holder of such shares of Common Stock on such
date.
(b) Beginning on and continuing after March 30, 2002,
each share of Series F Preferred Stock shall automatically be converted
without the payment of any additional cash consideration into shares of
Common Stock at the then effective Conversion Price on the first date
after the Common Stock has traded at a Market Price (as hereinafter
defined) equal to or above $3.3282 per share (appropriately adjusted
for any stock split, dividend, combination, recapitalization or the
like of or on the Common Stock) for ten (10) trading days within any
twenty (20) trading day period and the record holder of such share of
Series F Preferred Stock shall be treated for all purposes as the
record holder of the Common Stock as of the close of business on such
tenth trading day. From and after the date of such conversion pursuant
to this Section 6(b), each certificate representing shares of Series F
Preferred shall be deemed to represent that number of shares of Common
Stock into which the Series F Preferred represented by such certificate
were converted. For the purpose of this Section 6(b), the "MARKET
PRICE" per share of Common Stock on any date shall be deemed to be the
closing price of the Common Stock on the principal national securities
exchange on which the Common Stock is then listed or admitted to
trading or the Nasdaq National Market, if the Common Stock is then
listed or admitted to trading on any national securities exchange or in
such market system. The closing price shall be the last reported sale
price, or, in case no such sale takes place on such day, the average of
the closing bid and asked price, as reported by said exchange or market
system. If the Common Stock of the Corporation is not then listed or
admitted to trading on any national securities exchange or The Nasdaq
National Market, the Series F Preferred Stock shall not be
automatically converted pursuant to this Section 6(b) and, so long as
the Company's Common Stock is not listed or admitted to trading on any
national securities exchange or The Nasdaq National Market, this
Section 6(b) shall not apply. For purposes of this Section 6(b),
"trading day" shall mean any day during which the national securities
exchange or The Nasdaq National Market on which the Corporation's
Common Stock is then listed or admitted to trading is open for trading.
(c) The price at which shares of Common Stock shall be
deliverable upon conversion of the Series F Preferred Stock is referred
to herein as the "CONVERSION PRICE," and shall be determined in
accordance with this Section 6. Each share of Series F Preferred Stock
shall be convertible into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the "Original
Price" of each share of Series F Preferred Stock by the Conversion
Price applicable to such series in effect at the time of conversion
without the payment of additional cash consideration. The "ORIGINAL
PRICE" of each share of Series F Preferred Stock shall be $110.94. The
initial Conversion Price for each share of Series F Preferred Stock
shall be $1.1094, subject to adjustment as set forth at Section 6(e)
below.
(d) No fractional shares of Common Stock shall be issued
upon conversion of the Series F Preferred Stock, and in lieu of any
fractional shares to which the holder would
-5-
102
otherwise be entitled, the Corporation shall pay cash equal to such
fraction multiplied by the applicable Market Price per share of Common
Stock (as determined pursuant to Section 6(e)(i)) as of the date of
such conversion.
(e) The Conversion Price shall be subject to adjustment
at any time or from time to time as provided herein:
(i) In the event the average Market Price (as
defined below) per share of the Common Stock for the ten (10)
consecutive trading days beginning with the next trading day
immediately following the date on which the Corporation issues
an Earnings Release (as defined below) for the quarter ended
June 30, 2001 (the "AVERAGE MARKET PRICE") is less than the
Conversion Price, the Conversion Price shall be adjusted
automatically to the higher of (A) the Average Market Price or
(B) 75% of the Conversion Price. If the Company issues more
than one Earnings Release with respect to the quarter ended
June 30, 2001, the Average Market Price will be calculated for
the ten (10) consecutive trading days following each such
Earnings Release, and the lowest of such Average Market Prices
will be used for the purpose of determining the adjusted
Conversion Price. The effective date for the adjustment to the
Conversion Price pursuant to this Section 6(e)(i), if any,
shall be the later of (A) the eleventh trading day after the
Corporation issues its Earnings Release announcing its actual
total revenue for the quarter ended June 30, 2001 or (B)
immediately after the effective date of this Certificate of
Amendment. Notwithstanding the foregoing, the Conversion Price
shall be adjusted only once, if at all, pursuant to this
Section 6(e)(i). For the purpose of this Section 6(e)(i), the
term "EARNINGS RELEASE" shall mean (y) a press release issued
by the Corporation after March 30, 2001, providing any
material financial metrics regarding revenue or estimated
revenue or earnings or estimated earnings for the quarter
ended June 30, 2001 (including in each case announcements
regarding consolidations or expense reduction plans
implemented or to be implemented by the Corporation), or (z) a
press release issued by the Corporation announcing its actual
total revenue for the quarter ended June 30, 2001. If the
Corporation does not issue an Earnings Release on or before
the date of filing by the Corporation with the Securities and
Exchange Commission of the Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2001, the filing of
such Quarterly Report on Form 10-Q shall be deemed to be the
Earnings Release. For the purpose of this Section 6(e)(i),
"MARKET PRICE" per share of Common Stock on any date shall be
deemed to be the closing price of the Common Stock on the
principal national securities exchange on which the Common
Stock is then listed or admitted to trading or The Nasdaq
Stock Market (including The Nasdaq National Market or The
Nasdaq SmallCap Market, as the case may be), if the Common
Stock is then listed or admitted to trading on any national
securities exchange or in such market system. The closing
price shall be the last reported sale price, or, in case no
such sale takes place on such day, the average of the closing
bid and asked price, as reported by said exchange or market
system. If the Common Stock is not then so listed on a
national securities exchange or in such market system, the
Market Price shall be deemed to be the mean between the
-6-
103
representative closing bid and asked prices of the Common
Stock in the over-the-counter market as reported by the
National Association of Securities Dealers Automated Quotation
System ("NASDAQ"), including without limitation the OTC
Bulletin Board or, if the Common Stock is not then quoted by
NASDAQ, the Market Price shall be determined by agreement
between the Corporation and holders of Series F Preferred
Stock outstanding at the time of such determination
representing more than 50% of the number of shares of Common
Stock into which each share of Series F Preferred Stock is
then convertible in accordance with Section 6.
(ii) In case the Corporation shall at any time or
from time to time after the date shares of Series F Preferred
Stock are first issued (A) pay a dividend or other
distribution with respect to its Common Stock in shares of the
Corporation's capital stock (whether shares of Common Stock or
of capital stock of any other class or series), (B) subdivide
its outstanding shares of Common Stock, or (C) combine its
outstanding shares of Common Stock into a smaller number of
shares, the conversion privilege and the Conversion Price in
effect immediately prior to such action shall be
proportionately adjusted (higher or lower, as the case may be)
so that the holder of any shares of Series F Preferred Stock
thereafter surrendered for conversion shall be entitled to
receive the number and kind of shares of capital stock of the
Corporation which it would have owned or have been entitled to
receive immediately following the happening of any of the
events described above, had such Series F Preferred Stock been
converted into Common Stock immediately prior thereto. An
adjustment made pursuant to this Section 6(e)(ii) shall (x)
become effective retroactively immediately after the record
date in the case of a dividend with respect to Common Stock
payable in shares of capital stock and (y) shall become
effective immediately after the effective date in the case of
a subdivision or combination. If, as a result of an adjustment
to the Conversion Price made pursuant to this Section
6(e)(ii), the holder of any shares of Series F Preferred Stock
thereafter surrendered for conversion shall become entitled to
receive shares of two or more classes of capital stock of the
Corporation, the Board of Directors and holders of a majority
of outstanding shares of Series F Preferred Stock shall
determine by agreement the allocation of the adjusted
Conversion Price between or among shares of such classes of
capital stock.
(iii) In case the Corporation shall distribute to
all holders of its Common Stock evidences of its indebtedness
or assets (excluding any dividend payable solely in cash),
then in each such case the Conversion Price shall be adjusted
so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior
to the date of such distribution by a fraction, (A) the
numerator of which shall be the current Market Price per share
(determined as provided in Section 6(e)(i) above) of the
Common Stock on the record date for the distribution less the
then fair market value (as determined by agreement between the
Corporation and holders of Series F Preferred Stock
outstanding at the time of such determination representing
more than 50% of the number of shares of Common Stock into
which each share of Series F Preferred Stock is convertible)
of the portion of the assets or
-7-
104
evidences of indebtedness or subscription rights, warrants or
other securities so distributed applicable to one share of
Common Stock, and (B) the denominator of which shall be such
current Market Price per share of the Common Stock. Such
adjustment shall become effective retroactively immediately
after the record date for the determination of stockholders
entitled to receive such distribution.
(iv) Except as provided in Section 6(e)(iv)(E),
if and whenever the Corporation shall issue or sell, or is, in
accordance with Sections 6(e)(iv)(A) through 6(e)(iv)(C),
deemed to have issued or sold, any shares of Common Stock for
a consideration per share less than the Conversion Price, in
effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Conversion Price
shall be adjusted to an amount equal to such per share
consideration. No adjustment shall be made to the Conversion
Price in the event of the issuance by the Corporation of
shares of Common Stock at a per share price equal to or
greater than the Conversion Price then in effect.
For purposes of this Section 6(e)(iv), the following Sections
6(e)(iv)(A) to 6(e)(iv)(E) shall also be applicable:
(A) In case at any time the Corporation shall in any
manner grant any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock
or security convertible into or exchangeable for Common Stock (such
warrants, rights or options being called "Options" and such convertible
or exchangeable stock or securities being called "Convertible
Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable,
convertible or exchangeable, and the Price Per Share (as defined below)
for which Common Stock is issuable upon the exercise of such Options or
upon the conversion or exchange of such Convertible Securities issuable
upon exercise of such Options shall be less than the Conversion Price
in effect immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been
issued for such Price Per Share as of the date of granting of such
Options or the issuance of such Convertible Securities. Except as
otherwise provided in Section 6(e)(iv)(C), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities. For purposes of this Section
6(e)(iv), the Price Per Share shall be determined by dividing (i) the
total amount of consideration, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon
-8-
105
the conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options.
(B) In case the Corporation shall in any manner issue or
sell any Convertible Securities, whether or not the rights to exchange
or convert any such Convertible Securities are immediately exercisable,
and the Price Per Share (as defined below) for which Common Stock is
issuable upon such conversion or exchange of such Convertible Security
shall be less than the Conversion Price in effect immediately prior to
the time of such issue or sale, then the total maximum number of shares
of Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for such
Price Per Share as of the date of the issue or sale of such Convertible
Securities, provided that (a) except as otherwise provided in Section
6(e)(iv)(C), no adjustment of the Conversion Price shall be made upon
the actual issue of such Common Stock upon conversion or exchange of
such Convertible Securities and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any Options to purchase
any such Convertible Securities for which adjustments of the Conversion
Price have been or are to be made pursuant to other provisions of this
Section 6(e)(iv), no further adjustment of the Conversion Price shall
be made by reason of such issue or sale. For purposes of this Section
6(e)(iv)(B), the Price Per Share shall be determined by dividing (i)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities.
(C) Upon the happening of any of the following events,
namely, if the Price Per Share provided for in any Option referred to
in Section 6(e)(iv)(A), the additional consideration, if any, payable
upon the conversion or exchange of any Option or Convertible Securities
referred to in Section 6(e)(iv)(A) or 6(e)(iv)(B), or the rate at which
Convertible Securities referred to in Section 6(e)(iv)(A) or
6(e)(iv)(B) are convertible into or exchangeable for Common Stock shall
change at any time (including, but not limited to, changes under or by
reason of provisions designed to protect against dilution), the
Conversion Price in effect at the time of such event shall forthwith be
increased or decreased to the Conversion Price which would have been in
effect at the time of such event had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; and on the expiration of any
such Option or the termination of any such right to convert or exchange
such Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price which
would have been in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued,
provided, that no readjustment pursuant to this clause (C) shall have
the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price immediately prior
-9-
106
to the original issuance of such Options or Convertible Securities (as
adjusted for any stock splits, stock dividends, combinations, reverse
stock splits or the like on or with respect to the Common Stock) or
(ii) the Conversion Price that would have resulted from any adjustment
pursuant to Section 6(e)(i) hereof between the date of the original
issuance of such Options or Convertible Securities and the readjustment
date therefor.
(D) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Corporation therefor, without deduction therefrom of
any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Corporation in connection therewith. In case any
shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be
deemed to be the fair value of such consideration as determined in good
faith by the Board of Directors of the Corporation, without deduction
of any expenses incurred or any underwriting commissions or concessions
paid or allowed by the Corporation in connection therewith. In case any
Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral
transaction in which no specific consideration is allocated to such
Options by the parties thereto, such Options shall be deemed to have
been issued for such consideration as determined in good faith by the
Board of Directors of the Corporation.
(E) There shall be no adjustment of the Conversion Price
pursuant to Section 6(e)(iv) in the case of Common Stock, Options or
Convertible Securities to be issued (1) to an employee, consultant,
officer or director of the Corporation or Subsidiary pursuant to any
stock-based incentive plan or agreement that has been duly approved by
the Corporation's Board of Directors (including, without limitation,
the Daleen Technologies, Inc. Amended and Restated 1999 Stock Incentive
Plan), (2) upon the issuance of no more than $5,000,000 of Common
Stock, Options or Convertible Securities to investors who the Board of
Directors of the Corporation determines are strategic to the future
success of the Corporation, (3) upon the issuance of Common Stock,
Options or Convertible Securities in transactions where the Corporation
is acquiring all or substantially all of a third-parties' assets or
voting securities in a transaction that would constitute a change of
control for such third party, (4) upon conversion of the Series F
Preferred Stock or upon exercise of the Warrants (as defined in the
Securities Purchaser Agreement dated as of March 30, 2001, by and among
the Corporation and the purchasers of Series F Preferred Stock named
therein (the "SECURITIES PURCHASE AGREEMENT")), or (5) upon the
exercise or conversion of Options, Convertible Securities, warrants or
other securities or instruments convertible into Common Stock granted
prior to March 30, 2001.
(v) No adjustment in the Conversion Price shall
be required unless such adjustment would require a decrease of
at least one-tenth of a cent ($.001) per share in such price
(and no adjustment shall increase the Conversion Price except
in the case of reverse stock splits or other transactions
involving a combination of shares of Common Stock); provided,
that any adjustments which by reason of this Section
-10-
107
6(e)(v) are not required to be made shall be carried forward
and then taken into account in any subsequent adjustment;
provided, further, that adjustment in the Conversion Price
shall be required and made in accordance with the provisions
of this Certificate of Amendment, other than this Section
6(e)(v), not later than such time as may be required in order
to preserve the tax-free nature of a distribution (within the
meaning of Section 305 of the United States Internal Revenue
Code of 1986, as amended) to the holders of Series F Preferred
Stock and/or Common Stock.
(vi) Anything in this Section 6 to the contrary
notwithstanding, the Corporation shall be entitled (but shall
not be required) to make such reductions in the Conversion
Price, in addition to those required by this Section 6, as the
Corporation, in its discretion, shall determine in good faith
to be advisable in order that any stock dividend, subdivision
of shares, distribution of rights to purchase stock or
securities or distribution of securities convertible into or
exchangeable for stock hereafter made by the Corporation to
its stockholders shall not be taxable.
(f) In case of any capital reorganization or of any
reclassification of the Common Stock of the Corporation other than as
provided in Section 6(e), or in case of the consolidation of the
Corporation with, or the merger of the Corporation into, any other
entity, the Series F Preferred Stock, if any shares thereof remain
outstanding, shall after such capital reorganization, reclassification
of Common Stock, consolidation, or merger be convertible into the
number of shares of stock or other securities or property of the
Corporation, or of the corporation resulting from such consolidation or
surviving such merger or to which such sale shall be made, as the case
may be, to which the holder of Common Stock issuable (at the time of
such capital reorganization, reclassification of Common Stock,
consolidation, or merger) upon exercise of the conversion privilege of
the Series F Preferred Stock would have been entitled upon such capital
reorganization, reclassification of Common Stock, consolidation, or
merger had the conversion privilege of the Series F Preferred Stock
been exercised immediately prior thereto; and in any case, if
necessary, the provisions set forth in this Section 6 regarding the
rights and interest thereafter of the holders of Series F Preferred
Stock shall be appropriately adjusted so as to be applicable, as nearly
as may reasonably be, to any shares of stock or other securities or
property thereafter deliverable on the exercise of the conversion
privilege of the Series F Preferred Stock as provided in this Section
6(f). Notwithstanding the foregoing, the provisions of this Section
6(f) shall not apply with respect to a transaction of the type
described in this Section 6 in the event the shares of Series F
Preferred have been or subsequently are redeemed pursuant to Section
5(b) as a result of such transaction.
(g) If any date shall be fixed by the Corporation as the
date as of which holders of Common Stock (i) shall be entitled to
receive any dividend or any distribution upon the Common Stock of the
Corporation, (ii) shall be offered any subscription or other rights, or
(iii) shall be entitled to participate in any capital reorganization,
reclassification of Common Stock, consolidation, or merger, described
in Section 6(f) above, or in any liquidation, dissolution or winding up
of the Corporation, the Corporation shall cause notice thereof
-11-
108
(specifying such date) to be mailed to the holders of the Series F
Preferred Stock, at the address or such holder as appears on the
Corporations stock transfer ledger of receiving notice, at least thirty
(30) days prior to the date of consummation of the transaction
described in the notice.
(h) The issuance of stock certificates representing
shares of Common Stock upon conversion of the Series F Preferred Stock
shall be made without charge to the exercising holder of Series F
Preferred Stock for any tax for the issuance thereof. The Corporation
shall not, however, be required to pay any tax that may be payable on
any transfer involved in the issue and delivery of stock in any name
other than that of the registered holders of Series F Preferred Stock,
and the Corporation shall not be required to issue or deliver any such
stock certificate unless and until the person or persons requesting the
issue thereof shall have paid to the Corporation the amount of such tax
or shall have established to the satisfaction of the Corporation that
such tax has been paid.
(i) The Corporation shall at all times reserve and keep
available out of its authorized but unissued stock for the purpose of
effecting the conversion of the Series F Preferred Stock, such number
of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of the Series F Preferred
Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of the
Series F Preferred Stock at the Conversion Price then in effect, the
Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for this purpose.
(j) The Corporation covenants that all shares of Common
Stock that may be issued upon conversion of the Series F Preferred
Stock will upon issue be fully paid and nonassessable and free of all
taxes, liens and charges for the issue thereof.
(k) In each case of an adjustment or readjustment of the
Conversion Price for the number of shares of Common Stock or other
securities issuable upon conversion of the Series F Preferred Stock,
the Corporation shall compute such adjustment or readjustment in
accordance herewith and prepare a certificate showing such adjustment
or readjustment and shall mail such certificate, by first class mail,
postage prepaid, to each registered holder of Series F Preferred Stock
at the address last provided by such holder as it appears on the
Corporation's stock transfer ledger. The certificate shall set forth
such adjustment or readjustment showing in detail the facts upon which
such adjustment or readjustment is based including a statement of:
(i) The adjusted or readjusted Conversion Price
for the Series F Preferred Stock; and
(ii) The number of additional shares of Common
Stock and the type and amount, if any, of other property which
would be received upon conversion of the adjusted or
readjusted Conversion Price for the Series F Preferred Stock.
-12-
109
(l) Except with the consent of the holders of a majority
of the then outstanding shares of Series F Preferred Stock, the
Corporation will not, by amendment of its Certificate of Incorporation
or through any reorganization, transfer of all or substantially all of
its 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 the Corporation will at all
times and in good faith assist in the carrying out of all of the
provisions of this Section 6.
Section 7. Voting. Except as otherwise expressly
provided herein or as required by law, the holder of each share of
Series F Preferred Stock shall be entitled to vote on all matters as
shall be submitted to a vote of the holders of the Common Stock and
shall be entitled to such number of votes as is equal to the largest
number of full shares of Common Stock determined by dividing the
Original Price by $1.1094 (subject to adjustment upon any stock split,
stock dividend, reverse stock split, reclassification, or consolidation
of or on the Common Stock). Except as required by law or otherwise
expressly provided herein, shares of Series F Preferred Stock and
shares of Common Stock and shares of all other classes or series of
stock entitled to vote with the Common Stock shall be voted together as
a single class and not as separate classes.
Section 8. Restrictions and Limitations. (a) Except as
otherwise required by law, so long as at least 50% of the shares of the
Series F Preferred Stock that were ever outstanding at any one time
remain outstanding (as adjusted for any combinations, consolidations,
recapitalizations, stock splits, stock dividends and the like), the
vote or written consent by the holders of at least a majority of the
outstanding shares of such Series F Preferred Stock, voting or
consenting as a separate class, shall be required for the Corporation
to:
(i) notwithstanding the provisions of Section
VIII of Part B of Article FOURTH of this Certificate of
Incorporation, authorize or issue any other class or series of
Preferred Stock ranking senior to or pari passu with the
Series F Preferred Stock as to the priority of payment of
amounts distributable upon dissolution, liquidation or winding
up of the Corporation, or increase the number of authorized
shares of Series F Preferred Stock. Nothing herein shall
prevent the Corporation from (A) authorizing or issuing a new
or existing series of Preferred Stock that ranks junior to the
Series F Preferred Stock as to the priority of payment of
amounts distributable upon dissolution, liquidation or winding
up of the Corporation or (B) from issuing shares of Series F
Preferred Stock and warrants to purchase Series F Preferred
Stock pursuant to the Securities Purchase Agreement; or
(ii) pay or declare any dividend or distribution
on any shares of Common Stock or of any security ranking
junior to the Series F Preferred Stock as to payment of
dividends other than a distribution or other payment made upon
dissolution, liquidation or winding up of the Corporation in
accordance with the provisions of Section 4 hereof and other
than dividends payable solely in shares of Common Stock or in
shares of the capital stock of PartnerCommunity (or its
successors); or
-13-
110
(iii) reclassify any Common Stock or other class
or series of capital stock of the Corporation into shares
having any preference or priority, or ranking senior to or
pari passu with the Series F Preferred Stock, as to the
payment of amounts distributable upon dissolution, liquidation
or winding up of the Corporation; or
(iv) amend or repeal (by merger, consolidation or
otherwise) any provision of, or add any provision to, the
Corporation's Certificate of Incorporation, including this
Certificate of Amendment, other than changes which do not
amend, alter or repeal the preferences, special rights or
other powers of the Series F Preferred Stock so as to
adversely affect the Series F Preferred Stock.
(b) The Corporation will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid the observance or
performance of any of the terms to be observed or performed hereunder
by the Corporation."
FOURTH: The Certificate of Incorporation is hereby amended by adding a
new Section VIII of Part B of Article FOURTH as follows:
"VIII. PREFERRED STOCK WITHOUT DESIGNATIONS AND PREFERENCES
Shares of preferred stock (other than preferred stock
comprising the Preferred, as defined herein) may be issued from time to
time in one or more series, without further stockholder approval. The
Board of Directors of the Corporation hereby is authorized, by
resolution or resolutions thereof, to fix or alter the rights, voting
powers (if any), preferences, privileges and restrictions granted to or
imposed upon each series of preferred stock, and the number of shares
constituting any such series and the designation thereof, or of any of
them. The rights, powers, privileges, preferences and restrictions of
any such additional series may be subordinated to, pari passu with
(including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of
matters by vote), or senior to any of those of any present or future
class or series of preferred stock or Common Stock. The Board of
Directors also is authorized to increase or decrease the number of
shares of any series prior or subsequent to the issue of that series,
but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the
shares constituting such decrease shall resume the status which they
had prior to the adoption of the resolution originally fixing the
number of shares of such series."
FIFTH: That, pursuant to Section 242 of the General Corporation Law of
the State of Delaware, the aforesaid amendments to the Certificate of
Incorporation was duly adopted by the stockholders of the Corporation at the
annual meeting of stockholders held on __________, 2001.
-14-
111
SIXTH: That this Certificate of Amendment to the Certificate of
Incorporation shall become effective upon filing with the Delaware Secretary of
State pursuant to Section 103(d) of the General Corporation Law.
-15-
112
[SIGNATURE PAGE TO CERTIFICATE OF AMENDMENT]
IN WITNESS WHEREOF, Daleen Technologies, Inc. has caused this
Certificate of Amendment to the Certificate of Incorporation to be executed by
James Daleen, its Chairman and Chief Executive Officer, and attested by Stephen
M. Wagman, its Secretary, on _________, 2001.
DALEEN TECHNOLOGIES, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
-16-
113
APPENDIX C
FORM OF WARRANT
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. NEITHER THIS WARRANT,
SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH SECURITIES ACT AND SUCH LAWS.
___________, 2001
--------------------------------------
DALEEN TECHNOLOGIES, INC.
SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT
--------------------------------------
THIS SERIES F CONVERTIBLE PREFERRED STOCK PURCHASE WARRANT
(this "WARRANT") certifies that, for good and valuable consideration, DALEEN
TECHNOLOGIES, INC., a Delaware corporation (the "COMPANY"), grants to
___________________________ (the "WARRANTHOLDER"), the right to subscribe for
and purchase from the Company, during the Exercise Period (as hereinafter
defined), ___________________ __________ (______) duly authorized, validly
issued, fully paid and nonassessable shares (the "WARRANT SHARES"), par value
$.01 per share, of Series F Convertible Preferred Stock of the Company (the
"SERIES F PREFERRED STOCK"), at the exercise price per share of $166.41 (subject
to adjustment as set forth below, the "EXERCISE PRICE"), all subject to the
terms, conditions and adjustments herein set forth. Capitalized terms used
herein shall have the meanings ascribed to such terms in Paragraph 11 below.
Notwithstanding anything contained herein to the contrary, if the
Series F Preferred Stock is automatically converted into Common Stock of the
Company, par value $.01 per share ("COMMON STOCK"), pursuant to Paragraph 6 of
the Certificate of Designation of the Series F Convertible Preferred Stock
establishing the Series F Preferred Stock, then this Warrant shall be
exercisable for such number of shares of Common Stock deliverable upon the
conversion of the Series F Preferred Stock issuable upon exercise of this
Warrant immediately prior to such automatic conversion, at an exercise price per
share of Common Stock equal to the Exercise Price immediately prior to such
conversion divided by the total number of shares of Common Stock then issuable
upon conversion of a single share of Series F Preferred Stock and thereafter all
references in this Warrant to "Warrant Shares" and "Series F Preferred Stock"
shall mean such shares of Common Stock.
1. Warrant. This Warrant is issued pursuant to, and in
accordance with, the Securities Purchase Agreement by and among the Company, the
Warrantholder and certain other investors in the Company, dated as of March 30,
2001 (the "PURCHASE AGREEMENT"), and is subject to the terms thereof.
114
2. Exercise of Warrant; Payment of Taxes.
2.1 Exercise of Warrant. Subject to the terms
and conditions set forth herein, this Warrant may be exercised at any time, in
whole or in part, by the Warrantholder of any assignee or transferee of this
Warrant pursuant to, and in compliance with Paragraph 3 herein, during the
Exercise Period by:
(a) the surrender of this Warrant to
the Company, with a duly executed Exercise Form, and
(b) the delivery of payment to the
Company, for the account of the Company, by cash, wire transfer of immediately
available funds, certified or official bank check or any other means approved by
the Company, of the aggregate Exercise Price in lawful money of the United
States of America. The Company agrees that the Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered and payment made for the Warrant Shares as aforesaid (the "EXERCISE
DATE").
2.2 Conversion Option.
(a) In lieu of the payment of the
aggregate Exercise Price, the Warrantholder at its sole discretion may have the
Company convert this Warrant, in whole or in part, into shares of Series F
Preferred Stock (the "CONVERSION OPTION") as provided for in this Paragraph 2.2.
Upon exercise of the Conversion Option, the Company shall deliver to the
Warrantholder (without payment by the Warrantholder of any of the Exercise Price
in accordance with Paragraph 2.1(b)) that number of Warrant Shares computed
using the following formula:
X = Y(A-B)
------
A
Where:
X = the number of Warrant Shares to be issued to the
Warrantholder;
Y = the number of Warrant Shares purchasable under this
Warrant or, if only a portion of the Warrant is being
converted, the portion of the Warrant being
converted;
A = the current market value per share of the Series F
Preferred Stock (at the date of such conversion); and
B = the Exercise Price (as adjusted to the date of such
calculation).
For purposes of the calculation above, the "CURRENT MARKET
VALUE PER SHARE OF SERIES F PREFERRED STOCK" shall be the product of
(A) the number of shares of Common Stock issuable upon conversion of
one share of Series F Preferred Stock, times (B) the Market Price of
the Common Stock on the Exercise Date of the Conversion Option or if
the Exercise Date is not a Business Day, on the next succeeding
Business Day. For the purpose of this Paragraph 2.2(a), the "Market
Price" per share of Common Stock on any
2
115
date (the "MARKET PRICE") shall be deemed to be the closing price of
the Common Stock on the principal national securities exchange on which
the Common Stock is then listed or admitted to trading or The Nasdaq
Stock Market (including The Nasdaq National Market and The Nasdaq
SmallCap Market, as the case may be), if the Common Stock is then
listed or admitted to trading on any national securities exchange or in
such market system. The closing price shall be the last reported sale
price, or, in case no such sale takes place on such day, the average of
the closing bid and asked price, as reported by said exchange or market
system. If the Common Stock is not then so listed on a national
securities exchange or in such market system, the Market Price shall be
deemed to be the mean between the representative closing bid and asked
prices of the Common Stock in the over-the-counter market as reported
by the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") or, if the Common Stock is not then quoted by NASDAQ,
the Market Price shall be determined in good faith by the Board of
Directors of the Corporation.
(b) The Conversion Option may be
exercised by the Warrantholder at its sole discretion on any Business Day prior
to the end of the Exercise Period by surrender of this Warrant to the Company,
with a duly executed Exercise Form with the conversion section completed,
exercising the Conversion Option and specifying the total number of shares of
Series F Preferred Stock that the Warrantholder will be issued pursuant to such
conversion.
2.3 Warrant Shares Certificate. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder within five (5) Business Days after
receipt of the Exercise Form by the Company and, unless the Conversion Option is
exercised, the payment by the Warrantholder of the aggregate Exercise Price. If
this Warrant is exercised only in part, the Company shall, at the time of
delivery of the stock certificate or certificates, deliver to the Warrantholder
a new Warrant evidencing the right to purchase the remaining Warrant Shares,
which new Warrant shall in all other respects be identical to this Warrant.
2.4 Payment of Taxes. The Company will pay all
documentary stamp or other issuance taxes, if any, attributable to the original
issuance of Warrant Shares upon the exercise of this Warrant; except that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue or delivery of any Warrants or
Warrant certificates or Warrant Shares in a name other than that of the then
existing Warrantholder as reflected upon the books of the Company.
3. Transfer of Warrants; Compliance with Securities
Laws.
(a) The Company shall maintain a register (the
"WARRANT REGISTER") containing the names and addresses of the Warrantholder or
Warrantholders. Any Warrantholder of this Warrant or any portion hereof may
change its address as shown on the Warrant Register by written notice to the
Company requesting such change. Any notice or written communication required or
permitted to be given to the Warrantholder may be delivered or given by mail to
such
3
116
Warrantholder as shown on the Warrant Register and at the address shown on the
Warrant Register. Until this Warrant is transferred on the Warrant Register, the
Company may treat the Warrantholder as shown on the Warrant Register as the
absolute owner of this Warrant for all purposes, notwithstanding any notice to
the contrary.
(b) This Warrant may not be transferred or
assigned in whole or in part without compliance with all applicable federal and
state securities laws by the transferor and the transferee (including the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company). Subject to
the provisions of this Warrant with respect to compliance with the Securities
Act, title to this Warrant may be transferred by endorsement (by the
Warrantholder executing the assignment form (the "ASSIGNMENT FORM") attached
hereto as Exhibit B) and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery.
(c) On surrender of this Warrant for exchange,
properly endorsed on the Assignment Form and subject to the provisions of this
Warrant with respect to compliance with the Securities Act and with the
limitations on assignments and transfers contained in this Paragraph 3, the
Company shall issue to or on the order of the Warrantholder a new warrant or
warrants with the same terms and conditions, in the name of the Warrantholder
and/or as the Warrantholder (on payment by the Warrantholder of any applicable
transfer and stamp taxes) may direct, for the aggregate number of Warrant Shares
issuable upon exercise thereof.
4. Reservation and Registration of Shares. The Company
covenants and agrees as follows:
(a) All Warrant Shares that are issued
upon the exercise of this Warrant shall, upon issuance, be duly authorized,
validly issued, fully paid and non-assessable, not subject to any preemptive
rights, and be free from all taxes, liens, security interests, charges, and
other encumbrances with respect to the issuance thereof, other than taxes in
respect of any transfer occurring contemporaneously with such issue and other
than any liens, security interests, and other encumbrances not created by the
Company or its subsidiaries.
(b) The Company shall at all times have
authorized and reserved, and shall keep available and free from preemptive
rights, a sufficient number of shares of Series F Preferred Stock and Common
Stock to provide for the exercise of the rights represented by this Warrant and
the Warrant Shares.
5. Adjustment to Exercise Price and Warrant Share Number. The
Exercise Price and the number of Warrant Shares to be received upon exercise of
this Warrant shall be subject to adjustment as follows:
5.1 Dividend, Subdivision, Combination or
Reclassification of Common Stock. If the Company shall at any time or from time
to time, after the issuance of this Warrant but prior to the exercise hereof,
(w) make a dividend or distribution on the outstanding shares of Series F
Preferred Stock payable in Capital Stock, (x) subdivide the outstanding shares
of Series F Preferred Stock into a larger number of shares, (y) combine the
outstanding shares of
4
117
Series F Preferred Stock into a smaller number of shares or (z) issue any shares
of its Capital Stock in a reclassification of the Series F Preferred Stock
(other than any such event for which an adjustment is made pursuant to another
clause of this Paragraph 5), then, and in each such case,of (A) the aggregate
number of Warrant Shares for which this Warrant is exercisable (the "WARRANT
SHARE NUMBER") immediately prior to such event shall be adjusted so that the
Warrantholder shall be entitled to receive upon exercise of this Warrant the
number of shares of Series F Preferred Stock or other securities of the Company
that it would have owned or would have been entitled to receive upon or by
reason of any of the events described above, had this Warrant been exercised
immediately prior to the occurrence of such event and (B) the Exercise Price
payable upon the exercise of this Warrant shall be adjusted by multiplying such
Exercise Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the Warrant Share Number immediately prior to such adjustment,
and the denominator of which shall be the Warrant Share Number immediately
thereafter. An adjustment made pursuant to this Paragraph 5.1 shall become
effective retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of shares of Series F Preferred Stock entitled to
receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
5.2 Other Changes. If the Company at any time
or from time to time, after the issuance of this Warrant but prior to the
exercise hereof, shall take any action affecting its Series F Preferred Stock
similar to or having an effect similar to any of the actions described in any of
Paragraphs 5.1 or 5.6 herein (but not including any action described in any such
Paragraph) then, and in each such case, the Exercise Price and Warrant Share
Number shall be adjusted in such manner and at such time as the Board of
Directors in good faith determines would be equitable in the circumstances (such
determination to be evidenced in a resolution, a certified copy of which shall
be mailed to the Warrantholder).
5.3 No Adjustment; Par Value Minimum.
Notwithstanding anything herein to the contrary, no adjustment under this
Paragraph 5 need be made to the Exercise Price or Warrant Share Number if the
Company receives written notice from the Warrantholder that no such adjustment
is required. Notwithstanding any other provision of this Warrant, the Exercise
Price shall not be adjusted below the par value of a share of Series F Preferred
Stock.
5.4 Abandonment. If the Company shall take a
record of the holders of shares of its Series F Preferred Stock for the purpose
of entitling them to receive a dividend or other distribution, and shall
thereafter and before the distribution to stockholders thereof abandon its plan
to pay or deliver such dividend or distribution, then no adjustment in the
Exercise Price or Warrant Share Number shall be required by reason of the taking
of such record.
5.5 Certificate as to Adjustments. Upon any
adjustment in the Exercise Price or Warrant Share Number, the Company shall
within a reasonable period (not to exceed ten (10) days) following any of the
foregoing transactions deliver to the Warrantholder a certificate, signed by (i)
the Chief Executive Officer of the Company and (ii) the Chief Financial Officer
of the Company, setting forth in reasonable detail the event requiring the
adjustment and
5
118
the method by which such adjustment was calculated and specifying the adjusted
Exercise Price and Warrant Share Number then in effect following such
adjustment.
5.6 Reorganization, Reclassification, Merger or
Sale Transaction. In case of any capital reorganization, reclassification, Sale
Transaction, mandatory share exchange (other than a Sale Transaction or a
mandatory share exchange in which the Company is the surviving corporation and
in which the Series F Preferred Stock is not exchanged or converted ) of the
Company (each, a "TRANSACTION") at any time after the issuance of this Warrant
but prior to the exercise hereof, the Company shall execute and deliver to the
Warrantholder at least ten (10) Business Days prior to effecting such
Transaction a certificate and, if following a Transaction, the Warrant shall be
exercisable for securities of any Person other than the Company, such Person
shall, no later than simultaneously with the closing of the Transaction, issue a
certificate, stating that the Warrantholder shall have the right thereafter to
exercise this Warrant for the kind and amount of shares of stock or other
securities, property or cash receivable upon such Transaction by a holder of the
number of shares of Series F Preferred Stock into which this Warrant could have
been exercised immediately prior to such Transaction, and provision shall be
made therefor in the agreement, if any, relating to such Transaction. Such
certificates shall provide for adjustments which shall be as nearly equivalent
as may be practicable to the adjustments provided for in this Paragraph 5. The
provisions of this Paragraph 5.6 and any equivalent thereof in any such
certificate similarly shall apply to successive transactions.
5.7 Notices. In case at any time or from time
to time:
(a) the Company shall pay a dividend
(or other distribution) on its shares of Series F Preferred Stock, shares of any
other series of Preferred Stock or shares of Common Stock, or
(b) the Company shall authorize the
granting to the holders of shares of its Series F Preferred Stocks shares of any
existing series of Preferred Stock or shares of Common Stock, rights or warrants
to subscribe for or purchase any shares of Capital Stock or any other rights or
warrants,
then the Company shall mail to the Warrantholder, as promptly as possible but in
any event at least ten (10) Business Days prior to the applicable date
hereinafter specified, a notice stating the date on which a record is to be
taken for the purpose of such dividend, distribution or granting of rights or
warrants or, if a record is not to be taken, the date as of which the holders of
Series F Preferred Stock of record to be entitled to such dividend, distribution
or granting of rights or warrants are to be determined. Notwithstanding the
foregoing, in the case of any event to which Paragraph 5.6 is applicable, the
Company shall also deliver the certificate described in such Paragraph 5.6 to
the Warrantholder at least ten (10) Business Days prior to effecting such
reorganization or reclassification as aforesaid.
6. No Dilution or Impairment. The Company will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith
6
119
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Warrantholder under this Warrant.
7. Loss or Destruction of Warrant. Subject to the terms
and conditions hereof, upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, such bond or indemnification as
the Company may reasonably require, and, in the case of such mutilation, upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor; provided, however, in the event of the loss, theft
or destruction of this Warrant, or the mutilation of this Warrant if the
Warrantholder shall not have delivered such mutilated Warrant to the Company,
the Company may require that the Warrantholder provide a bond or written
indemnification in favor of the Company with respect to any claims, expenses or
losses the Company may incur in connection with such lost, stolen, destroyed or
mutilated Warrant.
8. Ownership of Warrant. The Company may deem and treat
the person in whose name this Warrant is registered as the holder and owner
hereof (notwithstanding any notations of ownership or writing hereon made by
anyone other than the Company) for all purposes and shall not be affected by any
notice to the contrary, until presentation of this Warrant, together with proper
written notice, for transfer.
9. Amendments. Any provision of this Warrant may be
amended and the observance thereof waived with the written consent of the
Company and the Warrantholder or by the written consent of the Company and the
Majority Warrantholders.
10. Representations and Warranties by the Warrantholder.
By accepting this Warrant, the Warrantholder represents and warrants to the
Company as follows:
(a) This Warrant and the Warrant Shares
issuable upon exercise of the Warrantholder's rights contained herein will be
acquired for investment for the Warrantholder's own account and not with a view
to the sale or distribution of any part thereof, and the Warrantholder has no
present intention of selling or engaging in any public distribution of the same
except pursuant to a registration or exemption from the Securities Act.
(b) The Warrantholder understands and
acknowledges (i) that the Warrant Shares issuable upon exercise of the
Warrantholder's rights contained herein are not registered under the Securities
Act or qualified under applicable state securities laws because the issuance
contemplated by this Warrant will be exempt from the registration and
qualification requirements thereof, and (ii) that the Company's reliance on such
exemptions is predicated on the accuracy of the representations set forth in
this Paragraph 10.
(c) The Warrantholder has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment and has the ability to bear the economic
risks of its investment. The Warrantholder is a "qualified institutional buyer"
as such term is defined in Rule 144A(a)(1) promulgated under the Securities Act.
7
120
(d) The Warrantholder understands that
if the Company's Common Stock ceases to be registered with the Securities and
Exchange Commission pursuant to Paragraph 12 of the Securities Exchange Act of
1934 (the "EXCHANGE ACT"), or if the Company ceases to file the reports required
under the Exchange Act, or if a registration statement covering the securities
under the Securities Act is not in effect when it desires to resell (i) this
Warrant or (ii) the Warrant Shares issuable upon exercise of this Warrant, it
may be required to hold such securities for an indefinite period. The
Warrantholder is aware of the provisions of Rule 144 promulgated under the
Securities Act.
(e) The Warrantholder will not offer,
sell or otherwise dispose of this Warrant or any Warrant Shares to be issued
upon exercise hereof except under circumstances that will not result in a
violation of the Securities Act or any state securities laws.
(f) Upon exercise of this Warrant, the
Warrantholder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the Warrantholder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
(g) The Warrantholder understands that
this Warrant and all Warrant Shares issued upon exercise hereof shall be stamped
or imprinted with a legend in substantially the form set forth on the first page
hereof.
11. Definitions. As used herein, unless the context
otherwise requires, the following terms have the following respective meanings:
"BOARD OF DIRECTORS" means the Board of Directors of the
Company.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of such Person's capital stock and
any and all rights, warrants or options exchangeable for or convertible into
such capital stock (but excluding any debt security whether or not it is
exchangeable for or convertible into such capital stock).
"COMMON STOCK" means the Common Stock, par value $.01 per
share, of the Company.
"COMPANY" has the meaning set forth in the first paragraph of
this Warrant.
"EXERCISE DATE" has the meaning set forth in Paragraph 2.1(b)
of this Warrant.
8
121
"EXERCISE FORM" means an Exercise Form in the form annexed
hereto as Exhibit A.
"EXERCISE PERIOD" means the period from the date hereof to
5:00 p.m., Eastern time, on the fifth (5th) anniversary of the date hereof.
"EXERCISE PRICE" has the meaning set forth in the first
paragraph of this Warrant.
"MAJORITY WARRANTHOLDERS" means the holders of a majority of
Warrant Shares issuable upon exercise of all of the warrants issued, or to be
issued at the Escrow Closing, pursuant to the Purchase Agreement assuming the
exercise of all such warrants.
"MARKET PRICE" has the meaning set forth in Paragraph 2.2(a)
of this Warrant.
"PERSON" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"PURCHASE AGREEMENT" has the meaning set forth in Paragraph 1
of this Warrant.
"SALE TRANSACTION" shall mean (a) (i) the merger or
consolidation of the Company into or with one or more Persons, (ii) the merger
or consolidation of one or more Persons into or with the Company or (iii) a
tender offer or other business combination if, in the case of (i), (ii) or
(iii), the stockholders of the Company prior to such merger, consolidation,
tender offer or other business combination do not retain at least 50% of the
voting power of the surviving Person or (b) the voluntary sale, conveyance,
exchange or transfer to another Person of (i) the voting Capital Stock of the
Company if, after such sale, conveyance, exchange or transfer, the stockholders
of the Company prior to such sale, conveyance, exchange or transfer do not
retain at least 50% of the voting power of the Company or (ii) all or
substantially all of the assets of the Company.
"SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
thereunder.
"TRANSACTION" has the meaning set forth in Paragraph 5.6 of
this Warrant.
"WARRANT SHARE NUMBER" has the meaning set forth in Paragraph
5.1 of this Warrant.
"WARRANT SHARES" has the meaning set forth in the first
paragraph of this Warrant.
"WARRANTHOLDER" has the meaning set forth in the first
paragraph of this Warrant.
9
122
12. Miscellaneous
12.1 Entire Agreement. This Warrant, the
Purchase Agreement, the Escrow Agreement and the Registration Rights Agreement
dated March 30, 2001, between the Company and certain other investors in the
Company constitute the entire agreement between the Company and the
Warrantholder with respect to the Warrant and supersedes all prior agreements
and understanding with respects to the subject matter of this Warrant.
12.2 Binding Effect; Benefits. This Warrant
shall inure to the benefit of and shall be binding upon the Company and the
Warrantholder and their respective permitted successors and assigns. Nothing in
this Warrant, expressed or implied, is intended to or shall confer on any person
other than the Company and the Warrantholder, or their respective permitted
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Warrant.
12.3 Headings. The headings in this Warrant are
for convenience of reference only and shall not limit or otherwise affect the
meaning of this Warrant.
12.4 Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
(a) if to the Company:
Daleen Technologies, Inc.
1750 Clint Moore Road
Boca Raton, Florida 33487
Telecopy: (561) 999-8080
Attention: Chief Financial Officer
with a copy to:
Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Telecopy: (404) 365-9532
Attention: David M. Calhoun, Esq.
(b) if to the Warrantholder to the name
and address set forth in the Warrant Register;
with a copy to:
[Counsel to Warrant holder]
10
123
--------------------------------------
--------------------------------------
--------------------------------------
Telecopy: _____________________
Attention: _____________________
and a copy to:
O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street, 26th Floor
San Francisco, California 94111
Telecopy: (415) 984-8701
Attention: Peter T. Healy, Esq.
Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States mail, by registered or certified mail, addressed (i) to the
Warrantholder at the address set forth above, and (ii) to the Company at the
address set forth above, or, if sent by facsimile to the numbers set forth
above, when receipt of such facsimile is verbally (but not mechanically)
acknowledged by the recipient thereof. Any party may by notice given in
accordance with this Paragraph 12.4 designate another address or Person for
receipt of notices hereunder.
12.5 Severability. Any term or provision of this
Warrant which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective only to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remainder of the
terms and provisions of this Warrant or affecting the validity or enforceability
of any of the terms or provisions of this Warrant in any other jurisdiction.
12.6 GOVERNING LAW. THIS WARRANT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
12.7 No Rights or Liabilities as Stockholder.
Nothing contained in this Warrant shall be determined as conferring upon the
Warrantholder any rights as a stockholder of the Company or as imposing any
liabilities on the Warrantholder to purchase any securities whether such
liabilities are asserted by the Company or by creditors or stockholders of the
Company or otherwise.
[Remainder of this page intentionally left blank]
11
124
IN WITNESS WHEREOF, the Company and the Warrantholder have
caused this Warrant to be executed this _______ day of _________________, 2001.
DALEEN TECHNOLOGIES, INC.
By:
-------------------------------
Name:
Title:
WARRANTHOLDER
By:
-------------------------------
Name:
Title:
125
FORM OF WARRANT
EXHIBIT A
EXERCISE FORM
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant, to purchase [_______] shares of Series F
Preferred Stock and [HEREWITH TENDERS PAYMENT FOR SUCH SHARES TO THE ORDER OF
THE COMPANY IN THE AMOUNT OF $____________] [HEREBY EXERCISES ITS CONVERSION
OPTION] in accordance with the terms of this Warrant. The undersigned requests
that a certificate for such [WARRANT SHARES] [NUMBER OF WARRANT SHARES TO WHICH
THE UNDERSIGNED IS ENTITLED CALCULATED PURSUANT TO PARAGRAPH 2.2] be registered
in the name of the undersigned and that such certificates be delivered to the
undersigned's address below.
The undersigned represents that the representations and
warranties set forth in Paragraph 10 of the Warrant are true and correct as to
the Warrantholders as of the date hereof.
Dated:
Name
--------------------------------------------
(Print)
Signature:
-------------------------------------------
Title:
--------------------------------------------
--------------------------------------------
(Street Address)
--------------------------------------------
(City) (State) (Zip Code)
126
APPENDIX D
ESCROW AGREEMENT
This ESCROW AGREEMENT, dated as of March 30, 2001 ("ESCROW AGREEMENT")
is by and between DALEEN TECHNOLOGIES, INC., a Delaware corporation (the
"COMPANY"); SunTrust Bank, a Georgia banking corporation, as Escrow Agent
hereunder ("ESCROW AGENT"); and the purchasers named on Exhibit A hereto (the
"ESCROW PURCHASERS").
BACKGROUND
A. The Company is offering for sale (i) an aggregate of 247,882
shares (the "SHARES") of its Series F Convertible Preferred Stock, $.01 par
value per share (the "SERIES F PREFERRED"), and (ii) warrants (collectively, the
"WARRANTS") to purchase an aggregate of 99,153 additional shares of Series F
Preferred at an exercise price of $166.41 per share (the "WARRANT SHARES"),
pursuant to the Securities Purchase Agreement (the "PURCHASE AGREEMENT"), dated
as of March 30, 2001, by and among the Company and the purchasers identified in
Exhibit A attached thereto.
B. In accordance with the Purchase Agreement, the Escrow
Purchasers will be required to submit full payment for their respective
investments at the time they enter into the Purchase Agreement.
C. Pursuant to the MarketPlace Rules of the Nasdaq National
Market (the "NNM"), and the Delaware General Corporation Law, the Company is
required to obtain stockholder approval for the issuance and sale of Series F
Preferred and Warrants (i) to the extent such shares of Series F Preferred and
Warrant Shares are convertible into a number of shares of Common Stock equal to
20% or more of the outstanding shares of Common Stock on the date hereof, (ii)
to certain affiliates of the Company and (iii) to the extent that the issuance
and sale of the Series F Preferred and Warrants constitute a change of control
under the MarketPlace Rules. Additionally, the Company will be required to amend
its Certificate of Incorporation to authorize, create and designate the Series F
Preferred and to increase the total number of shares of stock and the total
number of shares of Common Stock authorized to be issued in order to have a
sufficient number of shares of authorized Common Stock for issuance upon
conversion of all of the Series F Preferred. Pursuant to the Delaware General
Corporation law, the amendment to the Certificate of Incorporation to authorize,
create and designate the Series F Preferred and to increase the number of
authorized shares requires the approval of the stockholders of the Company (such
stockholder approval, together with the stockholder approval required by the
MarketPlace Rules of The Nasdaq National Market, hereinafter are referred to
collectively as the "REQUISITE STOCKHOLDER APPROVAL"). As a result, the Company
and those Escrow Purchasers identified on Exhibit A hereto have agreed to the
terms of the Purchase Agreement pursuant to which all of the Escrow Purchase
Price (as hereinafter defined) payable by such Escrow Purchasers and
certificates representing the Series F Shares and warrants shall be placed in
escrow pending the Company's receipt of the Requisite Stockholder Approval.
127
D. In order to establish the escrow of funds, the parties hereto
have entered into this Escrow Agreement.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, for
themselves, their successors and assigns, hereby agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings when
used herein:
"CLOSING DATE" shall be March 30, 2001.
"ESCROW CERTIFICATES" shall have the meaning set forth in Section 3(b)
hereof.
"ESCROW FUNDS" shall mean the entirety of the Escrow Purchase Price
deposited with the Escrow Agent pursuant to this Escrow Agreement by the Escrow
Purchasers, together with any interest and other income thereon.
"ESCROW PURCHASE PRICE" shall mean the funds in the respective amounts
set forth opposite each Escrow Purchaser's name under the column "ESCROW
PURCHASE PRICE" on Exhibit A hereto.
"ESCROW PURCHASER" or "ESCROW PURCHASERS" shall have the meaning set
forth in the first paragraph of this Escrow Agreement.
"ESCROW WARRANTS" shall have the meaning set forth in Section 3 hereof.
"EXPIRATION DATE" shall mean July 30, 2001, or such later date as shall
be agreed to in writing by the Company and the Escrow Purchasers.
"MAJORITY OF ESCROW PURCHASERS" shall mean the Escrow Purchasers that
have deposited a majority of the Escrow Funds in the escrow.
"PRO RATA BASIS" with respect to the allocation among Escrow Purchasers
of interest and other earnings held in the Escrow Funds which derive solely from
the Escrow Funds, shall mean, for each Escrow Purchaser, the Escrow Purchaser's
Escrow Purchase Price multiplied by the number of days the Purchase Price of
such Escrow Purchaser was held in interest-bearing investments pursuant to
Section 5 hereof, multiplied by the average yield earned on the Escrow Funds
during such period of days.
"REQUISITE STOCKHOLDER APPROVAL" shall have the meaning set forth in
the section of this Escrow Agreement titled "Background".
-2-
128
2. APPOINTMENT OF AND ACCEPTANCE BY ESCROW AGENT. The Company and the
Escrow Purchasers hereby appoint Escrow Agent to serve as escrow agent
hereunder, and Escrow Agent hereby accepts such appointment in accordance with
the terms of this Escrow Agreement.
3. DEPOSITS INTO ESCROW.
a. Deposit of Escrow Funds. On the Closing Date, each
Escrow Purchaser shall deposit with the Escrow Agent in the following account
the full amount of the Escrow Purchase Price set forth opposite such Escrow
Purchaser's name on Exhibit A hereto:
SunTrust Bank
Corporate Trust Department
Center #008
A/C #9088000008
ABA # 061000104
ATTN: Rebecca Fischer
Re: Daleen Technologies, Inc. - Escrow Account.
Such Escrow Purchase Price shall be paid in United States dollars in immediately
available funds by wire transfer to such account.
The Escrow Purchase Price deposited by each Escrow Purchaser shall be
accompanied by the following documents:
(1) a report containing such Escrow Purchaser's name,
taxpayer identification number, address and other
information required for withholding purposes; and
(2) a copy of the Purchase Agreement and this Escrow
Agreement, in each case signed by such Escrow
Purchaser as delivered to the Company.
ALL FUNDS SO DEPOSITED SHALL REMAIN THE PROPERTY OF THE ESCROW
PURCHASERS ACCORDING TO THEIR RESPECTIVE INTERESTS AND SHALL NOT BE SUBJECT TO
ANY LIEN OR CHARGE BY ESCROW AGENT OR BY JUDGMENT OR CREDITORS' CLAIMS AGAINST
THE COMPANY UNTIL RELEASED TO THE COMPANY IN ACCORDANCE WITH SECTION 4(a)
HEREOF.
b. Deposit of Escrow Certificates. On the Closing Date,
the Company shall deposit with the Escrow Agent (x) undated certificates in the
name of each Escrow Purchaser (collectively, the "ESCROW CERTIFICATES")
representing the number of Shares that will, upon receipt of the Requisite
Stockholder Approval, be issued to each Escrow Purchaser as set forth opposite
each such Escrow Purchasers name on Exhibit A hereto and (y) undated warrants
(the "ESCROW WARRANTS") representing the number of Warrant Shares that will,
upon receipt of the Requisite Stockholder Approval, be issued to each Escrow
Purchaser. The Escrow Certificates and Escrow Warrants shall be held and
distributed by the Escrow Agent, in accordance with the terms and conditions of
this Escrow Agreement. The parties hereto acknowledge and agree that
-3-
129
the Shares to be represented by the Escrow Certificates and the Escrow Warrants
shall not be issued, or be deemed to have been issued, by the Company until
receipt of the Requisite Stockholder Approval and the disbursement of the Escrow
Funds to the Company pursuant to Section 4 hereof.
c. On the Closing Date, and in connection with the
deposit of Escrow Certificates and Escrow Warrants as set forth in Section 3(b)
hereof, the Company shall deliver to the Escrow Agent, irrevocable instructions
set forth in Exhibit B attached hereto (the "IRREVOCABLE INSTRUCTIONS") which
instruct the Transfer Agent, upon the receipt thereof, without any further
instruction or direction from the Company, to date and deliver final definitive
Escrow Certificates and Escrow Warrants pursuant to the provisions of Section
4(a) hereof.
d. Upon receipt, Escrow Agent shall hold the (i) Escrow
Funds, (ii) Escrow Certificates, (iii) Escrow Warrants, and (iv) the Irrevocable
Instructions until disbursed in accordance with Section 4 hereof.
4. DISBURSEMENT OF ESCROW FUNDS.
a. Disbursement Upon Receipt of Requisite Stockholder
Approval. Subject to the provisions of Section 10 hereof, Escrow Agent shall pay
to the Company the liquidated value of the Escrow Funds, less the Placement
Agent Fee (as defined below), by wire transfer to the Company's account set
forth on Exhibit C hereto (or such other account as the Company shall give
written notice), no later than two (2) business days following receipt by the
Escrow Agent of a certificate signed by an officer of the Company (the "NOTICE
OF DISBURSEMENT") certifying that the Company has obtained Requisite Stockholder
Approval on or before the Expiration Date. Simultaneously therewith, the Escrow
Agent shall pay to Robertson Stephens, Inc. (the "PLACEMENT AGENT") $1,218,750
(the "PLACEMENT AGENT FEE") from the Escrow Funds by wire transfer to the
Placement Agent's account set forth on Exhibit F hereto (or such other account
as the Company shall give written notice). No later than the business day
following the Company's delivery of the Notice of Disbursement to the Escrow
Agent, the Company shall deliver by overnight courier or facsimile transmission
to each Escrow Purchaser a copy of the Notice of Disbursement.
Simultaneously with wiring to the Company Escrow Funds, less the
Placement Agent Fee, pursuant to this Section 4(a), Escrow Agent shall (x)
deliver to the Transfer Agent (i) the Escrow Certificates, (ii) the Escrow
Warrants, and (iii) Irrevocable Instructions to issue to each Escrow Purchaser
the number of Shares represented by each Escrow Purchaser's Escrow Certificate
and such Escrow Purchaser's Escrow Warrants in accordance with the Irrevocable
Instructions. Thereafter, the Company shall take all action necessary to cause
the Transfer Agent to cause the Shares to be issued on the books and records of
the Company and to deliver to each Escrow Purchaser the Escrow Certificate in
definitive form and dated representing such Escrow Purchaser's Shares as
indicated opposite such Escrow Purchaser's name on Exhibit A hereto, duly
executed on behalf of the Company and registered in the name of such Escrow
Purchaser, and (y) such Escrow Purchaser's Escrow Warrants to purchase the
number of Warrant Shares set
-4-
130
forth opposite such Escrow Purchaser's name on Exhibit A hereto, duly executed
on behalf of the Company and registered in the name of such Escrow Purchaser.
b. Expiration of Escrow. (i) Notwithstanding anything to
the contrary contained herein, if Escrow Agent shall not have received a Notice
of Disbursement on or before the Expiration Date, Escrow Agent shall, within two
(2) business days after the Expiration Date without further instructions or
directions from the Company or the Escrow Purchasers, (x) return to each Escrow
Purchaser, by wire transfer of immediately available funds to such Escrow
Purchaser's Account set forth on Exhibit D hereto, the Escrow Purchase Price
deposited with the Escrow Agent by such Escrow Purchaser and such Escrow
Purchaser's share of income, if any, earned on the Escrow Funds, each such share
of income to be calculated on a Pro Rata Basis and (y) return to the Company the
Escrow Certificates and Escrow Warrants.
(ii) In the event that prior to the Expiration Date, the
Company holds a stockholders meeting at which a stockholder vote is actually
taken on the proposal or proposals to approve the Transaction Documents and the
transactions contemplated thereby and the Company does not obtain the Requisite
Stockholder Approval (the "STOCKHOLDER DISAPPROVAL"), the Company shall, within
two (2) business days after the Stockholder Disapproval notify each of the
Escrow Purchasers and the Escrow Agent of such Stockholder Disapproval (the
"DISAPPROVAL NOTICE"). Notwithstanding the foregoing, a stockholder vote on the
Transaction Documents and the transactions contemplated thereby shall not be
deemed to be a Stockholder Disapproval unless and until such vote is final and
the Company is not legally able to adjourn or otherwise postpone the stockholder
meeting for the purpose of reconsidering or revoting on such proposal.
Additionally, there shall be no Stockholder Disapproval if the Company adjourns
or postpones a stockholders meeting for any reason prior to the stockholders
vote on a proposal to approve the Transaction Documents and the transactions
contemplated thereby, or if there is otherwise not a full and final vote by the
stockholders on the Proposal that results in a Stockholder Disapproval. The
Escrow Agent shall, within two (2) business days after receipt of a Disapproval
Notice, without further instructions or directions from the Company or the
Escrow Purchasers, (x) return to each Escrow Purchaser, by wire transfer of
immediately available funds to such Escrow Purchaser's Account set forth on
Exhibit D hereto, the Escrow Purchase Price deposited with the Escrow Agent by
such Escrow Purchaser and such Escrow Purchaser's share of income, if any,
earned on the Escrow Funds, each such share of income to be calculated on a Pro
Rata Basis and (y) return to the Company the Escrow Certificates and Escrow
Warrants.
5. INVESTMENT OF FUNDS. Escrow Agent shall invest the Escrow Funds in a
separate and distinct STI Classic U.S. Treasury Securities Money Market Fund
deposit account bearing interest at a rate customary for like accounts offered
by the Escrow Agent.
Escrow Agent shall in no event be liable in connection with its
investment or reinvestment of the Escrow Funds held by it hereunder in good
faith, in accordance with the terms hereof, including, but not limited to, any
liability for any delays (not resulting from its gross negligence or willful
misconduct) in the investment or reinvestment of the Escrow Funds, or any loss
of interest incident to any such delays.
-5-
131
6. SUSPENSION OF PERFORMANCE OR DISBURSEMENT INTO COURT. If, at any time,
there shall exist any dispute between the Company, Escrow Agent, any Escrow
Purchaser or any other person with respect to the holding or disposition of any
portion of the Escrow Funds or any other obligations of Escrow Agent hereunder,
or if at any time Escrow Agent is unable to determine, to Escrow Agent's sole
satisfaction, the proper disposition of any portion of the Escrow Funds or
Escrow Agent's proper actions with respect to its obligations hereunder, or if
the Company and a Majority of the Escrow Purchasers has not within 30 days of
the furnishing by Escrow Agent of a notice of resignation pursuant to Section 7
hereof appointed a successor Escrow Agent to act hereunder, then Escrow Agent
may, in its sole discretion, take either or both of the following actions:
a. suspend the performance of any of its obligations
under this Escrow Agreement until such dispute or uncertainty shall be resolved
to the sole satisfaction of Escrow Agent or until a successor Escrow Agent shall
have been appointed (as the case may be); provided, however, that Escrow Agent
shall continue to invest the Escrow Funds in accordance with Section 5 hereof;
and/or
b. petition (by means of an interpleader action or any
other appropriate method) any court of competent jurisdiction in Georgia for
instructions with respect to such dispute or uncertainty, and pay into such
court all funds held by it in the Escrow Funds for holding and disposition in
accordance with the instructions of such court.
Escrow Agent shall have no liability to the Company, any
Escrow Purchaser or any other person with respect to any such suspension of
performance or disbursement into court, specifically including any liability or
claimed liability that may arise, or be alleged to have arisen, out of or as a
result of any delay in the disbursement of funds held in the Escrow Funds or any
delay in or with respect to any other action required or requested of Escrow
Agent.
7. RESIGNATION AND REMOVAL OF ESCROW AGENT. Escrow Agent may resign from
the performance of its duties hereunder at any time, for any reason, by giving
thirty (30) days' prior written notice to the Company and the Escrow Purchasers
or may be removed, with or without cause, by either the Company or a Majority of
the Escrow Purchasers, at any time by the giving of thirty (30) days' prior
written notice to Escrow Agent. Such resignation or removal shall take effect
upon the appointment of a successor Escrow Agent as provided below. Upon any
such notice of resignation, or removal, the Company and the Majority of the
Escrow Purchasers shall appoint a successor Escrow Agent hereunder, which shall
be a company bank, trust company or other financial institution with a combined
capital and surplus in excess of $100,000,000. Upon the acceptance in writing of
any appointment as Escrow Agent hereunder by a successor Escrow Agent, such
successor Escrow Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Escrow Agent, and the
retiring Escrow Agent shall be discharged from its duties and obligations under
this Escrow Agreement, but shall not be discharged from any liability for
actions taken as escrow agent hereunder prior to such succession. Upon removal
or resignation, Escrow Agent shall deliver all Escrow Funds, Escrow Certificates
and Escrow Warrants in its possession under this Escrow Agreement to any
successor Escrow Agent appointed by the Company and a Majority of the Escrow
Purchasers or,
-6-
132
if no successor Escrow Agent has been appointed upon the effective date of such
resignation, to any court of competent jurisdiction. After any retiring Escrow
Agent's resignation or removal, the provisions of this Escrow Agreement shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Escrow Agent under this Escrow Agreement, except that such resignation
shall not prevent Escrow Agent from receiving its compensation earned prior
thereto subject to Section 10 hereof.
8. LIABILITY OF ESCROW AGENT.
a. Escrow Agent shall have no liability or obligation
with respect to the Escrow Funds, the Escrow Certificates and the Escrow
Warrants except for Escrow Agent's willful misconduct or gross negligence.
Escrow Agent's sole responsibility shall be for the safekeeping, investment, and
disbursement of the Escrow Funds in accordance with the terms of this Escrow
Agreement. Escrow Agent shall have no implied duties or obligations and shall
not be charged with knowledge or notice of any fact or circumstance not
specifically set forth herein. Escrow Agent may rely upon any instrument, not
only as to its due execution, validity and effectiveness, but also as to the
truth and accuracy of any information contained therein which Escrow Agent shall
in good faith believe to be genuine, to have been signed or presented by the
person or parties purporting to sign the same and to conform to the provisions
of this Escrow Agreement. Escrow Agent shall not be obligated to take any legal
action or commence any proceedings in connection with the Escrow Funds or any
account in which Escrow Funds are deposited or this Escrow Agreement or to
appear in, prosecute or defend any such legal action or proceeding which would
or might involve Escrow Agent in any cost, expense, loss or liability unless
indemnification shall be furnished. Without limiting the generality of the
foregoing, Escrow Agent shall not be responsible for or required to enforce any
of the terms or conditions of any Purchase Agreement with any Escrow Purchaser
or any other agreement between the Company and/or any Escrow Purchaser. Escrow
Agent shall not be responsible or liable in any manner for the performance by
the Company or any Escrow Purchaser of their respective obligations under any
Purchase Agreement nor shall Escrow Agent be responsible or liable in any manner
for the failure of the Company or any third party (including any Escrow
Purchaser) to honor any of the provisions of this Escrow Agreement. Escrow Agent
may consult legal counsel selected by it in the event of any dispute or question
as to the construction of any of the provisions hereof or of any other agreement
or of its duties hereunder, and shall incur no liability and shall be fully
indemnified from any liability whatsoever in acting in good faith and in
accordance with the opinion or instruction of such counsel. The Company shall
promptly pay, upon demand, the reasonable fees and expenses of any such counsel.
b. The Escrow Agent is authorized, in its sole
discretion, to comply with orders issued or process entered by any court with
respect to the Escrow Funds, without determination by the Escrow Agent of such
court's jurisdiction in the matter. If any portion of the Escrow Funds is at any
time attached, garnished or levied upon under any court order, or in case the
payment, assignment, transfer, conveyance or delivery of any such property shall
be stayed or enjoined by any court order, or in case any order, judgment or
decree shall be made or entered by any court affecting such property or any part
thereof, then and in any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order,
-7-
133
writ, judgment or decree which it is advised by legal counsel selected by its is
binding upon it without the need for appeal or other action; and if the Escrow
Agent complies with any such order, writ, judgment or decree, it shall not be
liable to any of the parties hereto or to any other person or entity by reason
of such compliance even though such order, writ, judgment or decree may be
subsequently reversed, modified, annulled, set aside or vacated.
9. INDEMNIFICATION OF ESCROW AGENT. From and at all times after the date
of this Escrow Agreement, the Company shall, to the fullest extent permitted by
law, indemnify and hold harmless the Escrow Agent and each director, officer,
employee, attorney, agent and affiliate of Escrow Agent (collectively, the
"INDEMNIFIED PARTIES") against any and all actions, claims (whether or not
valid), losses, damages, liabilities, costs and expenses of any kind or nature
whatsoever (including without limitation reasonable attorneys' fees, costs and
expenses) incurred by or asserted against any of the Indemnified Parties from
and after the date hereof, whether direct, indirect or consequential, as a
result of or arising from or in any way relating to any claim, demand, suit,
action or proceeding (including any inquiry or investigation) by any person,
including without limitation the Company, whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any person under any
statute or regulation, including, but not limited to, any federal or state
securities laws; or under any common law or equitable cause or otherwise,
arising from or in connection with the negotiation, preparation, execution,
performance or failure of performance of this Escrow Agreement or any
transactions contemplated herein, whether or not any such Indemnified Party is a
party to any such action, proceeding, suit, or the target of any such inquiry or
investigation; provided, however, that no Indemnified Party shall have the right
to be indemnified hereunder for any liability finally determined by a court of
competent jurisdiction, subject to no further appeal, to have resulted from the
gross negligence or willful misconduct of any Indemnified Party. If any such
action or claim shall be brought or asserted against any Indemnified Party, such
Indemnified Party shall promptly notify the Company in writing, and the Company
shall assume the defense thereof, including the employment of counsel and the
payment of all expenses. Such Indemnified Party shall, in its sole discretion,
have the right to employ separate counsel (who may be selected by such
Indemnified Party in its sole discretion) in any such action and to participate
in the defense, and the fees and expenses of such counsel shall be paid by such
Indemnified Party, except that the Company shall be required to pay such fees
and expenses if (a) the Company agrees to pay such fees and expenses, or (b) the
Company shall fail to assume the defense of such action or proceeding or shall
fail, in the reasonable discretion of such Indemnified Party, to employ counsel
satisfactory to the Indemnified Party in any such action or proceeding, (c) the
Company is the plaintiff in any such action or proceeding, or (d) the named
parties to any such action or proceeding (including any impleaded parties)
include both Indemnified Party and the Company, and Indemnified Party shall have
been advised by counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the Company.
The Company shall be liable to pay reasonable fees and expenses of counsel
pursuant to the preceding sentence. All such fees and expenses payable by the
Company pursuant to the forgoing sentence shall be paid from time to time as
incurred, both in advance of and after the final disposition of such action or
claim. The obligations of the Company under this Section 9 shall survive any
termination of this Escrow Agreement and the resignation or removal of Escrow
Agent.
-8-
134
10. COMPENSATION TO ESCROW AGENT. The Company shall compensate Escrow Agent
for its services hereunder in accordance with the fee schedule for the Escrow
Agent attached as Exhibit E hereto. The foregoing compensation shall be payable
by the Company upon demand by Escrow Agent. The obligations of the Company under
this Section 10 shall survive any termination of this Escrow Agreement and the
resignation or removal of Escrow Agent.
11. REPRESENTATIONS AND WARRANTIES. (a) The Company makes the following
representations and warranties to Escrow Agent.
(i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and has
full power and authority to execute and deliver this Escrow Agreement and to
perform its obligations hereunder;
(ii) This Escrow Agreement has been duly approved by all
necessary action of the Company, has been executed by duly authorized officers
of the Company, and constitutes a valid and binding agreement of the Company,
enforceable in accordance with its terms.
(iii) The execution, delivery, and performance by the
Company of this Escrow Agreement will not violate, conflict with, or cause a
default under the organizational documents of the Company, any applicable law or
regulation, any court order or administrative ruling or decree to which the
Company is a party or any of its property is subject, or any agreement,
contract, indenture, or other binding arrangement to which the Company is a
party or any of its property is subject.
(iv) No party other than the parties hereto and the
prospective Escrow Purchasers have, or shall have, any lien, claim or security
interest in the Escrow Funds or any part thereof. No financing statement under
the Uniform Commercial Code is on file in any jurisdiction claiming a security
interest in or describing (whether specifically or generally) the Escrow Funds
or any part thereof.
(v) The Company hereby acknowledges that the status of
Escrow Agent is that of agent only for the limited purposes set forth herein,
and hereby represents and covenants that no representation or implication shall
be made that the Escrow Agent has investigated the desirability or advisability
of investment in the Shares or has approved, endorsed or passed upon the merits
of the investment therein and that the name of the Escrow Agent has not and
shall not be used in any manner in connection with the offer or sale of the
Shares other than to state that the Escrow Agent has agreed to serve as escrow
agent for the limited purposes set forth herein. The Company further agrees to
allow Escrow Agent to review any sales literature in which Escrow Agent's name
appears and which is used in connection with this offering.
(vi) All of the representations and warranties of the
Company contained herein are true and complete as of the date hereof and will be
true and complete at the time of any deposit to or disbursement from the Escrow
Funds.
(b) Each Escrow Purchaser, severally and not jointly, makes the
following representations and warranties to Escrow Agent.
-9-
135
(i) The Escrow Purchaser is duly organized, validly
existing, and in good standing under the laws of the state of its organization
and has full power and authority to execute and deliver this Escrow Agreement
and to perform its obligations hereunder;
(ii) This Escrow Agreement has been duly approved by all
necessary action of the Escrow Purchaser, has been executed by the Escrow
Purchaser, and constitutes a valid and binding agreement of the Escrow
Purchaser, enforceable in accordance with its terms.
(iii) The execution, delivery, and performance by the
Escrow Purchaser of this Escrow Agreement will not violate, conflict with, or
cause a default under the organizational documents of the Escrow Purchaser, any
applicable law or regulation, any court order or administrative ruling or decree
to which the Escrow Purchaser is a party or any of its property is subject, or
any agreement, contract, indenture, or other binding arrangement to which the
Escrow Purchaser is a party or any of its property is subject.
(iv) The Escrow Purchaser shall not have any lien or
security interest in the Escrow Purchase Price or any part thereof. No financing
statement under the Uniform Commercial Code is on file in any jurisdiction
claiming a security interest in or describing (whether specifically or
generally) the Escrow Purchase Price or any part thereof.
(v) The Escrow Purchaser hereby acknowledges that the
status of Escrow Agent is that of agent only for the limited purposes set forth
herein, and hereby represents and covenants that no representation or
implication shall be made that the Escrow Agent has investigated the
desirability or advisability of investment in the Shares or Warrants or has
approved, endorsed or passed upon the merits of the investment therein.
12. NOTICE. All notices and other communications hereunder shall be in
writing and shall be deemed to have been validly served, given or delivered five
(5) days after deposit in the United States mails, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
after deliver to any overnight courier, or when transmitted by facsimile
transmission facilities, and addressed to the party to be notified as follows:
If to the Company at:
Daleen Technologies, Inc.
1750 Clint Moore Road
Boca Raton, Florida 33487
Telephone Number: (561) 999-8000
Facsimile Number: (561) 981-1134
Attn: Steve Wagman, Chief Financial Officer
-10-
136
If to the Escrow Agent at:
SunTrust Bank
25 Park Place
24th Floor
Atlanta, Georgia 30303-2900
Attn: Rebecca Fischer
Telephone Number: (404) 588-7262
Facsimile Number: (404) 588-7333
or to such other address as each party may designate for itself by like notice.
A party shall not be charged with knowledge of any fact, including but not
limited to performance or non-performance of any condition, unless such party
has actually received notice thereof in accordance with this section.
13 AMENDMENT OR WAIVER. This Escrow Agreement may be changed, waived,
discharged or terminated only by a writing signed by the Company, the Escrow
Purchasers and Escrow Agent. No delay or omission by any party in exercising any
right with respect hereto shall operate as a waiver. A waiver on any one
occasion shall not be construed as a bar to, or waiver of, any right or remedy
on any future occasion.
14 SEVERABILITY. To the extent any provision of this Escrow Agreement is
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
Escrow Agreement.
15. GOVERNING LAW. This Escrow Agreement shall be construed and interpreted
in accordance with the internal laws of the State of Georgia without giving
effect to the conflict of laws principles thereof.
16. ENTIRE AGREEMENT. This Escrow Agreement constitutes the entire
agreement between the parties relating to the acceptance, collection, holding,
investment and disbursement of the Escrow Funds and sets forth in their entirety
the obligations and duties of the Escrow Agent with respect to the Escrow Funds
and supersedes all prior agreements or understandings, written or oral, between
the parties with respect thereto.
17. BINDING EFFECT. All of the terms of this Escrow Agreement as amended
from time to time, shall be binding upon, inure to the benefit of and be
enforceable by the respective successors and assigns of the Company and Escrow
Agent.
18. EXECUTION IN COUNTERPARTS. This Escrow Agreement may be executed in two
or more counterparts, which when so executed shall constitute one and the same
agreement.
19. TERMINATION. Upon the first to occur of the disbursement of all amounts
in the Escrow Funds or deposit of all amounts in the Escrow Funds into court
pursuant to Section 6 hereof, this
-11-
137
Escrow Agreement shall terminate and Escrow Agent shall have no further
obligation or liability whatsoever with respect to this Escrow Agreement or the
Escrow Funds.
20. DEALINGS.
a. The Escrow Agent and any stockholder, director,
officer or employee of the Escrow Agent may buy, sell, and deal in any of the
securities of the Company and become pecuniarily interested in any transaction
in which the Company may be interested, and contract and lend money to the
Company and otherwise act as fully and freely as though it were not Escrow Agent
under this Agreement. Nothing herein shall preclude the Escrow Agent from acting
in any other capacity for the Company or any other entity.
b. The Company shall provide Escrow Agent with its
Employer Identification Number as assigned by the Internal Revenue Service.
Additionally, the Company shall complete and return to Escrow Agent any and all
tax forms or reports required to be maintained or obtained by Escrow Agent. In
the event that Escrow Funds are returned to Escrow Purchasers pursuant to
Section 4 hereof, Escrow Agent shall, based upon the information available to
it, file with the Internal Revenue Service and send to each Escrow Purchaser a
Form 1099-INT with respect to contributions of interest to Escrow Purchasers.
All interest or other income earned under this Escrow Agreement which is payable
to the Company pursuant to Section 4 hereof shall be allocated and paid as
directed by the Company and reported to the Internal Revenue Service as having
been so allocated and paid.
c. The Company's and Escrow Agent's signatures hereto
shall signify their consent that a signed copy hereof may be filed with the
various regulatory authorities of the State of Georgia and with any Federal
Government agencies or regulatory authorities.
[SIGNATURES ON FOLLOWING PAGE]
-12-
138
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed under seal as of the date first above written.
DALEEN TECHNOLOGIES, INC.
By: /s/ James Daleen
------------------------------------------
Name: James Daleen
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ Stephen M. Wagman
- ------------------------------
Secretary
[CORPORATE SEAL]
SUNTRUST BANK
as Escrow Agent
By: /s/ Rebecca Fischer
------------------------------------------
Name: Rebecca Fischer
Title: Assistant Vice President
[PLACEMENT AGENT SIGNATURE ON NEXT PAGE]
139
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
PLACEMENT AGENT:
ROBERTSON STEPHENS, INC.
By: /s/ Illegible
------------------------------------------
Name:
Title: Managing Director
[ESCROW PURCHASERS SIGNATURES BEGIN ON NEXT PAGE]
140
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
PURCHASERS:
HARBOURVEST PARTNERS VI - DIRECT FUND L.P.
By: HVP VI-DIRECT ASSOCIATES, L.L.C.
Its General Partner
By: HARBOURVEST PARTNERS, LLC
Its General Partner
By: /s/ Ofer Nemirovsky
------------------------------------------
Ofer Nemirovsky, Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
141
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
SAIC VENTURE CAPITAL CORPORATION
By: /s/ Kevin A. Werner
------------------------------------------
Name: Kevin A. Werner
Title: President
[SIGNATURES CONTINUED ON NEXT PAGE]
142
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
ROYAL WULFF VENTURES, LLC
By: /s/ Robert E. Cook
------------------------------------------
Name: Robert E. Cook
Title: Managing Member
[SIGNATURES CONTINUED ON NEXT PAGE]
143
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
ST. PAUL VENTURE CAPITAL VI, LLC
By: SPVC MANAGEMENT VI, LLC
Its: Managing Member
By: /s/ Patrick A. Hopf
------------------------------------------
Name: Patrick A. Hopf
Title: Senior Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
144
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
ABS VENTURES IV, L.P.
By: CALVERT CAPITAL, LLC
Its: General Partner
By: /s/ Bruns Grayson
------------------------------------------
Bruns Grayson, its manager
ABX FUND, L.P.
By: CALVERT CAPITAL II, LLC
Its: General Partner
By: /s/ Bruns Grayson
------------------------------------------
Bruns Grayson, its manager
[SIGNATURES CONTINUED ON NEXT PAGE]
145
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
HALIFAX FUND, L.P.
By: /s/ Jeffrey Devers
------------------------------------------
Name: Jeffrey Devers
Title: Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
146
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
BAYSTAR CAPITAL, L.P.
By: /s/ Brian Davidson
------------------------------------------
Name: Brian Davidson
Title:
BAYSTAR INTERNATIONAL LTD.
By: /s/ Brian Davidson
------------------------------------------
Name: Brian Davidson
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
147
[SIGNATURE PAGE TO DALEEN ESCROW AGREEMENT]
SPECIAL SITUATIONS PRIVATE
EQUITY FUND, L.P.
By: /s/ David Greenhouse
------------------------------------------
Name: David Greenhouse
Title: Managing Director
SPECIAL SITUATIONS CAYMEN FUND, L.P.
By: /s/ David Greenhouse
------------------------------------------
Name: David Greenhouse
Title: Managing Director
148
APPENDIX E
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
March 30, 2001 (the "CLOSING DATE"), is made by and among DALEEN TECHNOLOGIES,
INC., a Delaware corporation (the "COMPANY"), the undersigned Purchasers
(individually a "PURCHASER" and collectively the "PURCHASERS"), and ROBERTSON
STEPHENS, INC., a Pennsylvania corporation (the "PLACEMENT AGENT").
RECITALS
A. In connection with the Securities Purchase Agreement by and
among the parties hereto of even date herewith (the "PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the Purchase
Agreement, to issue and sell to the Purchasers and the Purchasers have agreed to
purchase from the Company (i) an aggregate of 247,882 shares of the Company's
Series F Convertible Preferred Stock, par value $.01 per share (the "SERIES F
PREFERRED STOCK"), which are convertible into shares of the Company's common
stock, par value $.01 per share (the "COMMON STOCK"), in accordance with the
terms of the Certificate of Amendment to the Certificate of Incorporation
authorizing, creating and designating the Series F Preferred Stock (the
"CERTIFICATE OF AMENDMENT") and (ii) warrants to purchase an aggregate of 99,153
additional shares of Series F Preferred Stock (the "WARRANTS" and the shares
issuable upon exercise, the "WARRANT SHARES").
B. In connection with the closing of the transactions
contemplated by the Purchase Agreement, and as compensation to the Placement
Agent, the Company has agreed to issue to the Placement Agent a warrant to
purchase an aggregate of 9,915 shares of Series F Preferred Stock (the
"PLACEMENT AGENT WARRANTS" and the shares issuable upon exercise, the "PLACEMENT
AGENT WARRANT SHARES").
C. To induce the Purchasers to execute and deliver the Purchase
Agreement, and the Placement Agent to perform its services in connection with
the Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, or any similar successor statute
(collectively, the "SECURITIES ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Purchasers hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
a. "EXISTING RIGHTSHOLDER" means any stockholder of the
Company with registration rights granted pursuant to the Series A Convertible
Preferred Stock and Warrants to Purchase Series B Convertible Preferred Stock
Preferred Stock and Warrant Purchase Agreement dated September 12, 1997, by and
between the Company and HarbourVest Partners V - Direct Fund L.P. (formerly
known as Hancock Venture Partners V - Direct Fund L.P.), the Series D and
149
Series D-1 Convertible Preferred Stock Preferred Stock Purchase Agreement
dated June 18, 1998, by and between the Company and the several purchasers named
therein, and/or the Series E Convertible Preferred Stock Preferred Stock
Purchase Agreement dated June 30, 1999, by and between the Company and Science
Applications International Corporation.
b. "INVESTOR" means a Purchaser, the Placement Agent and
any transferee or assignee thereof about whom the Purchaser or the Placement
Agent provides notice to the Company in accordance with Section 9 herein and to
whom a Purchaser or the Placement Agent assigns its rights under this Agreement
and who agrees in writing to become bound by the provisions of this Agreement in
accordance with Section 9 herein and any transferee or assignee thereof to whom
a transferee or assignee assigns its rights under this Agreement and who agrees
in writing to become bound by the provisions of this Agreement in accordance
with Section 9 herein. Any Person shall no longer be an Investor if such Person
no longer holds Registrable Securities, Series F Preferred Stock, Warrants,
Warrant Shares, Placement Agent Warrants or Placement Agent Warrant Shares.
c. "PERSON" means a corporation, a limited liability
company, an association, a partnership, an organization, a business, an
individual, a governmental or political subdivision thereof or a governmental
agency.
d. "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing one or more Registration
Statements (as defined below) in compliance with the Securities Act and pursuant
to Rule 415 under the Securities Act or any successor rule providing for
offering securities on a continuous or delayed basis ("RULE 415"), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange Commission (the "SEC").
e. "REGISTRABLE SECURITIES" means (i) the shares of
Common Stock issued or issuable upon conversion of the Series F Preferred Stock,
the Warrant Shares and the Placement Agent Warrant Shares (such Common Stock is
referred to collectively as the "CONVERSION SHARES") and (ii) any shares of
capital stock issued or issuable with respect to the Conversion Shares, as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitations on conversions of the
Series F Preferred Stock or exercises of Warrants or Placement Agent Warrants.
For the purposes of this Agreement, Registrable Securities will cease to be
Registrable Securities, when (i) the Registration Period (as defined below) is
over, (ii) when they are sold pursuant to a Registration Statement, or (iii) the
Registrable Securities are proposed to be sold or distributed by a Person not
entitled to the registration rights granted by this Agreement.
f. "REGISTRATION STATEMENT" means a registration
statement or registration statements of the Company filed under the Securities
Act covering the Registrable Securities.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Purchase Agreement and its
exhibits, schedules and attachments.
-2-
150
2. Registration.
a. Mandatory Registration. The Company shall prepare,
and, as soon as practicable, but in no event later than May 14, 2001 or such
later date as the Company and the holders of a majority of the Registrable
Securities (with the holders of Series F Preferred Stock and/or Warrants
consenting on an as converted and as exercised basis) shall agree in writing, or
in the event the Series F Preferred Stock and Warrants have not been issued at
such time, such later date as the Company and the Purchasers of a majority of
the shares of Series F Preferred Stock to be purchased pursuant to the Purchase
Agreement shall agree in writing (the "FILING DEADLINE"), file with the SEC a
Registration Statement or Registration Statements (as necessary) for an offering
to be made on a continuous basis pursuant to Rule 415 on Form S-3 covering the
resale of the Registrable Securities as provided for in this Section 2a,
provided, however, that in the event the SEC, pursuant to its rules, regulations
or otherwise, prohibits the Company from filing a Registration Statement prior
to the actual issuance of the Series F Preferred Stock, Warrants and Placement
Agent Warrants pursuant to the Purchase Agreement, then the Filing Deadline
shall be the later of (i) the day following the Escrow Closing or if the SEC is
not open for business on such day, on the next day that the SEC is open for
business, or (ii) the date the SEC, pursuant to its rules, regulations or
otherwise, permits such filing. In the event that Form S-3 is unavailable for
such a registration, the Company shall use such other form as is available for
such a registration, subject to the provisions of Section 2d. The Company shall
use its best efforts to cause such Registration Statement to be declared
effective by the SEC as soon as practicable after the filing thereof but in no
event later than the date which is one hundred eighty (180) days after the
Closing Date or such later date as the Company and the holders of a majority of
the Registrable Securities (with the holders of Series F Preferred Stock and/or
Warrants consenting on an as converted and as exercised basis) shall agree in
writing (as so extended, the "EFFECTIVENESS DEADLINE"), provided, however, that
in the event the Filing Deadline is delayed by the SEC, pursuant to its rules,
regulations, or otherwise, as provided in this Section 2a, then the
Effectiveness Deadline shall be the date that is the later of (i) one hundred
eighty (180) days after the Closing Date or (ii) one hundred (100) days after
the Filing Deadline. Notwithstanding any other provision herein, the Company
shall have no liability hereunder for its failure to file with the SEC a
Registration Statement by the Filing Deadline, or to cause such Registration
Statement to be declared effective by the SEC by the Effectiveness Deadline, in
the event the failure to file a Registration Statement or to cause the
effectiveness of such Registration Statement, on or before such respective dates
arises from the action or inaction of any Investor, including any Investor's
failure to comply with its obligation pursuant to Section 5 herein (an "INVESTOR
DELAY").
b. Allocation of Registrable Securities. The initial
number of Registrable Securities included in any Registration Statement and any
other shares of Common Stock included in the Registration Statement pursuant to
registration rights previously granted to the Existing Rightsholders (solely for
purposes of this Section 2b, such shares of Common Stock included in the
Registration Statement pursuant to registration rights previously granted to the
Existing Rightsholders shall be deemed to be Registrable Securities) and each
increase in the number of Registrable Securities included therein shall be
allocated pro rata among the Investors and Existing Rightsholders based on the
number of Registrable Securities held by each Investor and Existing Rightsholder
at the time the Registration Statement covering such initial number of
-3-
151
Registrable Securities or increase thereof is declared effective by the SEC. In
the event that an Investor or Existing Rightsholder sells or otherwise transfers
any of such Investor's or Existing Rightsholders' Registrable Securities to
another party who becomes an Investor or Existing Rightsholder, as the case may
be, each transferee Investor or Existing Rightsholder shall be allocated a pro
rata portion of the then remaining number of Registrable Securities included in
such Registration Statement for such transferor Investor or Existing
Rightsholder. Any shares of Common Stock included in a Registration Statement
and which remain allocated to any Person which ceases to hold any Registrable
Securities covered by such Registration Statement shall be allocated to the
remaining Investors and Existing Rightsholders, pro rata based on the number of
Registrable Securities then held by such Investors and Existing Rightsholder
that are covered by such Registration Statement.
c. Legal Counsel. Subject to Section 6 hereof, the
Purchasers holding a majority of the Registrable Securities shall have the right
to select one legal counsel ("LEGAL COUNSEL") to review and, if applicable,
comment on, the Registration Statement and any amendments thereto pursuant to
this Section 2. The Company shall reasonably cooperate with Legal Counsel in
connection with its review of the Registration Statement.
d. Ineligibility for Form S-3. In the event that Form
S-3 is not available for any registration of Registrable Securities hereunder,
the Company shall (i) register the sale of the Registrable Securities on another
appropriate form that is reasonably acceptable to the holders of a majority of
the Registrable Securities (with the holders of Series F Preferred Stock and/or
Warrants consenting on an as converted and as exercised basis) and (ii)
undertake to register the Registrable Securities on Form S-3 as soon as such
form is available, provided that the Company shall maintain the effectiveness of
the Registration Statement then in effect until such time as a Registration
Statement on Form S-3 covering the Registrable Securities has been declared
effective by the SEC.
e. Sufficient Number of Shares Registered. In the event
the number of shares available under a Registration Statement filed pursuant to
Section 2a is insufficient to cover all of the Registrable Securities required
to be covered by such Registration Statement (solely for purposes of this
Section 2e, any shares of Common Stock included in the Registration Statement by
any Existing Rightsholder pursuant to registration rights previously granted to
such Existing Rightsholder shall be deemed to be Registrable Securities), the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover 100% of the number of such Registrable Securities as of the trading day
immediately preceding the date of the filing of such amendment or new
Registration Statement, in each case, as soon as practicable, but in any event
not later than forty-five (45) days after the necessity therefor arises. The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as reasonably practicable
following the filing thereof. For purposes of the foregoing provision, the
number of shares available under a Registration Statement shall be deemed
"insufficient to cover all of the Registrable Securities" if at any time the
number of Registrable Securities covered by such Registration Statement is
greater than the number of shares of Common Stock available for resale under
such Registration Statement. The calculation set forth in the foregoing sentence
shall be made without regard to any limitations on the conversion of the Series
F Preferred
-4-
152
Stock, the Warrant Shares or the Placement Agent Warrant Shares and such
calculation shall assume that the Series F Preferred Stock, the Warrant Shares
and the Placement Agent Warrant Shares are then convertible into shares of
Common Stock at the then prevailing Conversion Price (as defined in the
Certificate of Amendment).
f. Incidental or "Piggyback" Registration. If the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering of Common Stock by the Company for its own account (other
than a Registration Statement on Form S-4 or S-8 or any successor thereto) or
for the account of any stockholder of the Company, then the Company shall give
written notice of such proposed filing to each of the Investors at least twenty
(20) days before the anticipated filing date, and such notice shall describe the
proposed registration and distribution and offer such Investors the opportunity
to register the number of Registrable Securities as each such Investor may
request, subject in each case to the terms of any existing registration rights
agreement(s) (an "INCIDENTAL REGISTRATION"). The Company shall use its
reasonable best efforts (within twenty (20) days of the notice provided for in
the preceding sentence) to cause the managing underwriter or underwriters in the
case of a proposed firm commitment underwritten offering (the "UNDERWRITER") to
permit each of the Investors who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 2f involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the Investors
thereof accept the terms of the underwritten offering as agreed upon between the
Company, such other stockholders, if any, and the Underwriter, and then only in
such quantity as the Underwriter believes will not jeopardize the success of the
offering by the Company. If the Underwriter determines that the registration of
all or part of the Registrable Securities which the Investors have requested to
be included would materially adversely affect the success of such offering, then
the Company shall be required to include in such Incidental Registration, to the
extent of the amount that the Underwriter believes may be sold without causing
such adverse effect: first, all of the securities to be offered for the account
of the Company; second, securities requested to be included in such offering
pursuant to registration rights granted by the Company whose rights are, by
their terms, superior to those granted to Investors hereunder; third, to the
Registrable Securities to be offered for the account of the Investors pursuant
to this Section 2f and any securities requested to be included in such offering
pursuant to registration rights granted by the Company whose rights are, by
their terms, pari passu to those granted to Investors hereunder, pro rata based
on the number of Registrable Securities owned by each such Investor and
securities owned by each such other holder or registration rights; and fourth,
any other securities requested to be included in such offering. Notwithstanding
anything herein to the contrary, no holder of Registrable Securities may
participate in any underwritten registration hereunder unless such holder (i)
agrees to enter into an underwriting agreement in customary form with the
Underwriter or Underwriters and (ii) accurately completes and executes in a
timely manner all questionnaires, powers of attorney, indemnities, custody
agreements, underwriting agreements, lock-up agreements and other documents
reasonably required under the terms of such underwriting agreements.
-5-
153
g. Liquidated Damages. If, other than as a result of an
Investor Delay, a Registration Statement covering all of the Registrable
Securities (i) is not filed with the SEC on or prior to the Filing Deadline or
(ii) has not been declared effective by the SEC on or prior to the Effectiveness
Deadline (any such event, a "REGISTRATION DEFAULT"), then the Company shall pay
each Purchaser liquidated damages in an amount equal to one percent (1.0%) of
the aggregate purchase price paid by such Purchaser for the Series F Preferred
Stock or Warrants that are convertible or exercisable for the Registrable
Securities not included in the Registration Statement per calendar month,
including a pro rata portion thereof for any partial calendar month, that such
Registration Default continues ("LIQUIDATED DAMAGES"). The Company shall not in
any event be required to pay Liquidated Damages for more than one Registration
Default at any given time, and upon cure of a Registration Default (by the
filing or the declaration of effectiveness of the Registration Statement, as
applicable) such Liquidated Damages shall cease to accrue. All accrued
Liquidated Damages shall be paid in cash to the Purchasers entitled thereto, in
proportion to the aggregate number of Registrable Securities beneficially owned
by each such Purchasers, on the last business day of March, June, September or
December, as applicable, following the Effectiveness Deadline. The foregoing
shall not be the exclusive remedy of the Purchasers in the event of a breach by
the Company of this Section 2g.
h. Underwritten Offering.
(i) Timing of Demand Registrations. At any time
after the effective date of Registration Statement filed pursuant to Section 2a
hereof, the holders of forty percent (40%) in interest of the Registrable
Securities (with the holders of Series F Preferred Stock and/or Warrants
representing on an as converted and as exercised basis) (individually a
"DEMANDING HOLDER" and collectively, the "DEMANDING HOLDERS"), may request that
the Company file a Registration Statement under the Securities Act covering the
sale by them of Registrable Securities and all other validly issued Common Stock
or other securities convertible or exercisable into Common stock of which such
Demanding Holder is a holder (the "DEMAND SECURITIES") for the purpose of
selling such Demand Securities through a firm commitment underwritten offering
(a "DEMAND REGISTRATION"). In the event that any Existing Rightsholder exercises
its rights under existing registration rights to have all or part of its shares
of Common Stock to which it is entitled to incidental registration rights
included in a Demand Registration, such entity shall be deemed to be a Demanding
Holder and such shares shall be deemed to be Demand Securities for purposes of
this Section 2h.
Upon receipt of a valid Demand Registration, the
Company shall (i) if required by the Securities Act and all relevant securities
laws, rules and regulations, file a post-effective amendment to the relevant
Registration Statement regarding the Registrable Securities, or such other
filings as necessary to effect a Demand Registration, (ii) within ten (10)
Business Days give written notice to all holders of Registrable Securities
(other than the Demanding Holders) that they may exercise their piggyback rights
pursuant to Section 2f hereof, with respect to such registration, and (iii)
within ten (10) Business Days give written notice to all holders of Common Stock
(other than Demanding Holders) or other securities convertible or exercisable
into Common Stock who hold piggyback rights. Subject to this Section 2h, the
Company shall thereafter use its reasonable best efforts to effect the
registration under the Securities Act of all Demand Securities that Demanding
Holders have requested to include in such registration
-6-
154
pursuant to the request for Demand Registration and pursuant to notices that the
Company receives, within twenty (20) days after the date of its written notice,
from Investors and other holders of Common Stock or other securities convertible
or exercisable into Common Stock, that desire to exercise their piggyback
rights.
(ii) Number of Demand Registrations. The Company
shall be obligated to prepare, file and cause to become effective pursuant to
this Section 2h an aggregate of no more than three (3) Registration Statements
on Form S-3 or, in the event Form S-3 is not available, such other form as is
available for such registration; provided, however, that the Company shall not
be obligated to file more than one Registration Statement pursuant to this
Section 2h during any six-month period. A Registration Statement will not count
as a Demand Registration unless it is declared effective by the SEC; provided,
however, that in the event a Registration Statement is withdrawn at the request
of the Demanding Holders, the Demanding Holders will pay all Registration
Expenses with respect to such registration unless they agree to forfeit the
Demand Registration right that they exercised in connection with such
registration.
(iii) Underwriter's Cutback. The Company may, and
may allow other holders of securities of the Company to, include securities in a
Demand Registration if, but only if, the managing underwriter concludes that
such inclusion will not interfere with the successful marketing of all the
Registrable Securities requested to be included in such Demand Registration. If,
in the good faith judgment of the managing underwriter, marketing factors
require a limitation of the number of Registrable Securities to be underwritten,
the number of shares of Registrable Securities to be included in such Demand
Registration shall be reduced in the following order until such inclusion, in
the good faith judgment of the managing underwriter, will not interfere with the
successful marketing of the remaining Registrable Securities: first, all
securities that are not contractually entitled to be included in such Demand
Registration shall be excluded; second, all securities that are entitled to be
included in such Demand Registration pursuant to contractual commitments made by
the Company other than pursuant to this Agreement shall be excluded; third,
securities that are entitled to be included in such Demand Registration pursuant
to the exercise of piggyback rights shall be excluded, with such number of
excluded securities to be allocated on a pro rata basis among the holders of
such piggyback rights in accordance with the number of Registrable Securities
then outstanding and held by each such Investor; and fourth, pro rata based on
the number of Demand Securities owed by each Demanding Holder.
(iv) Managing Underwriter. The managing
underwriter or other underwriters of any underwritten public offering covered by
a Demand Registration shall be selected by the mutual agreement of a majority in
interest of the Demanding Holders, and shall be reasonably acceptable to the
Board of Directors of the Company.
(v) Underwriter's Agreement. Upon receipt of a
valid Demand Registration, the Company shall enter into and perform customary
agreements (including an underwriting agreement in customary form with the
managing underwriter) and take such other actions as are prudent and reasonably
required in order to expedite or facilitate the disposition of such Demand
Securities, including, without limitation, causing its officer's to be
reasonably available for and to participate in "road shows," due diligence
inquiries and other information meetings as reasonably requested by the managing
underwriter.
-7-
155
3. Limitations on Registration Rights. Any other provision of
this Agreement notwithstanding, if the Company furnishes to the Investors a
certificate signed by a duly authorized officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company for such Registration Statement to be filed
on or before the date filing would be required or to update or correct the
Registration Statement or prospectus pursuant to Section 4 hereof prior to its
effectiveness, then the Company shall be entitled to postpone filing the
Registration Statement or updating or correcting the Registration Statement or
prospectus, as applicable, or otherwise be obligated to effect any registration
pursuant to this Agreement for up to ninety (90) days; provided, however, that
the Company shall only be allowed to postpone filing the Registration Statement
or updating or correcting the Registration Statement or prospectus prior to its
effectiveness, as applicable, pursuant to this Section 3, one time during any
twelve (12) month period.
4. Company Obligations. At such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2, the Company
will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities on or before
the Filing Deadline and use its best efforts to cause such Registration
Statement relating to the Registrable Securities to become effective as soon as
possible after such filing and keep such Registration Statement effective
pursuant to Rule 415 at all times until the earlier of (i) the date as of which
each Investor may sell all of its Registrable Securities during a single three
(3) month period pursuant to Rule 144 promulgated under the Securities Act (or
successor thereto) ("RULE 144"), or (ii) the date on which (A) the Investors
shall have sold or otherwise disposed of all the Registrable Securities and (B)
none of the outstanding Series F Preferred Stock, Warrants, the Placement Agent
Warrants or the Conversion Shares are held by Persons entitled to the
registration rights granted by this Agreement (the "REGISTRATION PERIOD"). The
term "BEST EFFORTS" as used in the first sentence of this Section 4a shall mean,
among other things, that the Company shall submit to the SEC, within three (3)
business days after the Company learns that no review of a particular
Registration Statement will be made by the staff of the SEC or that the staff
has no further comments on the Registration Statement, as the case may be, a
request for acceleration of effectiveness of such Registration Statement to a
time and date not later than forty-eight (48) hours after the submission of such
request. Notwithstanding the foregoing, Investors which, individually or in the
aggregate with its affiliates, holds Registrable Securities representing more
than three percent (3%) of the total outstanding equity securities of the
Company shall, pursuant to, and limited by Section 3 above, continue to have the
right to require the Company to prepare an underwritten offering and shall
continue to have rights under Section 2f, and the term "Registrable Securities"
shall include the shares held by such 3% holder, despite the termination of the
Registration Period above, for all Registrable Securities it then holds.
b. Subject to Section 4l, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration
-8-
156
Statement and the prospectus used in connection with such Registration
Statement, which prospectus is to be filed pursuant to Rule 424 promulgated
under the Securities Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement.
c. The Company shall (a) permit Legal Counsel to review
and comment upon a Registration Statement and all amendments and supplements
thereto at least five (5) days prior to their filing with the SEC and (b) not
file any document in a form to which Legal Counsel reasonably objects and has
advised the Company in writing of its objection and the basis for such
objection, provided that notwithstanding anything to the contrary in this
Agreement, the Company shall suffer no adverse consequence from any delay in the
filing of a Registration Statement if such delay is caused by any delay in
review of or comment on such Registration Statement by Legal Counsel. The
Company shall furnish to Legal Counsel, without charge, (i) copies of any
correspondence with the SEC or the Staff of the SEC to the Company or its
representatives relating to the effectiveness of the Registration Statement,
(ii) promptly after the same is prepared and filed with the SEC, one copy of any
Registration Statement and any amendment(s) thereto, including financial
statements and schedules, and all exhibits and (iii) upon the effectiveness of
any Registration Statement, one copy of the prospectus included in such
Registration Statement and all amendments and supplements thereto.
d. The Company shall furnish to each Investor whose
Registrable Securities are included in any Registration Statement, without
charge, (i) promptly after the same is prepared and filed with the SEC, at least
one copy of such Registration Statement and any amendment(s) thereto, including
financial statements and schedules, and all exhibits, (ii) upon the
effectiveness of any Registration Statement, ten (10) copies of the prospectus
included in such Registration Statement and all amendments and supplements
thereto (or such other number of copies as such Investor may reasonably request)
and (iii) such other documents, including copies of any preliminary or final
prospectus, as such Investor may reasonably request from time to time in order
to facilitate the disposition of the Registrable Securities owned by such
Investor.
e. Subject to Section 4l, the Company shall use
reasonable efforts to (i) register and qualify the Registrable Securities
covered by a Registration Statement under such securities or "blue sky" laws of
such jurisdictions in the United States as Legal Counsel or any Investor
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 4e, (y) subject itself to general taxation in any such
-9-
157
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction. The Company shall promptly notify Legal Counsel and each Investor
who holds Registrable Securities of the receipt by the Company of any
notification with respect to the suspension of the registration or qualification
of any of the Registrable Securities for sale under the securities or "blue sky"
laws of any jurisdiction in the United States or its receipt of actual notice of
the initiation or threat of any proceeding for such purpose.
f. As promptly as practicable after becoming aware of
such event or development, the Company shall notify Legal Counsel and each
Investor in writing of the happening of any event as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading (provided
that such notice shall not contain any material, non- public information), and
promptly prepare a supplement or amendment to such Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to Legal Counsel and each Investor (or such other number
of copies as Legal Counsel or such Investor may reasonably request). The Company
shall also promptly notify Legal Counsel and each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to Legal
Counsel by overnight mail as promptly as possible), (ii) of any request by the
SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.
g. The Company shall use its reasonable best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify Legal Counsel and each Investor who
holds Registrable Securities being sold of the issuance of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.
h. At the reasonable request of any Purchaser and at the
Company's expense, the Company shall use its reasonable best efforts to furnish
to such Purchaser, on the date of the effectiveness of the Registration
Statement and thereafter from time to time upon any change or addition
(including by way of incorporation by reference) to the financial statements or
financial information included in the Registration Statement (i) a letter, dated
such date, from the Company's independent certified public accountants in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to
such Purchaser and the Company and any underwriter and (ii) an opinion, dated as
of such date, of counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to such Purchaser and any
underwriter.
-10-
158
i. The Company shall use its best efforts either to
cause all the Registrable Securities covered by a Registration Statement to be
listed on each securities exchange or The Nasdaq National Market on which
securities of the same class or series 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 The Nasdaq National Market. The Company shall pay all
fees and expenses in connection with satisfying its obligation under this
Section 4i.
j. The Company shall cooperate with the Investors who
hold Registrable Securities being offered and, to the extent applicable, to
facilitate the timely preparation and delivery of certificates representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case may
be, as the Investors may reasonably request and registered in such names as the
Investors may request.
k. Within two (2) business days after a Registration
Statement which includes the Registrable Securities is declared effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) written confirmation that such Registration Statement has been
declared effective by the SEC.
l. Notwithstanding anything to the contrary herein, at
any time after the applicable Registration Statement has been declared effective
by the SEC, the Company may delay the disclosure of material non-public
information concerning the Company the disclosure of which at the time is not,
in the good faith opinion of the Board of Directors of the Company, in the best
interest of the Company (a "GRACE PERIOD"); provided, that the Company shall
promptly (i) notify the Investors in writing of the existence of material
non-public information giving rise to a Grace Period (provided that in each
notice the Company will not disclose the content of such material non-public
information to the Investors) and the date on which the Grace Period will begin,
and (ii) notify the Investors in writing of the date on which the Grace Period
ends; and, provided further, that no Grace Period shall exceed 30 consecutive
days and during any consecutive 365 day period, such Grace Periods shall not
exceed an aggregate of 90 days (an "ALLOWABLE GRACE PERIOD"). For purposes of
determining the length of a Grace Period above, the Grace Period shall begin on
and include the date the Investors receive the notice referred to in clause (i)
and shall end on and include the later of the date the Investors receive the
notice referred to in clause (ii) and the date referred to in such notice. The
provisions of Section 4f hereof shall not be applicable during the period of any
Allowable Grace Period. Upon expiration of the Grace Period, the Company shall
again be bound by the first sentence of Section 4f with respect to the
information giving rise thereto.
m. If requested by an Investor, the Company shall (i) as
soon as practicable incorporate in a prospectus supplement or post-effective
amendment such information as an Investor reasonably requests to be included
therein relating to the sale and distribution of Registrable Securities,
including, without limitation, information with respect to the number of
Registrable Securities being offered or sold, the purchase price being paid
therefor and any other terms of the offering of the Registrable Securities to be
sold in such other offering provided that
-11-
159
such information is required to be included in the Registration Statement by the
Securities Act; (ii) as soon as practicable make all required filings of such
prospectus supplement or post-effective amendment after being notified of the
matters to be incorporated in such prospectus supplement or post-effective
amendment; and (iii) as soon as practicable, supplement or make amendments to
any Registration Statement if reasonably requested by an Investor of such
Registrable Securities.
n. The Company shall use its reasonable best efforts to
cause the Registrable Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
o. The Company shall make generally available to its
security holders as soon as practical, but not later than 90 days after the
close of the period covered thereby, an earnings statement as contemplated by
Section 11(a) of the Securities Act (in form and in a manner complying with the
provisions of Rule 158 promulgated under the Securities Act). The Company shall
otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC in connection with any registration hereunder.
p. The Company shall make available for inspection by
(i) any Investor, (ii) Legal Counsel, (iii) one firm of accountants or other
agents retained by the Investors and (iv) any underwriter (collectively, the
"INSPECTORS"), all pertinent financial and other records, and pertinent
corporate documents and properties of the Company (collectively, the "RECORDS"),
as shall be reasonably requested by each Inspector, and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall agree to
hold in strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company determines
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required under the Securities Act at a time when there is no Grace Period, (b)
the release of such Records is ordered pursuant to a final, non-appealable
subpoena or order from a court or government body of competent jurisdiction, or
(c) the information in such Records has been made generally available to the
public other than by disclosure in violation of this or any other agreement of
which the Inspector has knowledge. Each Investor agrees that it shall, upon
learning that disclosure of such Records is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
5. Obligations of the Investors.
a. At least seven (7) days prior to the first
anticipated filing date of a Registration Statement, the Company shall notify
each Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in such Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with
-12-
160
respect to the Registrable Securities of a particular Investor that such
Investor shall furnish to the Company such information regarding itself, the
Registrable Securities held by it and the intended method of disposition of the
Registrable Securities held by it as shall be required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. Each Investor agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4g, the first sentence of Section 4f, or Section 4l, such Investor will
immediately discontinue disposition of Registrable Securities pursuant to any
Registration Statement(s) covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4d or the first sentence of Section 4f or receipt of
notice that no supplement or amendment is required, or in the case of Section 4l
that the Grace Period has expired and if so directed by the Company, such
Investor shall deliver to the Company or destroy (and deliver to the Company a
written certificate of destruction) all copies in such Investor's possession, of
the prospectus covering such Registrable Securities at the time of receipt of
such notice.
d. To the extent requested by the Underwriter in the
case of an underwritten public offering, and if all of the Company's executive
officers, directors and holders in excess of five percent (5%) of its
outstanding capital stock execute agreements identical to those referred to in
this Section 5d, each Investor agrees not to effect any public sale or
distribution of any Registrable Securities or of any securities convertible into
or exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 promulgated under the Securities Act, during the ninety
(90) day period or such shorter period, if any, mutually agreed upon by such
Investor and the Underwriter beginning on the effective date of such
Registration Statement (except as part of such registration).
e. If, however, an Investor has entered into a contract
for sale of its Registrable Securities prior to the Investor's receipt of a
notice from the Company of the happening of any event of the kind described in
Section 4g, the first sentence of Section 4f, or Section 4l and for which the
Investor has not yet settled, the Company agrees to (i) cause its transfer agent
to deliver unlegended shares of Common Stock to a transferee of the Investor in
accordance with the terms of the purchase agreement in connection with any sale,
or (ii) be fully liable for any damages resulting from any breach by the
Investor in complying with this Section 5e.
6. Expenses of Registration. Except as otherwise set forth
herein, all reasonable expenses, other than underwriting discounts and brokerage
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 4, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees
shall be
-13-
161
paid by the Company. In addition, the Company shall reimburse the Investors for
the reasonable fees and disbursements of Legal Counsel in connection with
registrations, filings or qualifications pursuant to Sections 2 and 4 of this
Agreement.
7. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
a. Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement and without limitation as to
time, indemnify and hold harmless each Investor, the officers, directors, agents
(including any underwriters retained by such Investor in connection with the
offer and sale of Registrable Securities), each Person who controls any such
Investor (within the meaning of Section 15 of the Securities Act or Section 20
of the Securities Exchange Act of 1934, as amended, (the "EXCHANGE ACT")) and
the officers, directors, agents and employees of each such controlling Person,
to the fullest extent permitted by applicable law, from and against any and all
losses, claims, damages, liabilities, costs (including, without limitation,
reasonable costs of preparation and attorneys' fees) and expenses (collectively,
"LOSSES"), that arise out of or are based upon (x) any untrue statement of a
material fact or alleged untrue statement of material fact contained in the
Registration Statement, any prospectus, or any form of prospectus or amendment
or supplement thereto, or (y) any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (z) any violation or alleged violation by the Investor (or
its underwriter) of the prospectus delivery requirements of the Securities Act.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 7(a): (w) shall not apply to the extent, but
only to the extent, that such untrue statements or omissions are based solely
upon information regarding such Investor furnished in writing to the Company by
or on behalf of such Investor expressly for use in any Registration Statement,
prospectus or any amendment or supplement thereto, which information was
reasonably relied on by the Company for use therein or to the extent that such
information relates to such Investor or such Investor's or Underwriter's
proposed method of distribution of Registrable Securities and was reviewed and
approved by such Investor or Underwriter for use in the Registration Statement,
such prospectus or such form of prospectus or in any amendment or supplement
thereto; (x) with respect to any preliminary prospectus, shall not inure to the
benefit of any such Investor, Underwriter or any related Indemnified Persons
from whom the Person asserting any such Losses purchased the Registrable
Securities that are the subject thereof (or to the benefit of any Person
controlling such Person) if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected in the prospectus, as then
amended or supplemented, if such prospectus was timely made available by the
Company pursuant to Section 4d hereof; (y) shall not be available to the extent
such Losses are based on a failure of an Investor to deliver or to cause to be
delivered the prospectus made available by the Company; and (z) shall not apply
to amounts paid in settlement of any losses, claims, damages, liabilities, costs
if such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld.
b. Indemnification by Investors. Each Investor shall,
severally and not jointly, indemnify and hold harmless the Company, the
directors, officers, agents and employees, each Person who controls the Company
(within the meaning of Section 15 of the Securities Act
-14-
162
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses to the extent they arise out of or
are based upon (x) any untrue statement of a material fact or alleged untrue
statement of material fact contained in the Registration Statement, any
prospectus, or any form of prospectus or amendment or supplement thereto, or (y)
any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (z) any
violation or alleged violation by the Investor (or its underwriter) of the
prospectus delivery requirements of the Securities Act, including, without
limitation, Losses arising out of the failure to deliver, or to cause to be
delivered, or alleged failure to deliver or cause to be delivered any amendments
or supplements to the prospectus or supplement, if such amendment or supplement
was timely made available to such Investor; provided, however, that the Investor
shall be liable under this Section 7b to the extent, but only to the extent,
that such untrue statement or omission is made in reliance upon or results in
conformity with any information furnished in writing by such Investor to the
Company specifically for use in connection with the Registration Statement or
such prospectus or any amendment or supplement thereto, or to the extent that
such information relates to such Investor or such Investor's proposed method of
distribution of Registrable Securities and was reviewed and approved by such
Investor expressly for use in the Registration Statement, such prospectus or
such form of prospectus or any amendment or supplement thereto; provided,
further that the Investor shall be liable under this Section 7(b) for only that
amount of a claim or Losses as does not exceed the net proceeds to such Investor
as result of the sale of Registrable Securities pursuant to such Registration
Statement.
c. Conduct of Indemnification Proceedings.
(i) If any proceeding shall be brought or
asserted against any Person entitled to indemnity hereunder (an "INDEMNIFIED
PARTY"), such Indemnified Party promptly shall notify the Person from whom
indemnity is sought (the "INDEMNIFYING PARTY") in writing promptly after receipt
by the Indemnified Party of notice of such proceeding, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all fees and
expenses incurred in connection with defense thereof; provided, that the failure
of any Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except (and
only) to the extent that it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or further review)
that such failure shall have proximately and adversely prejudiced the
Indemnifying Party or the defense of such proceeding or is shown to be the
proximate cause of additional Losses.
(ii) An Indemnified Party shall have the right to
employ separate counsel in any such proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such proceeding; or (3)
the named parties to any such proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by
-15-
163
counsel that a conflict of interest is likely to exist if the same counsel were
to represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense thereof and
the reasonable expenses of such counsel shall be at the expense of the
Indemnifying Party). Notwithstanding the foregoing, in no event shall an
Indemnifying Party be required to pay the expenses of more than one (1) separate
counsel. The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such proceeding.
d. Contribution. If a claim for indemnification under
Section 7a or 7b is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 7c, any reasonable attorneys' or other fees or expenses incurred by
such party in connection with any proceeding to the extent such party would have
been indemnified for such fees or expenses if the indemnification provided for
in this Section 7 was available to such party in accordance with its terms. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 7d were determined by pro rata allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7d, no Investor shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by the Investor from the sale of the Registrable
Securities subject to the proceeding exceeds the amount of any damages that the
Investor has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. 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.
e. Fees and Expenses - Indemnification. All fees and
expenses of the Indemnified Party (including reasonable fees and expenses to the
extent incurred in connection
-16-
164
with investigating or preparing to defend such proceeding in a manner not
inconsistent with this Section 7) shall be paid to the Indemnified Party, as
incurred, within ten (10) business days after written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder); provided, however, this Section 7e shall not apply if there is a
bona fide dispute between the Indemnifying Party and the Indemnified Party as to
the Indemnified Party's right to indemnification in the instance in question.
f. Cumulative. The indemnity and contribution agreements
contained in this Section 7 are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties.
8. Reports Under the Securities Act and the Exchange Act. With a
view to making available to the Investors the benefits of Rule 144 or any other
similar rule or regulation of the SEC that may at any time permit the Investors
to sell securities of the Company to the public without registration, the
Company agrees to:
a. file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act so long as the Company remains subject to such requirements and the
filing of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. furnish to each Investor so long as such Investor
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of the Exchange
Act or, if applicable, that there is publicly available the information
concerning the Company described in Rule 144(C)(2), (ii) unless available on the
EDGAR system, a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the investors to
sell such securities pursuant to Rule 144 without registration.
9. Assignment of Registration Rights. The rights under this
Agreement shall be assignable by the Investors to any transferee of all or any
portion of Registrable Securities if: (i) the Investor agrees in writing with
the transferee or assignee to assign such rights, and a copy of such agreement
is furnished to the Company within a reasonable time after such assignment; (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such registration rights
are being transferred or assigned; (iii) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence the transferee or assignee agrees
in writing with the Company to be bound by all of the provisions contained
herein; and (v) such transfer shall have been made in accordance with the
applicable requirements of the Purchase Agreement.
-17-
165
10. Amendment of Registration Rights. Provisions of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and Investors who then hold two-thirds (2/3) of
the Registrable Securities (including Registrable Securities issuable upon
conversion of outstanding Series F Preferred Stock and Series F Preferred Stock
issuable upon conversion of Warrant Shares, in each case, with the holders of
Series F Preferred Stock and/or Warrants consenting on an as converted and as
exercised basis). Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company. No such
amendment shall be effective to the extent that it applies to less than all of
the holders of the Registrable Securities. No consideration shall be offered or
paid to any Person to amend or consent to a waiver or modification of any
provision of any of this Agreement unless the same consideration also is offered
to all of the parties to this Agreement.
11. Miscellaneous.
a. A Person is deemed to be a holder of Registrable
Securities whenever such Person owns or is deemed to own of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more Persons with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered: (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically or electronically
generated and kept on file by the sending party); or (iii) one (1) business day
after deposit with a nationally recognized overnight delivery service, in each
case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
DALEEN TECHNOLOGIES, INC.
1750 Clint Moore Road
Boca Raton, Florida 33487
Facsimile No.: (561) 981-1134
Attn: Stephen Wagman, Chief Financial Officer
-18-
166
With copies to:
MORRIS, MANNING & MARTIN, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road N.E.
Atlanta, Georgia 30326
Facsimile No.: (404) 365-9532
Attn: David M. Calhoun, Esq.
If to the Placement Agent:
ROBERTSON STEPHENS, INC.
555 California Street
San Francisco, California 94104
Facsimile No.: (415) 781-9700
Attn: Mr. David J. Fullerton
With copies to:
O'MELVENY & MYERS LLP
Embarcadero Center West
275 Battery Street, 26th Floor
San Francisco, California 94111
Facsimile No.: (415) 984-8701
Attn: Peter T. Healy, Esq.
If to a Purchaser, to it at the address and facsimile number set forth below
adjacent to such Purchaser's name on EXHIBIT A hereto, with copies to such
Purchaser's representatives as set forth on EXHIBIT A, or at such other address
and/or facsimile number and/or to the attention of such other person as the
recipient party has specified by written notice given to each other party five
days prior to the effectiveness of such change. Written confirmation of receipt
(A) given by the recipient of such notice, consent, waiver or other
communication, (B) mechanically or electronically generated by the sender's
facsimile machine containing the time, date, recipient facsimile number and an
image of the first page of such transmission or (C) provided by a nationally
recognized overnight delivery service shall be rebuttable evidence of personal
service, receipt by facsimile or receipt from a nationally recognized overnight
delivery service in accordance with clause (i), (ii) or (iii) above,
respectively.
c. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by the
internal laws of the State of New York, without giving effect to any choice of
-19-
167
law or conflict of law provision or rule (whether of the State of New York or
any other jurisdictions) that would cause the application of the laws of any
jurisdictions other than the State of New York. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
Each party hereby irrevocably waives any right it might have, and agrees not to
request, a jury trial for the adjudication of any dispute hereunder of in
connection herewith or arising out of this Agreement or any transaction
contemplated hereby.
e. This Agreement, the Purchase Agreement, the Escrow
Agreement by and among the parties hereto of even date herewith (the "ESCROW
AGREEMENT"), the Warrants and the Placement Agent Warrants are the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof. Notwithstanding the foregoing, this
Agreement shall not alter or amend the rights of the Existing Rightsholders
under existing registration rights agreements.
f. Subject to the requirements of Section 9, this
Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party 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 the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. All consents and other determinations to be made by
the Investors pursuant to this Agreement shall be made, unless otherwise
specified in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Series F Preferred Stock, Warrants,
Warrant Shares, Placement Agent Warrants and Placement Agent Warrant Shares then
outstanding have been converted into or exercised for Registrable Securities
without regard to any limitation on conversions of the Series F Preferred Stock
or exercises of the Warrants.
-20-
168
k. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent and no
rules of strict construction will be applied against any party.
l. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Investors shall be enforceable to the
fullest extent permitted by law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-21-
169
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY:
DALEEN TECHNOLOGIES, INC.
By: /s/ James Daleen
----------------------------------------
Name: James Daleen
Title: Chairman and Chief Executive Officer
PLACEMENT AGENT:
ROBERTSON STEPHENS, INC.
By: /s/ Illegible
------------------------------------------
Name:
Title: Managing Director
[PURCHASERS SIGNATURES BEGIN ON NEXT PAGE]
170
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
PURCHASERS:
HARBOURVEST PARTNERS VI - DIRECT FUND L.P.
By: HVP VI-DIRECT ASSOCIATES, L.L.C.
Its General Partner
By: HARBOURVEST PARTNERS, LLC
Its General Partner
By: /s/ Ofer Nemirovsky
------------------------------------------
Ofer Nemirovsky, Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
171
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
SAIC VENTURE CAPITAL CORPORATION
By: /s/ Kevin A. Werner
------------------------------------------
Name: Kevin A. Werner
Title: President
[SIGNATURES CONTINUED ON NEXT PAGE]
172
173
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
ROYAL WULFF VENTURES, LLC
By: /s/ Robert E. Cook
------------------------------------------
Name: Robert E. Cook
Title: Managing Member
174
[SIGNATURES CONTINUED ON NEXT PAGE]
175
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
ST. PAUL VENTURE CAPITAL VI, LLC
By: SPVC MANAGEMENT VI, LLC
Its: Managing Member
By: /s/ Patrick A. Hopf
------------------------------------------
Name: Patrick A. Hopf
Title: Senior Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
176
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
ABS VENTURES IV, L.P.
By: CALVERT CAPITAL, LLC
Its: General Partner
By: /s/ Bruns Grayson
------------------------------------------
Bruns Grayson, its manager
ABX FUND, L.P.
By: CALVERT CAPITAL II, LLC
Its: General Partner
By: /s/ Bruns Grayson
------------------------------------------
Bruns Grayson, its manager
[SIGNATURES CONTINUED ON NEXT PAGE]
177
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
HALIFAX FUND, L.P.
By: /s/ Jeffrey Devers
---------------------------------------
Name: Jeffrey Devers
Title: Managing Director
[SIGNATURES CONTINUED ON NEXT PAGE]
178
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
BAYSTAR CAPITAL, L.P.
By: /s/ Brian Davidson
---------------------------------------
Name: Brian Davidson
Title:
BAYSTAR INTERNATIONAL LTD.
By: /s/ Brian Davidson
---------------------------------------
Name: Brian Davidson
Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
179
[SIGNATURE PAGE TO DALEEN REGISTRATION RIGHTS AGREEMENT]
SPECIAL SITUATIONS PRIVATE EQUITY
FUND, L.P.
By: /s/ David Greenhouse
---------------------------------------
Name: David Greenhouse
Title: Managing Director
SPECIAL SITUATIONS CAYMEN FUND, L.P.
By: /s/ David Greenhouse
---------------------------------------
Name: David Greenhouse
Title: Managing Director
180
APPENDIX F
AUDIT COMMITTEE CHARTER
EFFECTIVE DATE: JUNE 6, 2000
I. AUDIT COMMITTEE PURPOSE
The Audit Committee is appointed by the Board of Directors of Daleen
Technologies, Inc. ("Company") to assist the Board in fulfilling its oversight
responsibilities. The Audit Committee's primary duties and responsibilities are
to:
- Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting and legal
compliance.
- Monitor the independence and performance of the Company's independent
auditors.
- Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the organization. The Audit Committee
has the ability to retain, at the Company's expense, special legal, accounting,
or other consultants or experts it deems necessary in the performance of its
duties.
II. MEMBERS
The Board of Directors of the Company appoints an Audit Committee of at
least three (3) members, consisting entirely of "independent" directors of the
Board, and designates one member as chairperson. "Independent" means a director
who meets the National Association of Securities Dealers definition of
"independence," as determined by the Board of Directors.
Each member of the Company's Audit Committee must be financially literate
and at least one (1) member of the Audit Committee will have accounting or
related financial management expertise, as determined in the Board of Directors'
judgment.
III. DUTIES AND RESPONSIBILITIES
The Audit Committee represents the Board of Directors in discharging its
responsibility relating to the accounting, reporting, and financial practices of
the Company and its subsidiaries, and has general responsibility for oversight
of internal controls, accounting and audit activities and legal compliance of
the Company and its subsidiaries, all as described in Section I. Purpose, as set
forth above.
Specifically, the Audit Committee will:
(a) Recommend to the Board of Directors the appointment, retention or
discharge of the independent public accountants as auditors of the Company
and to perform the annual audit, which accountants shall be ultimately
accountable to the Board of Directors through the Audit Committee.
(b) Review with the independent accountants the scope of the audit and
the results of the annual audit examination by the independent accountants
and any reports of the independent accountants with respect to reviews of
interim financial statements.
(c) Review information, including written statements from the
independent accountants, concerning any relationships between the auditors
and the Company or any other relationships that may adversely affect the
independence of the auditors and assess the independence of the outside
auditor as set forth in Independence Standards Board Standard No. 1, a copy
of which is attached hereto.
(d) Review and discuss with management and the independent auditors
the Company's annual audited financial statements, including a discussion
with the auditors of their judgments as to the quality of the Company's
accounting principles.
181
(e) Review findings and recommendations of the independent auditor
together with management's responses, as well as the status of prior year
recommendations.
(f) Prior to release of the annual report to shareholders and any
filings with the Securities and Exchange Commission containing financial
statements, the Audit Committee shall review the financial statements to be
contained in such report with the independent auditors to determine that
the independent auditors are satisfied with the disclosure and content of
the financial statements to be presented to the stockholders and in such
filings.
(g) Review with management and the independent auditors the results of
any significant matters or past adjustments identified as a result of the
independent auditors' interim review procedures prior to the filing of each
Form 10-Q or as soon thereafter as possible. The Audit Committee Chair may
perform this function on behalf of the Audit Committee.
(h) Meet periodically with the independent auditors and management in
separate executive sessions to discuss any matters that the Committee or
these groups believe should be discussed privately with the Audit
Committee.
(i) Review the adequacy of the Company's internal control structure,
including the efficacy of the company's information systems.
(j) Review the Company's processes for management's identification and
control of key business, financial and regulatory risks.
(k) Review with the auditors significant accounting and regulatory
issues, including recent professional and regulatory pronouncements, and
understand their impact on the financial statements.
(l) Review the company's software maintenance policies and procedures
for both internally used and externally licensed software.
(m) Review and approve the company's investment policies, specifically
with regard to investments in derivative and/or speculative securities.
(n) Assess the company's senior finance and accounting executives with
respect to their ability perform adequately under the auspices of this
charter.
(o) Ensure that the disaster recovery plan is properly developed and
is kept current.
(p) Review and assess:
i. Important new/revised financial-based corporate policies.
ii. New or changed accounting/reporting practices.
iii. Any legal matters that may have a significant impact on the
Company's financial statements (discuss with Company counsel, as
appropriate).
(a) Significant conflicts of interest and related party transactions.
(b) Review the adequacy of the Audit Committee Charter on an annual
basis.
(c) Make reports and recommendations to the Board of Directors within
the scope of its functions.
(d) The Audit Committee shall designate from among its members one
member who shall take, record and keep minutes of the proceedings of the
Audit Committee.
(e) The Audit Committee shall make independent investigations in any
matter brought to its attention within the scope of its duties, with the
power to retain outside counsel for this purpose if, in its judgment, that
is appropriate.
(f) The Audit Committee shall be empowered to perform such other tasks
as may be designated by a majority of the members of the Audit Committee, a
majority of the members of the Board of Directors, or as may be required by
applicable state and federal laws and regulations.
182
IV. AUDIT COMMITTEE MEETINGS
The Audit Committee will meet as often as it deems necessary or
appropriate, in its judgment, either in person or telephonically, and at such
times and places as the Audit Committee determines. As it deems appropriate, but
not less than once each year, the Audit Committee will meet in private session
with the independent accountants and with the Chief Financial Officer and staff
involved in the independent audit. The majority of the members of the Audit
Committee constitute a quorum.
183
DALEEN TECHNOLOGIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James Daleen and Stephen Wagman, and each of
them, with full power of substitution, as Proxy, to represent and vote all the
shares of common stock of Daleen Technologies, Inc. held of record by the
undersigned on April 20, 2001, at the annual meeting of stockholders to be held
on June 5, 2001, or any adjournment thereof, as designated hereon and in their
discretion as to other matters.
Please sign exactly as name appears on the reverse side. When shares are held
by joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
The shares represented by this proxy will be voted as directed by the
Stockholder. If no direction is given when the duly executed proxy is returned,
such shares will be voted "FOR" Proposals 1, 2 and 3 and "FOR" all nominees in
Proposal 4.
PLEASE MARK THE FOLLOWING BOX IF YOU PLAN TO ATTEND THE MEETING [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1, PROPOSAL 2, AND
PROPOSAL 3 AND "FOR ALL NOMINEES" IN PROPOSAL 4.
(Please date and sign on reverse)
(Continued on reverse side)
Proposal 1 -- Approval of the Securities Purchase Agreement and the
transactions contemplated thereby, including (i) the amendment to the Company's
Certificate of Incorporation to authorize and designate the terms of the Series
F preferred stock and (ii) the issuance and sale of Series F preferred stock and
Warrants.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal 2 -- Approval of amendment to the Company's Certificate of
Incorporation to increase the number of authorized shares of common stock to 200
million.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal 3 -- Approval of amendment to the Company's Certificate of
Incorporation to clarify the authority of the Board of Directors to grant voting
rights to future series of "blank check" preferred stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Proposal 4 -- Election of the following Nominees as Directors:
NOMINEES: DAVID B. COREY NEIL E. COX DANIEL J. FOREMAN
FOR all Nominees listed WITHHELD
(except as marked to the For all Nominees
contrary) [ ] listed [ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THE NOMINEE'S NAME ABOVE.)
PLEASE MARK YOUR CHOICE LIKE THIS X IN BLUE OR
BLACK INK.
Dated: , 2001
----------------------------
---------------------------------------
Signature
---------------------------------------
Signature if held jointly
Please mark, date and sign as your name appears
above your return in the enclosed envelope.