THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FOR NONPUBLIC OFFERINGS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT
BE RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR
SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS.
WARRANT TO PURCHASE 481,434 SHARES OF COMMON STOCK
OF
BLUESTONE SOFTWARE, INC.
This is to certify that, FOR VALUE RECEIVED, BT ALEX. BROWN
INCORPORATED or its registered assigns pursuant to Section (d) hereof
("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from Bluestone Software, Inc. a Delaware corporation (the
"Company"), 481,434 fully paid, validly issued and nonassessable shares of
Common Stock, par value $0.001 per share, of the Company ("Common Stock"), at
the exercise price of $2.72 per share. The number of shares of Common Stock
to be received upon the exercise of this Warrant and the price to be paid for
each share of Common Stock may be adjusted from time to time as hereinafter
set forth. The shares of Common Stock deliverable upon such exercise, and as
adjusted from time to time, are hereinafter sometimes referred to as "Warrant
Shares," and the exercise price of a share of Common Stock as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price."
(a) EXERCISE OF WARRANT. The Warrant may be exercised at any time, or
from time to time, by presentation and surrender hereof to the Company at its
principal office, or at the office of its stock transfer agent, if any, with the
Purchase Form annexed hereto duly executed (with signature guaranteed if
required by the Company or its stock transfer agent) and accompanied by payment
of the Exercise Price for the number of Warrant Shares specified in such form
and any applicable taxes. The purchase price for any Warrant Shares purchased
pursuant to the exercise of this Warrant shall be paid in full upon such
exercise in cash or by certified or bank check or pursuant to a cashless
exercise procedure whereby the Warrant Shares issued upon exercise of this
Warrant will be sold by the Holder or Holder's agent with Holder receiving the
difference between the Exercise Price and the sale price, in cash, and the
Company receiving the Exercise Price for the Warrant Shares, in cash, or any
combination of the foregoing methods of paying the Exercise Price. As soon as
practicable after each such exercise of the Warrants, but not later than seven
(7) business days from the date of such exercise, the Company shall issue and
deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or the
Holder's designee, except in the case of a cashless exercise. If the Warrant
should be exercised in part only, the Company shall, upon surrender of the
Warrant for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable thereunder. In the event of a cash exercise, upon receipt by the
1
Company of the Warrant at its office, or by the stock transfer agent of the
Company at its office, in proper form for exercise, together with the exercise
price thereof and taxes as aforesaid in cash or certified or bank check and the
investment letter described below, the Holder shall be deemed to be the holder
of record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of the Company shall then be
closed or that certificates representing such shares of Common Stock shall not
then be physically delivered to the Holder. In order to assure the availability
of an exemption from registration under the federal or applicable state
securities laws, the Company may condition the exercise of the Warrant upon the
Holder delivering to the Company an investment letter in the form as customarily
used by the Company from time to time in connection with the exercise of
non-registered options and warrants which are issued by the Company. It is
further understood that certificates for the Warrant Shares, if any, to be
issued upon exercise of the Warrant may contain a restrictive legend in
accordance with Section (j) hereof.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares of
its Common Stock as shall be required for issuance and delivery upon exercise of
the Warrants. If the Common Stock is or becomes listed on any national
securities exchange or the NASDAQ National Market System, the Company shall also
list such shares on such exchange subject to notice of issuance or maintain the
listing of its Common Stock on the NASDAQ system, as the case may be.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of the Warrant. With respect
to any fraction of a share called for upon any exercise hereof, the Company
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national
securities exchange or admitted to unlisted trading privileges
on such exchange or listed for trading on the NASDAQ National
Market System, the current market value shall be the last
reported sale price of the Common Stock on such exchange or
system on the last business day prior to the date of exercise
of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on such
exchange or system;
(2) If the Common Stock is not so listed or admitted
to unlisted trading privileges, the current market value shall
be the mean of the last reported bid and asked prices reported
by the National Quotation Bureau, Inc., on the last business
day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted
to unlisted trading privileges and bid and asked prices are
not so reported, the current market value shall be an amount,
not less than the book value thereof as at the end of the most
recent fiscal year of the Company ending prior to the date of
the exercise of the Warrant,
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determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. The Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations entitling the
Holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Subject to Section (j) hereof, the Holder may
transfer or assign the Warrant, in whole or in part and from time to time. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed (with signature guaranteed, if required by the Company or
its stock transfer agent) and funds sufficient to pay any transfer tax, the
Company shall, without charge, execute and deliver a new Warrant in the name of
the assignee or assignees named in such instrument of assignment and this
Warrant shall promptly be canceled. This Warrant may be divided by or combined
with other Warrants which carry the same rights upon presentation hereof at the
principal office of the Company or at the office of its stock transfer agent, if
any, together with a written notice specifying the names and denominations in
which new Warrants are to be issued and signed by the Holder hereof. The term
"Warrant" as used herein includes any Warrants into which this Warrant my be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and in the case
of loss, theft or destruction, of reasonable satisfactory indemnification, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
execute and deliver a new Warrant of like tenor, date and amount. Any such new
Warrant executed and delivered shall constitute a binding contractual obligation
on the part of the Company.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. So long as this Warrant shall be
outstanding, the Exercise Price in effect at any time and the number and kind of
securities purchasable upon the exercise of this Warrant shall be subject to
adjustment from time to time upon the happening of certain events as follows:
(1) SPECIAL DEFINITIONS. For purposes of this
Warrant, the following definitions apply:
(a) "Options" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities
(defined below).
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(b) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common
Stock and Series A Convertible Preferred Stock, par
value $0.001 per share ("Series A Preferred Stock"),
Series B Convertible Preferred Stock, par value
$0.001 per share ("Series B Preferred Stock"), or
Series C Convertible Preferred Stock , par value
$0.001 per share ("Series C Preferred Stock" and
collectively, with the Series A Preferred Stock and
the Series B Preferred Stock, the "Preferred Stock)
or other securities convertible into or exchangeable
for Common Stock.
(c) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or
deemed to be issued as provided herein) by the
Company after the date hereof, as the case may be,
other than shares of Common Stock issued or issuable:
(i) upon conversion of shares of
Preferred Stock;
(ii) to officers, directors,
employees or consultants of the Corporation pursuant
to stock options granted pursuant to the
Corporation's stock option plan on terms approved by
the Board of Directors of the Company, but not
exceeding 9,429,049 shares of Common Stock (or such
greater number approved by the Board) (net of any
repurchases of such shares or cancellations or
expirations of options), subject to adjustment for
all subdivisions and combinations;
(iii) as a dividend or distribution
on Preferred Stock;
(iv) for which adjustment to the
conversion prices for the SeriesA Preferred Stock,
the Series B Preferred Stock or the Series C
Preferred Stock is made pursuant to the Certificate
of Incorporation of the Company;
(v) upon the conversion of the
convertible term note held by Mark Baiada in the
principal amount of $500,000, subject to adjustment
for all subdivisions and combinations;
(vi) to Silicon Valley Bank pursuant
to a warrant granted to it but not exceeding 31,250
shares of Common Stock, subject to adjustment for all
subdivisions and combinations; or
(vii) upon exercise or conversion of
warrants and convertible subordinated secured notes
to be issued to investors under the Convertible
Subordinated Secured Note and Warrant Purchase
Agreement by and among the Company and the investors
listed therein, or Common Stock
4
issued or issuable upon the conversion of the Series
B Preferred Stock or the Series C Preferred Stock or
other convertible securities received by the
investors upon conversion of the convertible
subordinated secured notes.
(2) NO ADJUSTMENT OF EXERCISE PRICE. Any provision
herein to the contrary notwithstanding, no adjustment in the
Exercise Price shall be made in respect of: (i) any future
issuance of Options (or upon the issuance of Common Stock upon
the exercise of such Options) to employees of the Company
under the Amended and Restated Bluestone Software, Inc. 1996
Incentive and Non-Qualified Stock Option Plan; or (ii) the
issuance of Additional Shares of Common Stock (as defined
herein) unless the consideration per share (determined
pursuant to Section (f)(5) herein) for the Additional Shares
of Common Stock issued or deemed to be issued by the Company
is less than the Exercise Price in effect on the date of, and
immediately prior to, such issue.
(3) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. In the event the Company at any time or from time to
time after the date hereof shall issue any Options or
Convertible Securities or shall fix a record date for the
determination of holders of any class of securities then
entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in
the instrument relating thereto without regard to any
provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options
therefor, upon the conversion or exercise of such Convertible
Securities and Options therefor, and the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of
such issue, or in case such a record date shall have been
fixed, as of the close of business on such record date,
provided that in any such case in which Additional Shares of
Common Stock are deemed to be issued:
(A) no further adjustments in the
Exercise Price shall be made upon the
subsequent issue of Convertible Securities
or shares of Common Stock upon the exercise
of such Options or conversion or exchange of
such Convertible Securities;
(B) if such Options or Convertible
Securities by their terms provide, with the
passage of time or otherwise, for any
increase or decrease in the consideration
payable to the Company, or decrease or
increase in the number of shares of Common
Stock issuable, upon the exercise,
conversion or exchange thereof, the Exercise
Price computed upon the original issue
thereof (or upon the occurrence of a record
date with respect thereto), and any
subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming
5
effective, be recomputed to reflect such
increase or decrease insofar as it affects
such Options or the rights of conversion or
exchange under such Convertible Securities
(provided, however, that no such adjustment
of the Exercise Price shall affect Common
Stock previously issued upon the exercise of
this Warrant);
(C) upon the expiration of any such
Options or any rights of conversion or
exchange under such Convertible Securities
which shall not have been exercised, the
Exercise Price computed upon the original
issue thereof (or upon the occurrence of a
record date with respect thereto), and any
subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:
(1) in the case of
Convertible Securities or Options for Common
Stock, the only Additional Shares of Common
Stock issued were the shares of Common
Stock, if any, actually issued upon the
exercise of such Options or the conversion
or exchange of such Convertible Securities
and the consideration received therefor was
the consideration actually received by the
Company for the issue of all such Options,
whether or not exercised, plus the
consideration actually received by the
Company upon such exercise, or for the issue
of all such Convertible Securities which
were actually converted or exchanged, plus
the additional consideration, if any,
actually received by the Company upon such
conversion or exchange; and
(2) in the case of Options
for Convertible Securities, only the
Convertible Securities, if any, actually
issued upon the exercise thereof were issued
at the time of such Options, and the
consideration received by the Company for
the Additional Shares of Common Stock deemed
to have been then issued was the
consideration actually received by the
Company for the issue of all such Options,
whether or not exercised, plus the
consideration deemed to have been received
by the Company (determined pursuant to
Section (f)(5) herein) upon the issue of the
Convertible Securities with respect to which
such Options were actually exercised;
(D) no readjustment pursuant to
clause (B) or (C) above shall have the
effect of increasing the Exercise Price to
an amount which exceeds the lower of (a) the
Exercise Price on the original adjustment
date, or (b) the Exercise Price that would
have resulted from any issuance of
Additional Shares of Common Stock between
the original adjustment date and such
readjustment date; and
6
(E) in the case of any Options which
expire by their terms not more than 30 days
after the date of issue thereof, no
adjustment of the Exercise Price shall be
made until the expiration or exercise of all
such Options, whereupon such adjustment
shall be made in the same manner provided in
clause (C) above.
(4) ADJUSTMENT OF EXERCISE PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Company,
at any time after the date herein, shall issue Additional
Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section (f)(5) herein)
without consideration or for a consideration per share less
than the Exercise Price in effect on the date of and
immediately prior to such issue, then and in such event, the
Exercise Price under the Warrant shall be reduced concurrently
with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Exercise Price by a fraction,
the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate
consideration received by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at
such Exercise Price in effect immediately prior to such
issuance, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such
issue plus the number of such Additional Shares of Common
Stock so issued. For the purpose of the above calculation, the
number of shares of Common Stock outstanding immediately prior
to such issue shall be calculated as if all Warrants had been
exercised and all Convertible Securities had been fully
converted into shares of Common Stock immediately prior to
such issuance and any outstanding warrants, options or other
rights for the purchase of shares of stock or convertible
securities had been fully exercised immediately prior to such
issuance (and the resulting securities fully converted into
shares of Common Stock if so convertible) as of such date, but
not including in such calculation any additional shares of
Common Stock issuable with respect to this Warrant,
Convertible Securities, or outstanding options, warrants or
other rights for the purchase of shares of stock or
convertible securities, solely as a result of the adjustment
of the Exercise Price (or other conversion ratios) resulting
from the issuance of the Additional Shares of Common Stock
causing the adjustment in question.
(5) DETERMINATION OF CONSIDERATION. For purposes of
this Warrant, the consideration received by the Company for
the issue of any Additional Shares of Common Stock shall be
computed as follows:
(A) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash
received by the Company,
7
excluding amounts paid or payable for
accrued interest or accrued dividends;
(2) insofar as it consists of property
other than cash, be computed at the fair
value thereof at the time of such issue, as
determined in good faith by the Board; and
(3) in the event Additional Shares of
Common Stock are issued together with the
other shares or securities or other assets
of the Company for consideration which
covers both types of securities, be the
proportion of such consideration so
received, computed as provided in
clauses (1) and (2) above, with respect to
the Additional Shares of Common Stock as
determined in good faith by the Board.
(B) Options and Convertible Securities. The
consideration per share received by the Company
for Additional Shares of Common Stock deemed to
have been issued pursuant to Section (f)(5)
herein, relating to Options and Convertible
Securities shall be determined by dividing:
(1) the total amount, if any, received or
receivable by the Company as consideration
for the issue of such Options or
Convertible Securities, plus the minimum
aggregate amount of additional
consideration (as set forth in the
instruments relating thereto, without
regard to any provision contained therein
designed to protect against dilution)
payable to the Company upon the exercise
of such Options or the conversion or
exchange of such Convertible Securities,
or in the case of Options for Convertible
Securities, the exercise of such Options
for Convertible Securities and the
conversion or exchange of such Convertible
Securities, by
(2) the maximum number of shares of Common
Stock (as set forth in the instruments
relating thereto, without regard to any
provision contained therein designed to
protect against the dilution) issuable
upon the exercise of such Options or
conversion or exchange of such Convertible
Securities.
(6) ADJUSTMENTS TO EXERCISE PRICE FOR STOCK DIVIDENDS
AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the
event that the Company at any time or from time to time after
the date herein shall declare or pay, without consideration,
any dividend on the Common Stock payable in Common Stock or in
8
any right to acquire Common Stock for no consideration, or
shall effect a subdivision of the outstanding shares of Common
Stock into a greater number of shares of Common Stock (by
stock split, reclassification or otherwise than by payment of
a dividend in Common Stock or in any right to acquire Common
Stock), or in the event the outstanding shares of Common Stock
shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock,
then the Exercise Price in effect immediately prior to such
event shall, concurrently with the effectiveness of such
event, be proportionately decreased or increased, as
appropriate. In the event that this Company shall declare or
pay, without consideration, any dividend on the Common Stock
payable in any right to acquire Common Stock for no
consideration, then the Company shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal
to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(7) ADJUSTMENTS FOR RECLASSIFICATION AND
REORGANIZATION. If the Common Stock issuable upon the exercise
of the Warrants shall be changed into the same or a different
number of shares of any other class or classes of stock,
whether by capital reorganization, reclassification or
otherwise, the Exercise Price then in effect shall,
concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the
Warrants shall be exercised for, in lieu of the number of
shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other
class or classes of stock equivalent to the number of shares
of Common Stock that would have been subject to receipt by the
holders upon the exercise of the Warrant immediately before
that change.
(8) No adjustment in the Exercise Price shall be
required unless such adjustment would require an increase or
decrease of at least $.05 in such price; provided, however,
that any adjustments which by reason of this subsection (f)
(8) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment required to be
made hereunder.
(9) Whenever the Exercise Price is adjusted, as
herein provided, the Company shall promptly cause a notice
setting forth the adjusted Exercise Price and adjusted number
of Warrant Shares issuable upon exercise of each Warrant to be
mailed to the Holder, at its address appearing in the Warrant
Register, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any.
(10) All calculations under this Section (f) shall be
made to the nearest cent or to the nearest Warrant Share, as
the case may be.
9
(11) In the event that at any time, as a result of an
adjustment made pursuant to this Section (f) above, the Holder
of this Warrant thereafter shall become entitled to receive
any shares of the Company, other than Common Stock, thereafter
the number of such other shares so receivable upon exercise of
this Warrant shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable
to the provisions with respect to the Common Stock contained
in subsection (A) above.
(12) Irrespective of any adjustments in the Exercise
Price or the number or kind of Warrant Shares purchasable upon
exercise of this Warrant, Warrants theretofore or thereafter
issued may continue to express the same price and number and
kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Warrant.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the Holder or any
holder of a Warrant executed and/or delivered pursuant to Section (a) or Section
(d), and the Company shall, forthwith after each such adjustment, mail, by
certified mail, a copy of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any shares of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall cause
to be mailed by certified mail to the Holder or any holder of a Warrant executed
and/or delivered pursuant to Section (a) or Section (d), at least 15 days prior
to the date specified in (x) or (y) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
10
(i) SECURITIES LAW COMPLIANCE
(1) The Holder of the Warrant, by acceptance hereof,
acknowledges that the Warrant and the shares of Common Stock
to be issued upon exercise hereof or conversion thereof are
being acquired solely for the Holder's own account and not as
a nominee for any other party, and for investment, and that
the Holder will not offer, sell, transfer, assign or otherwise
dispose of this Warrant or any shares of Common Stock to be
issued upon exercise hereof or conversion thereof except under
circumstances that will not result in a violation of the Act
or any state securities laws. Upon exercise of the Warrant,
the Holder shall, if requested by the Company, confirm in
writing, in a form satisfactory to the Company, that the
shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward
distribution or resale.
(2) If appropriate, the Warrant and any Warrants
issued upon exercise or substitution or upon assignment or
transfer pursuant to Section (a) or Section (d), as the case
may be, and all shares of Common Stock issued upon exercise
hereof or conversion thereof shall be stamped or imprinted
with legends setting forth the restrictions on transfer
arising under applicable federal and state securities laws.
(j) REGISTRATION RIGHTS UNDER THE SECURITIES ACT OF 1933
(1) Commencing on the effective date of the first
registration statement for a public offering of securities of
the Company, the Company shall advise the Holder of the
Warrant or of the Warrant Shares or any then Holder of
Warrants or Warrant Shares (such persons being collectively
referred to herein as "Holders") by prompt written notice
prior to the filing of any registration statement or
post-effective amendment thereto ("Registration Statement")
under the Securities Act of 1933, as amended (the "Act"),
covering an underwritten public offering of equity securities
of the Company solely for cash in excess of $1,000,000 (other
than a Registration Statement initiated by a holder on Form
S-3, a registration relating solely to the sale of securities
to participants in a Company stock option, stock purchase or
similar plan or a SEC Rule 145 transaction, a registration on
any form which does not include substantially the same
information as would be required to be included in a
registration statement covering the sale of the Registrable
Securities (as defined in the Second Restated Investors'
Rights Agreement dated May 25, 1999, between the Company and
the investors signatory thereto) or a registration in which
the only Common Stock being registered in Common Stock
issuable upon conversion of debt securities that are also
being registered) and shall register in any such Registration
Statement the number of Warrant Shares that the Holder shall
notify the Company it desires to register and shall include in
any such Registration Statement such
11
information as may be required to permit a public offering of
such Warrant Shares by the Company's underwriter(s). The
Company shall supply prospectuses and other documents as the
Holder may reasonably request in order to facilitate the
public sale or other disposition of the Warrant Shares. The
Company shall bear the entire cost and expense of a
registration of securities initiated by it under this Section
(j)(1). The Holder shall, however, bear the fees of its own
counsel and any transfer taxes and underwriting discounts or
commissions applicable to the Warrant Shares sold by it. The
Company may include other securities in any such registration
statement. The Company shall do any and all other acts and
things which may be necessary or desirable to enable the
Holder to consummate the public sale or other disposition of
the Warrant Shares, and furnish indemnification in the manner
as set forth in Paragraph (2) (a) of this Section (j), but
shall not be required to qualify as a foreign corporation to
qualify the Warrant Shares for sale under the securities laws
of any state. The Holder shall furnish information and
indemnification as set forth in Paragraph (2) (b) of this
Section (j). All decisions as to whether and when to proceed
with any Registration Statement shall be made solely by the
Company.
Notwithstanding the foregoing paragraph, in the event
that there is an underwritten offering of the Company's
securities offered pursuant to said registration statement
pursuant to the immediately preceding Paragraph, the
underwriter(s) shall have the right to refuse to permit any
Warrant Shares, or to limit the amount of Warrant Shares, to
be sold by the Holder to such underwriter(s) as such
underwriter(s) may determine in its discretion, and the Holder
shall refrain from selling such remainder of its Warrant
Shares covered by such registration statement for a period not
exceeding 180 days following the effective date and shall also
refrain at any time when notified by the Company that an
amendment or supplement to the prospectus is required. The
Company shall not be obligated to keep any Registration
Statement effective for a total of more than 120 days or until
the distribution contemplated in the Registration Statement
has been completed, whichever occurs first.
2(a) Whenever pursuant to this Section (j) a
Registration Statement relating to the Warrant Shares is filed
under the Act, amended or supplemented, the Company will
indemnify and hold harmless each Holder of Warrant Shares
covered by such Registration Statement, amendment or
supplement (such Holder being hereinafter called the
"Distributing Holder"), and each person, if any who controls
(within the meaning of the Act) the Distributing Holder,
against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder or any such
controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue
statement of any material fact contained in any such
Registration Statement or any preliminary prospectus or final
prospectus constituting a part thereof or any amendment or
supplement thereto, or
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arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading; and will reimburse
the Distributing Holder and each such controlling person for
any legal or other expenses reasonably incurred by the
Distributing Holder and each controlling person for any legal
or other expenses reasonable incurred by the Distributing
Holder or such controlling person or underwriter in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement or
omission or alleged omission made in said Registration
Statement, preliminary prospectus, final prospectus or
amendment or supplement, in reliance upon and in conformity
with written information furnished by the Distributing Holder
or underwriter for use in the preparation thereof.
(b) The Distributing Holder will indemnify and hold
harmless the Company, each of its directors, each of its
officers who have signed said Registration Statement and such
amendments and supplements thereto, each person, if any, who
controls the Company (within the meaning of the Act) and the
Company's underwriter(s) and each person, if any, who controls
such underwriter(s) (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the
Company or any such director, officer, underwriter or
controlling person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in
said Registration Statement, preliminary prospectus, final
prospectus, or amendment or supplement, or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent that such
untrue statement or alleged untrue statement or omission or
alleged omission was made in said Registration Statement,
preliminary prospectus, final prospectus or amendment or
supplement, in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in
the preparation thereof; and will reimburse the Company or
underwriter or any such director, officer or controlling
person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such
loss, claim, damage, liability or action.
(c) Promptly after receipt by an indemnified party
under this Paragraph 2 of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified
party otherwise than under this Paragraph 2.
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(d) In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of
the commencement thereof, the indemnifying party will be
entitled to participate in, and, the extent that it may wish,
jointly with any other indemnifying party similarly notified
to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this
Paragraph 2 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(e) The Company's agreements with respect to Warrant
Shares in this Section (j) shall continue in effect regardless
of the exercise of the Warrant; provided, however, that the
Holder's rights under this Section (j) may not be assigned
without the prior written consent of the Company.
(k) RIGHT TO CONVERT WARRANT INTO COMMON STOCK.
(1) RIGHT TO CONVERT. The Holder shall have the right
to require the Company to convert this Warrant provided in
this Section (1), into common stock (the "Net Conversion
Right"). Upon exercise of the Net Conversion Right, the
Company shall deliver to the Holder (without payment by the
Holder of any Exercise Price or of any other cash or
consideration) that number of shares of Common Stock equal to
the quotient obtained by dividing (x) the value of this
Warrant at the time the Conversion Right is exercised
(determined by subtracting the aggregate Exercise Price in
effect immediately prior to the exercise of the Conversion
Right from the aggregate fair market value of the shares of
Common Stock issuable upon exercise of this Warrant
immediately prior to the exercise of the Conversion Right) by
(y) the fair market value of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(2) METHOD OF EXERCISE. The Net Conversion Right may
be exercised by the Holder by the surrender of this Warrant at
the principal office of the Company together with a written
statement specifying that the Holder thereby intends to
exercise the Net Conversion Right. Certificates for the shares
of Common Stock issuable upon exercise of the Net Conversion
Right shall be delivered to the Holder within five (5) days
following the Company's receipt of this Warrant together with
the aforesaid written statement.
(3) DETERMINATION OF FAIR MARKET VALUE. For purposes
of this Section (f), fair market value of a share of Common
Stock as of a particular date (the "Determination Date") shall
be determined in accordance with Section (c) of this Warrant.
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(l) AMENDMENTS. Neither the Warrant nor any term hereof may be changed,
waived, discharged or terminated without the prior written consent of the
Holder.
(m) NO IMPAIRMENT. The Company will not avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Warrant and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of any
Holder.
(n) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of Delaware.
(o) NOTICES. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to the Holder, to BT Alex. Incorporated, One South
Street, Baltimore, Maryland 21202, Attention: Donald D. Notman, Jr., or (b) if
to the Company, to Bluestone Software, Inc., 1000 Briggs Road, Mount Laurel, New
Jersey 08054, Attention: President, or at such other address as to the Company
shall have furnished to the Holder in writing.
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IN WITNESS WHEREOF, Bluestone Software, Inc. has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: _________________
BLUESTONE SOFTWARE, INC.
By:
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Name:
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Title:
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