UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): July 19, 1999
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WORLDTALK COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
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0-27886 77-0303581
(Commission File Number) (IRS Employer Identification No.)
5155 Old Ironsides Drive, Santa Clara, California 95054
(Address of Principal Executive Offices) (Zip Code)
(408) 567-1500
(Registrant's Telephone Number, Including Area Code)
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NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 5. OTHER EVENTS.
The Financing
On July 7, 1999, Worldtalk Communications Corporation, a Delaware corporation
doing business as Worldtalk Corporation ("Registrant" or the "Company"), entered
into an agreement for the sale of shares of Common Stock (the "Shares") and
warrants for the purchase of Common Stock (the "Warrants") to certain affiliates
of Hilal Capital Management LLC and others (the "Investors"). Under the
agreement, the Shares and the Warrants were placed in escrow until certain
conditions were satisfied, which occurred on July 19, 1999. On that date, a
total of 3,333,334 Shares for a purchase price of $3.00 per share and Warrants
for the purchase of up to 1,666,667 additional shares of Common Stock were
delivered to the Investors. A total of $10,000,000 was raised as a result of the
sale of the Shares and the Warrants (the "Financing").
The Shares, the Warrants and the Common Stock issuable upon exercise of the
Warrants (the "Warrant Shares") have not been registered under the Securities
Act of 1933, and may not be offered or sold in the United States absent
registration or an exemption from applicable registration requirements. The
Investors were provided with certain registration rights relating to the Shares
and the Warrant Shares. Each Investor was also granted the right to participate
in any new financing of the Company to the extent of the Investor's percentage
ownership.
At the completion of the Financing on July 19, 1999, the Company had
approximately 14,280,500 shares of Common Stock issued and outstanding. The
Preferred Stock remains undesignated and, therefore, no shares of Preferred
Stock are outstanding. The Investors as a group currently hold 23.3% of the
issued and outstanding shares of Common Stock. The only Investor who holds more
than 5% of the issued and outstanding Common Stock is Hilal Capital Associates
LLC, with 8.37%. On a fully diluted basis, treating all warrants and options
outstanding as if exercised, the Investors would hold approximately 27.1% of the
issued and outstanding capital stock of the Company at the completion of the
Financing.
The Nasdaq Stock Market Hearing
Representatives of the Company met with a Nasdaq Listing Qualifications Panel at
a hearing on July 8, 1999 to discuss the Company's failure to meet The Nasdaq
Stock Market's net tangible assets requirement for continued listing on the
Nasdaq National Market. As a result of the hearing, the Financing and the filing
of this Current Report on Form 8-K showing pro forma tangible net assets at June
30, 1999 of at least $11,500,000, the Company has been informed by The Nasdaq
Stock Market that the Company's listing on the Nasdaq National Market will be
continued.
Worldtalk Communications Corporation
Pro Forma Tangible Net Assets at June 30, 1999
(based on June 30, 1999 Balance Sheet Data)
(unaudited)
June 30, 1999 Balance Sheet Data and Pro Forma Information
The following financial information is presented at the request of the Nasdaq
Listing Qualifications Panel and is not required pursuant to Article 11, of
Regulation S-X. The following is a presentation of the Company's June 30, 1999
balance sheet, with pro forma adjustments, treating the Financing as if it had
been completed on that date and adjusting for any significant events or
transactions that have occurred between June 30, 1999 and the date this Report
is filed. This information should be read in conjunction with the financial
information presented in the Company's Form 10-K Annual Report and Form 10-Q
Quarterly Report currently on file with the Securities and Exchange Commission.
The information presented below does not include all information required to be
presented
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for a full understanding of the Company's financial results for the period ended
June 30, 1999, which will be presented in the Form 10-Q to be filed with the
Securities and Exchange Commission on or before August 16, 1999.
Basis of Presentation
The accompanying unaudited condensed consolidated balance sheet as of June 30,
1999 has been prepared on substantially the same basis as are the annual
consolidated financial statements but does not include all disclosures required
by generally accepted accounting principles.
Condensed Balance Sheet at June 30, 1999 (unaudited)
Actual Pro Forma
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Assets (000's) (000's)
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Cash and Investments ................................... $ 2,592 $12,592
Accounts receivable, net ............................... 3,433 3,433
Prepaid expenses ....................................... 765 765
Property and equipment ................................. 850 850
Other assets ........................................... 465 465
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Total assets ..................... $ 8,105 $18,105
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Liabilities and Stockholder's Equity
- --------------------------------------------------------
Accounts payable ....................................... $ 1,397 $ 1,497
Short-term debt ........................................ 287 287
Other current liabilities .............................. 2,795 2,795
Deferred revenue ....................................... 1,594 1,594
Lease obligations, long term and notes payable ......... 6 6
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Total liabilities ...................................... 6,079 6,179
Stockholders' equity ................................... 2,026 11,926
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Total liabilities and stockholders' equity ....... $ 8,105 $18,105
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Notes to Pro Forma Balance Sheet at June 30, 1999
The pro forma balance sheet at June 30, 1999 gives effect to the sale of
3,333,334 shares of Common Stock for a purchase price of $3.00 per share and the
issuance of the Warrants, net of estimated issuance costs of $100,000.
Calculation of Net Tangible Assets (000's) (unaudited)
Pro Forma Stockholders' Equity at June 30, 1999 ............... $ 11,926
Less Intangible Assets at June 30, 1999 ....................... (166)
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Pro Forma Net Tangible Assets at June 30, 1999 ................ $ 11,760
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
Exhibits
The following exhibits have been filed as a part of this Report on Form 8-K.
Exhibit 99.01 Securities Purchase Agreement entered into as of July 7, 1999
among the Company and the parties listed on the Schedule of
Investors attached thereto, with form of Escrow Agreement
attached.
Exhibit 99.02 Registration Rights Agreement entered into on July 7, 1999
among the Company and the Investors.
Exhibit 99.03 Form of Warrant issued as of July 7, 1999 to the Investors.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WORLDTALK COMMUNICATIONS CORPORATION
Date: July 19, 1999 /s/ James Heisch
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James Heisch
Vice President Finance,
Chief Financial Officer, Treasurer and
Secretary
(Duly Authorized Officer and Principal
Financial Officer)
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Index to Exhibits
Exhibit No. Description
- ----------- -----------
99.01 Securities Purchase Agreement entered into as of July 7, 1999
among the Company and the parties listed on the Schedule of
Investors attached thereto.
99.02 Registration Rights Agreement entered into on July 7, 1999
among the Company and the Investors.
99.03 Form of Warrant issued as of July 7, 1999 to the Investors.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of
July 7, 1999, by and among Worldtalk Communications Corporation, a Delaware
corporation, with headquarters located at 5155 Old Ironsides Drive, Santa Clara,
California 95054 (the "Company"), and the investors listed on the Schedule of
Buyers attached hereto (individually, a "Buyer" and collectively, the "Buyers").
WHEREAS:
A. The Company and the Buyers 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 "1933 Act");
B. The Company has authorized the issuance of between $5
million and $10 million of the Company's common stock, $.01 par value per share
(the "Common Stock") at a purchase price of $3 per share, in the amount
designated by Hilal Capital Management LLC ("Hilal") on the date of the Initial
Closing (as defined below) (which amount at the Initial Closing shall not be
less than $5 million) and the Second Closing (as defined below);
C. The Company has authorized the issuance of Common Stock
Purchase Warrants (the "Warrants"), in the form attached hereto as Exhibit B, to
acquire shares of Common Stock (such shares of Common Stock issued upon exercise
of the Warrants are hereinafter referred to as the "Warrant Shares", and
together with Common Stock purchased hereunder and the Warrants, the
"Securities");
D. The Buyers (which term as used herein shall include those
persons designated by Hilal to purchase Common Stock at the Second Closing, who
became a party to this Agreement by executing the signature page and whose names
and purchase amounts shall be added to the Schedule of Buyers at the Second
Closing) wish to purchase, upon the terms and conditions stated in this
Agreement, an aggregate of between $5 million and $10 million of Common Stock
(as determined by Hilal) in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers; and to receive, in consideration for
such purchase, the Warrants who became a party to this Agreement by executing
the signature page to purchase an additional number of shares of Common Stock
equal to one-half the number of shares of Common Stock that the Buyers purchase,
subject to adjustment as provided in the Warrants; and
E. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement 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 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW, THEREFORE, the Company and the Buyers hereby agree as
follows.
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1. INITIAL PURCHASE AND SALE OF COMMON STOCK.
a. Initial Purchase of Common Stock. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below,
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate of not less than $5 million and not more than $10
million of Common Stock (the "Initial Purchase Price") in the respective amounts
as are set forth opposite each Buyer's name on the Schedule of Buyers at an
initial closing (the "Initial Closing"). The per share purchase price (the
"Purchase Price") of the Common Stock shall be $3.00. On the Initial Closing
Date (as defined below) the Company shall deliver to each Buyer a stock
certificate representing the number of shares which such Buyer is then
purchasing (as indicated opposite such Buyer's name on the Schedule of Buyers),
duly executed on behalf of the Company and registered in the name of such Buyer
or its designee (the "Stock Certificates").
b. Initial Closing Date. The date and time of the
Initial Closing (the "Initial Closing Date") shall be 5:00 p.m. Eastern Standard
Time on July 7, 1999, subject to notification of satisfaction (or waiver) of the
conditions to the Closing set forth in Sections 7 and 8 below (or such later
date as is mutually agreed to by the Company and Hilal). The Initial Closing
shall occur on the Initial Closing Date at the offices of Schulte Roth & Zabel
LLP, 900 Third Avenue, New York, New York 10022. Notwithstanding the foregoing,
if on the Initial Closing Date all of the conditions set forth in Sections 7 and
8 are satisfied except for the condition in Section 8(b), such closing shall be
made into escrow pursuant to the terms of Escrow Agreement annexed as Exhibit D
(the "Escrow Agreement") and other appropriate escrow documents, pending
satisfaction of such remaining condition not later than July 14, 1999 (or such
later date as is mutually agreed to by the Company and Hilal). In the event of
such escrow closing, the Initial Closing (and the sale of the securities) shall
not be deemed to have been completed unless and until the condition in Section
8(b) is satisfied in accordance with the terms hereof and of the Escrow
Agreement, but if such condition is timely satisfied, the Initial Closing Date
shall be deemed the date of deposit into escrow.
c. Form of Payment. On the Initial Closing Date
(subject to escrow, if applicable), each Buyer shall pay the Purchase Price to
State Street for the Common Stock to be issued and sold to such Buyer at the
Initial Closing, by wire transfer of immediately available funds in accordance
with the Company's written wire instructions provided in writing to the Buyers
at least two days prior to the Initial Closing Date.
d. Warrants. In consideration of the purchase of the
Common Stock, the Company shall on the Initial Closing Date (subject to escrow,
if applicable) issue and deliver to each Buyer, Warrants to purchase an
additional number of shares of Common Stock equal to one-half the number of
shares of Common Stock that the Buyer purchases at the Initial Closing.
2. SECOND PURCHASE AND SALE OF COMMON STOCK.
a. Second Purchase of Common Stock. If so elected by
Hilal in its sole discretion, and subject to the satisfaction (or waiver) of the
conditions set forth in Sections 7 and 8 below, the Company shall issue and sell
to such additional Buyers as may be designated by
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Hilal and such Buyers shall purchase from the Company at a second closing (the
"Second Closing" and, together with the Initial Closing, the "Closings")
additional shares of Common Stock, at the Purchase Price, provided that the
aggregate amount of Common Stock so purchased shall not be more than the
difference between $10 million and the aggregate purchase price of Common Stock
purchased at the Initial Closing. On the Second Closing Date (as defined below)
the Company shall deliver to each such Buyer a stock certificate representing
the number of shares that such Buyer is then purchasing (as indicated opposite
such Buyer's name on the Schedule of Buyers, as amended), duly executed on
behalf of the Company and registered in the name of such Buyer or its designee.
b. Second Closing Date. The date and time of the
Second Closing (the "Second Closing Date" and, together with the Initial Closing
Date, the "Closing Dates") shall be 10:00 a.m. Eastern Standard Time on the
fifth business day following the later of July 7, 1999 or, if applicable, the
release of the escrow closing upon timely satisfaction of the condition in
Section 8(b), but not later than July 21, 1999, subject to the continuing
satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below
(or such later date as is mutually agreed to by the Company and Hilal). The
Second Closing shall occur on the Second Closing Date at the offices of Schulte
Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022. Notwithstanding
the foregoing, if on the Second Closing Date all of the conditions set forth in
Sections 7 and 8 are satisfied except for the condition in Section 8(b), such
closing shall be made into escrow pursuant to the Escrow Agreement and other
appropriate escrow documents, pending satisfaction of such remaining condition
not later than July 14, 1999 (or such later date as is mutually agreed to by the
Company and Hilal). In the event of such escrow closing, the Second Closing (and
the sale of the securities) shall not be deemed to have been completed unless
and until the condition in Section 8(b) is satisfied in accordance with the
terms hereof and of the Escrow Agreement, but if such condition is timely
satisfied, the Second Closing Date shall be deemed the date of deposit into
escrow.
c. Form of Payment. On the Second Closing Date
(subject to escrow, if applicable), each Buyer at the Second Closing shall pay
the Company the Purchase Price for the Common Stock to be issued and sold to
such Buyer at the Second Closing, by wire transfer of immediately available
funds in accordance with the Company's written wire instructions provided in
writing to Hilal at least two days prior to the Second Closing Date.
d. Warrants. In consideration of the purchase of the
additional Common Stock, the Company shall on the Second Closing Date (subject
to escrow, if applicable), issue and deliver to each Buyer at the Second
Closing, Warrants to purchase an additional number of shares of Common Stock
equal to one-half the number of shares of Common Stock that such Buyer purchases
at the Second Closing.
3. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer (including each Buyer purchasing at the Second
Closing) represents and warrants with respect to only itself that:
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a. Investment Purpose. Such Buyer (i) is purchasing
the Common Stock and the Warrants and (ii) upon exercise of the Warrants, will
acquire the Warrant Shares then issuable for its own account for investment only
and not with a present view towards, or for resale in connection with, the
public sale or distribution thereof; provided, however, that by making the
representations herein, such Buyer does not agree to hold any Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands
that the Common Stock and Warrants are being offered and sold to it in reliance
on specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying in part upon
the truth and accuracy of, and such Buyer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
such Buyer set forth herein in order to determine the availability of such
exemptions and the eligibility of such Buyer to acquire the Common Stock and the
Warrants.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Common Stock and the Warrants which have been requested by such Buyer. Such
Buyer and its advisors, if any, have been afforded the opportunity to ask
questions of the Company. Neither such inquiries nor any other due diligence
investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Securities or the fairness or suitability of the investment in the
Securities nor have such authorities passed upon or endorsed the merits of the
offering of the Securities.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) the Securities have
not been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
securities can be sold, assigned or transferred pursuant to Rule 144 promulgated
under the 1933 Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of
such securities 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
such securities under circumstances in which the seller (or the person through
whom the sale is
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made) may be deemed to be an underwriter (as that term is defined in the 1933
Act) may require compliance with some other exemption under the 1933 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 securities under the
1933 Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Securities, and, until such
time as the sale of the Securities have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the certificates or other
documents representing the Securities, 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 certificates or other documents):
THE SECURITIES REPRESENTED BY THIS [CERTIFICATE] HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED 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 PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
SUCH LAWS.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Securities upon which it is
stamped, if (i) any such Securities are registered for sale under the 1933 Act,
(ii) in connection with a sale transaction, such holder provides the Company
with an opinion of counsel, in a generally acceptable form, to the effect that a
public sale, assignment or transfer of any of the Securities may be made without
registration under the 1933 Act, or (iii) any of the Securities can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold. Each Buyer
acknowledges, covenants and agrees to sell any of the Securities from which the
legend has been removed only pursuant to (i) a registration statement effective
under the 1933 Act, or (ii) advice of counsel that such sale is exempt from
registration required by Section 5 of the 1933 Act. In the event the above
legend is removed from any of the Securities, the Company may, upon reasonable
advance notice to the holder, require that the above legend be placed on any of
the Securities that cannot then be sold pursuant to an effective registration
statement or Rule 144(k) under the 1933 Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement, the
Warrant and the Registration Rights Agreement have been duly and validly
authorized, executed and delivered on behalf of such Buyer and is a valid and
binding agreement of such Buyer enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
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i. Residency. Such Buyer is a resident of the United
States of America.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers, except as disclosed in the letter from the Company to the Buyers of even
date herewith containing certain disclosures (the "Disclosure Letter"), that:
a. Organization and Qualification. The Company and
its sole subsidiary, Deming Software, Inc., are corporations duly organized and
validly existing in good standing under the laws of the jurisdiction in which
they are incorporated, and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. Each of the
Company and its subsidiary is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except to the
extent that the failure to be so qualified or be in good standing would not have
a Material Adverse Effect. "Material Adverse Effect" means any material adverse
effect on (i) the business, properties, operations, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiary, taken as a whole, or (ii) on the ability of the Company to perform
its obligations hereunder or under the agreements or instruments to be entered
into or filed in connection herewith, or under the Securities.
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement, the Warrant and the
Registration Rights Agreement (collectively, the "Closing Agreements"), to issue
and sell the Common Stock in accordance with the terms hereof, and to issue the
Warrant Shares upon the exercise of the Warrants, in accordance with the terms
and conditions of the Warrants, (ii) the execution and delivery of the Closing
Agreements by the Company and the consummation by it of the transactions
described herein and therein, including, without limitation, the issuance of the
Common Stock and the Warrants and the reservation for issuance and the issuance
of the Warrant Shares upon exercise of the Warrants have been duly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its stockholders under the
Delaware General Corporation Law, the Company's Certificate of Incorporation or
otherwise, and, (iii) the Closing Agreements have been duly executed and
delivered by the Company, and constitute the valid and binding obligations of
the Company enforceable against the Company in accordance with their terms,
except as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally, the enforcement of creditors'
rights and remedies.
c. Capitalization and Indebtedness. As of the date
hereof, the authorized capital stock of the Company consists of 25,000,000
shares of Common Stock, of which as of the date hereof 10,947,188 shares are
issued and outstanding, and 6,500,000 shares
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of Preferred Stock, par value $.01 per share (the "Preferred Stock"), none of
which as of the date hereof are issued or outstanding. All of the outstanding
shares of Common Stock have been validly issued and are fully paid and
nonassessable. No shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
created or agreed to by the Company. As of the date hereof, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments issued by the Company of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or its subsidiary, or contracts, commitments, understandings or
arrangements by which the Company or its subsidiary is or may become bound to
issue additional shares of capital stock of the Company or its subsidiary or to
issue options, warrants, scrip, rights to subscribe to, calls or commitments of
any character whatsoever relating to, or securities or rights convertible into,
any shares of capital stock of the Company or its subsidiary, (ii) there are no
outstanding debt securities, notes, credit agreements, or other agreements,
documents or instruments evidencing indebtedness for borrowed money in excess of
$250,000 of the Company or its subsidiary or by which the Company or subsidiary
is or may become bound and (iii) there are no agreements or arrangements under
which the Company or its subsidiary is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement)
or which conflict in any way with the Registration Rights Agreement. There are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of any of the Securities as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Certificate of Incorporation, as amended and as in effect on the date
hereof (the "Certificate of Incorporation"), and the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock and the material rights of the
holders thereof in respect thereto.
d. Issuance of Securities. The Securities are duly
authorized and, upon issuance in accordance with the terms hereof and the
Warrants, as the case may be, shall be validly issued, fully paid and
non-assessable, free from all taxes, liens and charges with respect to the issue
thereof, and are not and shall not be (except to Buyers), as the case may be,
subject to preemptive rights or other similar rights of stockholders of the
Company. The maximum number of shares of Common Stock issuable pursuant to this
Agreement, including those issuable upon exercise of the Warrants as currently
in effect, have been duly authorized and reserved for issuance.
e. No Conflicts. The execution, delivery and
performance of the Closing Agreements by the Company, and the consummation by
the Company of the transactions contemplated hereby and thereby (including,
without limitation, the issuance of the Securities) do not (i) result in a
violation of the Certificate of Incorporation or By-laws or (ii) violate or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or its subsidiary is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and the rules and regulations of the
principal market or exchange on which the
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Common Stock is traded or listed) of any governmental entity applicable to the
Company or its subsidiary or by which any property or asset of the Company or
its subsidiary is bound or named as a party, the violation of, breach of or
conflict with which reasonably could be expected to have a Material Adverse
Effect. Neither the Company nor its subsidiary is in violation of any term of or
in default under its Certificate of Incorporation or By-laws or its
organizational charter or by-laws, respectively, or in material violation of any
term of or in default under any material contract, agreement, mortgage,
indebtedness, indenture, instrument, judgment, decree or order or any statute,
rule or regulation applicable to the Company or its subsidiary. The business of
the Company and its subsidiary is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, which violation reasonably
could be expected to have a Material Adverse Effect. Except as specifically
described in the Closing Agreements and as required under the 1933 Act and
applicable State securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or NASDAQ in order for it to execute, deliver or
perform any of its obligations under any of the Closing Agreements in accordance
with the terms hereof or thereof. All consents, authorizations, orders, filings
and registrations that the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof. Upon consummation of the Initial Closing, the Company will not be in
violation of the listing requirements of the NASDAQ National Market and does not
reasonably anticipate that the Common Stock will be delisted by the NASDAQ
National Market in the foreseeable future. The Company and its subsidiary are
unaware of any facts or circumstances which might give rise to any of the
foregoing.
f. SEC Documents; Financial Statements. Since the
Company's initial public offering, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Securities Exchange Act of 1934,
as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof
and all exhibits included therein and financial statements and schedules thereto
and documents incorporated by reference therein being hereinafter referred to as
the "SEC Documents"). The Company (i) has delivered or made available to each
Buyer or its representative true and complete copies of the SEC Documents as
each Buyer or its representative has requested from the Company and (ii) agrees
to deliver or make available to each Buyer or its representative true and
complete copies of any additional SEC Documents, upon request. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted 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. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude
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footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
any Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in Section 3(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as expressly
disclosed in SEC Documents filed after December 31, 1998 and prior to the date
hereof, since December 31, 1998, there has been no material adverse change and
no material adverse development in the business, properties, operations,
condition (financial or otherwise) or results of operations or prospects of the
Company and its subsidiary taken as a whole, it being agreed that if the Company
has sales of at least $2.5 million and an operating loss not exceeding $2
million for its second 1999 fiscal quarter, such level of sales as net loss
shall not be deemed to constitute a material adverse change. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or its subsidiary
have any knowledge or reason to believe that its creditors intend to initiate
involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, government agency
or body pending or, to the knowledge of the Company or its subsidiary,
threatened against or affecting the Company or its subsidiary or their
respective directors or officers, or the Common Stock, wherein an unfavorable
decision, ruling or finding, individually or in the aggregate, reasonably could
be expected to have a Material Adverse Effect. The Disclosure Letter contains a
complete list and summary description of any pending, or to the knowledge of the
Company, threatened proceeding against or affecting the Company or its
subsidiary, without regard to whether it could have a Material Adverse Effect.
i. Acknowledgment Regarding Buyers' Purchase of the
Securities. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Securities. The Company further represents to each Buyer
that the Company's decision to enter into this Agreement has been based solely
on the independent evaluation by the Company and its representatives.
j. No General Solicitation. Neither the Company, nor
any person acting on its behalf, has engaged in any form of general solicitation
or general advertising (within
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the meaning of Regulation D under the 1933 Act) in connection with the offer or
sale of any of the Securities offered hereby.
k. No Integrated Offering. Neither the Company, nor
any person acting on its behalf has, directly or indirectly, made any offers or
sales of any security or solicited any offers to buy any security, under
circumstances that would require registration of any of the Securities under the
1933 Act or cause the offering of any of the Securities to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the rules
and regulations of the National Association of Securities Dealers Automated
Quotation system ("NASDAQ").
l. Employment Matters; ERISA Matters. The Company and
its subsidiary are in compliance with all federal, state, local and foreign laws
and regulations respecting employment and employment practices, terms and
conditions of employment and wages and hours except where failure to be in
compliance would not have a Material Adverse Effect. To the Company's knowledge,
there are no pending investigations involving the Company or its subsidiary by
the U.S. Department of Labor or any other governmental agency responsible for
the enforcement of such federal, state, local or foreign laws and regulations.
To the Company's knowledge, there is no unfair labor practice charge or
complaint against the Company or its subsidiary pending before the National
Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or
stoppage pending or threatened against the Company or its subsidiary. No
collective bargaining agreement or modification thereof is currently being
negotiated by the Company or its subsidiary. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company or its subsidiary. No material labor dispute with the
employees of the Company or its subsidiary exists or, to the knowledge of the
Company, is imminent.
m. Intellectual Property Rights. The Company and its
subsidiary own or possess the requisite rights or licenses to use all
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and rights currently used and
necessary to conduct their respective businesses (collectively, "Intellectual
Property Rights"). None of the Intellectual Property Rights or other
intellectual property rights are expected to expire or terminate in the near
future to the extent such expiration or termination could reasonably be expected
to have a Material Adverse Effect. The Company does not have any knowledge of
any event, fact or circumstance relating to (i) any infringement by the Company
or its subsidiary of any trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, governmental authorizations, trade secrets or other similar
rights of others, or (ii) any person or entity now infringing any Intellectual
Property Rights or other similar rights owned or used by the Company or its
subsidiary and, to the Company's knowledge, there is no claim, action or
proceeding being made or brought against, or being threatened against, the
Company or its subsidiary regarding any trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets or
other similar rights of others, or any person or entity now infringing any
Intellectual Property
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Rights or other similar rights; and the Company and its subsidiary are unaware
of any facts or circumstances which could reasonably be expected to give rise to
any of the foregoing. The Company and its subsidiary have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their Intellectual Property Rights.
n. Environmental Laws. (i) The Company and its
subsidiary (A) are in material compliance with any and all Environmental Laws,
(B) have received all material permits, licenses or other approvals required of
them under applicable Environmental Laws to conduct their respective businesses,
and (C) are in material compliance with all terms and conditions of any such
permit, license or approval. With respect to the Company and/or its subsidiary
(A) there are no past or present releases of any material into the environment,
actions, activities, circumstances, conditions, events, incidents, or
contractual obligations attributable to such entity which may give rise to any
common law environmental liability or any liability under any Environmental Law
by such entity and (B) neither the Company nor its subsidiary has received any
currently effective notice with respect to the foregoing, nor is any action
pending or to the Company's knowledge, threatened in connection with the
foregoing. The term "Environmental Laws" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes
(collectively, "Hazardous Materials") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were
stored, used or disposed of in compliance with applicable law or those not
attributable to the acts or omissions of the Company or its subsidiary, no
Hazardous Materials are contained on or about any real property currently owned,
leased or used by the Company or its subsidiary, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company or its subsidiary during the period the property was owned, leased or
used by the Company or its subsidiary.
(iii) There are no underground storage tanks
on or under any real property owned, leased or used by the Company or its
subsidiary that are not in compliance with applicable Environmental Laws.
o. Title. The Company and its subsidiary have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them that is material to the business of
the Company and its subsidiary, in each case free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company and its subsidiary. Any real property
and facilities held
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under lease by the Company and its subsidiary are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not materially interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiary.
p. Insurance. The Company and its subsidiary are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as is prudent and customary in the businesses in
which the Company and its subsidiary are engaged. Neither the Company nor such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not individually or in the aggregate have a
Material Adverse Effect.
q. Regulatory Permits; Compliance. The Company and
its subsidiary possess all franchises, grants, authorizations, licenses permits,
easements, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to conduct their respective businesses as
currently being conducted (collectively, the "Company Permits"). There is no
action pending, or to the knowledge of the Company, threatened regarding the
suspension or cancellation of any of the Company Permits. Neither the Company
nor its subsidiary is in default or violation of any of the Company Permits.
Neither the Company nor its subsidiary has received any currently effective
notification with respect to its possible default or violation of applicable
laws.
r. Internal Accounting Controls. The Company and its
subsidiary maintain a system of internal accounting controls sufficient, in the
judgment of the Company's board of directors, to provide reasonable assurance
that (i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor its subsidiary is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation of any court or
governmental agency which in the reasonable judgment of the Company's officers
has or is expected in the future individually or in the aggregate to have a
Material Adverse Effect. Neither the Company nor its subsidiary is a party to
any contract or agreement which in the reasonable judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
t. Tax Status. Each of the Company and its subsidiary
has made or filed all federal, state and foreign income and all other tax
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and its subsidiary has
set aside on its books provisions reasonably adequate for the payment of
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all unpaid and unreported taxes) and has paid all taxes and other governmental
assessments and charges that are material in amount, shown or determined to be
due on such returns, reports and declarations, except those being contested in
good faith and has set aside on its books provision reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. There are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to the statute of limitations relating to
the assessment or collection of any foreign, federal, state or local tax. The
Company has not been notified that any of its tax returns is currently being
audited by any taxing authority.
u. Certain Transactions. Except for arm's length
transactions pursuant to which the Company makes payments in the ordinary course
of business upon terms no less favorable than the Company could obtain from
third parties and other than the grant of stock options, none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 Registration. The Company is currently
eligible to register securities, including the resale of the Common Stock and
the Warrant Shares, on a registration statement on Form S-3 under the 1933 Act.
w. Disclosure. All information relating to or
concerning the Company or its subsidiary set forth in this Agreement and
provided to the Buyers pursuant to Section 3(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or information exists with respect to the Company or
its subsidiary or its or their business, properties, operations or financial
conditions, which, under applicable law, rule or regulation of the SEC, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.
x. No Qualified Opinion. The Company has not received
an opinion, report or letter from its auditors qualified in any respect,
including as to the Company's ability to proceed as a going concern in
connection with the Company's financial statements and, provided that the
transactions contemplated hereby are consummated, does not anticipate or know of
any basis upon which its auditors might issue any such opinion, report or
letter.
y. Investment Company Status. The Company is not and
upon consummation of the sale of the Securities (but without regard to the
status of the Buyers under
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the Investment Company Act of 1940, as amended) will not be an "investment
company," as such term is defined in the Investment Company Act of 1940, as
amended.
z. Foreign Corrupt Practices. To the Company's
knowledge, neither the Company nor its subsidiary, nor any director, officer,
agent, employee or other person acting on behalf of the Company or its
subsidiary has, in the course of his actions for, or on behalf of, the Company:
(i) used any corporate funds for any unlawful contribution, gift, entertainment
or other unlawful expenses relating to political activity; (ii) made any direct
or indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; (iii) violated or is in violation of any
provision of the U.S. Foreign Corrupt Practices Act of 1977; or (iv) made any
bribe, rebate, payoff, influence payment, kickback or other unlawful payment to
any foreign or domestic government official or employee.
aa. Year 2000. Any reprogramming required to permit
the proper functioning, in and following the year 2000, of the Company's and its
subsidiary's (i) computer systems and (ii) equipment containing imbedded
microchips (including systems and equipment supplied by others to the Company or
with which are sold as an integral part of Company's or its subsidiary's
systems) and the testing of such systems and equipment, as so reprogrammed has
been completed. The cost to the Company and its subsidiary of such reprogramming
and testing and of the reasonably foreseeable consequences of year 2000 to the
Company and its subsidiary with respect to the matters referred to in the
previous sentence (including without limitation, reprogramming errors and the
failure of systems or equipment supplied by others to the Company or which are
sold as an integral part of the Company's or its subsidiary's systems) will not
have a Material Adverse Effect. The computer and management information systems
of the Company and its subsidiary are and, with ordinary course upgrading and
maintenance, will continue to be, sufficient to permit the Company and its
subsidiary to conduct its business without a Material Adverse Effect caused
thereby.
5. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 7 and 8 of this Agreement.
b. Form D. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before each 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 Buyers at such Closing pursuant to this
Agreement under applicable securities or "Blue Sky" laws of the states of the
United States, and shall provide evidence of any such action so taken to the
Buyers on or prior to such Closing Date.
c. Reporting Status. Until six months after the date
as of which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Common Stock and Warrant Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto) (the "Registration Period"), the Company (x) shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
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.
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would otherwise permit such termination and (y) will use its best efforts and
take all necessary action to maintain its ability and eligibility to register
securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Common Stock and Warrants for working capital and general
corporate purposes and shall not otherwise, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person (except in connection with its direct or indirect
subsidiaries) or for the repurchase, redemption, or retirement of any capital
stock of the Company.
e. Financial Information. The Company agrees to file
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the 1934 Act.
The financial statements of the Company will be prepared in accordance with
generally accepted accounting principles, consistently applied, and will fairly
present in all material respects the consolidated financial position of the
Company and its consolidated subsidiaries and results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments).
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than the number of shares of Common Stock necessary to
provide for the issuance of the Warrant Shares upon exercise of the Warrants, in
accordance with the terms of this Agreement and the Warrants.
g. Listing. The Company shall promptly secure the
listing of the Common Stock and Warrant Shares upon the NASDAQ National Market
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, the listing of the Common Stock
issued and all Warrant Shares from time to time issuable under the terms of this
Agreement and the Warrants on each national securities exchange and automated
quotation system, if any, upon which shares of Common Stock are then listed. The
Company shall promptly provide to Hilal copies of any notices it receives from
NASDAQ regarding the continued eligibility of the Common Stock for listing on
NASDAQ or other principal exchange or quotation system on which the Common Stock
is listed or traded.
h. Expenses. Each of the Company and the Buyers shall
each pay its respective costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution, delivery and
performance of the Closing Agreements; provided, that at the Closings (or if
sooner upon the deposits into escrow contemplated by Sections 1(b) and 2(b)),
the Company shall reimburse the Buyers for Buyers' attorneys' fees and expenses
incurred in connection with the preparation of the Closing Agreements up to an
aggregate of $25,000.
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i. Additional Issuances of Securities.
(i) Right of Purchase. If at any time the
Company shall desire to issue any Common Stock or any security convertible,
exchangeable or exercisable for Common Stock or any other right to acquire any
Common Stock (the "Convertible Securities") pursuant to Section 4(2) of the 1933
Act or an offering under Regulation D or Regulation S of the 1933 Act or in any
other private placement (other than Exempt Issuances under Section 5(i)(v)
below), then the Company shall comply with the terms of this Section 5(i).
(ii) Notice Requirements. The Company shall
notify, or cause to be notified, the Buyers not less than twenty (20) business
days prior to the time the Company intends to consummate such issuance (the
"Issuance Notice"). The Issuance Notice shall set forth all of the terms of such
proposed issuance.
(iii) Exercise of Right of Purchase. The
right of purchase provided for in this Section 5(i) may be exercised by the
Buyers by delivery of a written notice to the Company (the "Exercise Notice"),
within ten (10) business days following receipt of the Issuance Notice (the
"Exercise Period"). The Exercise Notice shall state that the Buyers (and among
them in such proportion as they may agree) desire to purchase up to that portion
of the proposed issuance of such Common Stock or Convertible Securities as
necessary to maintain the Buyers' pro rata ownership of the outstanding Common
Stock of the Company (assuming conversion of the Convertible Securities, if
applicable) on terms substantially equal to the terms set forth in the Issuance
Notice, which Exercise Notice shall set forth the portion of the issuance so
elected to be purchased.
(iv) Right to Issue Securities. In the event
that the proposed issuance is consummated on terms substantially equal to the
terms set forth in the Issuance Notice within forty-five (45) calendar days
following the termination of the Exercise Period the Company shall sell to the
Buyers concurrently the securities they elected to purchase if such issuance is
not consummated within such 45 day period substantially on the terms described
in the Issuance Notice, no such issuance may be made without again giving notice
to the Buyers and complying with all of the requirements of this Section 5(i).
(iv) Exempt Issuances. The following
issuances of Common Stock or Convertible Securities shall be "Exempt Issuances"
not subject to the right of purchase in this Section 5(i):
(a) any shares of the Company's Common Stock
and/or Convertible Securities issued to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to
incentive agreements or plans approved by the Board of Directors of the
Company;
(b) any securities issuable upon exercise of
any Convertible Securities outstanding on the date of this agreement;
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(c) shares of the Company's Common Stock
issued in connection with any stock split or stock dividend;
(d) securities offered by the Company to the
public pursuant to a registration statement filed under the Securities
Act;
(e) any shares of the Company's Common Stock
(and/or options or warrants therefor) issued or issuable to parties
providing the Company with equipment leases, real property leases,
loans, credit lines, guaranties of indebtedness, cash price reductions
or similar financing;
(f) securities issued pursuant to the
acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or
fifty percent (50%) or more of the voting power of such other c
corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity; or
(g) securities issued to a strategic
business partner who is either a supplier or customer of the Company.
j. Board Representation. The Company shall cause Paul
Hilal to be elected to serve on the Board of Directors of the Company (or, if
Paul Hilal is unable to serve, such other person as may be designated by Hilal
who is reasonably acceptable to the Company) for so long as the Buyers in
aggregate hold at least 25% (assuming the exercise of all Warrants) of all
Common Stock issued or issuable to the Buyers pursuant to this Agreement and the
Warrants. The Company shall compensate Paul Hilal (or such other designees) for
reasonable travel expenses in connection with his duties as a Director, and pay
such person such other compensation as may be paid to any outside Director not
represented by a venture capital investor in such person's capacity as a
Director. The Company also agrees that such person shall be covered by
director/officer liability insurance and indemnification by the Company to the
same extent as any other Director.
k. No Integration. The Company will not conduct any
future offering that will be integrated with the issuance of the Securities for
purposes of the rules promulgated by the SEC.
l. Confidentiality. The Buyers agree to keep
confidential any non-public information heretofore disclosed to them by the
Company, in accordance with customary confidentiality restrictions.
6. TRANSFER AGENT INSTRUCTIONS.
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The Company shall issue irrevocable instructions to its
transfer agent (in the form attached hereto as Exhibit E) to issue certificates,
or at a Buyer's request, to electronically issue such shares (e.g., through DWAC
or DTC), registered in the name of each Buyer or its respective nominee(s), for
the Warrant Shares in such amounts as specified from time to time by each Buyer
to the Company in accordance with the terms of and upon exercise of the Warrants
(the "Irrevocable Transfer Agent Instructions"). Prior to registration of the
Common Stock and the Warrant Shares under the 1933 Act, such certificates shall
bear the restrictive legend specified in Section 3(g) of this Agreement. The
Company warrants that no instruction with respect to the Securities other than
(i) the Irrevocable Transfer Agent Instructions referred to in this Section 6,
and (ii) stop transfer instructions (a) to give effect to Section 3(f) hereof
(in the case of the Common Stock and the Warrant Shares, prior to registration
of the Common Stock and the Warrant Shares under the 1933 Act), (b) to comply
with any SEC or court order, or (c) to suspend use of a then effective
registration statement in the event an amendment or supplement thereto is
necessary, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in the Closing Agreements. Nothing in
this Section 6 shall affect in any way each Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of any of the Securities.
If a Buyer provides the Company with an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that registration of a resale
by such Buyer of any of the Securities is not required under the 1933 Act, the
Company shall permit the transfer, and, in the case of the Common Stock or
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 6 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section 6, that the Buyers shall be entitled,
in addition to all other available remedies, to an injunction restraining any
breach and requiring immediate issuance and transfer, without the necessity of
showing economic loss and without any bond or other security being required.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Common Stock and Warrants to each Buyer at each Closing is subject to the
satisfaction, with respect to each Buyer, at or before the applicable Closing
Date, of each of the following conditions, provided that these conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer or the Escrow Agent shall have
delivered to the Company the purchase price for the Common Stock being purchased
by such Buyer at such
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Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of the date when made and
as of such Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to such Closing Date.
d. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
e. Such Buyers shall have entered into the Escrow
Agreement.
8. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common
Stock and Warrants at each Closing is subject to the satisfaction, at or before
the applicable Closing Date, of each of the following conditions, provided that
these conditions are for the Buyers' sole benefit and may be waived by a
Majority of the Buyers (as defined in Section 10(e) hereof) at any time in its
sole discretion:
a. The Company shall have executed this Agreement and
the Registration Rights Agreement, and delivered the same to the Buyers.
b. The Common Stock and Warrant Shares shall be
listed and authorized for trading, upon notice of issuance, on the NASDAQ
National Market, and trading in the Common Stock shall not have been suspended
by the SEC or NASDAQ. The Company shall have received and furnished to the
Buyers a letter from NASDAQ confirming its approval of the continued listing of
the Common Stock on NASDAQ-NMS subject to no conditions other than consummation
of the Initial Closing (and subject to NASDAQ's published requirements for
continued listing, all of which shall then be satisfied), and such letter shall
not have been withdrawn or modified.
c. The representations and warranties of the Company
shall be true and correct in all material respects (except to the extent that
any of such representations and warranties is already qualified as to
materiality in Section 4 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date. Such Buyer shall have received a certificate, executed by the Chief
Executive Officer and Chief Financial Officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to board resolutions, incumbency,
charter and
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<PAGE>
bylaws, and an update as of the Closing Date regarding the representation
contained in Section 4(c) hereof.
d. The Buyers shall have received the opinion of
Fenwick & West LLP, counsel to Company, dated as of the Closing Date, in form
reasonably satisfactory to Hilal and to the effect set forth in Exhibit F
attached hereto.
e. The Company shall have executed and delivered to
each Buyer the Warrants being purchased by such Buyer at the Closing.
f. As of the Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the purpose
of effecting the exercise of the Warrants, an additional number of shares of
Common Stock sufficient to provide for the issuance of the Warrant Shares in
accordance with the terms of this Agreement and the Warrants.
g. The Irrevocable Transfer Agent Instructions, in
the form of Exhibit G attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
h. The transactions contemplated hereby shall not
violate any law, regulation or order then in effect and applicable to Buyers or
the Company.
i. Paul Hilal shall have been duly elected as a
director of the Company.
j. There shall not have occurred any mutual adverse
change in the business condition (financial or otherwise), results of operations
or prospects of the Company since the date of this Agreement.
9. INDEMNIFICATION.
In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Securities and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "Buyer
Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Buyer Indemnified
Liabilities"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) any misrepresentation or
breach of any representation or warranty made by the Company in the Closing
Agreements or any other certificate, instrument or document contemplated hereby
or thereby, (b) any breach of any covenant, agreement or obligation of the
Company contained in the Closing Agreements or any other certificate, instrument
or document contemplated hereby or
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<PAGE>
thereby, or (c) the execution, delivery, performance or enforcement of this
Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Buyer Indemnitees. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Buyer Indemnified Liabilities which is permissible under applicable law.
This indemnity will survive the Initial Closing or Second Closing for one year
after the date of the Initial Closing and will not apply to any grossly
negligent acts or willful misconduct of any Buyer.
10. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which 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. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four additional original executed signature pages to be physically
delivered to the other party within five days of the execution and delivery
hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. 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.
e. Entire Agreement; Amendments. This Agreement
supersedes all other prior oral or written agreements between the Buyers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement and the documents referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the Company and Buyers purchasing a majority of the Common Stock hereunder (a
"Majority of the Buyers").
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile;
(iii) three days after being sent by U.S. certified mail, return receipt
requested, or (iv) one day after deposit with a nationally recognized overnight
delivery service, in
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<PAGE>
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:
Worldtalk Communications Corp.
5155 Old Ironsides Drive
Santa Clara, CA 95054
Telephone: (650) 567-1500
Facsimile: (650) 567-5122
Attention: Chief Executive Officer and
Chief Financial Officer
With a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: (650) 494-0600
Facsimile: (650) 494-1417
Attention: Gail E. Suniga, Esq.
If to the Transfer Agent:
State Street Bank and Trust
Company of California, N.A.
633 W. 5th Street, 12th Floor
Los Angeles, CA 90071
Telephone: (213) 362-7373
Facsimile: (213) 362-7357
Attention: Transfer Agency Department
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Marc Weingarten
Each party shall provide five days' prior written notice to
the other party of any change in address or facsimile number.
-22-
<PAGE>
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or obligations hereunder without
the prior written consent of a Majority of the Buyers. A Buyer may assign some
or all of its rights hereunder without the consent of the Company, provided,
however, that (i) any such assignment shall not release such Buyer from its
obligations hereunder unless such obligations are assumed by such assignee and
the Company has consented to such assignment and assumption, and (ii) no Buyer
may assign its rights hereunder in a manner that would cause the offering of
Securities hereunder to be required to be registered under the 1933 Act.
h. 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.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 4 and 3, respectively, and the
agreements and covenants set forth in Sections 5, 6 and 10, and the
indemnification provisions set forth in Section 11, shall survive the Closing.
Each Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. Publicity. The Company and Hilal shall have the
right to approve before issuance any press releases or any other public
statements with respect to the transactions contemplated hereby; provided,
however, that the Company shall be entitled, without the prior approval of
Hilal, to make any press release or other public disclosure with respect to such
transactions as is required by applicable law and regulations (although Hilal
shall be consulted by the Company in connection with any such press release or
other public disclosure prior to its release and shall be provided with a copy
thereof), but only to the extent required by such law or regulation.
k. Further Assurances. 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.
l. Enforcement. In any litigation between the parties
with respect to or arising under the Closing Agreements, the prevailing party
shall be entitled to payment of its reasonable costs and expenses (including,
without limitation, reasonable legal fees and expenses) in connection therewith
from the other party.
m. Equitable Relief. Each party recognizes that in
the event that it fails to perform, observe, or discharge any or all of its
obligations under this Agreement, any remedy at law may prove to be inadequate
relief to the other parties. Each party therefore agrees that the other parties
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
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<PAGE>
<TABLE>
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
<CAPTION>
<S> <C>
COMPANY: BUYERS:
WORLDTALK COMMUNICATIONS HILAL CAPITAL, LP
CORPORATION
By: Hilal Capital Partners LLC,
General Partner
By: /s/ Bernard Harguindeguy By: /s/ Peter K. Hilal
----------------------------------------- ---------------------------------------
Name: Bernard Harguindeguy Name: Peter K. Hilal, MD
Title: President and Chiefe Executive Officer Title: Managing Member
HILAL CAPITAL QP, LP
By: Hilal Capital Partners LLC,
General Partner
By: /s/ Peter K. Hilal
---------------------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
HILAL CAPITAL ASSOCIATES LLC
By: Hilal Capital Partners LLC,
its Managing Member
By: /s/ Peter K. Hilal
---------------------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
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<PAGE>
HILAL CAPITAL
INTERNATIONAL, LTD
By: Hilal Capital Management LLC,
Investment Manager
By: /s/ Peter K. Hilal
---------------------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
/s/ Phil Hilal
---------------------------------------
Phil Hilal
HIGHBRIDGE INTERNATIONAL
By: Hilal Capital Management LLC,
Investment Manager
By: /s/ Peter K. Hilal
---------------------------------------
Name: Peter K. Hilal, MD
Title: Managing Member
NARRAGANSETT I, LP
By: Narragansett Asset Management, LLC
General Partner
By: /s/ Joseph Dowling
---------------------------------------
Name: Joseph Dowling
Title: Managing Member
NARRAGANSETT OFFSHORE LTD.
By: Leo Holdings, LLC
Investment Adviser
By: /s/ Joseph Dowling
---------------------------------------
Name: Joseph Dowling
Title: Managing Member
</TABLE>
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<PAGE>
<TABLE>
SCHEDULE OF BUYERS
<CAPTION>
Aggregate
Investor Address, Telephone and Purchase Shares of
Investor Name Facsimile Number Price Common Stock Warrants
- -------------------------------- ------------------------------- ---------------- ------------ --------
<S> <C> <C> <C> <C>
Hilal Capital, LP 60 East 42nd Street $ 526,000.00 175,333 87,667
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Hilal Capital QP, LP 60 East 42nd Street $1,343,000.00 447,667 223,833
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Hilal Capital Associates LLC 60 East 42nd Street $3,584,000.00 1,194,667 597,333
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Hilal Capital International, c/o Hilal Capital Management LLC $1,808,000.00 602,667 301,333
Ltd. 60 East 42nd Street
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Philip Hilal c/o Hilal Capital Management LLC $ 300,000.00 100,000 50,000
60 East 42nd Street
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Highbridge International c/o Hilal Capital Management LLC $1,939,000.00 646,333 323,167
60 East 42nd Street
Suite 1946
New York, NY 10165
Facsimile: (212) 953-1012
Narragansett I, LP c/o Narragansett Asset $ 395,000.00 131,667 65,833
Management LLC
375 Park Avenue, Suite 1404
New York, New York 10152
Facsimile: (212) 521-5029
Narragansett Offshore Ltd. c/o Leo Holdings, LLC $ 105,000.00 35,000 17,500
375 Park Avenue, Suite 1404
New York, NY 10152
Facsimile: (212) 521-5029
</TABLE>
<PAGE>
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is entered into as of
July 7, 1999 (the "Effective Date"), by and among Worldtalk Communications
Corporation, a Delaware corporation doing business as Worldtalk Corporation
("Worldtalk"), the Investors listed on Exhibit A attached hereto (the
"Investors"), Hilal Capital Management LLC, as representative (the
"Representative") of the Investors and State Street Bank and Trust Company of
California, N.A., as escrow agent (the "Escrow Agent").
A. Worldtalk and the Investors have entered into a Securities
Purchase Agreement of even date herewith (the "Agreement") pursuant to which the
Investors may acquire up to 3,333,334 shares of the Common Stock of Worldtalk
(the "Common Stock") at a purchase price of $3.00 per share and seven-year
warrants for the purchase of up to 1,666,667 shares of such Common Stock that
are exercisable at $7.00 per share (the "Warrants"). The capitalized terms used
in this Agreement and not otherwise defined herein will have the meanings given
them in the Agreement.
B. Pursuant to the Agreement, an aggregate of $10,000,000 in
cash (the "Purchase Price") is to be provided by the Investors for payment to
Worldtalk in return for issuance and sale of the shares of Common Stock and
Warrants, if acquired by the Investors.
C. The Agreement provides that the Purchase Price, the
certificates representing the Common Stock (the "Certificates") and the Warrants
be placed in an escrow account (the "Escrow Account") until satisfaction of the
condition to release of the escrow as set forth in Section 1.2, clause (b)
hereof no later than the close of business on July 14, 1999.
D. The parties hereto desire to establish the terms and
conditions pursuant to which the Purchase Price, the Certificates and the
Warrants (collectively, the "Escrow Assets") will be deposited, held in, and
released from the Escrow Account.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Deposit and Release of Escrow Assets.
1.1 Delivery of Escrow Assets.
(a) On the Effective Date, Worldtalk has
sent the Certificates and the Warrants to Escrow Agent via overnight courier for
deposit in the Escrow Account, the Investors have initiated wire transfers of
the Purchase Price to the Escrow Agent. In the event any of the Escrow Assets
are not received by the Escrow Agent on or before July 8, 1999, it will notify
the party who sent or was to have sent the same and that party will have five
days from the date of such notice to deliver the missing portion of the Escrow
Assets to the Escrow Agent. Within one day after receipt of all of the Escrow
Assets, the Escrow Agent will notify Worldtalk and Representative of such
receipt.
<PAGE>
(b) The Escrow Agent shall deposit the
Purchase Price, the Certificates and Warrants in an account at the Escrow Agent
(or an affiliate or custodian acting on its behalf) that will serve as the
Escrow Account. The Escrow Agent shall invest the Purchase Price in the SSgA
U.S. Treasury Money Market Fund, which is a money market mutual fund registered
under the Investment Company Act of 1940, the principal of which is invested
solely in obligations issued or guaranteed by the United States Government. All
interest or any other income earned with respect to such investment shall be
retained by the Escrow Agent as part of Escrow Assets until distributed in
accordance with the other provisions of this Agreement. For tax reporting
purposes, all such income shall be allocated to Worldtalk or otherwise as the
parties may agree in writing.
1.2 Release from Escrow. The Escrow Assets shall be
maintained in the Escrow Agent's Escrow Account until the earlier of (a) the
close of business by Escrow Agent in California on July 14, 1999, which date and
time may be extended or otherwise changed upon the written agreement of the
Representative and Worldtalk received by the Escrow Agent (such date and time,
as so extended or changed, being referred to as the "Termination Time"), or (b)
presentation by Worldtalk and the Representative of their joint instruction for
release of the Escrow Account (the "Release Notice"), which each such party
agrees to execute promptly upon receipt of a letter or other written
notification from The Nasdaq National Market ("Nasdaq") confirming Nasdaq's
approval of the continued listing on Nasdaq of Worldtalk's Common Stock subject
to no conditions other than consummation of the Initial Closing (as defined in
the Agreement) and subject to Nasdaq's published requirements for continued
listing, all of which shall then be satisfied. Worldtalk and the Representative
will be required to execute and deliver the Release Notice to the Escrow Agent
if in their reasonable, good faith opinions the requirements of the preceding
sentence have been met. Upon receipt of the Release Notice prior to the
Termination Time, the Escrow Agent shall forthwith, but no later than two days
thereafter, deliver:
(i) the Purchase Price (less indemnities and expenses, if any,
payable pursuant to Section 4.2) in full to Worldtalk; and
(ii) the Certificates and Warrants to each Investor in the
denominations set forth for each such Investor on Exhibit A to this
Agreement.
If the Release Notice is not received by the Escrow Agent prior to the
Termination Time, Escrow Agent shall forthwith, but no later than two days
thereafter, return:
(y) to each Investor the portion of the Purchase Price
originally deposited into the Escrow Account by such Investor, which
amount is set forth for each such Investor on Exhibit A hereto (less
indemnities and expenses, if any, payable pursuant to Section 4.2); and
(z) to Worldtalk, the Certificates and the Warrants.
Interest on the Purchase Price shall be paid, when it has been received by the
Escrow Agent, to Worldtalk or the Investors, as applicable. Any delivery to
Worldtalk and the Investors of any Certificates and Warrants will be made to
them by overnight courier delivery at their addresses identified in Section 7
below for the purposes of notice, upon which the Escrow Agent may
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<PAGE>
conclusively rely. Delivery of the Purchase Price to Worldtalk and the Investors
shall be made by wire transfer initiated by Escrow Agent no later than two days
after the date required for distribution above in accordance with wire transfer
instructions set forth in Section 7 or Exhibit A, as the case may be. All risks
of shipment shall be borne by the intended recipient.
1.3 Certificates. Certificates representing Common
Stock and Warrants shall be registered in the names of the Investors in
accordance with Exhibit A attached hereto. If certificates are issuable to a
person other than the Investors in accordance with Exhibit A, then such
certificates shall be accompanied no later than July 14, 1999 by a fully
executed stock power bearing a "medallion" signature guarantee and the Escrow
Agent shall be deemed to have delivered such certificates when it has delivered
the appropriate stock certificates and stock powers to the transfer agent of the
Common Stock (currently Harris Trust and Savings Bank) and the Warrants to
Worldtalk, together with instructions as to how the newly-issued certificates
are to be issued. In each case, certificates shall be issued to the Investors at
their addresses set forth in Exhibit A.
1.4 No Encumbrance. No portion of the Escrow Assets or
any beneficial interest therein may be pledged, sold, assigned or transferred,
including by operation of law, by the Investors or Worldtalk or be taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of the Investors or Worldtalk, other than as provided in this
Agreement.
1.5 Tax Reporting Matters. Worldtalk hereby provides
the Escrow Agent with its tax identification numbers (77-0303581) and will
furnishing form W-9 and other forms and documents that the Escrow Agent may
reasonably request to the Escrow Agent within three days after the date hereof.
In the event that any interest is to be paid to the Investors, each Investor
will provide the Escrow Agent with a form W-9 prior to the delivery by the
Escrow Agent to the Investor of such interest. The parties hereto understand
that, if such tax reporting documentation is not so certified to the Escrow
Agent, the Escrow Agent may be required by the Internal Revenue Code, as it may
be amended from time to time, to withhold a portion of any interest or other
income earned on the investment of monies or other property held by the Escrow
Agent pursuant to this Agreement.
2. Representative.
2.1 Acceptance of Appointment. Each of the Investors
hereby appoints Representative as such Investor's attorney-in-fact for purposes
of entering into any document, amending or terminating this Agreement, giving
any consent and making any waiver under this Agreement. Representative each
hereby accepts its appointment as the Representative by the Investors, and, in
connection therewith, agrees to serve as a representative of the Investors for
purposes of this Agreement and as attorney-in-fact and agent for and on behalf
of each Investor with respect to the subject matter hereof.
2.2 Change in Representative. The Representative may
be changed by the Investors from time to time upon not less than two days' prior
written notice to the Escrow Agent and Worldtalk; provided that a Representative
may not be removed unless Investors contributing more than 50% of the Purchase
Price to the Escrow Account (a "Majority") agree to such removal and to the
identity of the substituted agent. No bond shall be required of the
Representative, and the
-3-
<PAGE>
Representative shall not receive compensation for its services. The Escrow Agent
need not inquire into or verify that a successor Representative has been
appointed in accordance with the requirements of this Section 2.2. Rather, the
Escrow Agent may rely on certificates that are delivered to it by any party to
this Agreement and may assume without inquiry or notice to any other person that
any facts stated therein are correct.
2.3 Limitation of Liability. The Representative shall
not be liable for any act done or omitted hereunder as Representative while
acting in good faith and in the exercise of reasonable judgment. The Investors
by or on whose behalf the Purchase Price was contributed shall severally
indemnify the Representative and hold the Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Representative and arising out of or in connection with the
acceptance or administration of the Representative's duties hereunder including
the reasonable fees and expenses of any legal counsel retained by the
Representative.
3. Escrow Agent.
3.1 Duties. The Escrow Agent shall only have those
duties as are expressly set forth in this Agreement, and no implied duties shall
be read into this Agreement. The Escrow Agent will incur no liability with
respect to any action taken or suffered by it in reliance upon any notice,
direction, instruction, consent, statement or other document believed by it to
be genuine and duly authorized, nor for any other action or inaction, except its
own willful misconduct or gross negligence. The Escrow Agent will not be
responsible for the validity or sufficiency of this Agreement. In all questions
arising under this Agreement, the Escrow Agent may rely on the advice or opinion
of counsel, including in-house counsel, and for anything done, omitted or
suffered in good faith by the Escrow Agent based on such advice or opinion, the
Escrow Agent will not be liable to anyone. The Escrow Agent will not be required
to take any action hereunder involving any expense unless the payment of such
expense is made or provided for in a manner satisfactory to it. The Escrow Agent
shall not be obligated to take any legal action or other action hereunder which
might, in its judgment, involve any expense or liability unless it shall have
been furnished with acceptable indemnification.
3.2 Conflicting Demands. In the event conflicting
demands are made or conflicting notices are served upon the Escrow Agent with
respect to the Escrow Account, the Escrow Agent will have the absolute right, at
the Escrow Agent's election, to do either or both of the following: (a) resign
so a successor can be appointed pursuant to Section 5 hereof or (b) file a suit
in interpleader and obtain an order from a court of competent jurisdiction
requiring the parties to interplead and litigate in such court their several
claims and rights among themselves. In the event such interpleader suit is
brought, the Escrow Agent will thereby be fully released and discharged from all
further obligations imposed upon it under this Agreement, and Worldtalk will pay
the Escrow Agent (subject to reimbursement from the Investors pursuant to
Section 4.1 hereof) all costs, expenses and reasonable attorney's fees expended
or incurred by the Escrow Agent pursuant to the exercise of Escrow Agent's
rights under this Section 3.
3.3 Notice. The Escrow Agent shall not be deemed to
have notice of any fact, claim or demand with respect hereto unless actually
known by an officer charged with responsibility
-4-
<PAGE>
for administering this Agreement or unless in writing received by the Escrow
Agent and making specific reference to this Agreement. If any notice,
certificate or other document is required to be delivered to the Escrow Agent
and any other person, the Escrow Agent may assume without inquiry that any such
document which the Escrow Agent has received has also been received by such
other person.
3.4 Ambiguity or Uncertainty. In the event of any
ambiguity or uncertainty under this Agreement, or in any notice, instruction, or
other communication received by the Escrow Agent hereunder, the Escrow Agent
may, in its discretion, refrain from taking action, and may retain the pledged
collateral until and unless it receives written instruction signed by Worldtalk
and the Representative which eliminates such uncertainty or ambiguity.
3.5 Survival of Indemnifications; Limitations of
Liability. All indemnifications contained in the Agreement and the following
limitations of the Escrow Agent's liability shall apply and shall survive the
resignation or removal of the Escrow Agent, and shall survive the termination of
this Agreement.
(a) The Escrow Agent is not responsible for
the recitals appearing in this Agreement. The recitals shall be deemed
to be statements of the other parties to this Agreement and the Escrow
Agent shall not be charged with knowledge of, or under any obligations
to determine or interpret, the meaning of any terms defined in the
Agreement for purposes of performing or observing its duties hereunder.
(b) The Escrow Agent has no responsibility
for the sufficiency of this Agreement for any purpose. Without limiting
the foregoing, if any security interest is referred to herein, the
Escrow Agent shall have no responsibility for, and makes no
representation or warranty as to, the creation, attachment or
perfection of any such security interest or the sufficiency of this
Agreement.
(c) Nothing in this Agreement shall obligate
the Escrow Agent to qualify to do business or act in any jurisdiction
in which it is not presently qualified to do business, or be deemed to
impose upon the Escrow Agent the duties of a trustee. The duties of the
Escrow Agent under this Agreement are strictly ministerial in nature.
(d) In no event shall the Escrow Agent have
any liability for any failure or inability of any of the other parties
to perform or observe its duties under the Agreement, or by reason of a
breach of this Agreement by any of the other parties hereto. In no
event shall the Escrow Agent be obligated to take any action against
any of the other parties to compel performance hereunder.
(e) The Escrow Agent shall in no instance be
obligated to commence, prosecute or defend any legal proceedings in
connection herewith. The Escrow Agent shall be authorized and entitled,
however, in any instance to commence, prosecute or defend any legal
proceedings in connection herewith, including without limitation any
proceeding it may deem necessary to resolve any matter or dispute, to
obtain a necessary declaration
-5-
<PAGE>
of rights, or to appoint a successor upon resignation (and after
failure by Worldtalk to appoint a successor, as provided below).
(f) The Escrow Agent shall in no instance be
under any duty to give any property held by it hereunder any greater
degree of care than it gives its own similar property. In no event
shall the Escrow Agent have any obligation to advance or risk funds.
(g) In no event shall the Escrow Agent be
liable for any indirect, punitive, special or consequential damages.
(h) The Escrow Agent shall have no liability
for the actions or omissions of any book-entry depository, transfer
agent, nominee, correspondent, subagent or subcustodian. The Escrow
Agent shall be permitted to use the services of any recognized
securities depository or clearing agent, such as (without limitation)
The Depository Trust Company and the Federal Reserve Bank book-entry
securities system, as applicable, in connection with any securities or
investments held hereunder.
(i) The Escrow Agent shall not be
responsible or liable for delays or failures in performance resulting
from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war,
epidemics, laws or governmental regulations changes or superimposed
after the fact, fire, communication line failures, power failures,
computer viruses, earthquakes or other disasters, or to unavailability
of Federal Reserve Bank wire or telex facilities.
(j) The Escrow Agent's duties are limited to
those set forth in this Agreement and applicable laws, and Escrow Agent
is not charged with knowledge of or any duties or responsibilities in
connection with any other document or agreement including without
limitation the Agreement.
4. Fees and Expenses and Indemnity.
4.1 Division of Payment. All fees and expenses of the
Escrow Agent incurred in the acceptance of and in the ordinary course of
performing its responsibilities hereunder will be paid by Worldtalk in
accordance with the schedule of fees attached hereto as Exhibit B. Such fees and
expenses shall be paid by Worldtalk to the Escrow Agent upon receipt of a
written invoice sent to Worldtalk by Escrow Agent. Any extraordinary fees and
expenses shall also be paid by Worldtalk; provided, however, that any fees or
expenses incurred by the Escrow Agent in connection with a dispute over the
release of the Escrow Assets, will be paid by the party (Worldtalk or the
Investors) who does not substantially prevail in such dispute, and if there is
no such party, as determined by the court or by the parties in agreement, such
fees and expenses will be paid 50% by Worldtalk and 50% by the Investors (in
proportion as among themselves to the Purchase Price paid by each such
Investor). The Investors' liability for the fees and expenses of the Escrow
Agent shall be paid by Worldtalk and recovered out of the Escrow Assets to be
delivered to such Investors. To the extent that insufficient Escrow Assets
remain to cover the Investors' liability
-6-
<PAGE>
for the fees and expenses of the Escrow Agent, Worldtalk shall indemnify the
Escrow Agent for such fees and expenses.
4.2 Agent Indemnification.
(a) Each of Worldtalk and the Investors, as
provided in Section 4.2(b) below, hereby covenants and agrees to indemnify the
Escrow Agent, its directors, officers, agents and employees, for, and to defend
and hold them harmless from and against, any and every loss, liability, damage,
claim, cost and expense of any nature incurred or suffered by the Escrow Agent
and arising out of or in connection with this Agreement or the administration of
this Agreement or the performance or observance by the Escrow Agent of its
responsibilities or services under this Agreement (including but not limited to
attorneys fees and other costs and expenses of defending or preparing to defend
against any claim or liability), unless and except to the extent such loss,
liability, damage, cost or expense shall be caused by the Escrow Agent's own
willful misconduct or gross negligence ("Indemnifiable Expenses"). The Escrow
Agent shall be entitled to reimbursement on demand for all expenses incurred in
connection with the administration of this Agreement or the escrow created
hereby which are in excess of its compensation for normal services hereunder,
including, without limitation, payment of any legal fees and expenses incurred
by the Escrow Agent in connection with the resolution of any claim by any party
hereunder ("Reimbursable Expenses").
(b) Worldtalk and the Investors agree among
themselves that the Indemnifiable Expenses and the Reimbursable Expenses of the
Escrow Agent will be paid 50% by Worldtalk and 50% by the Investors (in
proportion as among themselves to the Purchase Price paid by each such
Investor); provided, however, if such indemnification or reimbursement
obligations arose out of a dispute between Worldtalk and the Investors, such
Indemnifiable Expenses and Reimbursable Expenses shall be paid by the party
(Worldtalk or the Investors) who does not substantially prevail in such dispute,
as determined by the court or by the parties in agreement. The Escrow Agent may
deduct Indemnifiable Expenses and Reimbursable Expenses, if any, from
distributions that otherwise would be made pursuant to Section 1.2.
4.3 Tax Payments. Worldtalk agrees to assume
any and all obligations imposed now or hereafter by any applicable tax law with
respect to the release of Escrow Assets under this Agreement, and, without
limiting the generality of Section 4.2 above, hereby agrees to indemnify and
hold the Escrow Agent harmless from and against any taxes, additions for late
payment, interest, penalties and other expenses, that may be assessed against
the Escrow Agent on any such payment or other activities under this Agreement.
5. Successor Escrow Agent. In the event the Escrow Agent
becomes unavailable or unwilling to continue in its capacity herewith, the
Escrow Agent may resign and be discharged from its duties or obligations
hereunder by giving notice of its resignation to the parties to this Agreement,
specifying a date not less than ten days' following such notice date of when
such resignation will take effect. Worldtalk and the Representative will
designate a successor Escrow Agent prior to the expiration of such ten-day
period by giving joint written notice to the Escrow Agent as to a mutually
acceptable successor Escrow Agent. The Escrow Agent will promptly deliver the
Escrow Assets to such designated successor. If no successor Escrow Agent is
named by
-7-
<PAGE>
Worldtalk and the Representative, the Escrow Agent may apply to a court of
competent jurisdiction for appointment of a successor Escrow Agent.
6. Disputes Involving the Escrow Agent. It is understood and
agreed that should any dispute arise with respect to the delivery, ownership,
right of possession, and/or disposition of the Escrow Assets, or should any
claim be made upon such Escrow Assets by a third party, the Escrow Agent upon
receipt of written notice of such dispute or claim by the parties hereto or by a
third party, is authorized and directed to retain in its possession without
liability to anyone, all or any of said Escrow Assets until such dispute shall
have been settled either by the mutual written agreement of the parties involved
or by a final order, decree or judgment of court in the United States of
America, the time for perfection of an appeal of such order, decree or judgment
having expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings that relate to the Escrow Assets.
7. Notices. Any notice, certificate, consent, determination or
other communication required or permitted to be given or made under this
Agreement shall be in writing and shall be effectively given and made if and
when (a) delivered personally, (b) sent by prepaid courier service or mail,
return receipt requested or receipt confirmed from the service, or (c) sent
prepaid by fax and receipt thereof is confirmed, in each case to the applicable
address set out below:
if to the Representative, to: with a copy to:
Hilal Capital Management LLC Schulte Roth & Zabel LLP
60 East 42nd Street, Suite 1946 900 Third Avenue
New York, New York 10165 New York, New York 10022
Attention:. Paul Hilal, Portfolio Manager Attention: Marc Weingarten, Esq.
Telephone: (212) 953-1002 Telephone: (212) 756-2280
Facsimile: (212) 953-1012 Facsimile: (212)705-1908
if to Worldtalk, to: with a copy to:
Worldtalk Communications Corporation Fenwick & West LLP
5155 Old Ironsides Drive Two Palo Alto Square
Santa Clara, California 95054 Palo Alto, CA 94306
Attention: Bernard Harguindeguy, President Attention: Gail E. Suniga, Esq.
Telephone: (408) 567-1500 Telephone: (650) 494-0600
Facsimile: (408) 567-5122 Facsimile: (650) 494-1417
Wire Instructions: Investors Bank and Trust
Company, Boston MA; ABA Number
011001438; For Further Credit to Client Funds
#569530395; Account name - Worldtalk Corp.;
Account Number - 39044-01; Attn: Rebeccah Kocak
-8-
<PAGE>
If to the Escrow Agent, to:
State Street Bank and Trust Company of California, N.A.
633 W. 5th Street, 12th Floor
Los Angeles, CA 90071
Attention: Corporate Trust Administration (Worldtalk/Hilal 1999 Escrow)
Telephone: (213) 362-7373
Facsimile: (213) 362-7357
Wire Instructions: State Street Bank and Trust Company of California, N.A.; ABA
#122-24-1307; Los Angeles; General Account 1020; Attn: Marion Sibayan
213-362-7377; specify this account is an off-line account of the Federal
Reserve and there is no DDA Account number.
If to an Investor, to: Such Investor's address set forth on Exhibit A hereto.
or to such other address as a party may have furnished to the other parties by
written notice given in accordance with this Section 7. Any such communication
so given or made shall be deemed to have been given or made and to have been
received on the day of delivery if delivered, or on the day of faxing or sending
by other means of recorded electronic communication, provided that such day in
either event is a Business Day and the communication is so delivered, faxed or
sent before 4:30 p.m. on such day. As used herein, a "Business Day" shall be any
day which is not a Saturday, Sunday or federal holiday. Otherwise, such
communication shall be deemed to have been given and made and to have been
received on the next following Business Day. Any such communication sent by mail
shall be deemed to have been given and made and to have been received on the
fifth Business Day following the mailing thereof; provided however that no such
communication shall be mailed during any actual or apprehended disruption of
postal services. Any such communication given or made in any other manner shall
be deemed to have been given or made and to have been received only upon actual
receipt; provided that for any notice or other writing required to be delivered
to the Escrow Agent, such notice or other writing shall only be deemed delivered
when actually received. Any Party may from time to time change its address under
this Section 7 by notice to the other party given in the manner provided by this
Section.
8. General.
8.1 Governing Law, Assigns. This Agreement will be
governed by and construed in accordance with the internal laws of the State of
California without regard to conflict-of-law principles and will be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and permitted assigns.
8.2 Counterparts. This Agreement may be executed in
two or more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same agreement.
8.3 Entire Agreement. Except as otherwise set forth
in the Agreement, this Agreement constitutes the entire understanding and
agreement of the parties with respect to the
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<PAGE>
subject matter of this Agreement and supersedes all prior agreements or
understandings, written or oral, between the parties with respect to the subject
matter hereof.
8.4 Waivers. No waiver by any party hereto of any
condition or of any breach of any provision of this Agreement will be effective
unless in writing. No waiver by any party of any such condition or breach, in
any one instance, will be deemed to be a further or continuing waiver of any
such condition or breach or a waiver of any other condition or breach of any
other provision contained herein.
8.5 Amendment. This Agreement may be amended by the
written agreement of Worldtalk, Representative, the Escrow Agent and a Majority
of the Investors; provided that, if the Escrow Agent does not agree to an
amendment agreed upon by Worldtalk, Representative and the Investors (except an
amendment adversely affecting the rights or protections of the Escrow Agent),
the Escrow Agent will resign and Worldtalk and the Representative will appoint a
successor Escrow Agent in accordance with Section 5 above.
8.6 Consent to Jurisdiction and Service. Worldtalk
and the Investors hereby absolutely and irrevocably consent and submit to the
jurisdiction of the courts in the State of California (and of any federal court
located in said state) in connection with any actions or proceedings brought
against Worldtalk and the Investors by the Escrow Agent arising out of or
relating to this Agreement. In any such action or proceeding, Worldtalk and the
Investors hereby absolutely and irrevocably waive personal service of any
summons, complaint, declaration or other process and hereby absolutely and
irrevocably agree that the service thereof may be made by certified or
registered first-class mail directed to Worldtalk and the Representative, as the
case may be, as their respective addresses in accordance with Section 7 hereof.
8.7 Reproduction of Documents. This Agreement and all
documents relating hereto, including, without limitation, (a) consents, waivers
and modifications which may hereafter be executed and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible as evidence.
[Remainder of page intentionally left blank]
-10-
<PAGE>
<TABLE>
In Witness Whereof, the parties have duly executed this
Agreement as of the day and year first above written.
<CAPTION>
<S> <C>
WORLDTALK COMMUNICATIONS STATE STREET BANK AND TRUST
CORPORATION COMPANY OF CALIFORNIA, N.A.,
as Escrow Agent
By: /s/ Bernard Harguindeguy By: /s/ Mark Henson
---------------------------------- --------------------------------
Bernard Harguindeguy Authorized Signatory
President, and Chief Executive Officer
REPRESENTATIVE:
HILAL CAPITAL MANAGEMENT LLC
By: /s/ Peter K. Hilal
----------------------------------
Peter K. Hilal, MD
Managing Member
INVESTORS:
HILAL CAPITAL, LP HILAL CAPITAL QP, LP
By: Hilal Capital Partners LLC By: Hilal Capital Partners LLC
General Partner General Partner
By: /s/ Peter K. Hilal By: /s/ Peter K. Hilal
---------------------------------- --------------------------------
Peter K. Hilal, MD Peter K. Hilal, MD
Managing Member Managing Member
HILAL CAPITAL ASSOCIATES LLC HILAL CAPITAL INTERNATIONAL, LTD.
By: Hilal Capital Partners LLC, By: Hilal Capital Management LLC,
Its Managing Member Its Investment Manager
By: /s/ Peter K. Hilal By: /s/ Peter K. Hilal
---------------------------------- --------------------------------
Peter K. Hilal, MD Peter K. Hilal, MD
Managing Member Managing Member
[Signature page to Escrow Agreement]
-11-
<PAGE>
HIGHBRIDGE INTERNATIONAL
By: Hilal Capital Management LLC,
Its Investment Manager
By: /s/ Peter K. Hilal /s/ Philip Hilal
---------------------------------- --------------------------------
Peter K. Hilal, MD PHILIP HILAL
Managing Member
NARRAGANSETT I, LP NARRAGANSETT OFFSHORE LTD
By: Narragansett Asset Management, LLC By: Leo Holdings, LLC
General Partner Investment Adviser
By: /s/ Joseph Dowling By: /s/ Joseph Dowling
---------------------------------- --------------------------------
Joseph Dowling Joseph Dowling
Title: Managing Member Title: Managing Member
-------------------------------- ------------------------------
[Signature page to Escrow Agreement]
</TABLE>
-12-
<PAGE>
<TABLE>
EXHIBIT A
List of Investors
<CAPTION>
Certificate Warrant Purchase
Number of Number of Price
Name, Address and Wire Instructions Shares Shares Contributed
- ----------------------------------------------------------------- --------------- ------------ ----------------
<S> <C> <C> <C>
Hilal Capital, LP............................................. 175,333 87,667 $526,000
60 East 42nd Street, Suite 1946
New York, New York 10165
Facsimile: (212) 953-1012
Taxpayer ID Number: _____
Wire Instructions: See Attached
Hilal Capital QP, LP.......................................... 447,667 223,833 $1,343,000
60 East 42nd Street, Suite 1946
New York, New York 10165
Facsimile: (212) 953-1012
Taxpayer ID Number: _____
Wire Instructions: See Attached
Hilal Capital Associates LLC.................................. 1,194,667 597,333 $3,584,000
60 East 42nd Street, Suite 1946
New York, New York 10165
Facsimile: (212) 953-1012
Taxpayer ID Number: _____
Wire Instructions: See Attached
Hilal Capital International, Ltd.............................. 602,667 301,333 $1,808,000
c/o Hilal Capital Management LLC
60 East 42nd Street, Suite 1946
New York, New York 10165
Facsimile: (212) 953-1012
Taxpayer ID Number: _____
Wire Instructions: See Attached
Philip Hilal.................................................. 100,000 50,000 $300,000
c/o Hilal Capital Management LLC
60 East 42nd Street, Suite 1946
New York, New York 10165
Facsimile: (212) 953-1012
Taxpayer ID Number: _______
Wire Instructions:_________
<PAGE>
Highbridge International...................................... 646,333 323,167 $1,939,000
c/o Hilal Capital Management LLC
60 East 42nd Street, Suite 1946
New York, New York 10165
Facsimile: (212) 953-1012
Taxpayer ID Number: _______
Wire Instructions:_________
Narragansett I, LP............................................ 131,667 65,833 $395,000
c/o Narragansett Asset Management LLC
375 Park Avenue, Suite 1404
New York, NY 10152
Facsimile: (212) 521-5029
Taxpayer ID Number: _______
Wire Instructions:_________
Narragansett Offshore, Ltd.................................... 35,000 17,500 $105,000
c/o Leo Holdings, LLC
375 Park Avenue, Suite 1404
New York, NY 10152
Facsimile: (212) 521-5029
Taxpayer ID Number: _______
Wire Instructions:_________
</TABLE>
-2-
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
July 7, 1999, by and among Worldtalk Communications Corporation, a Delaware
corporation, with headquarters located at 5155 Old Ironsides Drive, Santa Clara,
CA 95054 (the "Company"), and the undersigned buyers (each, a "Buyer" and
collectively, the "Buyers").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the Company and the Buyers and dated of even date herewith (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions of the Securities Purchase Agreement, to issue and
sell to the Buyers shares of the Company's Common Stock $.01 par value per share
(the "Common Stock");
B. In consideration for the Buyers agreeing to purchase the
Common Stock, the Company shall issue and deliver to the Buyers warrants (the
"Warrants") to purchase additional shares of Common Stock pursuant to the terms
of Common Stock Purchase Warrants (the shares of Common Stock issued or issuable
upon exercise of the Warrants are hereinafter referred to as the "Warrant
Shares"); and
C. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 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 the
Buyers hereby agree as follows.
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "Investor" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "Person" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, an
entity, a governmental or political subdivision thereof or a governmental
agency.
<PAGE>
c. "register," "Registered," and "registration" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
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").
d. "Registrable Securities" means (i) the Common Stock issued
and sold pursuant to the Securities Purchase Agreement, (ii) the Warrant Shares
issued or issuable upon exercise of the Warrants and (iii) any shares of capital
stock issued or issuable with respect to the Common Stock, Warrant Shares or the
Warrants as a result of any stock split, stock dividend, recapitalization,
exchange or similar event, but excluding in all cases any Registrable Securities
sold by a person in a transaction in which rights under this Agreement are not
assigned in accordance herewith or any Registrable Securities which have been
sold to the public or sold pursuant to Rule 144 promulgated under the 1933 Act.
e. "Registration Statement" means a registration statement of
the Company filed under the 1933 Act, subject to Section 2 hereof or any other
provision of this Agreement, as applicable.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to 45 days after the later of the Closing Date or the date the Purchase
Price is released to the Company pursuant to the Escrow Agreement (the "Release
Date"), file with the SEC a Registration Statement or Registration Statements
(as is necessary) on Form S-3 (or, if such form is unavailable for such a
registration, on such other form as is available for such a registration,
subject to the consent of each Buyer and the provisions of Section 2(c), which
consent will not be unreasonably withheld), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state that, in
accordance with Rule 416 promulgated under the 1933 Act, such Registration
Statement(s) also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon exercise of the Warrants to prevent
dilution resulting from stock splits, stock dividends or similar transactions.
Such registered shares of Common Stock shall be allocated among the Investors
pro rata based on the total number of Registrable Securities issued or issuable
as of each date that a Registration Statement, as amended, relating to the
resale of the Registrable Securities is declared effective by the SEC. The
Company shall use its best efforts to have the Registration Statement declared
effective by the SEC by the earlier of 135 days after the Release Date and
December 14, 1999.
b. Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Investors
shall have the right to select legal counsel and an investment banker or bankers
and manager or managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be
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<PAGE>
reasonably satisfactory to the Company. The Company shall reasonably cooperate
with any such counsel and investment bankers.
c. Eligibility for Form S-3. The Company represents and
warrants that as of the date hereof it meets the requirements for the use of
Form S-3 for registration of the sale by the Buyers and any other Investor of
the Registrable Securities and the Company has filed and shall file all reports
required to be filed by the Company with the SEC in a timely manner so as to
maintain such eligibility for the use of Form S-3.
d. Termination of Rights. The Company shall have no
obligations pursuant to this Agreement to Register any securities held by any
Investor if, in the opinion of counsel to the Company, which opinion and counsel
are reasonably acceptable to the Investor (Fenwick & West being deemed
acceptable) and which opinion is also addressed to the Investor, all such
securities proposed to be registered or as to which registration is to continue
may be sold by an Investor in a three-month period without registration under
the 1933 Act pursuant to Rule 144 thereunder.
3. RELATED OBLIGATIONS.
The Company will use its best efforts to effect the
registration of the Registrable Securities in accordance with the terms hereof,
including the following obligations:
a. The Company shall use its best efforts to keep the
Registration Statement filed pursuant to Section 2(a) effective pursuant to Rule
415 at all times until the later of the second anniversary of the last Closing
under the Securities Purchase Agreement or until such date as the Buyers'
accountants confirm that a discount to market price would not be applied to the
Buyers' holdings of Common Stock for financial statement valuation purposes (the
"Registration Period"). At least 30 days prior to the end of the Registration
Period, the Company and the Investors will confer to determine whether any
Investor continues to be an affiliate (for purposes of the federal securities
laws) of the Company. A notice from an Investor to the Company that the Investor
believes that it is an affiliate shall be conclusive for purposes hereof unless
the Company furnishes such Investor with an opinion on which it may rely,
reasonably acceptable to such Investor, of counsel reasonably accepted to such
Investor, to the effect that it is not an affiliate, delivers to such Investor
certificates for its Common Stock and Warrants not bearing restrictive legends
and terminates any stop transfer instructions as to such securities with its
transfer agent.
In the event that any Investor will remain an affiliate after
the end of this Registration Period, then the Company may elect either to (a)
continue to keep the Registration Statement effective as to such Investor until
such time as such Investor is not an affiliate (and the Registration Period
shall be extended accordingly), or (b) notify such Investor that the
Registration Statement will not be kept effective after the end of the
Registration Period, in which event such Investor, together with all other
Investors who remain affiliates, shall be entitled to up to two demand
registrations on Form S-3 (or, if the Company is not then eligible for Form S-3,
such other Form which the Company is eligible to use) during each twelve month
period following the end of the Registration Period, and piggyback registration
rights. The
-3-
<PAGE>
Company and such Investor shall negotiate in good faith an Amendment to this
agreement setting forth such demand and piggyback rights in customary form.
The Registration Statement(s) (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
As set forth in the Warrants, in the event that the
Registration Statement is not declared effective by the SEC by the earlier of
135 days after the Release Date and December 14, 1999, the number of shares of
Common Stock issuable pursuant to each Warrant shall increase by 10% for each 30
day period thereafter (pro rated for any partial period thereof) until the
Registration Statement becomes effective.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection with the
Registration Statement(s), which prospectus(es) are to be filed pursuant to Rule
424 promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period (subject to
Section 3(f) below), and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement(s) 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
the Registration Statement(s) or the Registration Period terminates, whichever
occurs first.
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s) and its
legal counsel without charge (i) promptly after the same is prepared and filed
with the SEC at least one copy of the Registration Statement and any amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits, the prospectus(es) included
in such Registration Statement(s) (including each preliminary prospectus) and,
with regards to the Registration Statement, any correspondence by or on behalf
of the Company to the SEC or the staff of the SEC and any correspondence from
the SEC or the staff of the SEC to the Company or its representatives, (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 any preliminary
prospectus, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor. The Company
will promptly respond to any and all comments received from the SEC, with a view
towards causing any Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as practicable and shall, subject to
Section 3(h), promptly file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that the Registration Statement or any
amendment thereto will not be subject to review.
-4-
<PAGE>
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as 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 qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (w) subject itself
to general taxation in any such jurisdiction, or (x) file a general consent to
service of process in any such jurisdiction, which in each case, the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders. The Company shall promptly notify 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 threatening of any proceeding for such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for the
offering, the Company shall, subject to Section 2(b) hereof, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, including, without limitation, customary indemnification and contribution
obligations, with the underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify 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, and promptly prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify 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 each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (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.
Notwithstanding the foregoing, the Company shall not be
required to promptly supplement or amend the Registration Statement, and the
Investors will discontinue the
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disposition of their securities covered by the Registration Statement during any
Blackout Period (as defined below) (i) if the Board of Directors of the Company
determines in good faith that such disposition at such time would have a
material adverse effect upon a proposed sale of all or substantially all of the
assets of the Company or a merger, reorganization, recapitalization or similar
current transaction materially affecting the capital structure or equity
ownership of the Company or, (ii) if the Company is in possession of material
information which the Board of Directors of the Company determines in good faith
is not in the best interests of the Company to disclose in a registration
statement at such time; provided, however, that the Company may require, by
delivery of one or more Blackout Notices, that the Investors discontinue from
time to time the disposition of their Securities covered by the Registration
Statement for an aggregate period not to exceed three (3) months (each such
period, a "Blackout Period") in any 24-month period. The Company shall promptly
notify the Holders in writing (a "Blackout Notice") of any decision to
discontinue sales of Registrable Securities pursuant to this Section 3(f), which
notice shall set forth the reason for such decision (but not disclosing any
nonpublic material information unless expressly requested by Investors, who
shall be obligated to maintain the confidentiality of such information) and
shall include an undertaking by the Company promptly to notify the Investors as
soon as sales may resume.
g. The Company shall use its 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 practicable time and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) 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. The Company shall permit each Investor and a single firm of
counsel, initially Schulte Roth & Zabel LLP or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a majority
of the Registrable Securities being sold, to review and comment upon the
Registration Statement(s) and all amendments and supplements thereto at least
three (3) days prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects. The Company shall not submit a
request for acceleration of the effectiveness of a Registration Statement(s) or
any amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) if required by an underwriter, 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 the underwriters, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such
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Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters and the
Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (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 deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility or otherwise which any Inspector may reasonably request
for purposes of due diligence; provided, however, that each Inspector shall hold
in strict confidence and shall not make any disclosure (except to an Investor
who will also keep such information confidential) 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 1933 Act, (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 agreement. 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. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investors' ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
l. The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange 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
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exchange, or (ii) secure designation and quotation of all the Registrable
Securities covered by the Registration Statement on the Nasdaq National Market
System and, without limiting the generality of the foregoing, arrange for at
least two market makers to register with the National Association of Securities
Dealers, Inc. as such with respect to such Registrable Securities. The Company
shall pay all fees and expenses in connection with satisfying its obligation
under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend) 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 managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any, or
the Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any reasonably required opinion of counsel, that permit sales of
unlegended securities in a timely fashion that complies with then mandated
securities settlement procedures for regular way market transactions.
n. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a CUSIP number, a transfer agent
and registrar of all such Registrable Securities not later than the effective
date of such Registration Statement.
p. If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should 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 sold to such underwriters,
the purchase price being paid therefor by such underwriters and with respect to
any other terms of the underwritten (or best efforts underwritten) offering of
the Registrable Securities to be sold in such offering; make all required
filings of such prospectus supplement or post-effective amendment as soon as
practicable following notice of the matters to be incorporated in such
prospectus supplement or post-effective amendment; and supplement or make
amendments to any Registration Statement if requested by a shareholder or any
underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other
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governmental agencies or authorities as may be necessary to consummate the
disposition of such Registrable Securities.
r. 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.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor or its counsel 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 the Registration Statement. It shall be a
condition precedent to the obligations of the Company to complete the
registration pursuant to this Agreement with respect to the Registrable
Securities of a particular Investor that such Investor shall furnish to the
Company such information as may be requested in writing by the Company regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
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 the
Registration Statement(s) 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 the Registration Statement.
c. Each Investor agrees that, upon receipt of a Blackout
Notice or any notice from the Company of the happening of any event of the kind
described in Section 3(g) or the first sentence of 3(f), such Investor will
immediately discontinue disposition of Registrable Securities pursuant to the
Registration Statement(s) covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(g) or the first sentence of 3(f) or notice from the
Company that the Blackout Period has ended, as the case may be, and, if so
directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy all copies in such Investor's possession, of
the prospectus covering such Registrable Securities current at the time of
receipt of such notice.
d. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such arrangements, (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions.
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<PAGE>
e. The Company shall be entitled to add the following legend
to the stock certificate representing Registrable Securities prior to the time
the securities represented thereby are sold to the public:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SALES OF SUCH SECURITIES ARE
SUBJECT TO CERTAIN "BLACKOUT" PERIODS PURSUANT TO THE TERMS OF A REGISTRATION
RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE WITH THE COMPANY. THE HOLDER HEREOF
MUST AT ALL TIMES FURNISH THE COMPANY WITH A CURRENT ADDRESS AND FACSIMILE
NUMBER FOR THE DELIVERY OF A BLACKOUT NOTICE.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and fees and disbursements of
one counsel for the Investors shall be paid by the Company up to a maximum of
$50,000 in the aggregate.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents and each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), and any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"Indemnified Person"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several (collectively, "Claims"), incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("Indemnified Damages"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered,
or the omission or alleged 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 the statements therein were made, not
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<PAGE>
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject
to the restrictions set forth in Section 6(d) with respect to the number of
legal counsel, the Company shall reimburse the Investors and each such
underwriter or controlling person, promptly as such expenses are incurred and
are due and payable, for any legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person from whom the person asserting any
such Claim 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 3(c), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it; and (iii) shall not apply to
amounts paid in settlement of any Claim if such settlement is effected without
the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Person
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors,
officers, employees, agents and representatives and each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to
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Section 6(d), such Investor will reimburse any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
Section 6(b) and the agreement with respect to contribution contained in Section
7 shall not apply to amounts paid in settlement of any Claim if such settlement
is effected without the prior written consent of such Investor, which consent
shall not be unreasonably withheld; provided, further, however, that the
Investor shall be liable under this Section 6(b) for only that amount of a Claim
or Indemnified Damages as does not exceed the proceeds to such Investor as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(b) with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right (at its expense) to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party and
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that such indemnifying party shall diligently pursue such defense and
that an Indemnified Person or Indemnified Party shall have the right to retain
its own counsel with the fees and expenses to be paid by the indemnifying party,
if, in the reasonable opinion of counsel retained by the Indemnified Person or
Indemnified Party, as the case may be, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party. The Company shall pay reasonable fees
for only one separate legal counsel for the Investors, and such legal counsel
shall be selected by the Investors holding a majority in interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates. The Indemnified Party or Indemnified Person shall cooperate fully with
the indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No
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indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without such consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.
e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution (together with
any indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act 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 ("Rule 144"), the
Company agrees that so long as any Investor owns any Securities, the Company
shall:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
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b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. 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 Rule 144, the
1933 Act and the 1934 Act, (ii) 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 to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors to
any transferee or assignee (a "Transferee") of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the Transferee 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, 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 is restricted under the 1933 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 agrees in writing with the Company to be bound by all of the
provisions contained herein; (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement; (vi) such Transferee shall be an "accredited investor" as that term
is defined in Rule 501 of Regulation D promulgated under the 1933 Act; and (vii)
in the event the assignment occurs subsequent to the date of effectiveness of
the Registration Statement required to be filed pursuant to Section 2(a), the
Transferee agrees to pay all reasonable expenses of amending or supplementing
such Registration Statement to reflect such assignment. Notwithstanding the
foregoing, there may be no more than 10 Investors holding rights hereto who have
received such rights through any one Buyer.
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 hold a majority of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
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11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities 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; (iii) three (3)
days after being sent by U.S. certified mail, return receipt requested; or (iv)
one (1) 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:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, CA 95054
Telephone: 408-567-1500
Facsimile: 408-567-5122
Attention: Chief Executive Officer and
Chief Financial Officer
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Telephone: 650-858-7290
Facsimile: 650-250-0857
Attention: Gail E. Suniga
if to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, NY 10022
Telephone: 212-756-2000
Facsimile: 212-593-5955
Attention: Marc Weingarten
Each party shall provide five (5) days prior notice to the other party
of any change in address or facsimile number.
-15-
<PAGE>
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. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California without regard to the
principles of conflict of laws. 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.
e. This Agreement, the Warrants and the Securities Purchase
Agreement (including all schedules and exhibits thereto) constitute 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. The aforementioned
documents supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
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 two or more 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.
[Remainder of this page intentionally left blank]
-16-
<PAGE>
<TABLE>
IN WITNESS WHEREOF, the parties have caused this Registration
Rights Agreement to be duly executed as of day and year first above written.
<CAPTION>
COMPANY: BUYERS:
- -------- -------
<S> <C>
WORLDTALK COMMUNICATIONS HILAL CAPITAL, LP
CORPORATION
By: /s/ Bernard Harguindeguy By: Hilal Capital Partners LLC,
-------------------------------------------- General Partner
Name: Bernard Harguindeguy
Its: President and Chief Executive Officer
By: /s/ Peter K. Hilal
----------------------------
Name: Peter K. Hilal, MD
Its: Managing Member
HILAL CAPITAL QP, LP
By: Hilal Capital Partners LLC,
General Partner
By: /s/ Peter K. Hilal
----------------------------
Name: Peter K. Hilal, MD
Its: Managing Member
HILAL CAPITAL ASSOCIATES LLC
By: Hilal Capital Partners LLC,
its Managing Member
By: /s/ Peter K. Hilal
----------------------------
Name: Peter K. Hilal, MD
Its: Managing Member
-17-
<PAGE>
HILAL CAPITAL
INTERNATIONAL, LTD.
By: Hilal Capital Management LLC,
Investment Manager
By: /s/ Peter K. Hilal
----------------------------
Name: Peter K. Hilal, MD
Its: Managing Member
/s/ Phil Hilal
----------------------------
Phil Hilal
HIGHBRIDGE INTERNATIONAL
By: Hilal Capital Management LLC,
Investment Manager
By: /s/ Peter K. Hilal
----------------------------
Name: Peter K. Hilal, MD
Its: Managing Member
NARRAGANSETT I, LP
By: Narragansett Asset
Management, LLC
General Partner
By: /s/ Joseph Dowling
----------------------------
Name: Joseph Dowling
Title: Managing Member
NARRAGANSETT OFFSHORE LTD.
By: Leo Holdings, LLC
Investment Adviser
By: /s/ Joseph Dowling
----------------------------
Name: Joseph Dowling
Title: Managing Member
</TABLE>
-18-
<PAGE>
SCHEDULE OF BUYERS
Investor Address and
Investor Name Facsimile Number
- ---------------------------- ---------------------------------
Hilal Capital, LP 60 East 42nd Street, Suite 1946
New York, NY 10165
Facsimile: 212-953-1012
Telephone: 212-953-1002
Hilal Capital QP, LP 60 East 42nd Street, Suite 1946
New York, NY 10165
Facsimile: 212-953-1012
Telephone: 212-953-1002
Hilal Capital Associates LLC 60 East 42nd Street, Suite 1946
New York, NY 10165
Facsimile: 212-953-1012
Telephone: 212-953-1002
Hilal Capital International, c/o Hilal Capital Management LLC
Ltd. 60 East 42nd Street, Suite 1946
New York, NY 10165
Facsimile: 212-953-1012
Telephone: 212-953-1002
Phil Hilal c/o Hilal Capital Management LLC
60 East 42nd Street, Suite 1946
New York, NY 10165
Facsimile: 212-953-1012
Telephone: 212-953-1002
Highbridge International c/o Hilal Capital Management LLC
60 East 42nd Street, Suite 1946
New York, NY 10165
Facsimile: 212-953-1012
Telephone: 212-953-1002
Narragansett I, LP c/o Narragansett Asset
Management, LLC
375 Park Avenue, Suite 1404
New York, NY 10152
Facsimile: 212-521-5029
Telephone: 212-521-5042
Narragansett Offshore Ltd. c/o Leo Holdings, LLC
375 Park Avenue, Suite 1404
New York, NY 10152
Facsimile: 212-521-5029
Telephone: 212-521-5042
EXHIBIT B
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
WORLDTALK COMMUNICATIONS CORPORATION
COMMON STOCK PURCHASE WARRANT
No. W-____ July 7, 1999
Warrant to Purchase _____________
Shares of Common Stock
WORLDTALK COMMUNICATIONS CORPORATION, a Delaware corporation
(the "Company"), for value received, hereby certifies that _____________, or
registered assigns (the "Holder"), is entitled to purchase from the Company
________ duly authorized, validly issued, fully paid and nonassessable shares of
Common Stock, par value $.01 per share, of the Company (the "Common Stock"), at
a purchase price equal to $7.00 per share, at any time or from time to time
prior to 5:00 P.M., New York City time, on July 7, 2006 (the "Expiration Date"),
all subject to the terms, conditions and adjustments set forth below in this
Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants", such term to include any such warrants issued in
substitution therefor) originally issued pursuant to the terms of the Securities
Purchase Agreement, dated as of July 7, 1999, by and among the Company and the
"Buyers" signatory thereto (the "Purchase Agreement"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned such
terms in the Purchase Agreement.
After the later of (a) the Initial Closing Date or (b) the
date the Purchase Price is released to the Company pursuant to the Escrow
Agreement (the "Release Date"), the Company is to register the Common Stock
issuable pursuant to this Warrant with the SEC pursuant to the terms of the
Registration Rights Agreement dated July 7, 1999. The number of shares of Common
Stock subject to this Warrant shall automatically increase by 10% (or a pro rata
portion thereof) for each 30 day period (or part thereof) after the earlier of
135 days after the Release Date and December 14, 1999 that the registration
statement required to be filed by the Company
<PAGE>
pursuant to the Registration Rights Agreement has not been declared effective by
the Securities and Exchange Commission.
1. Definitions. As used herein, unless the context otherwise
requires, the following terms shall have the meanings indicated:
"Additional Shares of Common Stock" shall mean all shares
(including treasury shares) of Common Stock issued or sold (or, pursuant to
Section 3.3 or 3.4, deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than
(a) (i) shares of Common Stock issued upon the exercise of the
Warrants, (ii) shares of Common Stock issued at the Closings under the
Purchase Agreement and (iii) such number of additional shares of Common
Stock as may become issuable upon the exercise of the Warrants by
reason of adjustments required pursuant to the anti-dilution provisions
applicable to such Warrants as in effect on the date hereof;
(b) shares of Common Stock issued pursuant to Approved Stock
Plans; and
(c) shares issued upon exercise of options and warrants or
other convertible securities outstanding as of the date hereof.
"Approved Stock Plan" shall mean any contract, plan or
agreement which has been or shall be approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer, director, consultant or other service provider of the Company
or to any bank or equipment lessor providing loans to the Company or its
subsidiary.
"Business Day" shall mean any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in the City of New York
are authorized by law to be closed. Any reference to "days" (unless Business
Days are specified) shall mean calendar days.
"Closing Bid Prices" shall mean for any security as of any
date, the closing bid price of such security on the principal securities
exchange or trade market where such security is listed or trades as reported by
Bloomberg, L.P. ("Bloomberg"), or if the foregoing does not apply, the closing
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date, as set forth above, the Closing Bid Price of
such security shall be the fair market value as determined in good faith by an
investment banking firm selected jointly by the Company and the Holders, with
the fees and expenses of such determination borne solely by the Company.
"Commission" shall mean the Securities and Exchange Commission
or any successor agency having jurisdiction to enforce the Securities Act.
2
<PAGE>
"Common Stock" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference.
"Company" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any corporation or other
entity which shall succeed to or assume the obligations of the Company hereunder
in compliance with Section 4.
"Convertible Securities" shall mean any evidences of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
"Current Market Price" shall mean, on any date specified
herein, the average of the daily Closing Bid Prices during the 10 consecutive
trading days commencing 15 trading days before such date, except that, if on any
such date the shares of Common Stock are not listed or admitted for trading on
any national securities exchange or quoted in the over-the-counter market, the
Current Market Price shall be the Fair Value on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
introduction to this Warrant.
"Fair Value" shall mean, on any date specified herein (i) in
the case of cash, the dollar amount thereof, (ii) in the case of a security
admitted for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price, and (iii) in all other cases
as determined in good faith jointly by the Board of Directors of the Company and
the Holder; provided, however, that if such parties are unable to reach
agreement within a reasonable period of time, the Fair Value shall be determined
in good faith by an independent investment banking firm selected jointly by the
Company and the Holder or, if that selection cannot be made within ten days, by
an independent investment banking firm selected by the American Arbitration
Association in accordance with its rules, and provided further, that the Company
shall pay all of the fees and expenses of any third parties incurred in
connection with determining the Fair Value.
"Options" shall mean any rights, options or warrants to
subscribe for, purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities.
"Other Securities" shall mean any stock (other than Common
Stock) and other securities of the Company or any other Person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the
3
<PAGE>
Warrants, in lieu of or in addition to Common Stock, or which at any time shall
be issuable or shall have been issued in exchange for or in replacement of
Common Stock or Other Securities pursuant to Section 4 or otherwise.
"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall have the meaning assigned to it in
the introduction to this Warrant.
"Purchase Price" shall mean initially the amount per share
indicated in the introductory paragraph to this Warrant, subject to adjustment
and readjustment from time to time as provided in Section 3, and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by Section 3.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated as of July ___, 1999, substantially in the form of
Exhibit C to the Purchase Agreement.
"Rights" shall have the meaning assigned to it in Section 3.10.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Warrants" shall have the meaning assigned to it in the
introduction to this Warrant.
2. Exercise of Warrant.
2.1. Manner of Exercise; Payment of the Purchase Price. (a)
This Warrant may be exercised by the Holder, in whole or in part, at any time or
from time to time prior to the Expiration Date, by surrendering to the Company
at its principal office (or such other office or agency of the Company as the
Company may designate in a written notice to the Holder) this Warrant, together
with the form of Election to Purchase Shares attached hereto as Exhibit A (or a
reasonable facsimile thereof) duly executed by the Holder and accompanied by
payment of the Purchase Price for the number of shares of Common Stock specified
in such form.
(b) Payment of the Purchase Price may be made as follows (or
by any combination of the following): (i) in United States currency by cash or
delivery of a certified check or bank draft payable to the order of the Company
or by wire transfer to the account of the Company, (ii) by cancellation of such
number of the shares of Common Stock otherwise issuable to the Holder upon such
exercise as shall be specified in such Election to Purchase Shares, such that
the excess of the Current Market Price of such specified number of shares on the
date of exercise over the portion of the Purchase Price attributable to such
shares shall equal the Purchase Price attributable to the shares of Common Stock
to be issued upon such exercise, in
4
<PAGE>
which case upon delivery of such notice such amount shall be deemed to have been
paid to the Company and the number of shares issuable upon such exercise shall
be reduced by such specified number, or (iii) by surrender to the Company for
cancellation, certificates representing shares of Common Stock of the Company
owned by the Holder (properly endorsed for transfer in blank) having a Current
Market Price on the date of Warrant exercise equal to the Purchase Price.
2.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to, and
the Purchase Price shall have been received by, the Company as provided in
Section 2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
Expenses. (a) As soon as practicable after each exercise of this Warrant, in
whole or in part, and in any event within three Business Days thereafter, the
Company shall cause to be issued in such denominations as may be requested by
Holder in the Election to Purchase Shares, in the name of and delivered to the
Holder or, subject the Purchase Agreement, as the Holder may direct,
(i) a certificate or certificates, or, if then permissible
under the Securities Act and the Registration Rights Agreement, at a
Holder's request to electronically issue such shares (e.g., through
DWAC or DTC), for the number of shares of Common Stock (or Other
Securities) to which the Holder shall be entitled upon such exercise
plus, in lieu of issuance of any fractional share to which the Holder
would otherwise be entitled, if any, a certified check for the amount
of cash equal to the same fraction multiplied by the Current Market
Price per share on the date of Warrant exercise, and
(ii) in case such exercise is for less than all of the shares
of Common Stock purchasable under this Warrant, a new Warrant or
Warrants of like tenor, for the balance of the shares of Common Stock
purchasable hereunder.
(b) Issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the Holder hereof
for any issue or transfer tax or other incidental expense, in respect of the
issuance of such certificates, all of which such taxes and expenses shall be
paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at
the time of each exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in connection with the Common Stock yet to be acquired upon exercise
hereof in accordance with the terms of this Warrant, provided that if the Holder
of this Warrant shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford such rights to the
Holder.
5
<PAGE>
3. Adjustment of Common Stock Issuable Upon Exercise.
3.1. Adjustment of Number of Shares.
Upon each adjustment of the Purchase Price as a
result of the calculations made in this Section 3, this Warrant shall thereafter
evidence the right to receive, at the adjusted Purchase Price, that number of
shares of Common Stock (calculated to the nearest one-hundredth) obtained by
dividing (i) the product of the aggregate number of shares covered by this
Warrant immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. Adjustment of Purchase Price.
3.2.1. Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall issue
or sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excluding
Additional Shares of Common Stock purchasable upon exercise of Rights referred
to in Section 3.10), other than in a registered public offering, without
consideration or for a consideration per share less than 95% of the Current
Market Price (or if the issuance involves more than 10% of the number of shares
of Common Stock outstanding immediately prior to such issue, less than the
Current Market Price) as in effect immediately prior to such issue or sale,
then, and in each such case, subject to Section 3.8, the Purchase Price shall be
reduced, concurrently with such issue or sale, to a price (calculated to the
nearest .001 of a cent) determined by multiplying such Purchase Price by a
fraction
(a) the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issue
or sale and (ii) the number of shares of Common Stock which the gross
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
such Current Market Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided
that, for the purposes of this Section 3.2.1, (x) immediately after any
Additional Shares of Common Stock are deemed to have been issued
pursuant to Section 3.3 or 3.4, such Additional Shares shall be deemed
to be outstanding, and (y) treasury shares shall not be deemed to be
outstanding.
3.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock, then,
in each such case, subject to Section 3.8, the Purchase Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of
6
<PAGE>
business on such record date, to a price determined by multiplying such Purchase
Price by a fraction
(x) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the Fair Value of such dividend or distribution
applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market
Price.
3.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, 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, sale, grant or assumption or,
in case such a record date shall have been fixed, as of the close of business on
such record date (or, if the Common Stock trades on an ex-dividend basis, on the
date prior to the commencement of ex-dividend trading), provided that such
Additional Shares of Common Stock shall not be deemed to have been issued unless
(i) the consideration per share (determined pursuant to Section 3.5) of such
shares would be less than the Current Market Price in effect on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be and (ii) such Additional Shares of Common Stock are
not purchasable pursuant to Rights referred to in Section 3.10, and provided,
further, that
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Purchase Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the 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 in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Purchase Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to
7
<PAGE>
reflect such increase or decrease insofar as it affects such Options,
or the rights of conversion or exchange under such Convertible
Securities, which are outstanding at such time;
(c) upon the expiration or termination (or purchase by the
Company and cancellation or retirement) of any such Options which shall
not have been exercised or the expiration of any rights of conversion
or exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall not
have been exercised, the Purchase Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading,
as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold 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,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale 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
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue or sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 3.5)
upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Purchase Price by an amount in
excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options or
Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the
8
<PAGE>
Purchase Price shall be made until the expiration or exercise of all
such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
3.5. Computation of Consideration. For the purposes of this
Section 3,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment
of such consideration,
(i) insofar as it consists of cash, be computed at
the amount of cash received by the Company, without deducting
any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the Fair Value
thereof at the time of such issue or sale, and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such Additional Shares of Common Stock, such allocation to
be determined in the same manner that the Fair Value of
property not consisting of cash or securities is to be
determined as provided in the definition of 'Fair Value'
herein;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such
9
<PAGE>
consideration to protect against dilution) payable to the
Company upon the exercise in full 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, in each case
computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities; and
(c) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
3.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Purchase Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 4) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights granted by this Warrant
(other than in circumstances comparable to those described in clauses (a), (b)
or (c) of the definition of "Additional Shares of Common Stock"), then, and in
each such case, the computations, adjustments and readjustments provided for in
this Section 3 with respect to the Purchase Price and the number of shares
purchasable upon Warrant exercise shall be made as nearly as possible in the
manner so provided and applied to determine the amount of Other Securities from
time to time receivable upon the exercise of the Warrants, so as to protect the
holders of the Warrants against the effect of such dilution.
3.8. De Minimis Adjustments. If the amount of any adjustment
of the Purchase Price per share required pursuant to this Section 3 would be
less than $.01, such amount shall be carried forward and adjustment with respect
thereto made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate a change in the Purchase Price of at least $.01 per share. All
calculations under this Warrant shall be made to the nearest .001 of a cent or
to the nearest one-hundredth of a share, as the case may be.
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<PAGE>
3.9. Abandoned Dividend or Distribution. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution (which results in an adjustment
to the Purchase Price under the terms of this Warrant) and shall, thereafter,
and before such dividend or distribution is paid or delivered to stockholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
3.10. Shareholder Rights Plan. Notwithstanding the foregoing,
in the event that the Company shall distribute "poison pill" rights pursuant to
a "poison pill" shareholder rights plan (the "Rights"), the Company shall, in
lieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof,
make proper provision so that each Holder who exercises a Warrant after the
record date for such distribution and prior to the expiration or redemption of
the Rights shall be entitled to receive upon such exercise, in addition to the
shares of Common Stock issuable upon such exercise, a number of Rights to be
determined as follows: (i) if such exercise occurs on or prior to the date for
the distribution to the holders of Rights of separate certificates evidencing
such Rights (the "Distribution Date"), the same number of Rights to which a
holder of a number of shares of Common Stock equal to the number of shares of
Common Stock issuable upon such exercise at the time of such exercise would be
entitled in accordance with the terms and provisions of and applicable to the
Rights; and (ii) if such exercise occurs after the Distribution Date, the same
number of Rights to which a holder of the number of shares into which the
Warrant so exercised was exercisable immediately prior to the Distribution Date
would have been entitled on the Distribution Date in accordance with the terms
and provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
4. Consolidation, Merger, etc.
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 3.2.1 or 3.2.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation,
11
<PAGE>
the amount of securities, cash or other property to which such Holder would
actually have been entitled as a stockholder upon such consummation if such
Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Sections 3 through 5.
4.2. Assumption of Obligations. Notwithstanding anything
contained in the Warrants or in the Purchase Agreement to the contrary, the
Company shall not effect any of the transactions described in clauses (a)
through (d) of Section 4.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant), (b)
the obligations of the Company under the Purchase Agreement and the Registration
Rights Agreement and (c) the obligation to deliver to the Holder such shares of
stock, securities, cash or property as, in accordance with the foregoing
provisions of this Section 4, the Holder may be entitled to receive. Nothing in
this Section 4 shall be deemed to authorize the Company to enter into any
transaction not otherwise permitted by the Purchase Agreement.
5. Other Dilutive Events. In case any event shall occur as to
which the provisions of Section 3 or Section 4 hereof are not strictly
applicable or if strictly applicable would not fairly protect the purchase
rights of the Holder in accordance with the essential intent and principles of
such Sections, then, in each such case, the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to preserve, without dilution,
the purchase rights represented by this Warrant.
6. No Dilution or Impairment. The Company shall not, by
amendment of its certificate of incorporation or through any consolidation,
merger, reorganization, transfer of assets, 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 of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be reasonably necessary or appropriate in order to protect
the rights of the Holder of this Warrant against dilution or other impairment.
Without limiting the generality of the foregoing, the Company (a) shall not
permit the par value of any shares of stock receivable upon the exercise of this
Warrant to exceed the amount payable therefor upon such exercise, (b) shall take
all such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of stock, free
from all taxes, liens, security interests, encumbrances, preemptive rights and
charges on the exercise of the Warrants from time to time outstanding, (c) shall
not take any action which results in any adjustment of the Purchase Price if the
total number of shares of Common Stock (or Other Securities) issuable after the
action upon the exercise of all of the Warrants would exceed the total number of
shares of Common Stock (or Other Securities) then authorized by the Company's
certificate of incorporation and available for the purpose of issue upon such
exercise, and (d) shall not issue
12
<PAGE>
any capital stock of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value or a sum determined by reference to a formula
based on a published index of interest rates, an interest rate publicly
announced by a financial institution or a similar indicator of interest rates in
respect of participation in dividends and to a fixed sum or percentage of par
value in any such distribution of assets.
7. Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and prepare a certificate, signed by the Chairman of the Board,
President or one of the Vice Presidents of the Company, and by the Chief
Financial Officer, the Treasurer or one of the Assistant Treasurers of the
Company, setting forth such adjustment or readjustment and showing in reasonable
detail the method of calculation thereof and the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 3) on account thereof. The
Company shall forthwith mail a copy of each such certificate to each holder of a
Warrant and shall, upon the written request at any time of any holder of a
Warrant, furnish to such holder a like certificate. The Company shall also keep
copies of all such certificates at its principal office and shall cause the same
to be available for inspection at such office during normal business hours by
any holder of a Warrant or any prospective purchaser of a Warrant designated by
the holder thereof. The Company shall, upon the request in writing of the Holder
(at the Company's expense), retain independent public accountants of recognized
national standing selected by the Board of Directors of the Company to make any
computation required in connection with adjustments under this Warrant, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment, which shall be binding on the Holder and the Company.
8. Notices of Corporate Action. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution,
or any right to subscribe for, purchase or otherwise acquire any shares
of stock of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any consolidation or merger involving the Company and any
other Person, any transaction or series of transactions in which more
than 50% of the voting securities of the Company are transferred to
another
13
<PAGE>
Person, or any transfer, sale or other disposition of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified.
9. Registration of Common Stock. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act and any State blue sky law) before such
shares may be issued upon exercise, the Company shall, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered or approved, as the case may be. At any such time as Common Stock is
listed on any national securities exchange or trade market, the Company shall,
at its expense, obtain promptly and maintain the approval for listing on each
such exchange or trade market, upon official notice of issuance, the shares of
Common Stock issuable upon exercise of the then outstanding Warrants; and the
Company shall also list on such national securities exchange or trade market,
shall register under the Exchange Act and shall maintain such listing of, any
Other Securities that at any time are issuable upon exercise of the Warrants, if
and at the time that any securities of the same class shall be listed on such
national securities exchange or trade market by the Company.
10. Reservation of Stock, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Common Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding and
otherwise in accordance with the terms of the Purchase Agreement. All shares of
Common Stock (or Other Securities) issuable upon exercise of any Warrants shall
be duly authorized and, when issued upon such exercise, shall be validly issued
and, in the case of shares, fully paid and nonassessable with no liability on
the part of the holders thereof, and, in the case of all securities, shall be
free from all taxes, liens, security interests, encumbrances, preemptive rights
and charges. The transfer agent for the Common Stock, which may be the Company
(the "Transfer Agent"), and every subsequent Transfer Agent for any shares of
the Company's capital stock issuable upon the exercise of any of the purchase
rights represented by this Warrant, are hereby irrevocably authorized and
directed at all times until the Expiration Date to reserve such number of
authorized and unissued shares as shall
14
<PAGE>
be requisite for such purpose. The Company shall keep copies of this Warrant on
file with the Transfer Agent for the Common Stock and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by this Warrant. The Company
shall supply such Transfer Agent with duly executed stock certificates for such
purpose. All Warrant Certificates surrendered upon the exercise of the rights
thereby evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock which have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. Each Warrant
issued by the Company shall be numbered and shall be registered in a warrant
register (the "Warrant Register") as it is issued and transferred, which Warrant
Register shall be maintained by the Company at its principal office or, at the
Company's election and expense, by a Warrant Agent or the Company's transfer
agent. The Company shall be entitled to treat the registered Holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other Person, and shall not be affected by
any notice to the contrary, except that, if and when any Warrant is properly
assigned in blank, the Company may (but shall not be obligated to) treat the
bearer thereof as the owner of such Warrant for all purposes. A Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2. Transfer of Warrants. This Warrant and all rights
hereunder are transferable in whole or in part, without charge to the Holder
hereof, upon surrender of this Warrant with a properly executed Form of
Assignment attached hereto as Exhibit B at the principal office of the Company
(or such other office or agency of the Company as it may in writing designate to
the Holder). Upon any partial transfer, the Company shall at its expense issue
and deliver to the Holder a new Warrant of like tenor, in the name of the
Holder, which shall be exercisable for such number of shares of Common Stock
with respect to which rights under this Warrant were not so transferred and to
the transferee a new Warrant of like tenor, in the name of the transferee, which
shall be exercisable for such number of shares of Common Stock with respect to
which rights under this Warrant were so transferred.
11.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Purchase Price and Number of Shares.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock
15
<PAGE>
purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter
issued may continue to express the same number and kind of shares of Common
Stock as are stated in this Warrant, as initially issued.
11.5. Fractional Shares. Notwithstanding any adjustment
pursuant to Section 3 in the number of shares of Common Stock covered by this
Warrant or any other provision of this Warrant, the Company shall not be
required to issue fractions of shares upon exercise of this Warrant or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares, the Company shall make payment to the Holder, at the time of exercise of
this Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
12. Remedies; Specific Performance. The Company stipulates
that there would be no adequate remedy at law to the Holder of this Warrant in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder may be
entitled at law or in equity, the Holder shall be entitled to seek to compel
specific performance of the obligations of the Company under this Warrant,
without the posting of any bond, in accordance with the terms and conditions of
this Warrant in any court of the United States or any State thereof having
jurisdiction. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
13. No Rights or Liabilities as Shareholder. Nothing contained
in this Warrant shall be construed as conferring upon the Holder hereof any
rights as a stockholder of the Company or as imposing any obligation on the
Holder to purchase any securities or as imposing any liabilities on the Holder
as a stockholder of the Company, whether such obligation or liabilities are
asserted by the Company or by creditors of the Company.
14. Notices. Any notices, consents, waivers or other
communications required or permitted to be given hereunder 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, (iii) three days after
being sent by U.S. certified mail, return receipt requested, or (iv) one 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:
Worldtalk Communications Corporation
5155 Old Ironsides Drive
Santa Clara, CA 95054
Telephone: (650) 567-1500
Facsimile: (650) 567-5122
16
<PAGE>
Attention: Chief Executive Officer and Chief Financial Officer
If to a Holder, to its address and facsimile number on the
register maintained by the Company. Each party shall provide five days' prior
written notice to the other party of any change in address or facsimile number.
Notwithstanding the foregoing, the exercise of any Warrant shall be effective in
the manner provided in Section 2.
15. Amendments. This Warrant contains the entire agreement
regarding its subject matter. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
16. Descriptive Headings, Etc. The headings in this Warrant
are for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; and (3) the words "hereof",
"herein" and "hereunder" and words of similar import when used in this Warrant
shall refer to this Warrant as a whole and not to any particular provision of
this Warrant, and Section and paragraph references are to the Sections and
paragraphs of this Warrant unless otherwise specified.
17. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of California (without
giving effect to the conflict of laws principles thereof).
18. Registration Rights Agreement. The shares of Common Stock
(and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any shares of Common Stock issued upon such exercise) shall
constitute Registrable Securities (as such term is defined in the Registration
Rights Agreement). Each holder of this Warrant shall be entitled to all of the
benefits afforded to a holder of any such Registrable Securities under the
Registration Rights Agreement and such holder, by its acceptance of this
Warrant, agrees to be bound by and to comply with the terms and conditions of
the Registration Rights Agreement applicable to such holder as a holder of such
Registrable Securities.
WORLDTALK COMMUNICATIONS
CORPORATION
By:
-------------------------------------
Name: Bernard Harguindeguy
Title: President
17
<PAGE>
EXHIBIT A to
Common Stock Purchase Warrant
[FORM OF]
ELECTION TO PURCHASE SHARES
AND TRANSFER AGENT INSTRUCTIONS
The undersigned hereby irrevocably elects to exercise the
Warrant to purchase ____ shares of Common Stock, par value $.01 per share
("Common Stock"), of WORLDTALK COMMUNICATIONS CORPORATION (the "Company") and
hereby [makes payment of $________ in consideration therefor] [or] [makes
payment in consideration therefor by reduction pursuant to Section 2.1(b)(ii) of
the Warrant of the number of shares of Common Stock otherwise issuable to the
Holder upon Warrant exercise by ______ shares] [or] [makes payment in
consideration therefor by delivery of the following Common Stock Certificates of
the Company pursuant to Section 2.1(b)(iii) of the Warrant, certificates of
which are attached hereto for cancellation _______ [list certificates by number
and amount]]. The undersigned hereby requests that certificates for such shares
be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is
less than the number of shares of Common Stock covered by the Warrant, the
undersigned requests that a new Warrant representing the number of shares of
Common Stock not so purchased be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
<PAGE>
EXHIBIT A to
Common Stock Purchase Warrant
DELIVER TO:_____________________________________________________________________
(NAME OF HOLDER)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Dated: _____________________ [NAME OF HOLDER]
By_______________________
Name:
Title:
__________________, as transfer agent and registrar of the Common
Stock, is hereby authorized and directed to issue the above number of shares of
Common Stock in the name of the above referenced entity or person and to deliver
the certificates representing such shares using an overnight delivery service.
WORLDTALK
COMMUNICATIONS
CORPORATION
By: _____________________
<PAGE>
EXHIBIT B to
Common Stock Purchase Warrant
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, par value $.01 per share ("Common Stock") of WORLDTALK
COMMUNICATIONS CORPORATION represented by the Warrant, with respect to the
number of shares of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ________ as Attorney to make
such transfer on the books of WORLDTALK COMMUNICATIONS CORPORATION maintained
for that purpose, with full power of substitution in the premises.
Dated: ____________________ [NAME OF HOLDER]
By_______________________
Name:
Title:
