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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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) September 9, 1999
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V-ONE CORPORATION
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(Exact name of registrant as specified in its charter)
Commission File No. 0-21511
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Delaware 52-1953278
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(State or other jurisdiction of incorporation) (IRS Employer Identification
No.)
20250 Century Boulevard - Suite 300
Germantown, Maryland 20874
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(301) 515-5200
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(Former name or former address, if changed since last report.)
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Item 5. OTHER EVENTS.
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SERIES C PREFERRED STOCK AND WARRANT OFFERING
As of September 9, 1999, V-ONE Corporation, a Delaware corporation (the
"Company"), issued 335,000 shares of Series C Preferred Stock (the "Series C
Stock") and 3,350,000 non-detachable warrants to purchase shares of the
Company's common stock (the "Warrants") to certain accredited investors (the
"Purchasers") listed in the Series C Preferred Stock and Non-Detachable Warrants
Purchase Agreement dated September 9, 1999 (the "Purchase Agreement") for an
aggregate price of $8,793,750. Each share of Series C Stock was issued with ten
Warrants ("collectively a "Unit") for a price of $26.25 per Unit pursuant to
Rule 506 of Regulation D promulgated under the Securities Act of 1933, as
amended. The Warrants are immediately exercisable at a price of $2.625 per share
and will remain outstanding until 90 days after all of the Series C Stock has
been redeemed and the shares of common stock underlying the Warrants have been
registered for resale. The warrants were valued at $5,795,500 using an option
pricing model and the following assumptions: dividend yield of 0%; expected
volatility of 68%; risk-free interest rate of 5.35% and expected term of two
years.(1)
The Company received $7,930,250 in net proceeds after payment of all
fees and offering expenses. The net proceeds of the offering will be used for
general working capital purposes.
Pursuant to the Purchase Agreement, the Company has granted
registration rights to each of the Purchasers whereby the Company is obligated,
in certain instances, to register the resale of the shares of common stock
issuable upon exercise of the Warrants.
As a result of the issuance of the Series C Stock, the exercise price
per share of the warrant issued to TBCC Funding Trust II on June 30, 1999 to
purchase 50,000 shares of the Company's common stock has been reduced from $3.75
to $2.625 pursuant to the antidilution provisions of the warrant.
The terms of the Series C Stock were determined by the Company's Board
of Directors.
The following is a summary of the Certificate of Designations of the
Series C Stock:
DIVIDENDS. The Series C Stock bears cumulative compounding dividends at
an annual rate of 10% for the first five years, 12.5% for the sixth year and 15%
in and after the seventh year.
CONVERSION RIGHTS. The shares of Series C Stock are not convertible.
RANKING. The Series C Preferred Stock shall rank (i) senior to the
common stock and to the Company's Series B Convertible Preferred Stock ("Series
B Stock"), now or hereafter issued, as to payment of dividends; (ii) senior to
the common stock, now or hereafter issued, and on a parity with the Series B
Stock, as to priority on distribution of assets upon liquidation, dissolution,
or winding up of the Company, whether voluntary or involuntary; and (iii) on a
parity with or senior or junior to the shares of any other class of preferred
stock (or series of preferred stock of such class) that the Board of Directors
or the stockholders may from time to time authorize (provided that such other
class or series of stock is permitted by or approved pursuant to, the terms of
_______________
(1) Upon issuance of the Series C Stock and Warrants, the Company allocated a
portion of the proceeds to the warrants based on the estimated fair value of the
Warrants and Series C Stock. The value attributed to the Warrants is recorded as
additional paid-in capital.
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the Series C Stock), which class (or series thereof) by its terms ranks on a
parity with or senior or junior to, respectively, the shares of Series C Stock.
VOTING RIGHTS. The affirmative vote or consent of the holders of at
least 51% of the outstanding shares of Series C Stock, voting separately as a
class, will be required for: (i) the voluntary liquidation, dissolution or
winding up of the Company, and for any transaction (or agreement providing
therefor) which could be deemed to be a liquidation or winding up (except for
certain permitted transactions); (ii) any issuance by the Company of securities
(other than Series C Stock) which are senior to or on a parity with the Series C
Stock as to dividend rights, rights upon liquidation or in any other material
respect; (iii) the declaration or payment of a cash dividend on the common stock
or any stock junior to the Series C Stock; and (iv) any amendment of the
Company's Certificate of Incorporation or by-laws which would (a) amend or
change the rights, preferences, privileges or powers of, or the restrictions
provided for the benefit of, the Series C Stock, (b) authorize, create or issue
shares of any class of stock having preferences senior to or on a parity with
the Series C Stock as to dividend rights, rights upon liquidation or in any
other material respect, (c) reclassify any outstanding shares into shares having
preferences senior to or on a parity with the Series C Stock as to dividend
rights, rights upon liquidation or in any other material respect, or (d)
adversely affect the rights of the Series C Stock.
In addition, prior to the exercise of the Warrants attached to the
Series C Stock and except in connection with the election of the Board of
Directors, each share of Series C Stock will be entitled to ten common votes and
will vote with common shareholders as a class on all matters on which common
shareholders are entitled to vote.
As long as at least 51% of the Series C Stock is outstanding, the
holders of a majority of the outstanding shares of Series C Stock, voting
separately as a class, shall have the right to elect one director to the
Company's Board. The director to be elected by the holders of the Series C Stock
shall serve for a term extending from the date of election until the time of the
next succeeding annual meeting of shareholders and until his successor has been
elected. A director shall not be subject to removal unless such removal is
approved by the holders of a majority of the outstanding shares of Series C
Stock; provided that, in the event that the Company's Board shall determine that
such director, in his or her capacity as such, has acted other than in good
faith and in a manner the director reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the director's conduct was
unlawful, then in such event, the Board may request that the holders of the
Series C Stock replace such director. If at any time the directorship to be
elected by the holders of the Series C Stock shall be vacant, the President (or
any other officer) of the Company shall promptly call a special meeting of the
holders of the shares of Series C Stock to be held for the purpose of electing a
director to fill such vacancy.
The holders of the Series C Stock have not yet elected a director
pursuant to this provision.
SINKING FUND. The shares of Series C Stock are not subject to the
operation of a purchase, retirement or sinking fund.
LIQUIDATION PREFERENCE. The holders of the Series C Stock are
entitled to a liquidation preference of $26.25 per share.
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The descriptions of the Certificate of Designations, the Warrants and
the Purchase Agreement found in this Form 8-K are qualified in their entirety by
reference to the exhibits filed with this Form 8-K.
NASDAQ LISTING STATUS
On September 1, 1999 the Company received a final determination from
the Nasdaq Stock Market ("Nasdaq") regarding the status of the listing of the
Company's common stock on the Nasdaq National Market. Nasdaq indicated that the
Company's common stock had been moved from the Nasdaq National Market to the
Nasdaq SmallCap Market effective as of September 3, 1999. The Company's shares
of common stock are currently listed on the SmallCap Market and the Company
currently meets all of the listing requirements for continued listing on the
SmallCap Market.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Certificate of Designations of Series C Preferred Stock.
99.2 Form of Warrant
99.3 Form of Series C Preferred Stock and Non-Detachable Warrants Purchase
Agreement between the Company and the Purchasers.
99.4 Balance Sheet as of July 31, 1999, with pro forma adjustment for the
Series C Preferred Offering.
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SIGNATURES
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.
Dated: September 14, 1999
V-ONE CORPORATION
By: /s/ David D. Dawson
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Name: David D. Dawson
Title: President and Chief Executive
Officer
V-ONE CORPORATION
CERTIFICATE OF DESIGNATIONS OF
SERIES C PREFERRED STOCK
(Pursuant to Section 151 of the General Corporation
Law of the State of Delaware)
V-ONE Corporation, a Delaware corporation (the "Corporation"), in
accordance with the provisions of Section 103 of the General Corporation Law of
the State of Delaware (the "DGCL") DOES HEREBY CERTIFY:
That pursuant to authority vested in the Board of Directors of the
Corporation (the "Board") by the Amended and Restated Certificate of
Incorporation of the Corporation, the Board, at a meeting of the Board dated
September 8, 1999, adopted the following resolution:
RESOLVED, that pursuant to authority vested in the
Board by the Amended and Restated Certificate of
Incorporation of the Corporation and the DGCL, the Board
does hereby provide for the creation of a new series of the
Preferred Stock, $.001 par value, of the Corporation (the
"Series C Preferred Stock") and determines the designation
and number of shares which constitute such Series C
Preferred Stock and the voting rights, preferences,
limitations, special rights, if any, and other provisions of
such Series C Preferred Stock as set forth on Exhibit A
hereto.
IN WITNESS WHEREOF, V-ONE Corporation has caused this certificate to be
signed by David D. Dawson, its Chairman, President and Chief Executive Officer,
as of the 9th day of September, 1999.
V-ONE CORPORATION
By: /s/ David D. Dawson
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David D. Dawson
Chairman, President and
Chief Executive Officer
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EXHIBIT A
TO
CERTIFICATE OF DESIGNATION OF
SERIES C PREFERRED STOCK
1. DEFINITIONS. As used herein, the following terms shall have the
following meanings:
"Board of Directors" or "Board" shall mean the Board of Directors of the
Corporation.
"Closing Bid Price" of any security on any date shall mean the closing bid
price of such security on such date on the principal securities exchange or
other market on which such security is listed for trading that constitutes the
principal securities market for such security, as reported by such exchange or
other market.
"Common Stock" shall mean the Common Stock, $.001 par value, of the
Corporation.
"Corporation" shall mean V-ONE Corporation, a Delaware corporation.
"Dividend Percentage" shall mean 10% prior to the fifth anniversary of the
Issue Date, 12.5% commencing on the fifth anniversary and thereafter prior to
the sixth anniversary of the Issue Date, and 15% commencing on the sixth
anniversary of the Issue Date.
"Initial Purchase Price" shall mean $26.25 per share.
"Issue Date" of a share of Series C Preferred Stock shall mean the date on
which the Corporation initially issues such share, regardless of the number of
times the transfer of such share shall be made on the Corporation's stock
transfer records and regardless of the number of certificates which may be
issued to evidence such share.
"Junior Stock" shall mean the Common Stock or any other class or series of
the Corporation's capital stock ranking junior to the Series C Preferred Stock,
as to the payment of dividends and as to distribution of assets upon
liquidation, dissolution or winding up.
"Liquidation Preference" shall mean, for each share of Series C Preferred
Stock, $26.25.
"Parity Stock" shall mean any class or series of the Corporation's capital
stock having parity with and without preference or priority over the Series C
Preferred Stock, as to the payment of dividends or as to distribution of assets
upon liquidation, dissolution or winding up, whether the dividend rates,
dividend payment dates or redemption or liquidation prices per share thereof be
the same as, or different from, those of the Series C Preferred Stock.
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"Qualified Offering" shall mean an underwritten public offering of the
Corporation's securities registered pursuant to the Securities Act if the Common
Stock is sold in the offering at a per share price in excess of $6.50 and the
gross proceeds of the offering to the Corporation exceed $20.0 million.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Series B Convertible Preferred Stock" shall mean the Series B Convertible
Preferred Stock, $.001 par value, of the Corporation, issued on or about June
11, 1999.
"Series C Preferred Stock" shall mean the Series C Preferred Stock, $.001
par value, of the Corporation.
"Warrants" shall mean those certain Warrants to purchase shares of Common
Stock initially issued on or around the Issue Date by the Corporation to the
holders of shares of Series C Preferred Stock.
2. DESIGNATION AND AMOUNT. The shares of the Corporation's capital stock
established hereby shall be designated as "Series C Preferred Stock", and the
number of shares constituting the Series C Preferred Stock shall be 500,000 and
shall not be subject to increase.
3. RANK. The Series C Preferred Stock shall rank (i) senior to the Common Stock
and to the Series B Convertible Preferred Stock, now or hereafter issued, as to
payment of dividends; (ii) senior to the Common Stock, now or hereafter issued,
and on a parity with the Series B Convertible Preferred Stock, as to priority on
distribution of assets upon liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary; and (iii) on a parity with or
senior or junior to the shares of any other class of preferred stock (or series
of preferred stock of such class) that the Board of Directors or the
stockholders may from time to time authorize (provided that such other class or
series of stock is permitted by or approved pursuant to, the terms of the Series
C Preferred Stock), which class (or series thereof) by its terms ranks on a
parity with or senior or junior to, respectively, the shares of Series C
Preferred Stock.
4. DIVIDENDS.
a. The holder of each share of Series C Preferred Stock shall be entitled
to receive dividends ("Preferred Dividends") as and when declared by the Board,
at an annual rate from and after the Issue Date equal to the Dividend Percentage
multiplied by the sum of the Initial Purchase Price and, as of the last day of
each calendar month after the Issue Date, the accrued and unpaid Preferred
Dividends (if any) on such share. The Preferred Dividends shall accrue whether
or not the Corporation shall have earnings, or there shall be funds legally
available for the payment of such Preferred Dividends, until such Preferred
Dividends are paid. The amount of Preferred Dividends payable per share of
Series C Preferred Stock for any period shorter than a full year shall be
computed ratably on the basis of a 365-day year.
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b. The Preferred Dividends may be paid by the Corporation in cash or,
at the Corporation's option, in shares of Common Stock, provided that the
Corporation may not elect to pay a Preferred Dividend in shares of Common Stock
unless: (i) it issues shares of Common Stock to all holders of Series C
Preferred Stock in payment of such Preferred Dividend; (ii) the issuance of such
shares of Common Stock in payment of the Preferred Dividend or the sale of such
shares after issuance has been registered under the Securities Act or will be so
registered prior to the payment thereof; (iii) such shares of Common Stock shall
be valued, for purposes of the payment of the Preferred Dividend declared by the
Board, at the average of the Closing Bid Price of the Common Stock on the five
(5) trading days immediately preceding the later of (x) the payment date of such
Preferred Dividend and (y) the effectiveness of such registration under the
Securities Act; and (iv) the Corporation shall have received an opinion of
counsel selected by the Corporation and who is reasonably acceptable to the
holders of at least 51% of the outstanding shares of Series C Preferred Stock
(the cost of such counsel to be borne by the Corporation) to the effect that the
receipt of such shares of Common Stock in payment of the Preferred Dividend will
be tax free under Section 305 of the Internal Revenue Code of 1986, as amended.
c. So long as any of the shares of Series C Preferred Stock are
outstanding, except as described in the immediately following sentence, no
dividends shall be declared or paid or set apart for payment by the Corporation
and no other distribution of cash or other property shall be declared or made
directly or indirectly by the Corporation with respect to any class or series of
Parity Stock for any period unless the full amount of accrued and unpaid
Preferred Dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof has been or
contemporaneously is set apart for such payment on the Series C Preferred Stock.
When Preferred Dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all Preferred Dividends declared upon
the Series C Preferred Stock and all dividends declared upon any other class or
series of Parity Stock shall be declared ratably in proportion to the respective
amounts of dividends accrued and unpaid on the Series C Preferred Stock and
accrued and unpaid on such Parity Stock.
d. So long as any of the shares of Series C Preferred Stock are
outstanding, until all Preferred Dividends are declared and paid on each share
of Series C Preferred Stock, no dividends shall be declared or paid or set apart
for payment by the Corporation and no other distribution of cash or other
property shall be declared or made directly or indirectly by the Corporation
with respect to any class or series of Common Stock or on any other Junior Stock
for any period, nor shall the Corporation purchase, redeem or otherwise acquire
for consideration any such Common Stock or Junior Stock, unless the full amount
of accrued and unpaid Preferred Dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof has
been or contemporaneously is set apart for such payment on the Series C
Preferred Stock. If, at any time, the Corporation shall pay less than the total
amount of Preferred Dividends then payable on the then outstanding Series C
Preferred Stock, the aggregate payment to all holders of Series C Preferred
Stock shall be distributed among all such holders so that an amount ratably in
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proportion to the respective Preferred Dividends due thereon shall be paid with
respect to each outstanding share of Series C Preferred Stock.
e. In addition to the rights set forth above, the holders of the Series C
Preferred Stock shall be entitled to share pro rata in all dividends and other
distributions (cash, stock or otherwise) when and if declared by the Board on or
with respect to the Common Stock, as if the holders of Series C Preferred Stock
had acquired on the Issue Date (and held at all relevant times) 10 shares of
Common Stock for each share of Series C Preferred Stock issued and outstanding
immediately before the dividend or other distribution in question; provided,
however, that subsequent to the exercise of some or all of the Warrants attached
to a share of Series C Preferred Stock, such rights will decrease in direct
proportion to the increase in such holder of Series C Preferred Stock's right to
pro rata participation in dividends and other distributions in respect of the
Common Stock as a result of such exercise.
5. LIQUIDATION PREFERENCE.
a. In the event of a liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, the holders of Series C Preferred
Stock shall be entitled to receive out of the assets of the Corporation, whether
such assets constitute stated capital or surplus of any nature, and the
Corporation shall distribute, an amount per share of Series C Preferred Stock
equal to the Liquidation Preference plus any unpaid accrued Preferred Dividends
before any payment shall be made or any assets distributed to the holders of
Junior Stock. If the assets and funds to be distributed among the holders of
Series B Convertible Preferred Stock and Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full preferential
amounts to which they are entitled, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed to such
holders ratably in proportion to the relative amounts to which they are
entitled. A consolidation or merger of the Corporation, after which the holders
of Common Stock immediately prior to the consolidation or merger do not own at
least 51% of the Common Stock (or of the economic interests in the entity
surviving such consolidation or merger), the sale of all or substantially all of
its assets, or a recapitalization or other transaction in which "beneficial
ownership" of a majority of the Common Stock (or other stock of the Corporation
entitled to vote generally in the election of the Board) is obtained by any
"person" or "group" (such quoted terms to have the same meanings herein as under
the Securities Exchange Act of 1934, as amended) will be deemed, at the election
of the holders of the majority of outstanding shares of Series C Preferred
Stock, as a liquidation or winding up for purposes of this Section 5.
b. In addition to the rights set forth above, after full preferential
payment has been made to holders of Series B Convertible Preferred Stock and
Series C Preferred Stock in a liquidation (or a transaction treated as a
liquidation under paragraph 5 a.), the holders of Series C Preferred Stock shall
be entitled to participate pro rata in any distribution in respect of the Common
Stock, as if the holders of Series C Preferred Stock had acquired on the Issue
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Date (and held at all relevant times) 10 shares of Common Stock for each share
of Series C Preferred Stock issued and outstanding immediately before the
liquidation distribution; provided, however, that subsequent to the exercise of
some or all of the Warrants attached to a share of Series C Preferred Stock,
such rights will decrease in direct proportion to the increase in such holder of
Series C Preferred Stock's right to pro rata participation in distributions in
respect of the Common Stock as a result of such exercise.
6. VOTING RIGHTS. In addition to any other rights provided by law, each share of
Series C Preferred Stock shall have the voting rights set forth in this Section
6.
a. Except in connection with the election of the Board and as to matters
provided for in Section 6.b. below, each holder of Series C Preferred Stock
shall have the right to 10 votes per share held by such holder, and the holders
of the Series C Preferred Stock shall vote together with the holders of Common
Stock as a single class; provided, however, that subsequent to the exercise of
some or all of the Warrants attached to a share of Series C Preferred Stock,
such rights will decrease in direct proportion to the increase in such holder of
Series C Preferred Stock's right to vote with holders of Common Stock as a
result of such exercise.
b. The affirmative vote or consent of the holders of at least 51% of the
outstanding shares of Series C Preferred Stock, voting separately as a class,
will be required for: (i) the voluntary liquidation, dissolution or winding up
of the Corporation, and for any transaction (or agreement providing therefor)
which could be deemed to be a liquidation or winding up for purposes of Section
5 above (except for a Permitted Transaction, as defined below); (ii) any
issuance by the Corporation of securities (other than Series C Preferred Stock)
which are senior to or on a parity with the Series C Preferred Stock as to
dividend rights, rights upon liquidation or in any other material respect; (iii)
the declaration or payment of a cash dividend on the Common Stock or any Junior
Stock; and (iv) any amendment of the Corporation's Certificate of Incorporation
or by-laws which would (a) amend or change the rights, preferences, privileges
or powers of, or the restrictions provided for the benefit of, the Series C
Preferred Stock, (b) authorize, create or issue shares of any class of stock
having preferences senior to or on a parity with the Series C Preferred Stock as
to dividend rights, rights upon liquidation or in any other material respect,
(c) reclassify any outstanding shares into shares having preferences senior to
or on a parity with the Series C Preferred Stock as to dividend rights, rights
upon liquidation or in any other material respect, or (d) adversely affect the
rights of the Series C Preferred Stock. The term "Permitted Transaction" shall
mean a consolidation, merger, asset sale, recapitalization or similar
transaction (x) which is consummated prior to the third anniversary of the first
Issue Date and (y) in which, upon such consummation, the holders of Series C
Preferred Stock receive consideration for each share of Series C Preferred Stock
at least equal to $78.75 per share. For the purpose of determining if a
Permitted Transaction has occurred, non-cash consideration shall only be deemed
to have been received by the holders of Series C Preferred Stock if it consists
of marketable securities, not subject to any transfer restrictions, of a class
which is actively traded on a national securities exchange or the Nasdaq Stock
Market and such securities shall be valued at their fair market value as
determined by an investment banking or valuation firm designated by the holders
of a majority of the outstanding shares of Series C Preferred Stock and
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reasonably acceptable to the Corporation.
c. As long as at least 51% of the Series C Preferred Stock is outstanding,
the holders of a majority of the outstanding shares of Series C Preferred Stock,
voting separately as a class, shall have the right to elect one director to the
Corporation's Board either at a special meeting of the holders of the Series C
Preferred Stock, called as provided below, or at any annual or special meeting
of the shareholders of the Corporation, or by written consent in lieu of a
meeting. The director to be elected by the holders of the Series C Preferred
Stock shall serve for a term extending from the date of election until the time
of the next succeeding annual meeting of shareholders and until his successor
has been elected. A director elected under Section 6(c) hereof shall not be
subject to removal unless such removal is approved by the holders of a majority
of the outstanding shares of Series C Preferred Stock; provided that, in the
event that the Corporation's Board shall determine that such director, in his or
her (as the case may be) capacity as such, has acted other than in good faith
and in a manner the director reasonably believed to be in or not opposed to the
best interests of the Corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the director's conduct was
unlawful, then in such event, the Board may request that the holders of the
Series C Preferred Stock replace such director. If at any time the directorship
to be elected by the holders of the Series C Preferred Stock shall be vacant,
the President (or any other officer) of the Corporation shall promptly call a
special meeting of the holders of the shares of Series C Preferred Stock to be
held for the purpose of electing a director to fill such vacancy. Such meeting
shall be held at the earliest practicable date at the principal office of the
Corporation. If such meeting shall not be called by the President (or any other
officer) of the Corporation within ten (10) days after the occurrence of such
vacancy, then the holders of record of at least 10% of the outstanding shares of
Series C Preferred Stock may call such meeting at the expense of the
Corporation, and upon the notice required for annual meetings of shareholders.
Any holder of record of shares of Series C Preferred Stock shall have access to
the stock books of the Corporation for the purpose of calling a meeting of
shareholders pursuant to these provisions.
7. OPTIONAL CORPORATION REDEMPTION.
a. The Corporation shall have the right to redeem the outstanding shares
of Series C Preferred Stock in whole but not in part at any time: (i) after the
third anniversary of the first Issue Date; (ii) upon the closing of a Qualified
Offering; and (iii) on or prior to the third anniversary of the first Issue Date
if the average of the Closing Bid Price of the Common Stock for any twenty (20)
trading days during any thirty (30) trading days ending within five (5) trading
days prior to the date notice of redemption is given pursuant to Section 7.b.
below is at least equal to $3.9375.
b. Written notice of redemption shall be given by the Corporation to the
holders of Series C Preferred Stock by certified or registered mail, and shall
designate a redemption closing date not less than 20 days or more than within 30
days from the date of the notice.
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c. The redemption price for each share of Series C Preferred Stock shall
be (i) the greater of the Initial Purchase Price and the fair market value of
each such share (determined by an investment banking or valuation firm
designated by the holders of a majority of the outstanding shares of Series C
Preferred Stock and reasonably acceptable to the Corporation), plus (ii) unless
the redemption is completed contemporaneously with the closing of a Qualified
Offering prior to the first anniversary of the first Issue Date, all unpaid
Preferred Dividends accrued through the day immediately preceding the redemption
closing date.
d. The redemption price shall be paid in cash in full on the redemption
closing date.
8. OPTIONAL HOLDER REDEMPTION.
a. At any time after the date on which a holder (the "Redeeming Holder")
of shares of Series C Preferred Stock has exercised all of the Warrants held by
such Redeeming Holder, such Redeeming Holder shall have the right (the "Holder
Redemption Right") to require the Corporation to redeem all (but not less than
all) of such Redeeming Holder's then outstanding shares of Series C Preferred
Stock.
b. Written notice (the "Holder Redemption Notice") of a Redeeming Holder's
exercise of such holder's Holder Redemption Right shall be given to the
Corporation by the Redeeming Holder in person, by recognized overnight courier,
or by certified or registered mail, which Holder Redemption Notice shall
designate a redemption closing date (the "Holder Redemption Closing Date") not
less than 5 days or more than within 10 days from the date of the Holder
Redemption Notice.
c. The redemption price (the "Holder Redemption Price") for each share of
Series C Preferred Stock redeemed pursuant to this Section 8 shall be the
Initial Purchase Price plus all unpaid Preferred Dividends accrued through the
day immediately preceding the Holder Redemption Closing Date.
d. The Holder Redemption Price shall be payable at the Corporation's
option, either (i) in cash or (ii) in shares of Common Stock valued at the then
current market price (the "Current Market Price") of a share of Common Stock on
the trading day prior to the date that the Corporation receives the Holder
Redemption Notice, which Current Market Price shall be determined by reference
to the closing price, regular way, of a share of Common Stock as of such trading
day on the Nasdaq Stock Exchange, or if the Current Market Price is not
determinable based on the foregoing, the Current Market Price shall be an amount
equal to the fair market value of a share of Common Stock as determined in good
faith by the Corporation's Board; provided, however, that in no event shall the
Current Market Price be less than (x) the closing price, regular way, of a share
of Common Stock as of the Issue Date on the Nasdaq Stock Exchange or (y) the
book value of a share of Common Stock as of the Issue Date. In the event that
the Holder Redemption Price is to be paid in shares of Common Stock, the Holder
Redemption Price shall be divided by the Current Market Price of a share of
Common Stock determined as aforesaid in order to determine the number of shares
-7-
<PAGE>
of Common Stock payable by the Corporation in order to redeem the shares of
Series C Preferred Stock being so redeemed, and, subject to the provisions of
Section 8(e) hereof with respect to fractional shares, such number of shares
shall be issued by the Corporation and paid to the Redeeming Holder on the
Holder Redemption Closing Date.
e. No fractional shares of Common Stock shall be issued upon exercise of
the Holder Redemption Right. Instead of any fractional shares of Common Stock
which would otherwise be issuable upon exercise of the Holder Redemption Right,
the Corporation shall pay a cash adjustment in respect of such fractional
interest in an amount equal to the then Current Market Price of a share of
Common Stock multiplied by such fractional interest.
f. All shares of Common Stock issued upon exercise of the Holder
Redemption Right will, upon issuance, be original issue shares fully paid and
nonassessable and free from all taxes, claims, liens, charges and other
encumbrances with respect to the issue thereof. During the period within which
the Holder Redemption Rights may be exercised, the Corporation will at all times
have authorized and reserved for the purpose of issue or transfer upon exercise
of the Holder Redemption Rights a sufficient number of original issue shares of
its Common Stock to provide for the exercise of all Holder Redemption Rights. In
addition, upon the exercise of any Holder Redemption Rights, the Corporation
will, at its expense, promptly notify each securities exchange on which any
Common Stock is at the time listed of such issuance, and maintain a listing of
all shares of Common Stock from time to time issuable upon the exercise of the
Holder Redemption Rights to the extent such shares can be listed.
9. REACQUIRED SHARES. Any shares of Series C Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and canceled promptly after the acquisition thereof. All such shares of the
Series C Preferred Stock shall, upon their cancellation, and upon the filing of
an appropriate certificate with the Secretary of the State of Delaware, become
authorized but unissued shares of preferred stock and may be reissued as part of
a new series of preferred stock to be created by resolution or resolutions of
the Board.
-8-
THIS NON-DETACHABLE WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933 AND ANY
APPLICABLE STATE SECURITIES STATUTE, OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE THEREUNDER AS EVIDENCED BY AN OPINION OF COUNSEL OR NO-ACTION LETTER
FROM THE SECURITIES AND EXCHANGE COMMISSION, IN EITHER CASE IN FORM AND
SUBSTANCE SATISFACTORY TO THE COMPANY.
W - 1999 - ________ Warrant to Purchase
_________ Shares
NON-DETACHABLE WARRANT TO PURCHASE SHARES
OF COMMON STOCK
of
V-ONE CORPORATION
THIS CERTIFIES THAT, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, _________ or its registered
assigns ("HOLDER") is entitled, subject to the adjustment provisions and the
conditions and limitations hereinafter set forth, to subscribe for and purchase
from V-ONE CORPORATION (the "CORPORATION"), a corporation organized and existing
under the laws of the State of Delaware, shares (the "WARRANT SHARES") of the
Corporation's Common Stock, par value $.001 per share (the "COMMON STOCK").
This Warrant is part of a series of warrants (the "SERIES C WARRANTS")
issued to certain investors on the date hereof pursuant to a Series C Preferred
Stock and Non-Detachable Warrant Purchase Agreement, dated as of the date hereof
(the "PURCHASE AGREEMENT").
This Warrant is subject to the following provisions, terms and
conditions:
1. TERM. Subject to the provisions of this Warrant, the purchase right
represented by this Warrant is exercisable, in whole or in part, at any time and
from time to time from the date hereof and until ninety (90) days after the
later of the occurrence of (i) the redemption by the Corporation pursuant to the
provisions set forth in Section 7 of the Certificate of Designations relating to
shares of the Corporation's Series C Preferred Stock (the "SERIES C SHARES") of
<PAGE>
all of the Series C Shares issued by the Corporation pursuant to the Purchase
Agreement, and (ii) the registration by the Corporation of the Warrant Shares
under all applicable federal and state securities laws either for issuance upon
exercise of this Warrant or for sale by the Holder after exercise of this
Warrant.
2. TRANSFER RESTRICTIONS. This Warrant is issued pursuant to the Purchase
Agreement and in connection with the Holder's purchase of Series C Shares
thereunder. This Warrant is not detachable from the Holder's Series C Shares and
may only be transferred together with the Series C Shares as more particularly
described herein. Accordingly, subject in all events to compliance with
applicable federal and state securities laws, (i) the right to purchase Warrant
Shares hereunder may only be transferred in multiples of 10 Warrant Shares, and
(ii) for each Series C Share transferred by the Holder, the Holder shall
transfer to such transferee a portion of this Warrant sufficient to enable such
transferee to purchase 10 Warrant Shares. Upon surrender of this Warrant to the
Corporation by the Holder, for the transfer (in accordance with the foregoing
provisions of this Section 2) of this Warrant as an entirety by the Holder,
together with the Assignment Form attached hereto as Schedule 2 duly executed,
the Corporation shall issue a new warrant of the same denomination to the
transferee. Upon surrender of this Warrant to the Corporation by the Holder for
the transfer (in accordance with the foregoing provisions of this Section 2) of
this Warrant with respect to a portion of the Warrant Shares purchasable
hereunder, together with the Assignment Form attached hereto as Schedule 2 duly
executed, the Corporation shall issue a new warrant to the transferee, in such
denomination as shall be requested by the Holder hereof, and shall issue to the
Holder a new warrant covering the number of shares in respect of which this
Warrant shall not have been transferred.
3. EXERCISE OF WARRANT. This Warrant may be exercised, in whole or in part,
during its term and only in accordance with the terms and provisions herein as
follows:
(a) Method of Exercise. This purchase right represented by this Warrant
shall be exercisable during its term by surrendering this Warrant (with the
Exercise Form attached hereto as SCHEDULE 1 duly executed) to the Corporation at
its principal office, together with an amount equal to $2.625 per share (subject
to the adjustment provisions in Section 2(a)) (the "EXERCISE PRICE") multiplied
by the number of Warrant Shares then being purchased. Payment of the Exercise
Price shall be by wire transfer of immediately available funds, certified or
bank check or such other consideration and method of payment as may be
authorized by the Corporation in its sole discretion; provided, however, that
the Holder may, in the Holder's sole discretion, tender Series C Shares (valued
at $26.25 per share plus any dividends which have accrued thereon but remain
unpaid as of the Exercise Date (as defined below)) to the Corporation in
connection with such Holder's exercise of this Warrant and in full or partial
(as the case may be) payment therefor. The "EXERCISE DATE" shall be the date on
which the Holder surrenders to the Corporation this Warrant together with the
duly executed Exercise Form and payment in full of the Exercise Price for the
Warrant Shares being purchased.
(b) Issuance of Certificates and Replacement Warrant. Certificates for
the Warrant Shares purchased upon exercise of this Warrant shall be delivered to
the Holder within a reasonable time, not exceeding ten (10) days after this
Warrant shall have been surrendered with payment and, unless this Warrant has
2
<PAGE>
been fully exercised or expired, a new warrant representing the number of shares
with respect to which the Warrant shall not then have been exercised shall also
be delivered to the Holder within such time. Such certificate or certificates
shall be deemed to have been issued, and any person so designated to be named
therein shall be deemed for all purposes to have become a holder of record of
such shares of Common Stock, as of the close of business on the Exercise Date.
4. EXERCISE PRICE AND WARRANT SHARE ADJUSTMENTS. The number of Warrant Shares
purchasable upon the exercise of this Warrant and the Exercise Price per Warrant
Share shall be subject to adjustment from time to time upon the occurrence of
certain events, as follows:
(a) RECLASSIFICATION OR MERGER. In case of any reclassification, change
or conversion of securities of the class issuable upon exercise of this Warrant
(other than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination), or in
case of any merger of the Corporation with or into another corporation (other
than a merger with another corporation in which the Corporation is a continuing
corporation and which does not result in any reclassification or change of
outstanding securities issuable upon exercise of this Warrant), the Corporation,
or such successor or purchasing corporation, as the case may be, shall execute a
new warrant (in form and substance reasonably satisfactory to the Holder)
providing that the Holder shall have the right to exercise such new warrant and
upon such exercise to receive, in lieu of each share of Common Stock theretofore
issuable upon exercise of this Warrant, the kind and amount of shares of stock,
other securities, money and property receivable upon such reclassification,
change, conversion or merger by a holder of one share of Common Stock. Such new
warrant shall provide for adjustments that shall be as nearly equivalent as may
be practicable to the adjustments provided for in this Paragraph 4. The
provisions of this Section 4(a) shall similarly apply to successive
reclassifications, changes, mergers and transfers.
(b) SUBDIVISIONS OR COMBINATION OF SHARES. If the Corporation at any
time while this Warrant is outstanding and unexpired shall subdivide or combine
its Common Stock, the Exercise Price and the number of Warrant Shares
purchasable hereunder shall be proportionately adjusted.
(c) STOCK DIVIDENDS. If the Corporation at any time while this Warrant
is outstanding and unexpired shall pay a divided payable in shares of Common
Stock (except any distribution specifically provided for in the foregoing
Sections 4(a) and (b)), then the Exercise Price shall be adjusted, from and
after the date of determination of shareholders entitled to receive such
dividend or distribution, to that price determined by multiplying the Exercise
Price in effect immediately prior to such date of determination by a fraction
(x) the numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution (assuming the
conversation, exchange or exercise of all securities convertible into,
exchangeable for or exercisable for Common Stock), and (y) the denominator of
which shall be the total number of shares of Common Stock outstanding
immediately after such dividend or distribution (assuming the conversion,
exchange or exercise of all securities convertible into, exchangeable for or
exercisable for Common Stock) and the number of Warrant Shares purchasable
hereunder shall be proportionately increased.
3
<PAGE>
(d) ISSUANCE OF COMMON STOCK. If at any time after the date hereof, the
Corporation issues any shares of Common Stock or other securities of the
Corporation convertible into or exchangeable for Common Stock (other than
Excluded Stock, as hereinafter defined) without consideration or for a
consideration per share less than the Exercise Price in effect immediately prior
to the issuance of such Common Stock or other securities (as the case may be),
the Exercise Price will be reduced upon such issuance to a price equal to the
consideration (on a Common Stock equivalent basis) paid for such shares of
Common Stock or other securities (as the case may be); provided, however, that
in the case of the issuance of Common Stock for consideration in whole or in
part other than cash, the non-cash consideration shall be deemed to be the fair
market value thereof (as determined in good faith by the Corporation's Board of
Directors), irrespective of any accounting treatment. For purposes hereof,
"Excluded Stock" shall mean any shares of Common Stock or options or other
rights convertible or exercisable for Common Stock issued by the Corporation:
(i) under the circumstances contemplated by Section 4(b) or 4(c) hereof, (ii) to
employees, officers, directors, consultants, customers and vendors to the
Corporation pursuant to any arrangement approved by the board of directors of
the Corporation, (iii) upon conversion of Series B Convertible Preferred Stock
in accordance with the terms set forth in the Certificate of Designations
relating thereto, (iv) pursuant to the acquisition of another business entity by
the Corporation by merger, purchase of substantially all of the assets or
shares, or other reorganization whereby the Corporation or its shareholders own
not less than a majority of the voting power of the surviving or successor
corporation, (v) to any bank or affiliate thereof, equipment lessor, real
property lessor, collaborative partner, business counterpart, licensor, vendor
or other similar entity in a transaction not primarily for capital-raising
purposes, and (vi) to any Strategic Investor. For purposes hereof, "Strategic
Investor" shall mean any person (including any natural person, company, limited
partnership, general partnership, joint stock company, joint venture,
association, trust, bank trust company, land trust, business trust, or other
organization, whether or not a legal entity, and any government or agency or
political subdivision thereof) who has significant operations in the
Corporation's industry and is making an investment in the Corporation's
securities for strategic, rather than exclusively financial, purposes.
(e) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Holder against
impairment.
(f) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of its shareholders for the purpose of determining
shareholders who are entitled to receive payment of any dividend (other than a
cash dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed merger or consolidation of
the Corporation with or into any other corporation, or any proposed sale, lease
or conveyance of all or substantially all of the assets of the Corporation, or
4
<PAGE>
any proposed liquidation, dissolution or winding up of the Corporation, the
Corporation shall mail to the Holder, at least twenty (20) days prior to the
date specified therein, a notice specifying the 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.
(g) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or number of
Warrant Shares shall be adjusted pursuant to the provisions hereof, the Company
shall within thirty (30) days of such adjustment deliver a certificate signed by
its chief financial officer to the Holder setting forth, in reasonable detail,
the event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated, and the Exercise Price after giving effect
to such adjustment.
5. FRACTIONAL SHARES. No fractional shares of Common Stock shall be issued upon
exercise of this Warrant. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon exercise of this Warrant, the Corporation shall
pay a cash adjustment in respect of such fractional interest in an amount equal
to the then current market price of a share of Common Stock determined by
reference to the closing price, regular way, of a share of Common Stock on the
trading day prior to the Exercise Date in question on the Nasdaq Stock Exchange,
or if the current market price is not determinable based on the foregoing, in an
amount equal to the fair market value of a share of Common Stock as determined
in good faith by the Corporation's Board of Directors, multiplied by such
fractional interest. Fractional interests shall not be entitled to dividends,
and the holders of fractional interests shall not be entitled to any rights as
stockholders of the Corporation in respect of such fractional interest.
6. SHARES TO BE FULLY PAID; RESERVATION OF SHARES; LISTING. The Corporation
covenants and agrees that: (a) all shares of Common Stock issuable upon exercise
of the Warrant will, upon issuance, be original issue shares fully paid and
nonassessable and free from all taxes, claims, liens, charges and other
encumbrances with respect to the issue thereof; (b) without limiting the
generality of the foregoing, it will from time to time take all such action as
may be required to assure that the par value per share of Common Stock shall at
all times be less than or equal to the Exercise Price; (c) during the period
within which the rights represented by this Warrant may be exercised, the
Corporation will at all times have authorized and reserved for the purpose of
issue or transfer upon exercise of the Warrant a sufficient number of
original-issue shares of its Common Stock to provide for the exercise of all
Warrant Shares; (d) upon the exercise of this Warrant, it will, at its expense,
promptly notify each securities exchange on which any Common Stock is at the
time listed of such issuance, and maintain a listing of all shares of Common
Stock from time to time issuable upon the exercise of the Warrant to the extent
such shares can be listed.
7. LIMITATION OF LIABILITY. No provision hereof in the absence of the exercise
of the Warrant by the Holder and no enumeration herein of the rights or
privileges of the Holder shall give rise to any liability on the part of the
Holder for the Exercise Price, whether such liability is asserted by the
Corporation or by any creditor of the Corporation.
5
<PAGE>
8. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory to the
Corporation of the loss, theft, destruction or mutilation of this Warrant and,
in the case of loss, theft or destruction, on delivery of an indemnity agreement
reasonably satisfactory in form and substance to the Corporation or, in the case
of mutilation, on surrender and cancellation of this Warrant, the Corporation at
its expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
9. NOTICES. All notices and other communications hereunder shall be in writing
and shall be given to the person either personally or by sending a copy thereof
by overnight delivery via United States express mail, postage prepaid, or by a
nationally recognized courier service guaranteeing next business day delivery,
charges prepaid, to such party's address. All notices shall be deemed to have
been given to the person entitled thereto one business day after deposited with
the U.S. Postal Service or courier service for delivery to that person or, in
the case of hand delivery, when dispatched. If to the Corporation, notice shall
be sent to 20250 Century Boulevard, Suite 300, Germantown, MD 20874. If to the
Holder, notice shall be sent to __________________________________. Notice of
any change in any such address shall also be given in the manner set forth
above. Whenever the giving of notice is required, the giving of such notice may
be waived by the party entitled to receive such notice.
10. AMENDMENTS. Neither this Warrant nor any provision hereof may be waived,
modified, amended or terminated except by a writing duly executed by the Holder
and the Company. To the extent any term or other provision of any other
indenture, agreement or instrument by which any party hereto is bound conflicts
with this Warrant, this Warrant shall have precedence over such conflicting term
or provision.
11. REMEDIES. The Corporation stipulates that remedies at law of the Holder of
this Warrant in the event of any default or threatened default by the
Corporation in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof of otherwise. No remedy conferred in this Warrant upon the Holder is
intended to be exclusive of any other remedy available to such Holder, and each
and every such remedy shall be cumulative and shall be in addition to every
other remedy conferred herein or now or hereafter existing at law or in equity
or by statute or otherwise.
12. GOVERNING LAW. This Agreement shall be construed and enforced in accordance
with the laws of the State of Delaware and shall be binding upon the parties
hereto and their respective successors and assigns.
13. WAIVERS. The failure of any party to insist upon strict performance of any
of the terms or conditions of this Agreement will not constitute a waiver of any
of its rights hereunder.
6
<PAGE>
14. TAXES.
(a) The issuance of certificates for shares of Common Stock upon the
exercise of the Warrant shall be made without charge to the Holder exercising
any such Warrant for any issue or stamp tax in respect of the issuance of such
certificates, and such certificates shall be issued in the respective names of,
or in such names as may be directed by, the Holder; provided, however, that the
Corporation shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the Holder and the Corporation shall not be required
to issue or deliver such certificates unless or until the person requesting the
issuance thereof shall have paid to the Corporation the amount of such tax or
shall have established to the satisfaction of the Corporation that such tax has
been paid.
(b) The Corporation covenants that it will not withhold United States
withholding taxes from payments to be made to the Holder if the Holder (i) is
organized under the laws of a jurisdiction outside the United States, and (ii)
provides the Corporation, prior to the time of payment, with Internal Revenue
Service Form W-8ECI or other applicable form, certificate or document prescribed
by the Internal Revenue Service certifying as to such Holder's entitlement to an
exemption from any such withholding requirements.
(c) The Corporation further covenants that it will not withhold United
States withholding taxes from payments to be made to the Holder in excess of an
applicable treaty rate under an income tax treaty between the United States and
the Holder's country of tax residence if such Holder (i) is organized under the
laws of a jurisdiction outside the United States, and (ii) provides the
Corporation, prior to the time of payment, with Internal Revenue Service Form
W-8BEN or other applicable form, certificate or document prescribed by the
Internal Revenue Service certifying as to such Holder's entitlement to a reduced
rate of withholding under any such withholding requirements.
(d) Neither Section 14(a) nor Section 14(b) shall require the
Corporation to apply an exemption or reduced rate of withholding during any
period when it shall have received notice or has actual knowledge that the
residence information previously provided on any applicable form, certificate or
document is incorrect and no corrected form, certificate or document as
applicable has been provided to the Corporation.
15. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company except as expressly
provided or contemplated in the Purchase Agreement and/or the other documents
delivered pursuant thereto.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be
executed by its duly authorized officer and this Warrant to be dated September
9, 1999.
V-ONE CORPORATION
By: __________________________
Name: Margaret E. Grayson
Title: Senior Vice President and Chief Financial
Officer
8
<PAGE>
SCHEDULE 1
EXERCISE FORM
[To be executed only upon exercise of Warrant]
To: V-ONE CORPORATION
The undersigned irrevocably exercises Warrant W-1999-____ for the
purchase of _______ shares of Common Stock, par value $.001 per share, of V-ONE
Corporation (the "CORPORATION") and
____ herewith makes payment of $_______ (such payment being in cash
or by check payable to the order of the Corporation or by wire
transfer of same-day available funds) and/or
____ hereby notifies the Corporation of its intention to tender
shares of Series C Preferred Stock in order to exercise the
Warrant
all at the exercise price and on the terms and conditions specified in the
within Warrant, surrenders the within Warrant and all right, title and interest
therein (except as to any unexercised Warrant Shares) to the Corporation and
directs that the shares of Common Stock deliverable upon the exercise of such
Warrant be registered or placed in the name and at the address specified below
and delivered thereto.
Date:
---------- ---------------------------------
(Signature of Owner)
---------------------------------
---------------------------------
(Address)
<PAGE>
SCHEDULE 2
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered Holder of the within
Warrant hereby sells, assigns, and transfers unto the Assignee(s) named below
(including the undersigned with respect to any Warrant Shares constituting a
part of the Warrant not being assigned hereby) all of the right of the
undersigned under the within Warrant, with respect to the number of Warrant
Shares set forth below:
- ------------------- ---------------------------------------- ----------
Names of Assignees Address Social security or Warrant
other I.D. No. of Shares
Assignee(s)
- ------------------- ---------------------------------------- ----------
- ------------------- ---------------------------------------- ----------
and does hereby irrevocably constitute and appoint _____________________________
the undersigned's attorney to make such transfer on the books of V-ONE
Corporation maintained for that purpose, with full power of substitution in the
premises.
Date:
---------- ---------------------------------
(Signature of Owner)
---------------------------------
---------------------------------
(Address)
================================================================================
================================================================================
V-ONE CORPORATION
SERIES C PREFERRED STOCK AND NON-DETACHABLE
WARRANT PURCHASE AGREEMENT
SEPTEMBER 9, 1999
================================================================================
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. Purchase and Sale of Series C Preferred Stock...............................1
1.1 Authorization of Series C Preferred Stock.............................1
1.2 Sale and Issuance of Series C Preferred Stock and Non-Detachable
Warrants............................................................1
1.3 Closing...............................................................1
1.4 Early Closing.........................................................2
1.5 Subsequent Sales of Series C Shares...................................2
2. Representations and Warranties of the Company...............................2
2.1 Organization, Good Standing and Qualification.........................2
2.2 Capitalization........................................................2
2.3 Subsidiaries..........................................................3
2.4 Authorization.........................................................3
2.5 Issuance of Preferred Stock, Warrants and Common Stock................3
2.6 Consents..............................................................4
2.7 Litigation............................................................4
2.8 Employees; Employee Compensation......................................4
2.9 Patents and Trademarks................................................4
2.10 Compliance with Other Instruments.....................................5
2.11 Compliance and Permits................................................5
2.12 Environmental and Safety Laws.........................................6
2.13 Disclosure............................................................6
2.14 Registration Rights...................................................6
2.15 Title to Property and Assets..........................................6
2.16 Agreements; Action....................................................7
2.17 Shareholder Agreements................................................7
2.18 Brokers or Finders....................................................8
2.19 Corporate Documents...................................................8
2.20 Employee Benefit Plans................................................8
2.21 Related-Party Transactions............................................8
2.22 Financial Statements..................................................8
2.23 Changes...............................................................9
2.24 Tax Returns, Payments and Elections..................................10
2.25 Insurance............................................................10
2.26 Merger Arrangements..................................................10
2.27 Year 2000 Compatibility..............................................11
- i -
<PAGE>
2.28 Use of Proceeds.....................................................11
3. Representations and Warranties of the Investors............................11
3.1 Experience...........................................................11
3.2 Investment...........................................................11
3.3 Rule 144.............................................................12
3.4 Public Market........................................................12
3.5 Access to Data.......................................................12
3.6 Accredited Investor/QIB Status.......................................12
3.7 Authorization........................................................13
4. Conditions of Investor's Obligations at Closing............................13
4.1 No Injunction, etc...................................................13
4.2 Representations and Warranties.......................................13
4.3 Performance..........................................................13
4.4 Compliance Certificate...............................................13
4.5 Legal Opinion; Blue Sky Letter.......................................13
4.6 Secretary's Certificate..............................................13
4.7 Qualifications.......................................................13
4.8 Proceedings and Documents............................................14
5. Conditions of the Company's Obligations at Closing.........................14
5.1 Representations and Warranties.......................................14
5.2 Performance..........................................................14
5.3 Securities Law Compliance............................................14
6. Post-Closing Rights of Investors...........................................14
6.1 Independent Member of Board..........................................14
6.2 Right of First Offer.................................................14
7. Registration Rights........................................................16
7.1 Definitions..........................................................16
7.2 Demand Registration..................................................17
7.3 Piggy-Back Registration..............................................18
7.4 Registration on Form S-3.............................................19
7.5 Holdback Agreements; Deferral........................................20
7.6 Registration Procedures..............................................21
7.7 Registration Expenses................................................24
7.8 Indemnification; Contribution........................................25
7.9 Participation in Underwritten Registrations..........................27
7.10 Rule 144.............................................................27
7.11 Transfer of Registration Rights......................................27
- ii -
<PAGE>
8. Miscellaneous..............................................................28
8.1 Survival of Warranties...............................................28
8.2 Governing Law........................................................28
8.3 Successors and Assigns...............................................28
8.4 Entire Agreement; Amendment..........................................28
8.5 Notices, Etc.........................................................28
8.6 No Implied Rights....................................................29
8.7 Delays or Omissions..................................................29
8.8 Expenses.............................................................29
8.9 Finder's Fee.........................................................29
8.10 Counterparts.........................................................29
8.11 Severability.........................................................29
- iii -
<PAGE>
EXHIBITS
Exhibit A Schedule of Janney Investors
Exhibit B Schedule of Other Investors
Exhibit C Certificate of Designations of Series C Preferred
Exhibit D Form of Warrant
Exhibit E Schedule of Exceptions
Exhibit F Legal Opinion of Kirkpatrick & Lockhart LLP
- iv -
<PAGE>
V-ONE CORPORATION
SERIES C PREFERRED STOCK AND NON-DETACHABLE
WARRANT PURCHASE AGREEMENT
This Series C Preferred Stock and Non-Detachable Warrant Purchase
Agreement (the "Agreement") is made as of the 9th day of September, 1999, by and
among V-ONE Corporation, a Delaware corporation (the "Company"), with its
principal office at 20250 Century Boulevard, Suite 300, Germantown, Maryland
20874, Janney Montgomery Scott LLC ("Janney") as nominee for those investors
listed on EXHIBIT A hereto (the "Janney Investors"), and the other investors
listed on EXHIBIT B hereto (the "Other Investors" and together with the Janney
Investors, the "Investors").
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE AND SALE OF SERIES C PREFERRED STOCK.
1.1 AUTHORIZATION OF SERIES C PREFERRED STOCK. The Company shall duly
adopt and file with the Secretary of State of the State of Delaware the
Certificate of Designations of the Series C Preferred Stock of the Company in
substantially the form attached hereto as EXHIBIT C (the "Certificate of
Designations"), which shall be effective on or before the Closing (as defined
below).
1.2 SALE AND ISSUANCE OF SERIES C PREFERRED STOCK AND NON-DETACHABLE
WARRANTS. Subject to the terms and conditions of this Agreement, each Investor
agrees, severally, to purchase at the Closing and the Company agrees to sell and
issue to each Investor at the Closing that number of units (the "Units")
comprised of (i) shares of the Company's Series C Preferred Stock (the "Series C
Shares") and (ii) non-detachable warrants ("Warrants") in substantially the form
attached hereto as EXHIBIT D to purchase shares of the Company's common stock,
par value $0.001 per share (the "Common Stock"), as set forth opposite such
Investor's name on EXHIBIT A or EXHIBIT B hereto (as the case may be). The Units
shall be purchased by the Investors and sold by the Company at a per Unit
purchase price equal to $26.25.
1.3 CLOSING. The purchase and sale of the Units shall take place in
one Closing, with the Closing to take place at the offices of Kirkpatrick &
Lockhart LLP at 10:00 a.m., on September 9, 1999, or at such other time and
place as the Company and the Investors acquiring in the aggregate more than half
of the Units sold pursuant hereto mutually agree upon orally or in writing
(which time and place are designated as the "Closing"). At the Closing, the
Company shall deliver to each Investor (i) a certificate or certificates
representing the Series C Shares and (ii) the Warrants that such Investor is
purchasing against payment of the purchase price therefor by wire transfer of
immediately available U.S. funds in accordance with the following wire transfer
instructions:
Citibank FSB
600 Pennsylvania Avenue
<PAGE>
Washington, DC
Account # 17507449
Bank Routing # 2540-70116
1.4 EARLY CLOSING. Notwithstanding anything else contained in this
Section 1, any Investor may meet its obligations under this Section 1 earlier
than the date of the Closing and may waive any closing condition in order to
close as to all or a portion of such Investor's obligations hereunder on such
earlier date. Such early closing date shall be deemed to be the date of the
Closing as to such Investor and the Units purchased by such Investor.
1.5 SUBSEQUENT SALES OF SERIES C SHARES. If less than all of the
Series C Shares reserved for issuance are sold at the Closing, then, subject to
the terms and conditions of this Agreement, the Company may sell, within 90 days
after the Closing, at an additional closing or closings (hereinafter the
"Additional Closing") up to the balance of the Series C Shares reserved for
issuance but unissued (together with the Warrants relating thereto) to such
persons or entities as the Company may determine at the same price per Unit as
the Units purchased and sold at the Closing. Any such sale shall be on the same
terms and conditions as those contained herein, and such persons or entities
shall become parties to this Agreement and shall have the same rights and
obligations hereunder. The purchasers of such Units upon delivery of an
additional counterpart to this Agreement shall be deemed "Investors" and such
shares and warrants purchased by them shall be deemed to be "Series C Shares"
and "Warrants" for purposes of this Agreement. The Additional Closing shall take
place at such time and place as the Company and the additional Investors may
agree. The Closing and the Additional Closing are sometimes referred to as the
"Closing" or the "Closings."
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth in
the Schedule of Exceptions attached hereto as EXHIBIT E, the Company hereby
represents and warrants as follows as of the date hereof, except as otherwise
expressly set forth below:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as
currently conducted, to execute and deliver this Agreement, to issue and sell
(or reserve for issuance) the Series C Shares, the Warrants and the Common Stock
issuable upon exercise of the Warrants and to carry out the provisions of this
Agreement and the Certificate of Designations. The Company is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure to so qualify would have a material adverse effect on its business,
properties or financial condition. True and accurate copies of the Company's
Certificate of Incorporation, the Certificate of Designations and the Company's
Bylaws, each as amended and in effect at the Closing, have been delivered to the
Investors.
2.2 CAPITALIZATION. The authorized capital stock of the Company
immediately prior to the Closing consists of 33,333,333 shares of Common Stock,
of which 16,781,075 shares are issued and outstanding as of August 6, 1999, and
13,333,333 shares of Preferred Stock, par value $0.001 per share, 1,287,554 of
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which are designated as shares of Series B Preferred Stock, of which 1,287,554
shares are issued and outstanding and 335,000 of which are designated as Series
C Preferred Stock, none of which are issued and outstanding. The rights,
privileges and preferences of the Series C Shares are as stated in the
Certificate of Designations. All such issued and outstanding shares have been
duly authorized and validly issued and are fully paid and nonassessable. The
Company has reserved 335,000 shares of Series C Preferred Stock for issuance
hereunder. The Company has reserved 3,335,000 shares of Common Stock for
issuance upon exercise of the Warrants. The Company has reserved an aggregate of
4,339,878 shares of Common Stock for issuance under the Company's Stock Option
Plan (the "Stock Option Plan"), 3,395,378 shares of which are subject to
options. Other than as set forth herein or in the Certificate of Designations,
conversion privileges of the Series B Preferred Stock, options granted under the
Stock Option Plan, warrants to purchase 1,253,576 shares of Common Stock and the
Warrants to be issued thereby, there are no other outstanding rights, options,
warrants, preemptive rights, rights of first refusal or similar rights for the
purchase or acquisition of any securities of the Company. All outstanding shares
have been issued in compliance with applicable state and federal securities
laws.
2.3 SUBSIDIARIES. Except for 10,000 shares of common stock of Network
Flight Recorder, Inc. representing a 9.9% ownership interest therein, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, association, or other business entity. The Company is
not a participant in any joint venture, partnership, or similar arrangement.
2.4 AUTHORIZATION. All corporate action on the part of the Company,
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement and the Warrants, the performance of
all obligations of the Company hereunder and thereunder, and the authorization,
issuance (or reservation for issuance), sale and delivery of the Series C Shares
and the Common Stock issuable upon exercise of the Warrants has been taken or
will be taken prior to the Closing, and this Agreement and the Warrants
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms.
2.5 ISSUANCE OF PREFERRED STOCK, WARRANTS AND COMMON STOCK. The Series
C Shares, when issued, sold and delivered in accordance with the terms of this
Agreement for the consideration expressed herein will be duly and validly
issued, fully paid, and nonassessable, will have the rights, preferences and
privileges described in the Certificate of Designations and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. The Warrants,
when issued, sold and delivered in accordance with the terms of this Agreement
for the consideration expressed herein will be duly and validly issued. The
Common Stock issuable upon exercise of the Warrants has been duly and validly
authorized and reserved for issuance and, upon issuance in accordance with the
terms of the Warrants, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable state and
federal securities laws. The Company intends to take the position that the
issuance and redemption of the Series C Shares and the issuance of the Warrants
and Common Stock issuable on the exercise thereof do not create constructive
distributions under Section 305 of the Internal Revenue Code of 1986, as amended
and the related regulations thereunder (the "Code"). A holder of the Series C
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Shares shall be bound by this determination, unless the holder thereof
specifically adopts a different position and correctly notifies the Internal
Revenue Service thereof.
2.6 CONSENTS. No consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority or with any other person or
entity on the part of the Company is required in connection with the offer, sale
or issuance of the Series C Shares, the Warrants and the Common Stock issuable
upon exercise of the Warrants or the consummation of any other transaction
contemplated hereby, except the filing of the Certificate of Designations in the
office of the Secretary of State of the State of Delaware, which shall be filed
by the Company on or prior to the Closing. Based in part on the representations
of the Investors set forth in Section 3 below, the offer, sale and issuance of
the Series C Shares and the Warrants in conformity with the terms of this
Agreement are exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended (the "Securities Act") and from registration
or qualification under applicable state securities or blue sky laws.
2.7 LITIGATION. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened before any court,
administrative agency or other governmental body against the Company which
questions the validity of this Agreement or the Warrants or the right of the
Company to enter into any of them, or to consummate the transactions
contemplated hereby or thereby, or which could result, either individually or in
the aggregate, in any material adverse change in the condition (financial or
other), business, property, assets or liabilities of the Company. The Company is
not a party or subject to, and none of its assets is bound by, the provisions of
any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality. There is no action, suit, proceeding or investigation
by the Company currently pending or that the Company intends to initiate.
2.8 EMPLOYEES; EMPLOYEE COMPENSATION. The Company is not a party to or
bound by any currently effective employment contract, deferred compensation
agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement
or other employee compensation agreement or arrangement with any collective
bargaining agent. No employees of the Company are represented by any labor union
or covered by any collective bargaining agreement. There is no pending or, to
the best of the Company's knowledge, threatened labor dispute involving the
Company and any group of its employees. The Company is not aware that any key
officer or key employee intends to terminate their employment with the Company,
nor does the Company have a present intention to terminate the employment of any
of the foregoing. The employment of each officer and employee of the Company is
terminable at the will of the Company. The Company has complied in all material
respects with all applicable federal equal opportunity and other laws.
2.9 PATENTS AND TRADEMARKS. Except for the security interest granted
to Transamerica Business Credit Corporation as described in the Company's Form
8-K dated March 12, 1999, the Company has sufficient title and ownership of all
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patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes and other intellectual
property rights necessary for its business as now conducted without, to the best
of the Company's knowledge, any conflict with or infringement of the rights of
others. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information, proprietary rights and processes of any other person or entity. The
Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes or other intellectual property
rights of any other person or entity. The Company is not aware that any of its
employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as proposed to be conducted.
Neither the execution nor delivery of this Agreement or the Warrants, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is now obligated. The Company does not believe it is
necessary to utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company.
2.10 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any provision of its Certificate of Incorporation or
Bylaws, each as amended and in effect on and as of the Closing. The Company is
not in violation or default of any provision of any instrument, mortgage, deed
of trust, loan, contract, commitment, judgment, decree, order or obligation to
which it is a party or by which it or any of its properties or assets are bound,
which violation or default, individually or in the aggregate with all other such
violations or defaults, would materially adversely affect the condition
(financial or other), business, property, assets or liabilities of the Company,
or of any provision of any federal, state or local statute, rule or governmental
regulation, which violation or default, individually or in the aggregate with
all other such violations or defaults, would materially adversely affect the
condition (financial or otherwise), business, property, assets or liabilities of
the Company. The execution, delivery and performance of and compliance with this
Agreement and the Warrants, and the issuance and sale of the Series C Shares and
the Warrants, will not result in any such violation, be in conflict with or
constitute, with or without the passage of time or giving of notice, a default
under any such provision, require any consent or waiver under any such provision
(other than any consents or waivers that have been obtained), or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company pursuant to any such provision.
2.11 COMPLIANCE AND PERMITS. The Company has all franchises, permits,
licenses, and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
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<PAGE>
affect the business, properties, prospects or financial condition of the
Company. The Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
2.12 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and, to its knowledge, no
material expenditures are currently required in order to comply with any such
existing statute, law or regulation.
2.13 DISCLOSURE. The Company has fully provided each Investor with all
the information that such Investor has reasonably requested for deciding whether
to purchase the Series C Shares and the Warrants. As to any projections
furnished to the Investors, such projections were prepared in good faith by the
Company, but the Company makes no representation that it will be able to achieve
such projections. Neither this Agreement, the Warrants, nor any other statements
or certificates made or delivered in connection herewith or therewith contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein not misleading. The
Confidential Private Placement Memorandum dated August 11, 1999, as amended or
supplemented to date (the "PPM") provided to the Investors prior to the date
hereof, does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As to financial
projections, market forecasts, business or customer prospects, proposed
schedules or any other forward-looking statements contained in the PPM, such
financial projections, market forecasts, business or customer prospects,
proposed schedules or other forward-looking statements were prepared in good
faith by the Company, but the Company makes no representation and there can be
no assurance that it will be able to achieve such projections, that the market
will develop as forecasted, that it will convert such prospects into business
agreements or customers, that it will meet or attain such schedules or that any
other forward-looking statements will come about as stated.
2.14 REGISTRATION RIGHTS. Except as set forth herein, the Company has
not granted or agreed to grant any registration rights, including piggyback
rights, to any person or entity for the public offering of its securities. The
Company is not restricted from granting any registration rights to the
Investors.
2.15 TITLE TO PROPERTY AND ASSETS. The Company has good title to all
of its properties and assets free and clear of all mortgages, liens and
encumbrances, except liens for current taxes and assessments not yet due and
possible minor liens and encumbrances which do not, in the aggregate, materially
detract from the value of the property subject thereto or materially impair the
operations of the Company. With respect to the property and assets it leases,
the Company is in compliance with such leases in all material respects and, to
its knowledge, holds a valid leasehold interest free of all liens, claims or
encumbrances. The Company's properties and assets are in good condition and
repair in all material respects.
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<PAGE>
2.16 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated, there are
no agreements, understandings or proposed transactions between the Company and
any of its officers, directors, affiliates, or any affiliate thereof.
(b) Except for agreements listed in the Company's public
filings with the Securities and Exchange Commission and other than in the
ordinary course of business, there are no agreements, understandings,
instruments, contracts, proposed transactions, judgments, orders, writs or
decrees to which the Company is a party or by which it is bound that may involve
(i) obligations (contingent or otherwise) of, or payments to the Company in
excess of, $50,000, or (ii) the license of any material patent, copyright, trade
secret or other proprietary right to or from the Company, or (iii) provisions
restricting or adversely affecting the development, commercialization or
distribution of the Company's products or services or (iv) indemnification by
the Company with respect to infringements of proprietary rights; excepting in
each case licenses or grants to higher education clients of certain rights to
use the Company's software.
(c) The Company has not (i) declared or paid any dividends or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than ordinary trade debt) individually in excess of
$10,000 or, in the case of indebtedness or liabilities individually less than
$10,000, in excess of $50,000 in the aggregate, (iii) made any loans or advances
to any person, other than ordinary advances for travel expenses which have not
been paid in full, or (iv) sold, exchanged or otherwise disposed of any of its
material assets or rights, other than the sale of its inventory or licensing of
its software in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
2.17 SHAREHOLDER AGREEMENTS. Except as contemplated by this Agreement,
there are no agreements between the Company and any of the Company's
shareholders, or to the best knowledge of the Company, among any of the
Company's shareholders, relating to the Company or which in any way affect any
shareholder's ability or right freely to transfer or vote such shares (except
restrictions designed to provide compliance with securities laws).
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2.18 BROKERS OR FINDERS. Except for an agreement between the Company
and Gordon Macklin whereby the Company has agreed to pay Mr. Macklin 1% of any
funds raised by underwriter or investment banks introduced to the Company by Mr.
Macklin and as disclosed in the PPM, the Company has not agreed to incur,
directly or indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or any of
the transactions contemplated hereby.
2.19 CORPORATE DOCUMENTS. Except for the amendments to the Company's
Certificate of Incorporation set forth in the Certificate of Designations, the
Certificate of Incorporation and Bylaws of the Company are in the form
previously provided to the Investors.
2.20 EMPLOYEE BENEFIT PLANS.Except for the Company's 401(k) plan, the
Company does not have any Employee Benefit Plan as defined in the Employee
Retirement Income Security Act of 1974.
2.21 RELATED-PARTY TRANSACTIONS. No employee, officer, or director of
the Company, or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the Company's knowledge, none of such
persons has any direct or indirect ownership interest in any firm or corporation
with which the Company is affiliated or with which the Company has a business
relationship, or any firm or corporation that competes with the Company, except
that employees, officers, or directors of the Company and members of their
immediate families may own stock in publicly traded companies that may compete
with the Company. No member of the immediate family of any officer or director
of the Company is directly or indirectly interested in any material contract
with the Company.
2.22 FINANCIAL STATEMENTS. The Company's audited financial statements
(balance sheet and profit and loss statement and statement of cash flows,
including notes thereto) at December 31, 1998 and December 31, 1997 and for the
fiscal years then ended, and its unaudited financial statements (balance sheet
and profit and loss statement) at and for the three-month periods ended March
31, 1999 and June 30, 1999 (collectively, the "Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated and with each other, except
that unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein. Except as set forth in the
Financial Statements, the Company has no material liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to June 30, 1999 and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in the Financial
Statements, which in both cases, individually or in the aggregate, are not
material to the financial condition or operating results of the Company. Except
as disclosed in the Financial Statements, the Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation. The
Company maintains and will continue to maintain a standard system of accounting
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established and administered in accordance with generally accepted accounting
principles.
2.23 CHANGES. Since June 30, 1999, except in the ordinary course of
business, there has not been:
(a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as such
business is presently conducted and as it is proposed to be conducted);
(c) any waiver by the Company of a valuable right or of a
material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business or that is not material to the assets, properties, financial
condition, operating results or business of the Company (as such business is
presently conducted);
(e) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject;
(f) any material changes in any compensation arrangement or
agreement with any employee;
(g) any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any key
officer of the Company; and the Company, to the best of its knowledge, does not
know of the impending resignation or termination of employment of any such
officer;
(i) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in,
or lien, created by the Company, with respect to any of its material properties
or assets, except liens for taxes not yet due or payable;
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(k) any loans or guarantees made by the Company to or for the
benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business;
(l) any declaration, setting aside or payment or other
distribution in respect to any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(m) to the Company's knowledge, any other event or condition
of any character that might materially and adversely affect the assets,
properties, financial condition, operating results or business of the Company
(as such business is presently conducted and as it is proposed to be conducted);
or
(n) any agreement or commitment by the Company to do any of
the things described in this Section 2.23.
2.24 TAX RETURNS, PAYMENTS AND ELECTIONS. The Company has filed all
tax returns and reports as required by law. These returns and reports are true
and correct in all material respects. The Company has paid all taxes and other
assessments due. The provision for taxes of the Company as shown in the
Financial Statements is adequate for taxes due or accrued as of the date
thereof. The Company has not elected pursuant to the Code to be treated as an S
corporation or has made an election under Section 341(f) of the Code, nor has it
made any other elections pursuant to the Code (other than elections that relate
solely to methods of accounting, depreciation or amortization) that would have a
material adverse effect on the Company, its financial condition, its business as
presently conducted or proposed to be conducted or any of its properties or
material assets. The Company has never had any tax deficiency proposed or
assessed against it and has not executed any waiver of any statute of
limitations on the assessment or collection of any tax or governmental charge.
None of the Company's federal income tax returns and none of its state income or
franchise tax or sales or use tax returns have ever been audited by governmental
authorities. Since the date of the Financial Statements, the Company has made
adequate provisions on its books of account for all taxes, assessments and
governmental charges with respect to its business, properties and operations for
such period. The Company has withheld or collected from each payment made to
each of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositaries.
2.25 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies, which are, in the opinion of management, sufficient
in amount (subject to reasonable deductibles) to allow it to replace any of its
properties that might be damaged or destroyed. The Company has in full force and
effect general liability insurance in amounts customary for companies similarly
situated.
2.26 MERGER ARRANGEMENTS. The Company has not reached any
understandings or entered into any arrangements regarding (i) the consolidation
or merger of the Company with or into any corporation or corporations, (ii) the
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sale, conveyance or disposition of all or substantially all of the assets of the
Company or a transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of, or (iii)
any other form of acquisition, liquidation, dissolution or winding up of the
Company.
2.27 YEAR 2000 COMPATIBILITY. The Company's material products
(including products currently under development) will record, store, process and
calculate and present calendar dates falling on and after January 1, 2000, and
will calculate any information dependent on or relating to such dates in the
same manner and with the same functionality, data integrity and performance as
the products record, store, process, calculate and present calendar dates on or
before December 31, 1999, or calculate any information dependent on or relating
to such dates (collectively "Year 2000 Compliant"). All of the Company's
material internal computer systems, including without limitation, its accounting
systems, are Year 2000 Compliant.
2.28 USE OF PROCEEDS. The Company shall use the net proceeds received
by the Company from the sale of the Units for working capital purposes as
determined by the Board of Directors of the Company (the "Board").
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor and
Janney solely as the nominee for the Janney Investors hereby represents and
warrants severally and not jointly that:
3.1 EXPERIENCE. The Investor is experienced in evaluating companies
such as the Company, is able to fend for the Investor's self in transactions
such as the one contemplated by this Agreement, has such knowledge and
experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of the Investor's prospective investment in the
Company, and has the ability to bear the economic risks of the investment.
3.2 INVESTMENT. The Investor is acquiring the Series C Shares and the
Warrants (and the Common Stock issuable upon exercise of the Warrants) for
investment, for the Investor's own account and not with the view to, or for
resale in connection with, any distribution thereof. The Investor understands
that the Series C Shares and the Warrants (and the Common Stock issuable upon
exercise of the Warrants) have not been registered under the Securities Act by
reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent as expressed herein. The Investor understands that the
Warrants are "non-detachable warrants" and, as such, may not be sold or
transferred other than in connection with the sale or transfer of shares of
Series C Shares. The Investor further represents that the investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to any third person with respect to any of the
Series C Shares or Warrants (or any Common Stock acquired upon the exercise
thereof), other than as set forth. The Investor understands and acknowledges
that the offering of the Series C Shares and any Common Stock on the exercise of
the Warrants will not be registered under the Securities Act on the ground that
the sale provided for in this Agreement and the issuance of securities hereunder
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<PAGE>
is exempt from the registration requirements of the Securities Act. The Investor
understands that no single Investor shall be permitted to purchase in excess of
50% of the Series C Shares being purchased and sold pursuant to this Agreement.
3.3 RULE 144. The Investor acknowledges that the Series C Shares (and
the Common Stock issuable upon exercise of the Warrants) must be held
indefinitely unless subsequently registered under the Securities Act or an
exemption from such registration is available. The Investor is aware of the
provisions of Rule 144 promulgated under the Securities Act which permit limited
resale of shares purchased in a private placement subject to the satisfaction of
certain conditions. The Investor covenants that, in the absence of an effective
registration statement covering the stock in question, the Investor will sell,
transfer, or otherwise dispose of the Series C Shares and the Warrants (and any
Common Stock issued on the exercise thereof) only in a manner consistent with
the Investor's representations and covenants set forth in this Section 3. In
connection therewith, the Investor acknowledges that the Company will make a
notation on its stock books regarding the restrictions on transfers set forth in
this Section 3 and will transfer securities on the books of the Company only to
the extent not inconsistent therewith.
3.4 PUBLIC MARKET. The Investor understands that although a public
market now exists for the Common Stock issued by the Company, in May 1999 the
Company was notified by the Nasdaq Stock Market (the "Nasdaq") that it no longer
met the minimum net tangible requirements of $4 million necessary to remain
listed on the Nasdaq and that Nasdaq was initiating de-listing of the Company's
Common Stock. The Investor further understands that the Company has submitted a
written proposal and has made oral argument to the Nasdaq arguing in favor of
its continued listing. The Investor acknowledges that if the Company's Common
Stock is de-listed from the Nasdaq National Market, the value and liquidity of
the Company's Common Stock may be adversely and materially effected, and the
Company may encounter difficulties raising additional capital in the future. The
Investor further acknowledges that no public market now exists for the Series C
Shares or the Warrants, and that no public market may ever exist for the Series
C Shares.
3.5 ACCESS TO DATA. The Investor has received and reviewed information
about the Company and has had an opportunity to review and discuss the Company's
business, management and financial affairs with its management and to review the
PPM. The Investor understands that such discussions, as well as any written
information issued by the Company, were intended to describe the aspects of the
Company's business and prospects which the Company believes to be material, but
were not necessarily a thorough or exhaustive description. The foregoing,
however, does not limit or modify the representations and warranties of the
Company in Section 2 of this Agreement or the right of the Investor to rely
thereon.
3.6 ACCREDITED INVESTOR/QIB STATUS Each Investor is either an
"accredited investor" (within the meaning of Rule 501 under the Securities Act)
or a "qualified institutional buyer" (within the meaning of Rule 144A under the
Securities Act).
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3.7 AUTHORIZATION. This Agreement when executed and delivered by the
Investor will constitute a valid and legally binding obligation of the Investor,
enforceable in accordance with its terms, subject to: (i) judicial principles
respecting election of remedies or limiting the availability of specific
performance, injunctive relief and other equitable remedies and (ii) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect generally relating to or affecting creditors' rights.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
each Investor under Section 1 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions, any of which may
be waived by such Investor:
4.1 NO INJUNCTION, ETC. No preliminary or permanent injunction or
other binding order, decree or ruling issued by a court or governmental agency
shall be in effect which shall have the effect of preventing the consummation of
the transactions contemplated by this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 2 shall be true and correct on and as of the
Closing in all material respects.
4.3 PERFORMANCE. The Company shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
4.4 COMPLIANCE CERTIFICATE. The President of the Company shall deliver
to each Investor at the Closing a certificate stating that the conditions
specified in Sections 4.2 and 4.3 have been fulfilled and that there has been no
material adverse change in the business, operations, properties, assets or
condition of the Company since the date of the Financial Statements.
4.5 LEGAL OPINION; BLUE SKY LETTER. Counsel for the Company,
Kirkpatrick & Lockhart LLP, shall deliver a legal opinion to each Investor as to
matters relating to the issuance and sale of the Series C Shares and the
Warrants hereunder, federal compliance in connection therewith, the compliance
by the Company with such federal securities laws in connection with prior
offerings by the Company, and other matters reasonably requested by the
Investors, such opinion to be in substantially the form attached hereto as
EXHIBIT F as well as a Blue Sky letter concerning the offer and sale of the
Series C Shares and the Warrants and compliance with state securities laws in
connection therewith.
4.6 SECRETARY'S CERTIFICATE. The Secretary of the Company shall
deliver to each Investor an Secretary's Certificate in the form and substance as
reasonably requested by the Investor.
4.7 QUALIFICATIONS. All authorizations, approvals, or permits, if any,
of any governmental authority or regulatory body of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Series C Shares and the Warrants pursuant to this Agreement shall be duly
obtained and effective as of the Closing.
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4.8 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings in
connection with the transactions contemplated at the Closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Investors, and they shall have received all such counterpart original and
certified or other copies of such documents as they may reasonably request.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
the Company to the Investors under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by the Investors:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investors contained in Section 3 shall be true and correct on and as of
the Closing.
5.2 PERFORMANCE. The Investors shall have performed and complied with
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by them on or
before the Closing.
5.3 SECURITIES LAW COMPLIANCE. The Company shall have obtained all
necessary permits and qualifications, if any, required by any state or country
or secured an exemption therefrom, for the offer and sale of the Series C Shares
and the Warrants.
6. POST-CLOSING RIGHTS OF INVESTORS.
6.1 INDEPENDENT MEMBER OF BOARD. For so long as at least 51% of the
Series C Shares remain issued and outstanding, the Company shall use its best
efforts to elect to the Board of Directors of the Company at least one (1)
member who shall be (i) Independent (as defined below) and (ii) reasonably
satisfactory to the holders of a majority of the Series C Shares then
outstanding. For purposes hereof, a director shall be "Independent" to the
extent that such director (x) is not an executive officer , officer or employee
of the Company, (y) does not own directly or indirectly, in excess of 5% of the
Common Stock, or (z) is not an Affiliate or an Associate (as such terms are
defined in the Securities Act) of any of the foregoing.
6.2 RIGHT OF FIRST OFFER.
(a) RIGHT OF FIRST OFFER. Subject to the terms and conditions
contained in this Section 6.2, for so long as at least 25% of the Series C
Shares remain issued and outstanding, each Investor who or which at such time
owns Series C Shares shall have the right of first offer to purchase such
party's Pro Rata Portion (as defined below) of any New Securities (as defined in
subsection 6.2(b)) which the Company may, from time to time, propose to sell and
issue. A party's "Pro Rata Portion" is the ratio that (x) the number of shares
of the Company's Common Stock then held by such party (assuming exercise of all
of the Warrants held by the Investors) bears to (y) the total number of shares
of the Company's Common Stock then outstanding (assuming exercise of all of the
Warrants held by the Investors).
(b) DEFINITION OF NEW SECURITIES. "New Securities" shall mean
any shares of capital stock of the Company offered in a financing
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<PAGE>
transaction with the primary purpose of raising capital for the Company,
including Common Stock and preferred stock, options or warrants to purchase
shares of Common Stock or preferred stock, and securities of any type whatsoever
that are, or may become, convertible into shares of Common Stock or preferred
stock, other than: (i) securities issued to a Strategic Investor (as defined
below); (ii) securities issued pursuant to the acquisition of another business
entity by the Company by merger, purchase of substantially all of the assets or
shares, or other reorganization whereby the Company or its shareholders own not
less than a majority of the voting power of the surviving or successor
corporation; (iii) shares of Common Stock or options or other rights convertible
into or exercisable for Common Stock issued to employees, officers, directors,
consultants, customers and vendors to the Company pursuant to any arrangement
approved by the board of directors of the Company; (iv) securities issued to any
bank (or affiliate thereof), equipment lessor, real property lessor,
collaborative partner, business counterpart, licensor, vendor or other similar
entity in a transaction not primarily for capital-raising purposes, to the
extent that the transaction is approved by the Company's Board; (v) stock issued
pursuant to any rights or agreements, including, without limitation, convertible
securities, options and warrants, provided that the Company shall have complied
with the right of first offer established by this Section 6.2 with respect to
the bona fide initial sale or grant by the Company of such rights or agreements
after the date hereof; (vi) stock issued pursuant to a Qualified Offering (as
such term is defined in the Certificate of Designations, as amended; or (vi)
stock issued in connection with any stock split, reverse stock split, stock
dividend, recapitalization or like transaction by the Company. For purposes
hereof, a "Strategic Investor" shall mean any Person (as defined in Section 7
below) who has significant operations in the Company's industry and is making an
investment in the Company's securities for strategic, rather than exclusively
financial, purposes.
(c) NOTICE OF RIGHT. In the event the Company proposes to
issue New Securities, it shall give each Investor written notice of its
intention, describing the type of New Securities and the price and terms upon
which the Company proposes to issue the same. The Investors shall have thirty
(30) days from the date of receipt of any such notice to agree to purchase
shares of such New Securities (up to the Pro Rata Portion for each party), for
the price and upon the terms specified in the notice, by giving written notice
(which shall be irrevocable) to the Company and stating therein the quantity of
New Securities to be purchased.
(d) EXERCISE OF RIGHT. If any Investor exercises such party's
right of first offer hereunder, the closing of the purchase of the New
Securities with respect to which such right has been exercised shall take place
as soon as practicable after such party gives notice of such exercise.
(e) TRANSFER OF RIGHT OF FIRST OFFER. The right of first offer
granted under Section 6.2 of this Agreement may be assigned by any Investor to
an affiliate thereof; provided, however, that such affiliate is reasonable
acceptable to the Company.
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7. REGISTRATION RIGHTS.
7.1 DEFINITIONS.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
which commercial banks in the State of Delaware are authorized by law to close.
"HOLDER" means an Investor; provided, however that an Investor
shall cease to be a Holder if and when such Investor owns Common Stock and/or
securities exercisable or convertible into Common Stock representing in the
aggregate less than 5% percent of the outstanding Common Stock and such Investor
may dispose of all Registrable Securities then owned by such Investor pursuant
to Rule 144(k) (or any successor rule) under the Securities Act, and in such
case the Registrable Securities owned by such Investor shall cease to be
Registrable Securities.
"PERSON" means any natural person, company, limited partnership,
general partnership, joint stock company, joint venture, association, trust,
bank trust company, land trust, business trust, or other organization, whether
or not a legal entity, and any government or agency or political subdivision
thereof.
"REGISTRABLE SECURITIES" means the Common Stock issued or issuable
upon (i) the exercise of the Warrants or (ii) the exchange of Series C Shares
pursuant to Section 8 of the Certificate of Designations, and any Common Stock
and any other securities issued or issuable with respect to such securities by
way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or reorganization; PROVIDED,
that any Registrable Security will cease to be a Registrable Security when (a) a
registration statement covering such Registrable Security has been declared
effective by the SEC and it has been disposed of pursuant to such effective
registration statement, (b) it is sold under circumstances in which all of the
applicable conditions of Rule 144 (or any similar provisions then in force)
under the Securities Act are met, or (c) it has ceased to be a Registrable
Security in accordance with the proviso to the definition of Holder provided for
herein.
"SEC" means the Securities and Exchange Commission or any successor
governmental agency.
"SELLING HOLDER" means a Holder who is selling Registrable Securities
pursuant to a registration statement under the Securities Act.
"SUBSIDIARY" means (i) any company or other entity a majority of the
capital stock of which having ordinary voting power to elect a majority of the
board of directors or other Persons performing similar functions is at the time
owned, directly or indirectly, with power to vote, by the Company or any direct
or indirect Subsidiary of the Company or (ii) a partnership in which the Company
or any direct or indirect Subsidiary is a general partner.
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"UNDERWRITER" means a securities dealer which purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
7.2 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION.
(i) If, at any time following the six month
anniversary of the Closing, Holders holding at least 30% in the aggregate of the
Registrable Securities request (a "Demand Request") that the Company file a
Registration Statement pursuant to the Securities Act covering the sale of all
or part of their Registrable Securities (a "Demand Registration"), the Company
shall (i) promptly give written notice of the proposed Demand Registration to
all other Holders, (ii) effect such Demand Registration as soon as reasonably
practicable but in any event within 45 days after receiving a Demand Request
(the "Required Filing Date") so as to permit the sale and distribution of all or
such portion of the Registrable Securities as are specified in such Demand
Request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such Demand Request as are specified in a written
request received by the Company within twenty (20) days after receipt of such
written notice from the Company, and (iii) use its best efforts to cause the
same to be declared effective by the SEC as promptly as practicable after such
filing. Each Demand Request shall specify the number of shares of Registrable
Securities proposed to be sold.
(ii) Subject to Section 7.2(b), if the Company has
effected two Demand Registrations in response to the request of the Holders,
then the Company shall not be obligated to respond to further Demand
Registrations pursuant to this Section. The Company shall not be obligated to
effect more than one Demand Registration in any twelve-month period.
(b) EFFECTIVE REGISTRATION AND EXPENSES. A registration will
not count as a Demand Registration until it has become effective unless (i)
prior to such effective time the Holders requesting such Demand Registration
withdraw all their Registrable Securities for any reason other than (A) the
inability or unreasonable delay of the Company in having such registration
statement become effective or (B) the disclosure of material adverse information
regarding the Company that was not known by the Holders at the time the Demand
Request was made and (ii) the Demand Holder elects not to pay all the Company's
out-of-pocket Registration Expenses in connection with such withdrawn
registration. If, after such registration has become effective, an offering of
Registrable Securities pursuant to a registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or other governmental
agency or court, such registration will not count as a Demand Registration.
(c) SELECTION OF UNDERWRITERS. The offering of Registrable
Securities pursuant to a Demand Registration may be in the form of a "firm
commitment" underwritten offering. If the Selling Holders so indicate, they
shall select the managing Underwriter and such additional Underwriters to be
used in connection with the offering; PROVIDED that such selections shall be
subject to the consent of the Company, which consent shall not be unreasonably
withheld.
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<PAGE>
(d) PRIORITY ON DEMAND REGISTRATIONS. No securities to be
sold for the account of any Person (including the Company) other than a Holder
shall be included in a Demand Registration if the managing Underwriter or
Underwriters shall advise the Selling Holders that, in its or their judgment,
the inclusion of such securities may adversely affect the price or success of
the offering in any significant or material respect (a "Registration Material
Adverse Effect"). Furthermore, in the event the managing Underwriter or
Underwriters shall advise the Demand Holder that even after exclusion of all
securities of other Persons pursuant to the immediately preceding sentence, the
amount of Registrable Securities proposed to be included in such Demand
Registration by Holders electing to participate is sufficiently large to cause a
Registration Material Adverse Effect, the Registrable Securities of such Holders
to be included in such Demand Registration shall be allocated PRO RATA among
such Holders on the basis of the number of outstanding shares of Common Stock
requested to be included in such registration by each such Holder.
7.3 PIGGY-BACK REGISTRATION.
(a) Subject to the provisions of the Agreement, if the
Company proposes to file a registration statement under the Securities Act,
including a Demand Registration, with respect to an offering of any equity
securities by the Company for its own account or for the account of any of its
equity holders (other than a registration statement on Form S-4 or S-8 or any
substitute form that may be adopted by the SEC or any registration statement
filed in connection with an exchange offer or offering of securities solely to
the Company's existing security holders), then the Company shall give written
notice of such proposed filing to the Holders as soon as practicable (but in no
event less than 30 days before the anticipated initial filing date of such
registration statement), and such notice shall offer such Holders the
opportunity to register such number of Registrable Securities as each such
Holder may request (a "Piggyback Registration"). Subject to Section 7.3(b)
hereof, the Company shall include in each such Piggyback Registration all
Registrable Securities requested to be included in the registration for such
offering; provided, however, that the Company may at any time withdraw or cease
proceeding with such registration. Each Holder of Registrable Securities shall
be permitted to withdraw all or part of such Holder's Registrable Securities
from a Piggyback Registration at any time prior to the effective date thereof.
(b) The Company shall use all commercially reasonable
efforts to cause the managing Underwriter or Underwriters of a proposed
underwritten offering to permit the Registrable Securities requested to be
included in the registration statement for such offering under Section 7.3(a)
("Piggyback Securities"), to be included on the same terms and conditions as any
similar securities included therein. Notwithstanding the foregoing, the Company
shall not be required to include any Holder's Piggyback Securities in such
offering unless such holder accepts the terms of the underwriting agreement
between the Company and the managing Underwriter or Underwriters and otherwise
complies with the provisions of Section 7.9 below. If such offering is a Demand
Registration pursuant to Section 7.2(a), then the provisions of Section 7.2(d)
shall apply. In all other offerings that are underwritten, if the managing
Underwriter or Underwriters of such proposed underwritten offering advise the
Company in writing that in their opinion the total amount of securities,
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including Piggyback Securities, to be included in such offering is sufficiently
large to cause a Registration Material Adverse Effect, then in such event the
securities to be included in such offering shall be allocated first to the
Company, and then, to the extent that any additional securities can, in the
opinion of such managing Underwriter or Underwriters, be sold without any such
Registration Material Adverse Effect, PRO RATA among the holders of Piggyback
Securities on the basis of the number of outstanding shares of Common Stock
requested to be included in such registration by each such holder.
7.4 REGISTRATION ON FORM S-3.
(a) At any time following the six-month anniversary of the
Closing, the Holders shall each have the right to request an unlimited number of
registrations on Form S-3 (or any equivalent successor form). Any such request
shall be in writing, shall specify the Registrable Securities intended to be
sold or disposed of by the Holders thereof, shall state the intended method of
disposition of such Registrable Securities by the Holder(s) requesting such
registration and shall relate to Registrable Securities having proposed gross
cash offering proceeds (prior to deduction of underwriters commissions and
expenses, if any) of Five Hundred Thousand Dollars ($500,000) or more for all
Registrable Securities to be included, on the basis of a reasonable (in light of
the current market price) proposed per share offering price.
(b) Upon receipt of such request, the Company shall (i)
promptly give written notice of the proposed registration to all other Holders,
and (ii) be obligated to effect such registration or registrations on Form S-3
as soon as practicable after receipt of such a request so as to permit the sale
and distribution of all or such portion of the Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to effect the filing of a registration pursuant to this
Section 7.4 during the period starting with the date ninety (90) days prior to
the Company's estimated date of filing of, and ending on a date one hundred
eighty (180) days following the effective date of, a registration statement
pertaining to a public offering of Common Stock for the account of the Company,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and that, in
the good faith judgment of the Company's Underwriter for an underwritten
offering or of the Board for any other offering, an offering pursuant to such a
registration statement would interfere in any material respect with the
successful marketing (including pricing) of the Common Stock to be included in
the Company's proposed registration statement, or (ii) if the Board shall
determine in good faith that such filing will interfere in any material respect
with a pending or contemplated financing, merger, sale or assets,
recapitalization or other similar corporate action of the Company. The Company
shall be entitled to exercise only one (1) such right of deferral in any
12-month period. In the event the Company's obligations are abated pursuant to
the foregoing PROVISO, and if any of the Holders on whose behalf the requested
registration statement would be filed and who were unable to have all of the
Registrable Securities included in the Company's registration statement pursuant
to Section 7.3 then want such registration statement to be filed, the Company
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shall use its best efforts to file such registration statement as promptly as
practicable following (x) one hundred eighty (180) days after the effective date
of the registration statement with respect to the offering referred to in clause
(i) above, or (y) the date on which the transactions referred to in clause (ii)
above shall have been completed or abandoned (as the case may be).
(c) The Company shall not be obligated to file and cause to
become effective more than one (1) registration on Form S-3 in any one twelve
(12) month period pursuant to the provisions of this Section 7.4. No
registration pursuant to this Section 7.4 shall count as a Demand Registration
pursuant to Section 7.2.
7.5 HOLDBACK AGREEMENTS; DEFERRAL.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDER OF REGISTRABLE
SECURITIES. Each Holder of Registrable Securities (whether or not such
Registrable Securities are included in a registration statement pursuant hereto)
agrees not to effect any direct or indirect (including through derivative
transactions) sale or distribution of the issue being registered or of any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 under the Securities Act, during the 14
days prior to, and during the 90-day period beginning on the effective date of a
registration statement filed pursuant hereto except as part of such registration
if and to the extent requested by the Company in the case of a non-underwritten
public offering or if and to the extent requested by the managing Underwriter or
Underwriters in the case of an underwritten public offering.
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY AND OTHERS.
The Company agrees not to effect any direct or indirect (including through
derivative transactions) sale or distribution of any securities similar to those
being registered, or any securities convertible into or exchangeable or
exercisable for such securities, during the 14 days prior to, and during a
period of up to 90 days if requested by the managing underwriters beginning on,
the effective date of any registration statement which includes Registrable
Securities (unless such sale or distribution is pursuant to such registration
statement).
(c) DEFERRAL OF FILING. The Company may defer the filing
(but not the preparation) of a registration statement required by Section 7.2
until a date not later than 45 days after the Required Filing Date if (i) at the
time the Company receives the Demand Request, the Company is engaged in
confidential negotiations or other confidential business activities, disclosure
of which would be required in such registration statement (but would not be
required if such registration statement were not filed), and the Board
determines in good faith that such disclosure would be materially detrimental to
the Company and its stockholders, or (ii) prior to receiving the Demand Request,
the Board had determined to effect a registered underwritten public offering of
the Company's equity securities for the Company's account and the Company had
taken substantial steps (including, but not limited to, selecting the managing
Underwriter for such offering) and is proceeding with reasonable diligence to
effect such offering. A deferral of the filing of a registration statement
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<PAGE>
pursuant to this Section 7.5(c) shall be lifted, and the requested registration
statement shall be filed forthwith, if, in the case of a deferral pursuant to
clause (i) of the preceding sentence, the negotiations or other activities are
disclosed or terminated, or, in the case of a deferral pursuant to clause (ii)
of the preceding sentence, the proposed registration for the Company's account
is abandoned. In order to defer the filing of a registration statement pursuant
to this Section 7.5(c), the Company shall promptly, upon determining to seek
such deferral, deliver to the Demand Holder a certificate signed by the
President of the Company stating that the Company is deferring such filing
pursuant to this Section 7.5(c) and the basis therefor in reasonable detail
(subject to applicable confidentiality requirements). Within twenty days after
receiving such certificate, the Demand Holder may withdraw such request by
giving notice to the Company; if withdrawn, the Demand Request shall be deemed
not to have been made for all purposes of this Agreement. The Company may defer
the filing of a particular registration statement pursuant to this Section
7.5(c) only once during any twelve-month period.
7.6 REGISTRATION PROCEDURES. Whenever Holders have requested that any
Registrable Securities be registered pursuant to this Section 7, the Company
will, at its expense, use its best efforts to effect the registration of such
Registrable Securities under the Securities Act in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request, the Company will as expeditiously as practicable.
(a) prepare and file with the SEC a registration statement
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the sale of
the Registrable Securities to be registered thereunder in accordance with the
intended method of distribution thereof, and use all commercially reasonable
efforts and proceed diligently and in good faith to cause such filed
registration statement to become effective under the Securities Act; provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to all Selling Holders and to one
counsel reasonably acceptable to the Company selected by the Selling Holders,
copies of all such documents proposed to be filed, which documents will be
subject to the review of such counsel; provided, that in connection with a
Demand Registration, the Company shall not file any registration statement or
prospectus, or any amendments or supplements thereto, if the Demand Holder, its
counsel, or the managing Underwriters shall reasonably object, in writing, on a
timely basis.
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
pursuant to Section 7.2 for a period (except as provided in the last paragraph
of this Section 7.6) of not less than 180 consecutive days or, if shorter, the
period terminating when all Registrable Securities covered by such registration
statement have been sold (but not before the expiration of the applicable period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if
applicable) and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Selling Holders thereof set forth in such registration statement;
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(c) furnish to each such Selling Holder such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
documents as such Selling Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Selling Holder;
(d) notify the Selling Holders promptly, and (if requested
by any such Person) confirm such notice in writing, (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective under the Securities Act and each applicable state
law; (ii) of any request by the SEC or any other federal or state governmental
authority for amendments or supplements to a registration statement or related
prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of a registration statement or the
initiation of any proceedings for that purpose; (iv) if at any time the
representations or warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated by Section 7.6(i) below
cease to be true and correct in any material respect; (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose; (vi) of the happening of any event which makes any statement made in
such registration statement or related prospectus or any document incorporated
or deemed to be incorporated therein by reference untrue in any material respect
or that requires the making of any changes in such registration statement,
prospectus or documents so that, in the case of the registration statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the prospectus, it will not
contain any untrue statement of a material fact or omit to state any 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
(vii) of the Company's reasonable determination that a post-effective amendment
to a registration statement would be appropriate;
(e) use commercially reasonable efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment;
(f) cooperate with the Selling Holders and the managing
Underwriter or Underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold, which certificates
shall not bear any restrictive legends and shall be in a form eligible for
deposit with The Depositary Trust Company; and enable such Registrable
Securities to be registered in such names as the managing Underwriter or
Underwriters may request prior to any sale of Registrable Securities;
(g) use commercially reasonable efforts to register or
qualify such Registrable Securities as promptly as practicable under such other
- 22 -
<PAGE>
securities or blue sky laws of such jurisdictions as any Selling Holder or
managing Underwriter reasonably (in light of the intended plan of distribution)
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such Selling Holder or managing Underwriter to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such Selling Holder; provided that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this paragraph (g); (ii) subject itself
to taxation in any such jurisdiction; or (iii) consent to general service of
process in any such jurisdiction;
(h) use commercially reasonable efforts to cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities of the Company to enable the Selling Holder
or Selling Holders thereof to consummate the disposition of such Registrable
Securities;
(i) enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Securities;
(j) make available for inspection by any Selling Holder of
such Registrable Securities, any Underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
professional retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors'), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspectors in connection
with such registration statement. Each Selling Holder of such Registrable
Securities agrees that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Company or its
Affiliates unless and until such is made generally available to the public;
(k) use commercially reasonable efforts to obtain a comfort
letter or comfort letters from the Company's independent public accountants in
customary form and covering such matters of the type customarily covered by
comfort letters as the Selling Holders of a majority of the shares of
Registrable Securities being sold or the managing Underwriter or Underwriters
reasonably requests;
(l) otherwise use commercially reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering a period of twelve months, beginning within three months after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act;
(m) use commercially reasonable efforts to cause all such
Registrable Securities to be listed on each securities exchange on which similar
securities issued by the Company are then listed or quoted on any inter-dealer
- 23 -
<PAGE>
quotation system on which similar securities issued by the Company are then
quoted;
(n) if any event contemplated by Section 7.6(d)(vi) above
shall occur, as promptly as practicable prepare a supplement or amendment or
post-effective amendment to such registration statement or the related
prospectus or any document incorporated therein by reference or promptly file
any other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, the prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; and
(o) cooperate and assist in any filing required to be made
with the National Association of Securities Dealers, Inc. and in the performance
of any due diligence investigation by any underwriter, including any "qualified
independent underwriter," or any Selling Holder.
Each Selling Holder shall promptly furnish in writing to the Company
such information regarding the distribution of the Registrable Securities as the
Company may from time to time reasonably request and such other information as
may be legally required in connection with such registration.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section
7.6(d)(vi) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 7.6(n) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies, then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such registration
statement shall be maintained effective (including the period referred to in
Section 7.6(b) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 7.6(d)(vi) hereof
to the date when the Company shall make available to the Selling Holders of
Registrable Securities covered by such registration statement a prospectus
supplemented or amended to conform with the requirements of Section 7.6(n)
hereof.
7.7 REGISTRATION EXPENSES. Subject to the provisions in Section 7.2(b)
above with respect to a Demand Registration, in connection with any Demand
Registration or Piggyback Registration hereunder, the Company shall pay the
following registration expenses (the "Registration Expenses"): (a) all
registration and filing fees (including, without limitation, with respect to
filings to be made with the National Association of Securities Dealers, Inc.),
(b) fees and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (c) printing expenses, (d)
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), (e) the fees and expenses
- 24 -
<PAGE>
incurred in connection with the listing of the Registrable Securities on an
exchange or the quotation of the Registrable Securities on an inter-dealer
quotation system, (f) reasonable fees and disbursements of counsel for the
Company and customary fees and expenses for independent certified public
accountants retained by the Company (including the expenses of any comfort
letters requested pursuant to Section 7.6(k) hereof), (g) the reasonable fees
and expenses of any special experts retained by the Company in connection with
such registration, and (h) reasonable fees and expenses, up to $15,000 and upon
the submission to the Company of reasonably detailed invoices, of one counsel
reasonably acceptable to the Company selected by the Selling Holders incurred in
connection with the registration of such Registrable Securities hereunder and
(i) fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in any offering pursuant to Schedule E to
the By-laws of the National Association of Securities Dealers, Inc. The Company
shall not have any obligation to pay any underwriting fees, discounts, or
commissions attributable to the sale of Registrable Securities or, except as
provided by clause (b), (h) or (i) above, any out-of-pocket expenses of the
Holders (or the agents who manage their accounts) or the fees and disbursements
of counsel for any Underwriter.
7.8 INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Selling Holder, each Person, if any, who
controls such Selling Holder within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and the officers, directors, agents,
general and limited partners, and employees of each Selling Holder and each such
controlling person from and against any and all losses, claims, damages,
liabilities, and expenses (including reasonable costs of investigation) arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus relating to
the Registrable Securities or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, liabilities or expenses arise out of, or are based
upon, any such untrue statement or omission or allegation thereof based upon
information furnished in writing to the Company by such Selling Holder or on
such Selling Holder's behalf expressly for use therein. The Company also agrees
to indemnify any Underwriters of the Registrable Securities, their officers and
directors and each Person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Selling Holders provided in
this Section 7.8(a).
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES.
Each Selling Holder, severally and not jointly, agrees to indemnify and hold
harmless the Company, and each Person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act and the officers, directors, agents and employees of the Company
and each such controlling Person to the same extent as the foregoing indemnity
from the Company to such Selling Holder, but only with respect to information
furnished in writing by such Selling Holder or on such Selling Holder's behalf
expressly for use in any registration statement or prospectus relating to the
- 25 -
<PAGE>
Registrable Securities. The liability of any Selling Holder under this Section
7.8(b) shall be limited to the aggregate cash and property received by such
Selling Holder pursuant to the sale of Registrable Securities covered by such
registration statement or prospectus.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any action or
proceeding (including any governmental investigation) shall be brought or
asserted against any Person entitled to indemnification under Section 7.8(a) or
7.8(b) above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification under
Section 7.8(a) or 7.8(b) above (an "Indemnifying Party"), the Indemnified Party
shall give prompt notice to the Indemnifying Party and the Indemnifying Party
shall assume the defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party, and shall assume the payment of all
reasonable expenses of such defense. Such Indemnified Party shall have the right
to employ separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Party unless (i) the Indemnifying Party has
agreed to pay such fees and expenses or (ii) the Indemnifying Party fails
promptly to assume the defense of such action or proceeding or fails to employ
counsel reasonably satisfactory to such Indemnified Party or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an Affiliate of
the Indemnifying Party), and such Indemnified Party shall have been advised by
counsel that there is a conflict of interest on the part of counsel employed by
the Indemnifying Party to represent such Indemnified Party (in which case, if
such Indemnified Party notifies the Indemnifying Party in writing that it elects
to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party). Notwithstanding the
foregoing, the Indemnifying Party shall not, in connection with any one such
action or proceeding or separate but substantially similar related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable at any time for the fees and expenses of more than
one separate firm of attorneys (together in each case with appropriate local
counsel). The Indemnifying Party shall not be liable for any settlement of any
such action or proceeding effected without its written consent (which consent
will not be unreasonably withheld), but if settled with its written consent, or
if there be a final judgment for the plaintiff in any such action of proceeding,
the Indemnifying Party shall indemnify and hold harmless such Indemnified Party
from and against any loss or liability (to the extent stated above) by reason of
such settlement or judgment. The Indemnifying Party shall not consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release, in form and substance satisfactory to the
Indemnified Party, from all liability in respect of such action or proceeding
for which such Indemnified Party would be entitled to indemnification hereunder.
(d) CONTRIBUTION. If the indemnification provided for in
this Section 7.8 is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein, then each
such Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
- 26 -
<PAGE>
of such losses, claims, damages, liabilities and judgments as between the
Company on the one hand and each Selling Holder on the other, in such proportion
as is appropriate to reflect the relative fault of the Company and of each
Selling Holder in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of each Selling Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Selling Holders agree that it would
not be just and equitable if contribution pursuant to this Section 7.8(d) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the first
two sentences of this Section 7.8(d). The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages, liabilities or
judgments referred to in Sections 7.8(a) and 7.8(b) hereof shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7.8(d), no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
7.9 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Person entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement.
7.10 RULE 144. The Company shall file all reports required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, to the extent required from time to
time to enable such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by (i)
Rule 144 under the Securities Act, as such Rule may be amended from time to
time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon
the request of any Holder of Registrable Securities, the Company will deliver to
such Holder a written statement as to whether it has complied with such
information and requirements.
7.11 TRANSFER OF REGISTRATION RIGHTS. The rights set forth in Sections
7.2, 7.3 and 7.4 hereof (and all rights relating thereto) may be assigned by any
Investor to an Affiliate thereof.
- 27 -
<PAGE>
8. MISCELLANEOUS.
8.1 SURVIVAL OF WARRANTIES. The warranties, representations and
covenants of the Company and Investors contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing for one year from the date hereof and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
8.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Delaware as applied to agreements entered into and
performed entirely in the State of Delaware by residents thereof.
8.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
PROVIDED, HOWEVER, that the rights of the Investors to purchase Series C Shares
and the Warrants to be issued in connection therewith shall not be assignable
without the prior written consent of the Company.
8.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the holders of at least a majority of the Series C Shares. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities are convertible), each future
holder of all such securities, and the Company.
8.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and be sent (a) if to the Investors, at
the Investors' address set forth opposite each Investor's name on EXHIBIT A or
EXHIBIT B hereto (as the case may be) or as such Investor shall have furnished
to the Company in writing, or (b) if to any other holder of any Series C Shares,
at such address as such holder shall have furnished the Company in writing, or,
until any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such Series C Shares who has so furnished an
address to the Company, or (c) if to the Company, at its address set forth on
the first page of this Agreement addressed to the attention of the Corporate
Secretary, or at such other address as the Company shall have furnished to the
Investors. All notices and other communications shall be deemed effectively
given on the earliest of (i) when received, (ii) when delivered personally,
(iii) one (1) business day after being delivered by facsimile (with receipt of
appropriate confirmation), (iv) one (1) business day after being deposited with
an overnight courier service or (v) four (4) days after being deposited in the
U.S. mail, First Class with postage prepaid, and addressed to the parties at the
addresses provided to the Company (which the Company agrees to disclose to the
other parties upon request) or such other address as a party may request by
notifying the other in writing.
- 28 -
<PAGE>
8.6 NO IMPLIED RIGHTS. Nothing herein express or implied, is intended
to or shall be construed to confer upon or give to any person, firm, corporation
or legal entity, other than the parties hereto and their affiliates, any
interests, rights, remedies or other benefits with respect to or in connection
with any agreement or provision contained herein or contemplated hereby.
8.7 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to the Investors upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of the
Investors, nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring.
8.8 EXPENSES. The Company shall pay its own expenses and legal fees
incurred on its behalf with respect to this Agreement and the transactions
contemplated hereby. The Company shall pay the reasonable expenses and legal
fees incurred on behalf of Janney with respect to this Agreement and the
transactions contemplated hereby up to $35,000 and subject to a reasonably
detailed invoice.
8.9 FINDER'S FEE. The Company and each Investor shall indemnify and
hold the other harmless from any liability for any commission or compensation in
the nature of a finder's fee (including the costs, expenses and legal fees of
defending against such liability) for which the Company or each Investor, or any
of their respective partners, employees, or representatives, as the case may be,
is responsible.
8.10 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be enforceable against the party actually executing the
counterpart, and all of which together shall constitute one instrument.
8.11 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; PROVIDED that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
- 29 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Series C Preferred Stock and
Non-Detachable Warrant Purchase Agreement as of the date first above written.
V-ONE CORPORATION
BY: ____________________________________
TITLE:
JANNEY MONTGOMERY SCOTT LLC, AS NOMINEE FOR THOSE
INVESTORS LISTED ON EXHIBIT A ATTACHED HERETO
BY: ____________________________________
TITLE:
OTHER INVESTORS:
Name of Investor:
Authorized Signatory:
Title:
- 30 -
<PAGE>
EXHIBIT A
SCHEDULE OF JANNEY INVESTORS
A-1
<PAGE>
EXHIBIT B
SCHEDULE OF OTHER INVESTORS
B-1
<PAGE>
EXHIBIT C
CERTIFICATE OF DESIGNATIONS
C-1
<PAGE>
EXHIBIT D
FORM OF WARRANT
D-1
<PAGE>
EXHIBIT E
SCHEDULE OF EXCEPTIONS
SECTION 2.7
- -----------
In May 1999, V-ONE was notified by the Nasdaq Stock Market that it no
longer met the minimum net tangible assets requirement of $4 million necessary
to remain listed on the Nasdaq National Market and that Nasdaq was initiating
de-listing of V-ONE's Common Stock. The Nasdaq Stock Market also was concerned
regarding V-ONE's receipt of a "going concern" opinion from its independent
auditors with respect to its 1998 financial statements.
V-ONE has submitted a written proposal to the Nasdaq Stock Market arguing
in favor of its continued listing and delivered an oral presentation before a
Nasdaq authorized panel on July 9, 1999 at which it presented its case for
continued listing. A decision by Nasdaq on the status of the listing of the
Company's common stock on the Nasdaq National Market is still pending.
SECTION 2.8
- -----------
1. The Company is currently a party to an employment contract with David D.
Dawson dated July 1, 1999 whereby the Company has employed Mr. Dawson as
President and Chief Executive Officer in return for which Mr. Dawson receives a
base salary of $200,000 and is subject to the Company's stock option plan. The
term of the agreement terminates on November 21, 1999 and is subject to
automatic renewal for successive one-year terms unless either party shall have
provided prior notice.
2. The Company is currently a party to an employment contract with Margaret E.
Grayson dated July 1, 1999 whereby the Company has employed Ms. Grayson as
Senior Vice President and Chief Financial Officer in return for which Ms.
Grayson receives a base salary of $150,000 and is subject to the Company's stock
option plan. The term of the agreement terminates on July 1, 2000 and is subject
to automatic renewal for successive one-year terms unless either party shall
have provided prior notice.
3. The Company is currently a party to an employment contract with Robert Kelly
dated August 1, 1998 whereby the Company has employed Mr. Kelly as Vice
President of Engineering in return for which Mr. Kelly receives a base salary of
$140,000 and is subject to the Company's stock option plan. The term of the
agreement terminates on July 31, 2000 and is subject to automatic renewal for
successive one-year terms unless either party shall have provided prior notice.
E-1
<PAGE>
EXHIBIT F
LEGAL OPINION OF
KIRKPATRICK & LOCKHART LLP
F-1
<TABLE>
V-ONE CORPORATION
CONDENSED BALANCE SHEETS
<CAPTION>
July 31, July 31, 1999
1999 (pro forma
(unaudited) unaudited )
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 684,227 $10,477,977
Accounts receivable, net 334,894 334,894
Finished Goods Inventory, net 238,376 238,376
Prepaid expenses and other current assets 525,001 525,001
----------- ------------
Total current assets 1,782,498 11,576,248
Property and equipment, net 739,088 739,088
Licensing fee, net 90,262 90,262
Other assets 917,717 917,717
-----------
=========== ============
Total assets $3,529,565 $13,323,315
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $1,831,119 $ 2,694,619
Deferred income 601,979 601,979
Notes payable - current 3,000,000 3,000,000
Capital lease obligations - current 68,678 68,678
----------- ------------
Total current liabilities 5,501,776 6,365,276
Capital lease obligations - noncurrent 160,275 160,275
----------- ------------
Total liabilities 5,662,051 6,525,551
Commitments and contingencies
Shareholders' equity (deficit):
Common stock, $0.001 par value; 33,333,333 shares authorized;
16,773,575 shares issued and outstanding as of July 31, 1999 16,781 16,781
Preferred Stock, Series B, $.001 par value, 1,287,554
shares issued and outstanding as of July 31, 1999
(liquidation preference of $3,000,000) 1,287 1,287
Preferred Stock, Series C, $26.25 par value; 335,000
shares issued and outstanding as of July 31, 1999
(liquidation preference of $8,793,750) - 4,439,131
Additional paid-in capital 33,754,457 37,245,576
Notes receivable from sales of preferred and common stock (1,053,613) (53,613)
Accumulated deficit (34,851,398) (34,851,398)
----------- ------------
Total shareholders' equity (deficit) (2,132,486) 6,797,764
----------- ------------
=========== ============
Total liabilities and shareholders' equity (deficit) $3,529,565 $13,323,315
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
V-ONE CORPORATION
NOTES TO THE CONDENSED BALANCE SHEETS
(Historical and Pro Forma)
(unaudited)
Basis of Presentation
The condensed historical balance sheet as of July 31, 1999 is unaudited and
reflects all adjustments, consisting of normal recurring adjustments, which are,
in the opinion of management, necessary to present fairly the results for an
interim period. This financial statement should be read in conjunction with the
audited financial statements as of December 31, 1996, 1997 and 1998 and for the
three years then ended, which are included in the Company's 1998 Annual Report
on Form 10-K ("Form 10-K").
The preparation of financial statements to be in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates and could impact future
results of operations and cash flows.
The pro forma balance sheet as of July 31, 1999 reflects the changes related to
the issuance of the Series C Preferred Stock (Series C Stock) (see Item 5. Other
Events) and the proceeds from the repayment of notes receivable from the sale of
Series B Convertible Preferred Stock which occurred during the period up to and
including September 9, 1999. The following notes describe the changes from the
unaudited July 31, 1999 historical balance sheet to the unaudited, pro forma
balance sheet of the same date:
Cash
Cash increased in the pro forma balance sheet due to (i) receipt of the final
payment on the note receivable from the sale of the Series B Convertible
Preferred Stock on August 14, 1999 in the amount of $1,000,000 and (ii) the
gross proceeds from the Series C Preferred Stock dated September 9, 1999 in the
amount of $8,793,750.
Accounts Payable
Accounts Payable increased for offering costs associated with the Series C
Preferred Stock offering in the amount of $863,500.
Series C Preferred Stock
Series C Preferred Stock increased in the amount of $4,439,131 as a result of
the proceeds received from the September 9, 1999 offering (see Item 5 Other
Events) less the offering costs and the value attributable to the Warrants.
Additional Paid-In Capital
Additional Paid-In Capital increased by $3,491,119, the amount allocated to the
Warrants based on the estimated fair value of the Warrants and Series C
Preferred Stock (see Item 5. Other Events).
Notes Receivable From Sales of Preferred Stock
Notes receivable decreased by $1,000,000 due to the receipt on August 14, 1999
of the last payment required by the terms of the note. This related to the sale
of the Series B Convertible Preferred Stock dated June 11, 1999.
