<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
NETIQ CORPORATION
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
64115 P 10 2
(CUSIP Number)
Michael Bennett
Mission Critical Software, Inc.
13939 Northwest Freeway
Houston, TX 77040
(888) 323-6768
Copies to:
William M. Kelly
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, CA 94025
(650) 752-2000
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
February 26, 2000
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Sections 240.13-1(e), 240.13d-(f) or 240.13d-1(g),
check the following box.
NOTE: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See Section 240.13d-7(b)
for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 11 Pages)
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
===============================================================================
SCHEDULE 13D
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Mission Critical Software, Inc. I.R.S. Identification No.: 76-0509513
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [_]
(b) [_]
N/A
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) [_]
5 N/A
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
State of Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF
3,520,234
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
OWNED BY 3,845,983
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING
3,520,234
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
N/A
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
7,366,217
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
41.8%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
Page 2 of 11
<PAGE>
ITEM 1. SECURITY AND ISSUER.
This statement relates to the Common Stock of NetIQ Corporation ("NetIQ") a
Delaware corporation ("NetIQ" or "Issuer"). The principal executive offices of
NetIQ are located at 5410 Betsy Ross Drive, Santa Clara, California 95054.
ITEM 2. IDENTITY AND BACKGROUND.
The name of the corporation filing this statement is Mission Critical
Software, Inc., a Delaware corporation ("MCS"). MCS is a provider of systems
administration and operations management software products for corporate and
Internet-based Windows NT networks. MCS's principal business address is 13939
Northwest Freeway, Houston, Texas 77040. The address of MCS's executive offices
is the same as the address of its principal business.
Set forth on Schedule A is the name of each of the directors and executive
officers of MCS along with the present principal occupation or employment of
such directors and executive officers and the name, principal business and
address of any corporation or other organization in which such employment is
conducted, as of the date hereof to MCS's knowledge. To MCS's knowledge, each
of the individuals identified on Schedule A is a citizen of the United States.
Neither MCS, nor to MCS's knowledge any person named on Schedule A hereto,
is required to disclose legal proceedings pursuant to Items 2(d) or 2(e).
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Pursuant to an Agreement and Plan of Reorganization dated as of February
26, 2000 (the "Merger Agreement"), among NetIQ, Planet Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of NetIQ ("Merger Sub") and
MCS, and subject to the conditions set forth therein (including approval by
stockholders of MCS and NetIQ), Merger Sub will merge with and into MCS and MCS
will become a wholly-owned subsidiary of NetIQ (such events constituting the
"Merger"). Once the Merger is consummated, Merger Sub will cease to exist as a
corporation and all of the business, assets, liabilities and obligations of
Merger Sub will be merged into MCS with MCS remaining as the surviving
corporation (the "Surviving Corporation").
As an inducement for MCS to enter into the Merger Agreement and in
consideration thereof, certain stockholders of NetIQ entered into individual
agreements with MCS (collectively the "NetIQ Voting Agreements") whereby each
such stockholder (collectively, the "NetIQ Voting Agreement Stockholders")
agreed, severally and not jointly, to vote all of the shares of NetIQ Common
Stock beneficially owned by him in favor of approval and adoption of the Merger
Agreement and approval of the Merger and certain related matters. MCS did not
pay additional consideration to any NetIQ Voting Agreement Stockholder in
connection with the execution and delivery of the NetIQ Voting Agreements.
As a condition of MCS's willingness to enter into the Merger Agreement,
NetIQ agreed to grant to MCS an option to acquire up to 3,520,234 shares of
NetIQ Common Stock pursuant to a stock option agreement (the "NetIQ Stock Option
Agreement"). The NetIQ Stock Option Agreement becomes exercisable if the Merger
Agreement is terminated under certain circumstances.
Page 3 of 11
<PAGE>
References to, and descriptions of, the Merger and the Merger as set forth
in this Schedule 13D are qualified in their entirety by reference to the copies
of the Merger Agreement, included as an Exhibit to the Form 8-K filed by MCS on
March 3, 2000.
References to, and descriptions of, the MCS Stock Option Agreement, the
NetIQ Stock Option Agreement and the NetIQ Voting Agreements as set forth in
this Schedule 13D are qualified in their entirety by reference to the MCS Stock
Option Agreement, the NetIQ Stock Option Agreement and the NetIQ Voting
Agreement included as Exhibits A, B, and C, respectively, to this Schedule 13D.
--------------------
ITEM 4. PURPOSE OF TRANSACTION.
(a) Not applicable.
(b) As described in Item 3 above, this statement relates to the Merger
of Merger Sub, a wholly-owned subsidiary of NetIQ, with and into MCS in a
statutory merger pursuant to the applicable provisions of Delaware Law. At the
effective time of the Merger, the separate existence of Merger Sub will cease
and MCS will continue as the Surviving Corporation and as a wholly-owned
subsidiary of NetIQ. Each holder of outstanding MCS Common Stock will receive,
in exchange for each share of MCS Common Stock held by such holder, 0.9413
shares of NetIQ Common Stock. NetIQ will assume each outstanding option to
purchase MCS Common Stock under MCS's stock option plans. Furthermore, all
rights to purchase shares of MCS Common Stock under MCS's Employee Stock
Purchase Plan shall be converted into rights to purchase shares of NetIQ Common
Stock and shall be assumed by NetIQ.
Pursuant to the NetIQ Voting Agreements, the NetIQ Voting Agreement
Stockholders have agreed to vote their shares of NetIQ Common Stock (plus any
additional shares of MCS Common Stock and all additional options, warrants and
other rights to acquire shares of MCS Common Stock) beneficially owned by the
Voting Agreement Stockholders (the "NetIQ Voting Agreement Shares") at every MCS
stockholders meeting and every written consent in lieu of such a meeting to vote
the shares (a) in favor of the Merger and the Merger Agreement (the "NetIQ
Approval Matters"), (b) in favor of any matter that could reasonably be expected
to facilitate the NetIQ Approval Matters and (c) in such manner as MCS may
direct with respect to all other proposals submitted to the stockholders of MCS
which, directly or indirectly, in any way relates to the NetIQ Approval Matters.
The NetIQ Voting Agreements terminate upon the earlier to occur of (i) such date
and time as the Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement, or (ii) such date and time as the Merger
Agreement shall have been terminated pursuant to Article VII thereof.
As a condition of MCS's willingness to enter into the Merger Agreement,
NetIQ agreed to grant to MCS an option to acquire up to 3,520,234 shares of MCS
Common Stock pursuant to a stock option agreement (the "NetIQ Stock Option
Agreement"). The NetIQ Stock Option Agreement becomes exercisable if the Merger
Agreement is terminated under certain circumstances. The NetIQ Stock Option
Agreement expires upon the earliest of (i) the effectiveness of the Merger or
(ii) twelve months after a termination of the Merger Agreement pursuant to
certain of its provisions.
As an inducement for NetIQ to enter into the Merger Agreement and in
consideration thereof, certain stockholders of MCS entered into individual
agreements with NetIQ (collectively the "MCS Voting Agreements") whereby each
such stockholder (collectively, the "MCS Voting Agreement Stockholders") agreed,
severally and not jointly, to vote all of the shares of MCS Common Stock
beneficially owned by him in favor of approval and adoption of the Merger
Agreement and approval of the Merger and certain related matters. NetIQ did not
pay additional consideration to any MCS Voting Agreement Stockholder in
connection with the execution and delivery of the MCS Voting Agreements.
Page 4 of 11
<PAGE>
Pursuant to the MCS Voting Agreements, the MCS Voting Agreement
Stockholders have agreed to vote their shares of MCS Common Stock (plus any
additional shares of MCS Common Stock and all additional options, warrants and
other rights to acquire shares of MCS Common Stock) beneficially owned by the
NetIQ Voting Agreement Stockholders (the "MCS Voting Agreement Shares") at every
MCS stockholders meeting and every written consent in lieu of such a meeting to
vote the shares (a) in favor of approval of the Merger, the Merger Agreement and
the issuance of shares of MCS Common Stock in exchange for all outstanding
capital stock of NetIQ as set forth in the Merger Agreement (the "MCS Approval
Matters"), (b) in favor of any matter that could reasonably be expected to
facilitate the MCS Approval Matters, and (c) in such manner as NetIQ may direct
with respect to all other proposals submitted to the stockholders of MCS which,
directly or indirectly, in any way relates to the MCS Approval Matters. The MCS
Voting Agreements terminate upon the earlier to occur of (i) such date and time
as the Merger shall become effective in accordance with the terms and provisions
of the Merger Agreement, or (ii) such date and time as the Merger Agreement
shall have been terminated pursuant to Article VII thereof.
In addition, MCS agreed to grant to NetIQ an option to acquire up to
3,416,052 shares of NetIQ Common Stock pursuant to a stock option agreement (the
"MCS Stock Option Agreement"). The MCS Stock Option Agreement becomes
exercisable if the Merger Agreement is terminated under certain circumstances.
The MCS Stock Option Agreement expires upon the earliest of (i) the
effectiveness of the Merger or (ii) twelve months after a termination of the
Merger Agreement pursuant to certain of its provisions.
The purpose of the transactions under the MCS Voting Agreements, the NetIQ
Voting Agreements, the MCS Stock Option Agreement and the NetIQ Stock Option
Agreement are to enable NetIQ and MCS to consummate the transactions
contemplated under the Merger Agreement.
(c) Not applicable.
(d) It is anticipated that upon consummation of the Merger, the directors
of the Surviving Corporation shall be the directors of Merger Sub when formed.
The initial officers of the Surviving Corporation shall be the following
persons, who shall hold the same offices in NetIQ:
Executive Chairman Michael Bennett
Chief Executive Officer Ching-Fa Hwang
Chief Operating Officer Steve Odom
Chief Financial Officer James Barth
Chief Technical Officer Tom Bernhardt
(e) Other than as a result of the Merger described in Item 3 above, not
applicable.
(f) Not applicable.
(g) Upon consummation of the Merger, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Merger, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation. Upon
consummation of the Merger, the Bylaws of Merger Sub, as in effect immediately
prior to the Merger, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
(h) - (i) If the Merger is consummated as planned, the MCS Common Stock
will be deregistered under the Act and delisted from The Nasdaq National Market.
Page 5 of 11
<PAGE>
(j) Other than described above, MCS currently has no plan or proposals
which relate to, or may result in, any of the matters listed in Items 4(a) - (j)
of Schedule 13D (although MCS reserves the right to develop such plans).
References to, and descriptions of, the Merger and the Merger as set forth
in this Schedule 13D are qualified in their entirety by reference to the copies
of the Merger Agreement, included as an Exhibit to the Form 8-K filed by MCS on
March 3, 2000.
References to, and descriptions of, the MCS Stock Option Agreement, the
NetIQ Stock Option Agreement and the NetIQ Voting Agreements as set forth in
this Schedule 13D are qualified in their entirety by reference to the MCS Stock
Option Agreement, the NetIQ Stock Option Agreement and the NetIQ Voting
Agreement included as Exhibits A, B, and C, respectively, to this Schedule 13D.
--------------------
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) - (b) As a result of the NetIQ Voting Agreements, MCS may be deemed to
be the beneficial owner of at least 7,366,217 shares of NetIQ Common Stock. Such
NetIQ Common Stock constitutes approximately 41.8% of the issued and outstanding
shares of NetIQ Common Stock based on the number of shares of NetIQ Common Stock
outstanding as of February 24, 2000 (as represented by NetIQ in the Merger
Agreement discussed in Items 3 and 4). MCS may be deemed to have the shared
power to vote the Shares with respect to those matters described above. However,
MCS (i) is not entitled to any rights as a stockholder of NetIQ as to the Shares
and (ii) disclaims any beneficial ownership of the shares of NetIQ Common Stock
which are covered by the Voting Agreements.
To MCS's knowledge, no person listed on Schedule A has an ownership
interest in MCS.
Set forth on Schedule B are the names of the stockholder of NetIQ that have
entered into an NetIQ Voting Agreement with MCS, and their present principal
occupation or employment, including the name, principal business and address of
any corporation or other organization in which such employment is conducted, to
MCS's knowledge.
To MCS's knowledge, no transactions in the class of securities reported
have been effected during the past sixty days by any person named pursuant to
Item 2.
(c) To the knowledge of MCS, no transactions in the class of securities
reported have been effected during the past sixty days by any person named
pursuant to Item 2.
(d) To the knowledge of MCS, no other person has the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, the securities of NetIQ reported on herein.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDING OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
Other than the Merger Agreement and the exhibits thereto, including the
voting agreements and the stock option agreements described herein, to the
knowledge of MCS, there are no contracts, arrangements, understandings or
relationships among the persons named in Item 2 and between such persons and any
person with respect to any securities of NetIQ, including but not limited to
transfer or voting of any of the securities,
Page 6 of 11
<PAGE>
finder's fees, joint ventures, loan or option arrangement, puts or calls,
guarantees of profits, division of profits or loss, or the giving or withholding
of proxies.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
The following documents are filed as exhibits:
A. Stock Option Agreement, dated February 26, 2000, between Mission
Critical Software, Inc. and NetIQ Corporation.
B. Stock Option Agreement, dated February 26, 2000, between NetIQ
Corporation and Mission Critical Software, Inc.
C. Form of Voting Agreement, dated February 26, 2000, between Mission
Critical Software, Inc. and certain stockholders of NetIQ Corporation.
D.* Agreement and Plan of Reorganization, dated as of February 26, 2000,
by and among NetIQ Corporation, Planet Acquisition Corp. and Mission
Critical Software, Inc.
* Incorporated by reference to the 8-K filed by Mission Critical Software,
Inc. on March 3, 2000.
Page 7 of 11
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 7, 2000 MISSION CRITICAL SOFTWARE, INC.
By: /s/ Stephen E. Odom
---------------------------
Stephen E. Odom
Chief Financial Officer
Page 8 of 11
<PAGE>
Schedule A
DIRECTORS AND EXECUTIVE OFFICERS OF
NETIQ CORPORATION
The following table sets forth the name, business address and present
principal occupation or employment of each director and executive officer of
MCS. The address of each such person is c/o MCS Corporation, 13939 Northwest
Freeway, Houston, Texas 77040. To MCS's knowledge, each of the individuals
identified below is a citizen of the United States.
<TABLE>
<CAPTION>
<S> <C>
Present Principal Occupation and
Name and Title Name of Employer
- -------------------------------------------------------------------------------------------------------------
Michael S. Bennett Mission Critical Software, Inc.
President, Chief Executive Officer and Director
Stephen E. Odom Mission Critical Software, Inc.
Chief Financial Officer, Chief Operating Officer and
Secretary
Thomas P. Berndhardt Mission Critical Software, Inc.
Chief Technology Officer and Director
Brian J. McGrath Mission Critical Software, Inc.
Vice President of Sales
Richard J. Pleczko Mission Critical Software, Inc.
Vice President, Marketing and Product Management
Steven Kangas Mission Critical Software, Inc.
Vice President of Strategic Alliances
Olivier J. Thierry Mission Critical Software, Inc.
Vice President of Marketing Communications
D. Von Jones Mission Critical Software, Inc.
Vice President of Development
Janell Heathcock Mission Critical Software, Inc.
Vice President of North American Sales
Leslie Willard Mission Critical Software, Inc.
Vice President, Finance
Simon Church Mission Critical Software, Inc.
Director, International Sales
</TABLE>
Page 9 of 11
<PAGE>
<TABLE>
<S> <C>
Michael Rovner Mission Critical Software, Inc.
Director of Business Development
Douglas Ayer President
Director International Capital Partners, Inc.
Michael Maples Director
Director Mission Critical Software, Inc.
John Moores Chairman
Director JMI Equity Fund III, L.P.
Scott Sandell Limited Partner
Director New Enterprise Associates Entities
John D. Thornton General Partner
Director Austin Ventures Entities
</TABLE>
Page 10 of 11
<PAGE>
Schedule B
The following table sets forth the name and present principal occupation or
employment of each NetIQ stockholder that entered into a voting agreement with
MCS. Except as indicated below, the business address of each such person is c/o
NetIQ Corporation, 5410 Betsy Ross Drive, Santa Clara, California 95054.
Voting Agreement Stockholder Shares Beneficially Owned
Ching-Fa Hwang 1,731,665
President, Chief Executive Officer and Director, NetIQ
Her-Daw Che 1,030,985
Vice President, Engineering and Director, NetIQ
Ying-Hon Wong 1,083,333
Director, NetIQ
Partner, Wongfratris Investment Company
TOTAL 3,845,983
<PAGE>
EXHIBIT A
MCS STOCK OPTION AGREEMENT
THIS MCS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into
as of 23 February 26, 2000, among NetIQ Corp., a Delaware corporation ("NetIQ"),
Mission Critical Software Inc., a Delaware corporation ("MCS"). Capitalized
terms used but not otherwise defined herein will have the meanings ascribed to
them in the Merger Agreement (as defined below).
RECITALS
--------
A. MCS, Merger Sub (as defined below) and NetIQ have entered into an
Agreement and Plan of Reorganization (the "Merger Agreement") which provides for
the merger (the "Merger") of a wholly-owned subsidiary of NetIQ ("Merger Sub")
with and into the MCS. Pursuant to the Merger, all outstanding capital stock of
the MCS will be converted into the right to receive Common Stock of NetIQ.
B. As a condition to NetIQ's willingness to enter into the Merger
Agreement, NetIQ has requested that MCS agree, and MCS has so agreed, to grant
to NetIQ an option to acquire shares of MCS's Common Stock, par value $0.001 per
share ("MCS Shares"), upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. MCS hereby grants to NetIQ an irrevocable option (the
---------------
"Option") to acquire up to 3,416,052 MCS Shares (the "Option Shares"), in the
manner set forth below by paying cash at a price of $69,1855 per share (the
"Exercise Price").
2. Exercise of Option; Maximum Proceeds.
------------------------------------
(a) The Option may be exercised by NetIQ, in whole or in part, at any
time or from time to time(i) if the Merger Agreement is terminated pursuant to
7.1(h) thereof and an event causing the MCS Termination Fee to become payable
pursuant to Section 7.3(b) of the Merger Agreement occurs or (ii) immediately
prior to the occurrence of any event causing the MCS Termination Fee to become
payable pursuant to Section 7.1(b) or 7.1(d) thereof (any of the events being
referred to herein as an "Exercise Event"). In the event NetIQ wishes to
exercise the Option, NetIQ will deliver to the MCS a written notice (each an
"Exercise Notice") specifying the total number of Option Shares it wishes to
acquire. Each closing of a purchase of Option Shares (a "Closing") will occur on
a date and at a time prior to the termination of the Option designated by NetIQ
in an Exercise Notice delivered at least two (2) business days prior to the date
of such Closing, which Closing will be held at the principal offices of the MCS.
(b) The Option will terminate upon the earliest of (i) the Effective
Time, (ii) twelve (12) months following the date on which the Merger Agreement
is terminated pursuant to Section 7.1(b) or 7.1(d) thereof, if no event causing
the Termination Fee to become payable pursuant
<PAGE>
to Section 7.3(b)(ii) of the Merger Agreement has occurred, (iii) twelve (12)
months following the date on which the Merger Agreement is terminated pursuant
to Section 7.1(h) thereof, (iv) in the event the Merger Agreement has been
terminated pursuant to Section 7.1(b) or 7.1(d) thereof and the Termination Fee
became payable pursuant to Section 7.3(b)(ii) thereof, twelve (12) months after
payment of the Termination Fee; and (v) the date on which the Merger Agreement
is terminated if neither a Triggering Event nor the public announcement of a MCS
Acquisition Proposal by a third party occurred on or prior to the date of such
termination; provided, however, that if the Option cannot be exercised by reason
-------- -------
of any applicable government order or because the waiting period related to the
issuance of the Option Shares under the HSR Act will not have expired or been
terminated, then the Option will not terminate until the tenth (10/th/) business
day after such impediment to exercise will have been removed or will have become
final and not subject to appeal.
(c) If NetIQ receives in the aggregate pursuant to Section 7.3(b) of
the Merger Agreement together with either (i) proceeds in connection with any
sales or other dispositions of Option Shares and any dividends received by NetIQ
declared on Option Shares or (ii) in the aggregate pursuant to Section 6 of this
Agreement, more than the sum of (x) $66,000,000 plus (y) the Exercise Price
----
multiplied by the number of MCS Shares purchased by NetIQ pursuant to the
Option, then all proceeds to NetIQ in excess of such sum will be remitted by
NetIQ to MCS.
3. Conditions to Closing. The obligation of MCS to issue Option Shares to
---------------------
NetIQ hereunder is subject to the conditions that (A) any waiting period under
the HSR Act applicable to the issuance of the Option Shares hereunder will have
expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect. It is understood and agreed that at
any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. Closing. At any Closing, (A) the MCS will deliver to NetIQ a single
-------
certificate in definitive form representing the number of MCS Shares designated
by NetIQ in its Exercise Notice, such certificate to be registered in the name
of NetIQ and to bear the legend set forth in Section 9 hereof, against delivery
of (B) payment by NetIQ to the MCS of the aggregate purchase price for the MCS
Shares so designated and being purchased by delivery of a certified check or
bank check.
5. Representations and Warranties of the MCS. MCS represents and warrants
-----------------------------------------
to NetIQ that (A) MCS is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the corporate
power and authority to enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by the
MCS and consummation by the MCS of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the MCS
and no other corporate proceedings on the part of the MCS are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (C)
this Agreement has been duly executed and delivered by the MCS and constitutes a
legal, valid and binding obligation of the MCS and, assuming this Agreement
constitutes a legal, valid and binding
-2-
<PAGE>
obligation of NetIQ, is enforceable against the MCS in accordance with its
terms; (D) except for any filings required under the HSR Act, the MCS has taken
all necessary corporate and other action to authorize and reserve for issuance
and to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for issuance,
a sufficient number of unissued MCS Shares for NetIQ to exercise the Option in
full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional MCS Shares or other securities which may be
issuable pursuant to Section 8(a) upon exercise of the Option, all of which,
upon their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable; (E) upon delivery of the
MCS Shares and any other securities to NetIQ upon exercise of the Option, NetIQ
will acquire such MCS Shares or other securities free and clear of all material
claims, liens, charges, encumbrances and security interests of any kind or
nature whatsoever, excluding those imposed by NetIQ; (F) the execution and
delivery of this Agreement by the MCS do not, and the performance of this
Agreement by the MCS will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws or equivalent organizational documents of the MCS or any
of its subsidiaries, (ii) conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the MCS or any of its subsidiaries or by
which its or any of their respective properties is bound or affected or (iii)
result in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or impair the MCS's or any
of its subsidiaries' rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the MCS or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the MCS or any of its subsidiaries is a party or by which
the MCS or any of its subsidiaries or its or any of their respective properties
are bound or affected; and (G) the execution and delivery of this Agreement by
the MCS does not, and the performance of this Agreement by the MCS will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Entity except pursuant to the HSR Act.
6. NetIQ Put. At the request of and upon notice by NetIQ (the "Put
---------
Notice"), at any time during the period during which the Option is exercisable
pursuant to Section 2 (the "Purchase Period"), the MCS (or any successor entity
thereof) will purchase from NetIQ the Option, to the extent not previously
exercised, at the price set forth in subparagraph (i) below (as limited by
subparagraph (iii) below), and the Option Shares, if any, acquired by NetIQ
pursuant thereto, at the price set forth in subparagraph (ii) below (as limited
by subparagraph (iii) below):
(a) The difference between the "Market/Tender Offer Price" for
the MCS Shares as of the date NetIQ gives notice of its intent to exercise its
rights under this Section 6(a) (defined as the higher of (A) the highest price
per share offered as of such date pursuant to any MCS Acquisition Proposal which
was made prior to such date and (B) the average closing sale price of MCS Shares
then on the then Nasdaq National Market during the twenty (20) trading days
ending on the trading day immediately preceding such date) and the Exercise
Price, multiplied by the number of MCS Shares purchasable pursuant to the
Option, but only if the Market/Tender Offer Price is greater than the Exercise
Price. For purposes of determining the highest price offered pursuant to any MCS
Acquisition Proposal which involves consideration other than cash, the value of
such consideration will be equal to the higher of (x) if securities of the same
class of the proponent as such consideration are traded on any national
securities exchange or by any registered securities
-3-
<PAGE>
association, a value based on the closing sale price or asked price for such
securities on their principal trading market on such date and (y) the value
ascribed to such consideration by the proponent of such MCS Acquisition
Proposal, or if no such value is ascribed, a value determined in good faith by
the Board of Directors of the MCS.
(b) The Exercise Price paid by NetIQ for MCS Shares acquired pursuant
to the Option plus the difference between the Market/Tender Offer Price and such
----
Exercise Price (but only if the Market/Tender Offer Price is greater than the
Exercise Price) multiplied by the number of MCS Shares so purchased.
-------------
7. Payment and Redelivery of Option or Shares. In the event NetIQ
------------------------------------------
exercises its rights under Section 6(a), the MCS will, within five (5) business
days after NetIQ delivers notice pursuant to Section 6(a), pay the required
amount to NetIQ in immediately available funds and NetIQ will surrender to the
MCS the Option and the certificates evidencing the MCS Shares purchased by NetIQ
pursuant thereto.
8. Registration Rights.
-------------------
(a) Following the termination of the Merger Agreement, NetIQ
(sometimes referred to herein as the "Holder") may by written notice (a
"Registration Notice") to the MCS (the "Registrant") request the Registrant to
register under the Securities Act all or any part of the shares acquired by the
Holder pursuant to this Agreement (such shares requested to be registered, the
"Registrable Securities") in order to permit the sale or other disposition of
any or all shares of the Registrable Securities that have been acquired by or
are issuable to Holder upon exercise of the Option in accordance with the
intended method of sale or other disposition stated by Holder, including a
"shelf" registration statement under Rule 415 under the Securities Act or any
successor provision. Holder agrees to cause, and to cause any underwriters of
any sale or other disposition to cause, any sale or other disposition pursuant
to such registration statement to be effected on a widely distributed basis so
that upon consummation thereof no purchaser or transferee will own beneficially
more than 5.0% of the then-outstanding voting power of Registrant. Upon a
request for registration, the Registrant will have the option exercisable by
written notice delivered to the Holder within ten (10) business days after the
receipt of the Registration Notice, irrevocably to agree to purchase all or any
part of the Registrable Securities for cash at a price (the "Option Price" equal
to the product of (i) the number of Registrable Securities so purchased and (ii)
the per share average of the closing sale prices of the Registrant's Common
Stock on the Nasdaq National Market for the ten (10) trading days immediately
preceding the date of the Registration Notice. Any such purchase of Registrable
Securities by the Registrant hereunder will take place at a closing to be held
at the principal executive offices of the Registrant or its counsel at any
reasonable date and time designated by the Registrant in such notice within ten
(10) business days after delivery of such notice. The payment for the shares to
be purchased will be made by delivery at the time of such closing of the Option
Price in immediately available funds.
(b) If the Registrant does not elect to exercise its option to
purchase pursuant to Section 7(a) with respect to all Registrable Securities,
the Registrant will use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities requested to be registered in the Registration Notice and
to keep such
-4-
<PAGE>
registration statement effective for such period not in excess of 120 calendar
days from the day such registration statement first becomes effective as may be
reasonably necessary to effect such sale or other disposition; provided,
--------
however, that the Holder will not be entitled to more than an aggregate of three
- -------
(3) four effective registration statements hereunder. The obligations of
Registrant hereunder to file a registration statement and to maintain its
effectiveness may be suspended for up to 90 calendar days in the aggregate if
the Board of Directors of Registrant shall have determined that the filing of
such registration statement or the maintenance of its effectiveness would
require premature disclosure of material nonpublic information that would
materially and adversely affect Registrant or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Registrant or
any other material transaction involving Registrant. If consummation of the sale
of any Registrable Securities pursuant to a registration hereunder does not
occur within 90 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 will again be applicable to
any proposed registration. The Registrant will use all reasonable efforts to
cause any Registrable Securities registered pursuant to this Section 7 to be
qualified for sale under the securities or blue sky laws of such jurisdictions
as the Holder may reasonably request and will continue such registration or
qualification in effect in such jurisdictions; provided, however, that the
-------- -------
Registrant will not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision. If
Registrant effects a registration under the Securities Act of MCS Common
Stock for its own account or for any other stockholders of Registrant (other
than on Form S-4 or Form S-8, or any successor form), it will allow Holder the
right to participate in such registration by selling its Registrable Securities,
and such participation will not affect the obligation of Registrant to effect
demand registration statements for Holder under this Section 7; provided that,
--------
if the managing underwriters of such offering advise Registrant in writing that
in their opinion the number of shares of MCS Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering, Registrant will include the shares requested to be included therein by
Holder pro rata with the shares intended to be included therein by Registrant.
(c) The registration rights set forth in this Section 7 are subject
to the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan for
distribution thereof, and such other information with respect to the Holder as,
in the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in a registration statement all material facts
required to be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 7 will be effected at
the Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant will provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the Holder and the Registrant agree to
enter into an underwriting agreement reasonably acceptable to each such party,
in form and substance customary for transactions of this type with the
underwriters participating in such offering.
-5-
<PAGE>
(e) Indemnification.
---------------
(i) The Registrant will indemnify the Holder, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Registrant of any rule or regulation
promulgated under the Securities Act applicable to the Registrant in connection
with any such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities Act, and
each underwriter for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, that the Registrant will not be liable in
--------
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or 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, or
any violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance, and will reimburse the Registrant,
such directors, officers or control persons or underwriters for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Registrant by the Holder
for use therein; provided, that in no event will any indemnity under this
--------
Section 7(e) exceed the net proceeds of the offering received by the Holder.
(iii) Each party entitled to indemnification under this Section
7(e) (the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as
-6-
<PAGE>
to which indemnity may be sought, and will permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided, that counsel for the Indemnifying Party, who will conduct the defense
- --------
of such claim or litigation, will be approved by the Indemnified Party (whose
approval will not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
-------- -------
Indemnifying Party will pay such expense if representation of the Indemnified
Party by counsel retained by the Indemnifying Party would be inappropriate due
to actual or potential differing interests between the Indemnified Party and any
other party represented by such counsel in such proceeding, and provided
--------
further, however, that the failure of any Indemnified Party to give notice as
- ------- -------
provided herein will not relieve the Indemnifying Party of its obligations under
this Section 7(e) unless the failure to give such notice is materially
prejudicial to an Indemnifying Party's ability to defend such action. No
Indemnifying Party, in the defense of any such claim or litigation will, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation. No
Indemnifying Party will be required to indemnify any Indemnified Party with
respect to any settlement entered into without such Indemnifying Party's prior
consent (which will not be unreasonably withheld).
9. Adjustment Upon Changes in Capitalization; Rights Plans.
-------------------------------------------------------
(a) In the event of any change in the MCS Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option, the Exercise
Price will be adjusted appropriately, and proper provision will be made in the
agreements governing such transaction so that NetIQ will receive, upon
exercise of the Option, the number and class of shares or other securities or
property that NetIQ would have received in respect of the MCS
Shares if the Option had been exercised immediately prior to such event or the
record date therefor, as applicable.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, if the number of outstanding shares of MCS Common
Stock increases or decreases after the date of this Agreement (other than
pursuant to an event described in Section 9(a)), the number of shares of MCS
Common Stock subject to the Option (including those Option Shares which may have
already been exercised) will be adjusted so that it equals 19.99% of the number
of shares of MCS Common Stock then issued and outstanding, without giving effect
to any Option Shares.
(c) At any time during which the Option is exercisable, and at any
time after the Option is exercised (in whole or in part, if at all), the Company
will not amend (nor permit the amendment of) the Company Rights Plan nor adopt
(nor permit the adoption of) a new stockholders rights plan, that contains
provisions for the distribution or exercise of rights thereunder as a result of
Parent or any affiliate or transferee being the beneficial owner of shares of
the Company by virtue of the Option being exercisable or having been exercised
(or as a result of beneficially owning shares issuable in respect of any Option
Shares).
10. Restrictive Legends. Each certificate representing Option Shares
-------------------
issued to NetIQ hereunder will include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN
THE STOCK OPTION AGREEMENT DATED
-7-
<PAGE>
AS OF 23 FEBRUARY 26, 2000, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Holder
has delivered to Registrant a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Registrant
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
11. Listing and HSR Filing. The MCS, upon the request of NetIQ, will
----------------------
promptly file an application to list the MCS Shares to be acquired upon exercise
of the Option for quotation on the Nasdaq National Market and will use its best
efforts to obtain approval of such listing as soon as practicable. Promptly
after the date hereof, each of the parties hereto will promptly file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice all required premerger notification and report forms and
other documents and exhibits required to be filed under the HSR Act to permit
the acquisition of the MCS Shares subject to the Option at the earliest possible
date.
12. Binding Effect. This Agreement will be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Any shares sold by a party in compliance with the
provisions of Section 7 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering pursuant
to Section 7 will not be required to bear the legend set forth in Section 9.
13. Specific Performance. The parties hereto recognize and agree that if
--------------------
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
14. Entire Agreement. This Agreement and the Merger Agreement (including
----------------
the appendices thereto) constitute the entire agreement between the parties
hereto with respect to the
-8-
<PAGE>
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, between the parties hereto with respect
to the subject matter hereof.
15. Further Assurances. Each party hereto will execute and deliver all
------------------
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
16. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement will not affect the validity or enforceability of the other provisions
of this Agreement, which will remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto will negotiate
in good faith and will execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision.
17. Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to NetIQ, to:
NetIQ Corp.
5410 Betsy Ross Drive
Santa Clara, California 95054
Attention: Chief Executive Officer
Facsimile: (408) 330-7000
with copies to:
Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Thomas C. DeFilipps, Esq.
Facsimile: (650) 493-6811
-9-
<PAGE>
and to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile: (415) 947-2099
(b) if to MCS to:
Mission Critical Software Inc.
13939 Northwest Freeway
Houston, Texas 77040
Attention: Chief Financial Officer
Facsimile: (713) 548-1829
with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Attention: William M. Kelly, Esq.
Facsimile: (650) 752-2111
18. Governing Law. This Agreement will be governed by and construed in
-------------
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State.
19. Expenses. Except as otherwise expressly provided herein or in the
--------
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
20. Amendments; Waiver. This Agreement may be amended by the parties
------------------
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
21. Assignment. Neither of the parties hereto may sell, transfer, assign
----------
or otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.
-10-
<PAGE>
22. Counterparts. This Agreement may be executed in counterparts, each of
------------
which will be deemed to be an original, but both of which, taken together, will
constitute one and the same instrument.
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
NETIQ CORP
By: /s/ Ching-Fa Hwang
-------------------------------
Name: Ching-Fa Hwang
-----------------------------
Title: President and CEO
----------------------------
MISSION CRITICAL SOFTWARE INC.
By: /s/ Michael S. Bennett
-------------------------------
Name: Michael S. Bennett
-------------------------------
Title: Chairman/CEO
-------------------------------
[Signature Page to MCS Stock Option Agreement]
<PAGE>
EXHIBIT B
NETIQ STOCK OPTION AGREEMENT
THIS NETIQ STOCK OPTION AGREEMENT (this "Agreement") is made and entered
into as of February 26, 2000, among Mission Critical Software Inc., a Delaware
corporation ("MCS"), and NetIQ Corp., a Delaware corporation ("NetIQ").
Capitalized terms used but not otherwise defined herein will have the meanings
ascribed to them in the Merger Agreement (as defined below).
RECITALS
--------
A. MCS, Merger Sub (as defined below) and NetIQ have entered into an
Agreement and Plan of Reorganization (the "Merger Agreement") which provides for
the merger (the "Merger") of a wholly-owned subsidiary of NetIQ ("Merger Sub")
with and into MCS. Pursuant to the Merger, all outstanding capital stock of MCS
will be converted into the right to receive Common Stock of NetIQ.
B. As a condition to NetIQ's willingness to enter into the Merger
Agreement, NetIQ has requested that MCS agree, and MCS has so agreed, to grant
to NetIQ an option to acquire shares of MCS's Common Stock, par value $0.001 per
share (the "MCS Shares"), upon the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option. NetIQ hereby grants to MCS an irrevocable option (the
---------------
"Option") to acquire up to 3,520,234 NetIQ Shares (the "Option Shares"), in the
manner set forth below by paying cash at a price of $73.50 per share (the
"Exercise Price").
2. Exercise of Option; Maximum Proceeds.
------------------------------------
(a) The Option may be exercised by MCS in whole or in part, at any time
or from time to time (i) if the Merger Agreement is terminated pursuant to
7.1(g) thereof and an event causing the NetIQ Termination Fee to become payable
pursuant to Section 7.3(c) of the Merger Agreement occurs or (ii) immediately
prior to the occurrence of any event causing the NetIQ Termination Fee to become
payable pursuant to Section 7.1(b) or 7.1(d) thereof (any of the events being
referred to herein as an "Exercise Event"). In the event MCS wishes to exercise
the Option, MCS will deliver to NetIQ a written notice (each an "Exercise
Notice") specifying the total number of Option Shares it wishes to acquire. Each
closing of a purchase of Option Shares (a "Closing") will occur on a date and at
a time prior to the termination of the Option designated by MCS in an Exercise
Notice delivered at least two (2) business days prior to the date of such
Closing, which Closing will be held at the principal offices of NetIQ.
(b) The Option will terminate upon the earliest of (i) the Effective
Time, (ii) twelve (12) months following the date on which the Merger Agreement
is terminated pursuant to
1
<PAGE>
Section 7.1(b) or 7.1(d) thereof, if no event causing the Termination Fee to
become payable pursuant to Section 7.3(c)(ii) of the Merger Agreement has
occurred, (iii) twelve (12) months following the date on which the Merger
Agreement is terminated pursuant to Section 7.1(h) thereof, (iv) in the event
the Merger Agreement has been terminated pursuant to Section 7.1(b) or 7.1(d)
thereof and the Termination Fee became payable pursuant to Section 7.3(c)(ii)
thereof, twelve (12) months after payment of the Termination Fee; and (v) the
date on which the Merger Agreement is terminated if neither a Triggering Event
nor the public announcement of a NetIQ Acquisition Proposal by a third party
occurred on or prior to the date of such termination; provided, however, that if
-------- -------
the Option cannot be exercised by reason of any applicable government order or
because the waiting period related to the issuance of the Option Shares under
the HSR Act will not have expired or been terminated, then the Option will not
terminate until the tenth (10th) business day after such impediment to exercise
will have been removed or will have become final and not subject to appeal.
(c) If MCS receives in the aggregate pursuant to Section 7.3(c) of the
Merger Agreement together with either (i) proceeds in connection with any sales
or other dispositions of Option Shares and any dividends received by MCS
declared on Option Shares or (ii) in the aggregate pursuant to Section 6 of this
Agreement, more than the sum of (x) $66,000,000 plus (y) the Exercise
----
Price multiplied by the number of NetIQ Shares purchased by MCS pursuant to the
Option, then all proceeds to MCS in excess of such sum will be remitted by MCS
to NetIQ.
3. Conditions to Closing. The obligation of NetIQ to issue Option Shares to
---------------------
MCS hereunder is subject to the conditions that (A) any waiting period under the
HSR Act applicable to the issuance of the Option Shares hereunder will have
expired or been terminated; (B) all material consents, approvals, orders or
authorizations of, or registrations, declarations or filings with, any Federal,
state or local administrative agency or commission or other Federal state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the Option Shares hereunder will have been obtained or
made, as the case may be; and (C) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance will be in effect. It is understood and agreed that
at any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. Closing. At any Closing, (A) NetIQ will deliver to MCS a single
-------
certificate in definitive form representing the number of NetIQ Shares
designated by MCS in its Exercise Notice, such certificate to be registered in
the name of MCS and to bear the legend set forth in Section 9 hereof, against
delivery of (B) payment by MCS to NetIQ of the aggregate purchase price for the
NetIQ Shares so designated and being purchased by delivery of a certified check
or bank check.
5. Representations and Warranties of the NetIQ. NetIQ represents and
-------------------------------------------
warrants to MCS that (A) NetIQ is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and authority to enter into this Agreement and to carry out its
obligations hereunder; (B) the execution and delivery of this Agreement by NetIQ
and consummation by NetIQ of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of NetIQ and no other
corporate proceedings on the part of NetIQ are necessary to authorize this
Agreement or any of the transactions contemplated hereby; (C) this Agreement has
been duly executed and delivered by NetIQ and constitutes a legal, valid and
-2-
<PAGE>
binding obligation of NetIQ and, assuming this Agreement constitutes a legal,
valid and binding obligation of MCS, is enforceable against NetIQ in accordance
with its terms; (D) except for any filings required under the HSR Act, NetIQ has
taken all necessary corporate and other action to authorize and reserve for
issuance and to permit it to issue upon exercise of the Option, and at all times
from the date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued NetIQ Shares for MCS to exercise the
Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional NetIQ Shares or other
securities which may be issuable pursuant to Section 8(a) upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(E) upon delivery of the NetIQ Shares and any other securities to MCS upon
exercise of the Option, MCS will acquire such NetIQ Shares or other securities
free and clear of all material claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, excluding those imposed by MCS; (F)
the execution and delivery of this Agreement by NetIQ do not, and the
performance of this Agreement by NetIQ will not, (i) conflict with or violate
the Certificate of Incorporation or Bylaws or equivalent organizational
documents of NetIQ or any of its subsidiaries, (ii) conflict with or violate any
law, rule, regulation, order, judgment or decree applicable to NetIQ or any of
its subsidiaries or by which its or any of their respective properties is bound
or affected or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair NetIQ's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of NetIQ or
any of its subsidiaries pursuant to, any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which NetIQ or any of its subsidiaries is a party or
by which NetIQ or any of its subsidiaries or its or any of their respective
properties are bound or affected; and (G) the execution and delivery of this
Agreement by NetIQ does not, and the performance of this Agreement by NetIQ will
not, require any consent, approval, authorization or permit of, or filing with,
or notification to, any Governmental Entity except pursuant to the HSR Act.
6. MCS Put. At the request of and upon notice by MCS (the "Put Notice"), at
-------
any time during the period during which the Option is exercisable pursuant to
Section 2 (the "Purchase Period"), NetIQ (or any successor entity thereof) will
purchase from MCS the Option, to the extent not previously exercised, at the
price set forth in subparagraph (i) below (as limited by subparagraph (iii)
below), and the Option Shares, if any, acquired by MCS pursuant thereto, at the
price set forth in subparagraph (ii) below (as limited by subparagraph (iii)
below):
(a) The difference between the "Market/Tender Offer Price" for the NetIQ
Shares as of the date MCS gives notice of its intent to exercise its rights
under this Section 6(a) (defined as the higher of (A) the highest price per
share offered as of such date pursuant to any NetIQ Acquisition Proposal which
was made prior to such date and (B) the average closing sale price of NetIQ
Shares then on Nasdaq during the twenty (20) trading days ending on the trading
day immediately preceding such date) and the Exercise Price, multiplied by the
number of NetIQ Shares purchasable pursuant to the Option, but only if the
Market/Tender Offer Price is greater than the Exercise Price. For purposes of
determining the highest price offered pursuant to any NetIQ Acquisition Proposal
which involves consideration other than cash, the value of such consideration
will be equal to the higher of (x) if securities of the same class of the
proponent as such
-3-
<PAGE>
consideration are traded on any national securities exchange or by any
registered securities association, a value based on the closing sale price or
asked price for such securities on their principal trading market on such date
and (y) the value ascribed to such consideration by the proponent of such NetIQ
Acquisition Proposal, or if no such value is ascribed, a value determined in
good faith by the Board of Directors of NetIQ.
(b) The Exercise Price paid by MCS for NetIQ Shares acquired pursuant to
the Option plus the difference between the Market/Tender Offer Price and such
----
Exercise Price (but only if the Market/Tender Offer Price is greater than the
Exercise Price) multiplied by the number of NetIQ Shares so purchased.
-------------
7. Payment and Redelivery of Option or Shares. In the event MCS
------------------------------------------
exercises its rights under Section 6(a), NetIQ will, within five (5) business
days after MCS delivers notice pursuant to Section 6(a), pay the required amount
to MCS in immediately available funds and MCS will surrender to NetIQ the Option
and the certificates evidencing the NetIQ Shares purchased by MCS pursuant
thereto.
8. Registration Rights.
-------------------
(a) Following the termination of the Merger Agreement, MCS (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to NetIQ (the "Registrant") request the Registrant to register under
the Securities Act all or any part of the shares acquired by the Holder pursuant
to this Agreement (such shares requested to be registered, the "Registrable
Securities") in order to permit the sale or other disposition of any or all
shares of the Registrable Securities that have been acquired by or are issuable
to Holder upon exercise of the Option in accordance with the intended method of
sale or other disposition stated by Holder, including a "shelf" registration
statement under Rule 415 under the Securities Act or any successor provision.
Holder agrees to cause, and to cause any underwriters of any sale or other
disposition to cause, any sale or other disposition pursuant to such
registration statement to be effected on a widely distributed basis so that upon
consummation thereof no purchaser or transferee will own beneficially more than
5.0% of the then-outstanding voting power of Registrant. Upon a request for
registration, the Registrant will have the option exercisable by written notice
delivered to the Holder within ten (10) business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities for cash at a price (the "Option Price" equal to the
product of (i) the number of Registrable Securities so purchased and (ii) the
per share average of the closing sale prices of the Registrant's Common Stock on
Nasdaq for the ten (10) trading days immediately preceding the date of the
Registration Notice. Any such purchase of Registrable Securities by the
Registrant hereunder will take place at a closing to be held at the principal
executive offices of the Registrant or its counsel at any reasonable date and
time designated by the Registrant in such notice within ten (10) business days
after delivery of such notice. The payment for the shares to be purchased will
be made by delivery at the time of such closing of the Option Price in
immediately available funds.
(b) If the Registrant does not elect to exercise its option to
purchase pursuant to Section 7(a) with respect to all Registrable Securities,
the Registrant will use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
-4-
<PAGE>
Registrable Securities requested to be registered in the Registration Notice and
to keep such registration statement effective for such period not in excess of
120 calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition; provided, however, that the Holder will not be entitled to more
-------- -------
than an aggregate of three (3) effective registration statements hereunder. The
obligations of Registrant hereunder to file a registration statement and to
maintain its effectiveness may be suspended for up to 90 calendar days in the
aggregate if the Board of Directors of Registrant shall have determined that the
filing of such registration statement or the maintenance of its effectiveness
would require premature disclosure of material nonpublic information that would
materially and adversely affect Registrant or otherwise interfere with or
adversely affect any pending or proposed offering of securities of Registrant or
any other material transaction involving Registrant. If consummation of the sale
of any Registrable Securities pursuant to a registration hereunder does not
occur within 90 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 will again be applicable to
any proposed registration. The Registrant will use all reasonable efforts to
cause any Registrable Securities registered pursuant to this Section 7 to be
qualified for sale under the securities or blue sky laws of such jurisdictions
as the Holder may reasonably request and will continue such registration or
qualification in effect in such jurisdictions; provided, however, that the
-------- -------
Registrant will not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision. If
Registrant effects a registration under the Securities Act of NetIQ Common Stock
for its own account or for any other stockholders of Registrant (other than on
Form S-4 or Form S-8, or any successor form), it will allow Holder the right to
participate in such registration by selling its Registrable Securities, and such
participation will not affect the obligation of Registrant to effect demand
registration statements for Holder under this Section 7; provided that, if the
--------
managing underwriters of such offering advise Registrant in writing that in
their opinion the number of shares of NetIQ Common Stock requested to be
included in such registration exceeds the number which can be sold in such
offering, Registrant will include the shares requested to be included therein by
Holder pro rata with the shares intended to be included therein by Registrant.
(c) The registration rights set forth in this Section 7 are subject
to the condition that the Holder will provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan for
distribution thereof, and such other information with respect to the Holder as,
in the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 7 will be effected at
the Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant will provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the Holder and the Registrant agree to
enter into an underwriting agreement reasonably acceptable to each such party,
in form and substance customary for transactions of this type with the
underwriters participating in such offering.
-5-
<PAGE>
(e) Indemnification.
---------------
(i) The Registrant will indemnify the Holder, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Registrant of any rule or regulation
promulgated under the Securities Act applicable to the Registrant in connection
with any such registration, qualification or compliance, and the Registrant will
reimburse the Holder and, each of its directors and officers and each person who
controls the Holder within the meaning of Section 15 of the Securities Act, and
each underwriter for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action; provided, that the Registrant will not be liable in
--------
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Registrant by such Holder or director or
officer or controlling person or underwriter seeking indemnification.
(ii) The Holder will indemnify the Registrant, each of its
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document, or 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, or
any violation by the Holder of any rule or regulation promulgated under the
Securities Act applicable to the Holder in connection with any such
registration, qualification or compliance, and will reimburse the Registrant,
such directors, officers or control persons or underwriters for any legal or any
other expenses reasonably incurred in connection with investigating, preparing
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Registrant by the Holder
for use therein; provided, that in no event will any indemnity under
--------
this Section 7(e) exceed the net proceeds of the offering received by the
Holder.
(iii) Each party entitled to indemnification under this Section
7(e) (the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any
-6-
<PAGE>
claim as to which indemnity may be sought, and will permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided, that counsel for the Indemnifying Party, who will conduct
--------
the defense of such claim or litigation, will be approved by the Indemnified
Party (whose approval will not unreasonably be withheld), and the Indemnified
Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party will pay such expense if
- -------- -------
representation of the Indemnified Party by counsel retained by the Indemnifying
Party would be inappropriate due to actual or potential differing interests
between the Indemnified Party and any other party represented by such counsel in
such proceeding, and provided further, however, that the failure of any
-------- ------- -------
Indemnified Party to give notice as provided herein will not relieve the
Indemnifying Party of its obligations under this Section 7(e) unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action. No Indemnifying Party, in the defense of any such claim
or litigation will, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party will be required to indemnify any Indemnified
Party with respect to any settlement entered into without such Indemnifying
Party's prior consent (which will not be unreasonably withheld).
9. Adjustment Upon Changes in Capitalization.
-----------------------------------------
(a) In the event of any change in the NetIQ Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option, the Exercise
Price will be adjusted appropriately, and proper provision will be made in the
agreements governing such transaction so that MCS will receive, upon exercise of
the Option, the number and class of shares or other securities or property that
MCS would have received in respect of the NetIQ Shares if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, if the number of outstanding shares of NetIQ Common
Stock increases or decreases after the date of this Agreement (other than
pursuant to an event described in Section 9(a)), the number of shares of NetIQ
Common Stock subject to the Option (including those Option Shares which may have
already been exercised) will be adjusted so that it equals 19.99% of the number
of shares of NetIQ Common Stock then issued and outstanding, without giving
effect to any Option Shares.
10. Restrictive Legends. Each certificate representing Option
-------------------
Shares issued to MCS hereunder will include a legend in substantially the
following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
-7-
<PAGE>
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF FEBRUARY
26, 2000, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Holder
has delivered to Registrant a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to Registrant
and its counsel, to the effect that such legend is not required for purposes of
the Securities Act and (ii) the reference to restrictions pursuant to this
Agreement in the above legend will be removed by delivery of substitute
certificate(s) without such reference if the Option Shares evidenced by
certificate(s) containing such reference have been sold or transferred in
compliance with the provisions of this Agreement under circumstances that do not
require the retention of such reference.
11. Listing and HSR Filing. NetIQ, upon the request of MCS, will promptly
----------------------
file an application to list the NetIQ Shares to be acquired upon exercise of the
Option for quotation on Nasdaq and will use its best efforts to obtain approval
of such listing as soon as practicable. Promptly after the date hereof, each of
the parties hereto will promptly file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice all required
premerger notification and report forms and other documents and exhibits
required to be filed under the HSR Act to permit the acquisition of the NetIQ
Shares subject to the Option at the earliest possible date.
12. Binding Effect. This Agreement will be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Any shares sold by a party in compliance with the
provisions of Section 7 will, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement and any
transferee of such shares will not be entitled to the rights of such party.
Certificates representing shares sold in a registered public offering pursuant
to Section 7 will not be required to bear the legend set forth in Section 9.
13. Specific Performance. The parties hereto recognize and agree that if
-------- -----------
for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies the other party hereto will be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement or the right to enforce any of the covenants or agreements set forth
herein by specific performance. In the event that any action will be brought in
equity to enforce the provisions of the Agreement, neither party hereto will
allege, and each party hereto hereby waives the defense, that there is an
adequate remedy at law.
-8-
<PAGE>
14. Entire Agreement. This Agreement and the Merger Agreement (including
------ ---------
the appendices thereto) constitute the entire agreement between the parties
hereto with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties hereto
with respect to the subject matter hereof.
15. Further Assurances. Each party hereto will execute and deliver all
------- ----------
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
16. Validity. The invalidity or unenforceability of any provision of this
--------
Agreement will not affect the validity or enforceability of the other provisions
of this Agreement, which will remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto will negotiate
in good faith and will execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision.
17. Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
(a) if to MCS, to:
Mission Critical Software Inc.
13939 Northwest Freeway
Houston, Texas 77040
Attention: Chief Financial Officer
Facsimile: (713) 548-1829
with a copy to:
Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California 94025
Attention: William M. Kelly, Esq.
Facsimile: (650) 752-2111
(b) if to NetIQ, to:
NetIQ Corp.
5410 Betsy Ross Drive
Santa Clara, California 95054
Attention: Chief Executive Officer
Facsimile: (408) 330-0959
-9-
<PAGE>
with copies to:
Wilson, Sonsini, Goodrich & Rosati,
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Thomas C. DeFilipps, Esq.
Facsimile: (650) 493-6811
and to:
Wilson Sonsini Goodrich & Rosati,
Professional Corporation
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Steve L. Camahort, Esq.
Facsimile: (415) 947-2099
18. Governing Law. This Agreement will be governed by and construed
--------- ---
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed entirely within such State.
19. Expenses. Except as otherwise expressly provided herein or in the
--------
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
20. Amendments; Waiver. This Agreement may be amended by the parties
----------- ------
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
21. Assignment. Neither of the parties hereto may sell, transfer, assign
----------
or otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
will inure to the benefit of and be binding upon any successor of a party
hereto.
22. Counterparts. This Agreement may be executed in counterparts, each of
------------
which will be deemed to be an original, but both of which, taken together, will
constitute one and the same instrument.
-10-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
MISSION CRITICAL SOFTWARE INC.
By: /s/ Michael S. Bennett
------------------------
Name: Michael S. Bennett
------------------
Title: Chairman/CEO
------------
NETIQ CORP.
By: /s/ Ching-Fa Hwang
------------------
Name:___________________
Title:__________________
-11-
<PAGE>
EXHIBIT C
NETIQ VOTING AGREEMENT
THIS NETIQ VOTING AGREEMENT (this "Agreement") is made and entered into as
of February 26, 2000, among Mission Critical Software Inc., a Delaware
corporation ("MCS"), and the undersigned stockholder (the "Stockholder") of
NetIQ Corp., a Delaware corporation ("NetIQ").
RECITALS
A. NetIQ, a subsidiary of NetIQ ("Merger Sub") and MCS have entered into
an Agreement and Plan of Reorganization (the "Merger Agreement"), which provides
for the merger (the "Merger") of Merger Sub with and into MCS. Pursuant to the
Merger, all outstanding capital stock of MCS shall be converted into the right
to receive NetIQ Common Stock, as set forth in the Merger Agreement (the "Share
Issuance");
B. Stockholder is the beneficial owner (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such
number of shares of the outstanding capital stock of NetIQ and shares subject to
outstanding options and warrants as is indicated on the signature page of this
Agreement; and
C. In consideration of the execution of the Merger Agreement by MCS,
Stockholder (in his or her capacity as such) agrees to vote the Shares (as
defined below) and other such shares of capital stock of NetIQ over which
Stockholder has voting power so as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:
1. Certain Definitions. Capitalized terms not defined herein shall have
-------------------
the meanings ascribed to them in the Merger Agreement. For purposes of this
Agreement:
(a) "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Merger Agreement shall have been terminated pursuant to
Article VII thereof, or (ii) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement.
(b) "Person" shall mean any (i) individual, (ii) corporation, limited
liability company, partnership or other entity, or (iii) governmental authority.
(c) "Shares" shall mean: (i) all securities of NetIQ (including all
shares of NetIQ Common Stock and all options, warrants and other rights to
acquire shares of NetIQ Common Stock) owned by Stockholder as of the date of
this Agreement; and (ii) all additional securities of NetIQ (including all
additional shares of NetIQ Common Stock and all additional options, warrants and
other rights to acquire shares of NetIQ Common Stock) of which Stockholder
acquires ownership during the period from the date of this Agreement through the
Expiration Date.
<PAGE>
(d) "Transfer." A Person shall be deemed to have effected a
"Transfer" of a security if such person directly or indirectly: (i) sells,
pledges, encumbers, grants an option with respect to, transfers or disposes of
such security or any interest in such security; or (ii) enters into an agreement
or commitment providing for the sale of, pledge of, encumbrance of, grant of an
option with respect to, transfer of or disposition of such security or any
interest therein.
2. Transfer of Shares.
------------------
(a) Transferee of Shares to be Bound by this Agreement. Stockholder
--------------------------------------------------
agrees that, during the period from the date of this Agreement through the
Expiration Date, Stockholder shall not cause or permit any Transfer of any of
the Shares to be effected unless each Person to which any of such Shares, or any
interest in any of such Shares, is or may be transferred shall have: (a)
executed a counterpart of this Agreement and a proxy in the form attached hereto
as Exhibit A (with such modifications as MCS may reasonably request); and (b)
---------
agreed in writing to hold such Shares (or interest in such Shares) subject to
all of the terms and provisions of this Agreement.
(b) Transfer of Voting Rights. Stockholder agrees that, during the
-------------------------
period from the date of this Agreement through the Expiration Date, Stockholder
shall not deposit (or permit the deposit of) any Shares in a voting trust or
grant any proxy or enter into any voting agreement or similar agreement in
contravention of the obligations of Stockholder under this Agreement with
respect to any of the Shares.
3. Agreement to Vote Shares. At every meeting of the stockholders of
------------------------
NetIQ called, and at every adjournment thereof, and on every action or approval
by written consent of the stockholders of NetIQ, Stockholder (in his or her
capacity as such) shall cause the Shares to be voted (a) in favor of approval of
the Merger, the Merger Agreement and the Share Issuance (the "NetIQ Approval
Matters"), (b) in favor of any matter that could reasonably be expected to
facilitate the NetIQ Approval Matters, and (c) in such manner as MCS may direct
with respect to all other proposals submitted to the stockholders of NetIQ
which, directly or indirectly, in any way relates to the NetIQ Approval Matters.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement,
-----------------
Stockholder agrees to deliver to MCS a proxy in the form attached hereto as
Exhibit A (the "Proxy"), which shall be irrevocable to the fullest extent
- ---------
permissible by law, with respect to the Shares.
5. Representations and Warranties of the Stockholder. Stockholder (i) is
-------------------------------------------------
the beneficial owner of the shares of NetIQ Common Stock indicated on the final
page of this Agreement, free and clear of any liens, claims, options, rights of
first refusal, co-sale rights, charges or other encumbrances; (ii) does not
beneficially own any securities of the NetIQ other than the shares of NetIQ
Common Stock and options and warrants to purchase shares of Common Stock of
NetIQ indicated on the final page of this Agreement; and (iii) has full power
and authority to make, enter into and carry out the terms of this Agreement and
the Proxy.
6. Additional Documents. Stockholder (in his or her capacity as such)
--------------------
hereby covenants and agrees to execute and deliver any additional documents
necessary or desirable, in the reasonable opinion of MCS, to carry out the
intent of this Agreement.
-2-
<PAGE>
7. Termination. This Agreement shall terminate and shall have no further
-----------
force or effect as of the Expiration Date.
8. Miscellaneous.
-------------
(a) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
(c) Amendments and Modification. This Agreement may not be modified,
---------------------------
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(d) Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that MCS shall be irreparably harmed and that there shall be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to MCS upon any such violation, MCS shall
have the right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to MCS at law or in equity.
(e) Notices. All notices and other communications pursuant to this
-------
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
If to MCS: Mission Critical Software Inc.
13939 Northwest Freeway
Houston, Texas 77040
Attention: Chief Financial Officer
Facsimile: (713) 548-1829
With a copy to: Davis Polk & Wardwell
1600 El Camino Real
Menlo Park, California
Attention: William M. Kelly, Esq.
Facsimile: (650) 752-2111
-3-
<PAGE>
If to Stockholder: To the address for notice set forth on the
signature page hereof.
(f) Governing Law. This Agreement shall be governed by the laws of
-------------
the State of Delaware, without reference to rules of conflicts of law.
(g) Entire Agreement. This Agreement and the Proxy contain the
----------------
entire understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
(h) Officers and Directors. To the extent that Stockholder is or
----------------------
becomes (during the term hereof) a director or officer of NetIQ, he or she makes
no agreement or understanding herein in his or her capacity as such director or
officer, and nothing herein will limit or affect, or give rise to any liability
to Stockholder by virtue of, any actions taken by Stockholder in his or her
capacity as an officer or director of NetIQ in exercising its rights under the
Merger Agreement.
(i) Effect of Headings. The section headings are for convenience
------------------
only and shall not affect the construction or interpretation of this Agreement.
(j) Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[The remainder of this page has been intentionally left blank]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written. The undersigned is executing
this Agreement only in its capacity as a stockholder. Such signature in no way
affects its obligations as an officer or director of NetIQ.
MISSION CRITICAL SOFTWARE INC. STOCKHOLDER
By:_______________________________ By:________________________________
Signature
Name:_____________________________ Name:______________________________
Title:____________________________ Title:_____________________________
___________________________________
___________________________________
Print Address
___________________________________
Telephone
___________________________________
Facsimile No.
Share beneficially owned:
________ NetIQ Common Shares
________ NetIQ Common Shares issuable
upon exercise of outstanding options or
warrants
[Signature Page to Voting Agreement]
<PAGE>
Exhibit A
IRREVOCABLE PROXY
The undersigned stockholder of NetIQ Corp., a Delaware corporation
("NetIQ"), hereby irrevocably (to the fullest extent permitted by law) appoints
Ching-Fa Hwang and James A. Barth and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of NetIQ that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of NetIQ
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Proxy. The Shares
beneficially owned by the undersigned stockholder of MCS as of the date of this
Proxy are listed on the final page of this Proxy. Upon the undersigned's
execution of this Proxy, any and all prior proxies given by the undersigned with
respect to any Shares are hereby revoked and the undersigned agrees not to grant
any subsequent proxies with respect to the Shares until after the Expiration
Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement of even date herewith by and among Mission Critical Software Inc., a
Delaware corporation ("MCS"), and the undersigned stockholder (the "Voting
Agreement"), and is granted in consideration of MCS entering into that certain
Agreement and Plan and Reorganization (the "Merger Agreement"), by and between
NetIQ, a subsidiary of NetIQ ("Merger Sub") and MCS. The Merger Agreement
provides for the merger of Merger Sub with and into MCS in accordance with its
terms (the "Merger"). Pursuant to the Merger, all outstanding capital stock of
MCS shall be converted into the right to receive NetIQ Common Stock, as set
forth in the Merger Agreement (the "Share Issuance"). As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
the Merger Agreement shall have been validly terminated pursuant to Article VII
thereof or (ii) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special or adjourned meeting of stockholders
of NetIQ and in every written consent in lieu of such meeting (a) in favor of
approval of the Merger, the Merger Agreement and the Share Issuance (the "NetIQ
Approval Matters"), (b) in favor of any matter that could reasonably be expected
to facilitate the NetIQ Approval Matters, and (c) in such manner as MCS may
direct with respect to all other proposals submitted to the stockholders of
NetIQ which, directly or indirectly, in any way relates to the MCS.
The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned is executing this
Proxy only in its capacity as a stockholder. Such signature in no way affects
its obligations as an officer or director of NetIQ.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically upon
the Expiration Date.
Dated:___________________, 2000
Signature of Stockholder:_________________________
Print Name of Stockholder:________________________
Shares beneficially owned:
__________ NetIQ Common Shares
__________ NetIQ Common Shares issuable upon
exercise of outstanding options or warrants
[Signature Page to Irrevocable Proxy]
