================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) December 29, 1999
-----------------------------
ON Technology Corporation
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-26376 04-3162846
- --------------------------------------------------------------------------------
(Commission File Number) (IRS Employer Identification No.)
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
- --------------------------------------------------------------------------------
(Address Of Principal Executive Offices)
(781) 487-3300
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
One Cambridge Center
Cambridge, Massachusetts 02142
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
<PAGE>
Item 5: Other Events
ON Technology Corporation ("ON") reports the completion of a $12
million private placement of common stock and warrants to two institutional
investors: Castle Creek Technology Partners LLC and Marshall Capital Management,
Inc., an affiliate of Credit Suisse First Boston. Each investor purchased
514,837 shares of ON's common stock, and received warrants to purchase 257,419
shares of ON's common stock at a price of $15.15 per share. Each investor also
received warrants to purchase additional shares of common stock exercisable
solely upon the occurrence of certain events. See attached press release issued
on December 30, 1999, the Securities Purchase Agreement, Registration Rights
Agreement and Common Stock Purchase Warrants, all of which are, by this
reference, incorporated herein.
Exhibits to Form 8-K
- --------------------
1. Securities Purchase Agreement by and between ON Technology Corporation,
Castle Creek Technology Partners LLC and Marshall Capital Management,
Inc. dated December 29, 1999.
2. ON Technology Corporation Common Stock Purchase Warrant dated December
29, 1999 issued to Castle Creek Technology Partners LLC.
3. ON Technology Corporation Common Stock Purchase Warrant dated December
29, 1999 issued to Marshall Capital Management, Inc.
4. ON Technology Corporation Common Stock Purchase Warrant dated December
29, 1999 issued to Castle Creek Technology Partners LLC.
5. ON Technology Corporation Common Stock Purchase Warrant dated December
29, 1999 issued to Marshall Capital Management, Inc.
6. Registration Rights Agreement by and among ON Technology Corporation,
Castle Creek Technology Partners LLC and Marshall Capital Management,
Inc. dated December 29, 1999.
7. ON Technology Corporation Press Release dated December 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ON Technology Corporation
-------------------------
(Registrant)
Date January 3, 2000 By /s/ Stephen J. Wietrecki
----------------- ------------------------
Stephen J. Wietrecki
Vice President and Chief
Financial Officer
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
-----------------------------
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
December 29, 1999, by and among ON Technology Corporation, a Delaware
corporation (the "Company"), with headquarters located at Waltham Woods, 880
Winter Street, Building 4, Waltham, MA 02451 and the purchasers (individually, a
"Purchaser" and collectively, the "Purchasers") set forth on the execution pages
hereof, with regard to the following:
RECITALS
--------
A. The Company and Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. Each of the Purchasers desires to purchase, upon the terms and
conditions stated in this Agreement, (i) shares of the Company's common stock,
$0.01 par value (the "Common Stock"), (ii) a Warrant in the form of Exhibit A
hereto (the "Series I Warrant") entitling the holder thereof to purchase from
the Company shares of Common Stock, and (iii) a Warrant in the form of Exhibit B
hereto entitling the holder thereof to purchase additional shares of Common
Stock from the Company (the "Series II Warrant", and together with the Series I
Warrant, the "Warrants"). The shares of Common Stock being purchased hereunder
are referred to herein as the "Shares" and the shares of Common Stock issuable
upon exercise of the Warrants are referred to herein as the "Warrant Shares".
The Shares, the Warrants and the Warrant Shares are collectively referred to
herein as the "Securities."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
in the form attached hereto as Exhibit C (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act, the rules and regulations promulgated thereunder and
applicable state securities laws.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchasers hereby agree as
follows:
<PAGE>
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 Purchase of Shares and Warrant. On the Closing Date (as defined
below), subject to the terms and the satisfaction (or waiver) of the conditions
set forth in Articles VI and VII of this Agreement, the Company shall issue and
sell to each Purchaser, and each Purchaser shall purchase from the Company (i)
the number of Shares as set forth below such Purchaser's name on the signature
pages hereof at the Market Price (as defined below) on the Closing Date (the
"Per Share Purchase Price"), (ii) a Series I Warrant entitling the holder
thereof to purchase the number of Warrant Shares as set forth in such Warrant at
an exercise price equal to $15.15 (130% of the Per Share Purchase Price), and
(iii) a Series II Warrant entitling the holder thereof to purchase the number of
Warrant Shares as set forth in such Warrant, for an aggregate consideration of
Twelve Million Dollars ($12,000,000) (the "Total Purchase Price"). The purchase
price to be paid by each Purchaser (the "Purchase Price") for the Shares and
Warrants being purchased by such Purchaser at the Closing is equal to the Per
Share Purchase Price times the number of Shares set forth on the signature page
executed by such Purchaser.
As used in this Agreement, the "Market Price" for any given date means
the average closing bid price of the Common Stock during the fifteen (15)
consecutive trading days immediately preceding, but not including, the day prior
to such date.
1.2 Form of Payment. At the Closing, each Purchaser shall pay the
applicable Purchase Price for the Shares and Warrants being purchased by such
Purchaser at the Closing by wire transfer to the Company, in accordance with the
Company's written wiring instructions, against delivery of duly executed stock
certificates and Warrants from the Company, and the Company shall deliver to
such Purchaser such executed stock certificates and Warrants against delivery of
such Purchase Price from such Purchaser.
1.3 Closing Date. Subject to the satisfaction (or waiver) of the
conditions set forth in Articles VI and VII of this Agreement, the date and time
of the issuance, sale and purchase of the Shares and Warrants (the "Closing")
pursuant to this Agreement shall be December 29, 1999 (the"Closing Date"). The
Closing shall occur at 10:00 a.m. Chicago time, at the offices of Altheimer &
Gray, 10 S. Wacker Drive, Chicago, IL 60606.
ARTICLE II
PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants, solely with respect to itself
and its purchase hereunder and not with respect to any other Purchaser or the
purchase hereunder by any other Purchaser (and no Purchaser shall be deemed to
make or have any liability for any representation or warranty made by any other
Purchaser), to the Company as set forth in this Article II. No Purchaser makes
any other representations or warranties, express or implied, to the Company in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any,
2
<PAGE>
which may have been made by a Purchaser to the Company in connection with the
transactions contemplated hereby shall be deemed to have been merged in this
Agreement and any such prior representations and warranties, if any, shall not
survive the execution and delivery of this Agreement.
2.1 Investment Purpose. Purchaser is purchasing the Shares and
Warrants for Purchaser's own account as a principal for investment only and not
with a present view toward or in connection with the public re-sale or
distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser will not resell any of the Securities except
pursuant to sales that are exempt from the registration requirements of the
Securities Act and/or sales registered under the Securities Act. Purchaser
understands that Purchaser must bear the economic risk of this investment
indefinitely, unless the applicable Securities are registered pursuant to the
Securities Act and any applicable state securities laws or an exemption from
such registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreement. By making the representations in this Section 2.1, Purchaser
does not agree to hold any Securities for any minimum or other specific term and
reserves the right to dispose of any or all of the Securities at any time in
accordance with or pursuant to a registration statement or an applicable
exemption from registration under the Securities Act.
2.2 Accredited Investor Status. Purchaser is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
2.3 Reliance on Exemptions. Purchaser understands that the Shares and
Warrants are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of the United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of the representations and warranties of Purchaser set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Securities.
2.4 Information. Purchaser and its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Shares and Warrants which have
been specifically requested by Purchaser. Purchaser has been afforded the
opportunity to ask questions of the Company, and its officers, directors,
employees and agents, and has received what Purchaser believes to be complete
and satisfactory answers to any such inquiries. Neither such inquiries nor any
other due diligence investigation conducted by Purchaser or any of its
representations and warranties shall modify, amend or affect Purchaser's right
to rely on the Company's representations and warranties contained in Article
III. Purchaser understands that Purchaser's investment in the Securities
involves a high degree of risk.
2.5 Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities or an
investment therein.
3
<PAGE>
2.6 Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be transferred unless subsequently registered thereunder or an
exemption from such registration is available (which exemption the Company
expressly agrees may be established as contemplated in clauses (b) and (c) of
Section 5.1 hereof); (ii) any sale of such Securities made in reliance on Rule
144 under the Securities Act (or a successor rule) ("Rule 144") may be made only
in accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities without registration under the
Securities Act may require compliance with some other exemption under the
Securities Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to this Agreement or the Registration Rights Agreement).
2.7 Legends. Purchaser understands that, subject to Article V hereof,
the certificates for the Warrants, and until such time as the Shares and the
Warrant Shares, as applicable, have been registered under the Securities Act as
contemplated by the Registration Rights Agreement or otherwise may be sold by
Purchaser pursuant to Rule 144, the certificates for the Shares and the Warrant
Shares will bear a restrictive legend (the "Legend") in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR
OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THOSE LAWS.
2.8 Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their respective terms.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth
under Purchaser's name on the signature page hereof executed by Purchaser.
4
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser that:
3.1 Organization and Qualification. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated, and has
the requisite corporate power and authority to own its properties and to carry
on its business as now being conducted. Each of the Company and its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction where the failure to so qualify could reasonably
be expected to have a Material Adverse Effect. "Material Adverse Effect" means
any material adverse effect on (i) the business, operations, properties,
financial condition, operating results or prospects of the Company and its
subsidiaries, taken as a whole on a consolidated basis, (ii) the transactions
contemplated by this Agreement, the Warrants or the Registration Rights
Agreement (collectively, the "Transaction Documents"), (iii) the ability of the
Company to perform its obligations under the Transaction Documents or (iv) the
Purchaser's interest in the Securities.
3.2 Authorization; Enforcement. (a) The Company has the requisite
corporate power and authority (i) to enter into and perform its obligations
under each of the Transaction Documents, (ii) to issue and sell, and to perform
its obligations with respect to, the Shares and the Warrants in accordance with
the terms hereof and thereof, as applicable, and (iii) to issue the Warrant
Shares in accordance with the terms of the Warrants; (b) the execution, delivery
and performance of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation the issuance of the Warrants and the reservation
for issuance and the issuance of the Shares and the Warrant Shares) have been
duly authorized by all necessary corporate action and no further consent or
authorization of the Company, its board of directors, or its stockholders or any
other person, body or agency is required with respect to any of the transactions
contemplated hereby or thereby (whether under rules of The Nasdaq National
Market ("Nasdaq"), the National Association of Securities Dealers or otherwise),
other than the Nasdaq Authorizations (as herein defined) and the declaration or
ordering of effectiveness by the SEC of the Registration Statement or Statements
as contemplated by the Registration Rights Agreement (collectively, the
"Consents"); (c)each of the Transaction Documents has been duly executed and
delivered by the Company; and (d) each of the Transaction Documents constitutes
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms.
3.3 Capitalization. The capitalization of the Company as of the date
of this Agreement, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares reserved for issuance pursuant to
the Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Warrants) exercisable for, or convertible
into or exchangeable for any shares of Common Stock of the Company and the
number of shares to be initially reserved for issuance upon exercise of the
Warrants, is set forth on Schedule 3.3. All of
5
<PAGE>
such outstanding shares of capital stock have been, or upon issuance will be,
validly issued, fully paid and non-assessable. No shares of capital stock of the
Company (including the Shares and the Warrant Shares) are subject to preemptive
rights or any other similar rights of the stockholders of the Company or any
liens or encumbrances. Except as disclosed in Schedule 3.3, as of the date of
this Agreement, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable for, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the Securities Act
(except the Registration Rights Agreement). The Company has furnished to
Purchaser true and correct copies of the Company's Certificate of Incorporation
as currently in effect ("Certificate of Incorporation"), and the Company's
By-laws as currently in effect (the "By-laws"). The Company has set forth in the
Company's Quarterly Report on Form 10-Q for the period ended on September 30,
1999 (the "Latest Form 10-Q") or Schedule 3.3 all instruments and agreements
(other than the Certificate of Incorporation and By-laws) governing securities
convertible into or exercisable or exchangeable for Common Stock of the Company
(and the Company shall provide to Purchaser copies thereof upon the request of
Purchaser). Except as disclosed in the Latest Form 10-Q or Schedule 3.3, the
Company has no indebtedness for borrowed money and no agreement providing for
indebtedness for borrowed money. Except as disclosed in the Latest Form 10-Q or
Schedule 3.3 and this Agreement, the Company has no share purchase agreements,
rights plans or agreements containing similar provisions and no agreements
containing anti-dilution provisions. No anti-dilution provisions which have,
individually or in the aggregate, any dilutive effect on Purchaser's investment
are triggered as a result of any of the transactions contemplated by the
Transaction Documents, including exercise of the Warrants. The Company shall
provide Purchaser with a written update of this representation signed by the
Company's Chief Executive Officer or Chief Financial Officer on behalf of the
Company as of the date of the Closing and it shall be a condition to Purchaser's
obligations at Closing that there are no material changes in such capitalization
since the Company's representation on the date hereof. The Company has no
subsidiaries, except as provided in the Latest Form 10-Q or Schedule 3.3. All
such subsidiaries included in the Latest Form 10-Q or Schedule 3.3. are one
hundred percent (100%) owned by the Company. Except as provided in the Latest
Form 10-Q or Schedule 3.3, the Company has no investments, either debt or
equity, in any other entity.
3.4 Issuance of Shares. The Shares and the Warrant Shares are duly
authorized and reserved for issuance, and, upon issuance in accordance with the
terms hereof and exercise of the Warrants in accordance with the terms thereof,
as applicable, will be validly issued, fully paid and non-assessable, and free
from all liens, claims and encumbrances and will not be subject to preemptive
rights or other similar rights of stockholders of the Company. The Warrants are
duly authorized and are validly issued, fully paid and non-assessable, and free
from all liens, claims and encumbrances and are not and will not be subject to
preemptive rights or other similar rights of stockholders of the Company. The
board of directors of the Company has unanimously approved the issuance of
Shares pursuant to the terms hereof and the issuance of Shares issuable upon
exercise of the Warrants
6
<PAGE>
pursuant to the terms thereof (without giving effect to any limitations on
exercise contained therein, including for purposes of Nasdaq Rule 4460(i) and
Nasdaq Rule 4310(c)(25)(H)(1)(b)) (the "Nasdaq Authorizations"), has unanimously
recommended to the stockholders of the Company the approval of the Nasdaq
Authorizations and will seek Stockholder Approval (as defined in Section 4.12)
at the Company's next annual meeting, which is currently scheduled for April,
2000. No further corporate authorization or approval (other than the Stockholder
Approval) is required under the rules of the Nasdaq with respect to the
transaction contemplated by the Transaction Documents, including, without
limitation, the issuance of the Shares and the Warrant Shares and the inclusion
thereof for trading on the Nasdaq.
3.5 No Conflicts. Except as disclosed in Schedule 3.5, the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the Company, and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance of the Warrants and the issuance and reservation for issuance, as
applicable, of the Shares and Warrant Shares and the Purchaser's purchase and
acquisition of the Shares, the Warrants and the Warrant Shares) do not and will
not (a) result in a violation of the Certificate of Incorporation or By-laws,
(b) conflict with, or constitute a default (or an event which, with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party (except for such conflicts, defaults, terminations,
amendments, accelerations, and cancellations as would not, individually or in
the aggregate, have a Material Adverse Effect), or (c) result in a violation of
any law, rule, regulation, order, judgment or decree (including, without
limitation, U.S. federal and state securities laws and regulations) applicable
to the Company or any of its subsidiaries, or by which any property or asset of
the Company or any of its subsidiaries, is bound or affected. Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, by-laws or other organizational documents, and neither the
Company nor any of its subsidiaries is in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, except for possible defaults
or rights as would not, individually or in the aggregate, have a Material
Adverse Effect. The business of the Company and its subsidiaries is not being
conducted, and shall not be conducted so long as a Purchaser owns any of the
Securities, in violation of any law, ordinance, rule, regulation, order,
judgment or decree of any governmental entity, court or arbitration tribunal
except for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as disclosed in
Schedule 3.5, the Company is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self-regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the Warrants or
the Registration Rights Agreement or to perform its obligations in accordance
with the terms hereof or thereof, other than the Consents. The purchase and
acquisition of the Securities by the Purchaser do not violate any law, rule,
regulation, order, judgment or decree applicable to the Company, or require
further filing by the Company or Purchaser
7
<PAGE>
under such law, rule, regulation, order, judgment or decree, by virtue of the
Company's business or assets, other than the Consents. Except as disclosed in
Schedule 3.5, the Company is in full compliance with the continued listing
criteria of Nasdaq and does not reasonably anticipate that the Common Stock will
be de-listed by Nasdaq for the foreseeable future, and the Company has made all
necessary filings and notifications with, is not aware of any inquiry by or
received any notice from Nasdaq regarding any failure or alleged failure by the
Company to comply with such criteria and has obtained all necessary approvals
from, Nasdaq with respect to the transactions contemplated by the Transaction
Documents, including, without limitation, the issuance of the Securities and the
listing of the Shares and the Warrant Shares on the Nasdaq.
3.6 Registration and SEC Documents. The Common Stock is registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and has been so registered since August 1, 1995. Except as
disclosed in the Filed SEC Documents or Schedule 3.6, since January 1, 1998, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed after January 1,
1998, and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein, being referred to
herein as the "SEC Documents" and such documents filed prior to the date hereof,
the "Filed SEC Documents"), including for purposes of determining the
availability of Form S-3. The Company has delivered to the Purchaser true and
complete copies of the SEC Documents filed since January 1, 1998. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC or as subsequently
corrected, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Document is, or,
except pursuant to Filed SEC Documents has been, required to be updated or
amended under applicable law, except for amendments and updates already made.
The financial statements of the Company included in the SEC Documents were
prepared in accordance with U.S. generally accepted accounting principles
("GAAP"), consistently applied, and the rules and regulations of the SEC during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they do not include footnotes or are condensed or
summary statements) and fairly present in accordance with GAAP the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments). Except as set forth in the
financial statements of the Company included in the Filed SEC Documents, the
Company has no liabilities, contingent or otherwise, other than (i) liabilities
incurred subsequent to the date of such financial statements in the ordinary
course of business consistent with past practice, (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, and (iii) obligatioins which, individually or in the
aggregate, are not material to the financial condition,
8
<PAGE>
business, operations, properties, operating results or prospects of the Company
and its subsidiaries taken on a whole. The Filed SEC Documents, as supplemented
by Schedule 3.6 hereto, contain a complete and accurate list of all material
undischarged written or oral contracts, agreements, leases or other instruments
to which the Company or any subsidiary is a party or by which the Company or any
subsidiary is bound or to which any of the properties or assets of the Company
or any subsidiary is subject (each a "Contract"), except to the extent not
required to be filed pursuant to the applicable Rules and Regulations of the
SEC. None of the Company, its subsidiaries or, to the best knowledge of the
Company, any of the other parties thereto, is in breach or violation of any
Contract, which breach or violation relates to indebtedness for borrowed money
would have a Material Adverse Effect. No event, occurrence or condition exists
which, with the lapse of time, the giving of notice, or both, or the happening
of any further event or condition, would become a breach or default by the
Company or its subsidiaries under any Contract which breach or default would
have a Material Adverse Effect.
3.7 Absence of Certain Changes. Since December 31, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, results of operations or
prospects of the Company, except as disclosed in Schedule 3.7.
3.8 Absence of Litigation. Except as disclosed in the Filed SEC
Documents or Schedule 3.8, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, governmental agency or
authority, or self-regulatory organization or body pending or, to the knowledge
of the Company or any of its subsidiaries, threatened against or affecting the
Company, any of its subsidiaries, or any of their respective directors or
officers in their capacities as such, wherein an unfavorable decision, ruling or
finding could reasonably be expected to have a Material Adverse Effect or would
adversely affect the transactions contemplated by the Transaction Documents or
which would adversely affect the validity or enforceability of, or the authority
or ability of the Company to perform its obligations under, the Transaction
Documents. To the Company's knowledge, there are no facts which, if known by a
potential claimant or governmental agency or authority, could give rise to a
claim or proceeding which, if asserted or conducted with results unfavorable to
the Company or any of its subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
3.9 Disclosure. No information relating to or concerning the Company
set forth in this Agreement or provided to Purchaser in connection with the
transactions contemplated hereby contains an untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements made
herein or therein, in light of the circumstances under which they were made, not
misleading. Except for the execution and performance of this Agreement and the
transactions contemplated hereby, no material fact (within the meaning of the
federal securities laws of the United States) exists with respect to the Company
or any of its subsidiaries which has not been publicly disclosed.
3.10 Acknowledgment Regarding Purchaser's Purchase of the Securities.
The Company acknowledges and agrees that each Purchaser is acting independently
and is not acting as a financial
9
<PAGE>
advisor or fiduciary of the Company (or in any similar capacity) with respect to
this Agreement or the transactions contemplated hereby, that this Agreement and
the transaction contemplated hereby, and the relationship between each Purchaser
and the Company, are "arms-length", and that any statement made by any
Purchaser, or any of its representatives or agents, in connection with this
Agreement or the transactions contemplated hereby does not constitute advice or
a recommendation, is merely incidental to such Purchaser's purchase of the
Securities and has not been relied upon in any way by the Company, its officers,
directors or other representatives. The Company further represents to Purchaser
that the Company's decision to enter into this Agreement and the transactions
contemplated hereby has been based solely on an independent evaluation by the
Company and its representatives.
3.11 Current Public Information. The Company is currently eligible to
register the resale of the Shares and the Warrant Shares by the Purchaser in a
secondary offering under General Instruction B3 and B4 of Form S-3 on a
registration statement on Form S-3 under the Securities Act, all as contemplated
by Section 2.1 of the Registration Rights Agreement.
3.12 No General Solicitation. Neither the Company nor any person acting
on behalf of the Company has conducted any "general solicitation," as described
in Rule 502(c) under Regulation D, with respect to any of the Securities being
offered hereby.
3.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on their behalf, has directly or indirectly
made any offers or sales of any security or solicited any offers to buy any
security under circumstances that would prevent the parties hereto from
consummating the transactions contemplated hereby pursuant to an exemption from
registration under the Securities Act pursuant to the provisions of Regulation
D. The transactions contemplated hereby are exempt from the registration
requirements of the Securities Act, assuming the accuracy of the representations
and warranties herein contained of each Purchaser to the extent relevant for
such determination.
3.14 No Brokers. The Company has taken no action which would give
rise to any claim by any person for brokerage commissions, finder's fees or
similar payments by Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Thomas Weisel Partners LLC (the
fees of which shall be paid in full by the Company). The Company will indemnify
each Purchaser from and against any fees and expenses sought or other claims
made by Thomas Weisel Partners LLC.
3.15 Acknowledgment of Dilution. The number of Warrant Shares issuable
upon exercise of the Warrants may increase substantially in certain
circumstances. The Company's executive officers and directors have studied and
fully understand the terms of this Agreement and the transactions contemplated
hereby and the nature of the securities being sold hereunder and recognize that
they have a potentially dilutive effect. The board of directors of the Company
has unanimously concluded in its good faith business judgment that the issuance
of the Shares, the Warrants and the Warrant Shares as contemplated hereby is in
the best interests of the Company. The Company
10
<PAGE>
acknowledges that its obligation to issue Warrant Shares upon exercise of the
Warrants is binding upon it and enforceable regardless of the dilution that such
issuance may have on the ownership interests of other stockholders.
3.16 Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all material patents,
patent applications, trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, licenses, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures) and other similar rights and proprietary
knowledge (collectively, "Intangibles") used or necessary for the conduct of its
business as now being conducted and as previously described in the Company's
Annual Report on Form 10-K most recently filed and any subsequently filed
reports on Form 10-Q and Form 8-K except where failure to own or have such
rights would not have a Material Adverse Effect. Neither the Company nor any
subsidiary of the Company infringes on or is in conflict with any right of any
other person with respect to any Intangibles nor is there any claim of
infringement made by a third party against or involving the Company or any of
its subsidiaries, which infringement, conflict or claim, individually or in the
aggregate is likely to have a Material Adverse Effect.
3.17 Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, the Company and its
subsidiaries have not directly or indirectly made or agreed to make (whether or
not said payment is lawful) any payment to obtain, or with respect to, sales
other than usual and regular compensation to its or their employees and sales
representatives with respect to such sales.
3.18 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in the Filed SEC Documents or
Schedule 3.18. No Key Employee, to the best of the knowledge of the Company and
its subsidiaries, is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or proprietary
information agreement, non-competition agreement, or any other contract or
agreement or any restrictive covenant, and the continued employment of each Key
Employee does not subject the Company or any of its subsidiaries to any
liability with respect to any of the foregoing matters. No Key Employee has, to
the best of the knowledge of the Company and its subsidiaries, any intention to
terminate or limit his employment with, or services to, the Company or any of
its subsidiaries, nor is any such Key Employee subject to any constraints (e.g.,
litigation) which would cause such employee to be unable to devote his full time
and attention to such employment or services, except where such termination,
limitation or constraints would not reasonably be expected
11
<PAGE>
to have a Material Adverse Effect. "Key Employee" means Herman DeLatte, Stephen
J. Wietrecki, Ram Sudama and Laurent Raynaud.
3.19 Year 2000 Compliance. The information set forth in the Filed SEC
Documents with respect to Year 2000-related compliance by the Company does not
contain any untrue statement of a material fact or omit any material fact
necessary to make the statements contained therein not misleading. The Company's
testing compliance program and contingency plan, in each case regarding Year
2000-related matters, are adequate to prevent a Material Adverse Effect and such
Year 2000-related matters will not cause a Material Adverse Effect.
ARTICLE IV
COVENANTS
4.1 Best Efforts. The parties shall use all commercially reasonable
efforts timely to satisfy each of the conditions described in Articles VI and
VII of this Agreement.
4.2 Securities Laws. The Company agrees to file a Form D with respect
to the Securities with the SEC as required under Regulation D and to provide a
copy thereof to each Purchaser on or prior to its filing. The Company agrees to
file a Form 8-K disclosing this Agreement and the transactions contemplated
hereby with the SEC no later than January 4, 2000. Such Form 8-K shall contain
as exhibits this Agreement, the Warrants and the Registration Rights Agreement.
The Company shall, on or prior to the date of Closing, take such action as is
necessary to sell the Securities to each Purchaser in accordance with applicable
securities laws of the states of the United States, and shall provide evidence
of any such action so taken to each Purchaser on or prior to the date of the
Closing. Without limiting any of the Company's obligations under this Agreement,
the Registration Rights Agreement or the Warrants, from and after the date of
Closing, neither the Company nor any person acting on its behalf shall take any
action which would adversely affect any exemptions from registration under the
Securities Act with respect to the transactions contemplated hereby.
4.3 Reporting Status. So long as any Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
4.4 Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities for general corporate purposes only, in the ordinary course of
its business and consistent with past practice and, without limiting the
generality of the foregoing, shall not use such proceeds to make a loan to any
employee, officer, director or stockholder of the Company, to repay any loan or
other obligation of the Company to any such person or to repurchase or pay a
dividend on shares of Common Stock or other securities of the Company.
12
<PAGE>
4.5 Restriction on Issuance of Securities.
(a) During the period beginning on the Closing Date and ending on the
date which is six (6) months following the effective date of the registration
statement contemplated by Section 2.1 of the Registration Rights Agreement (the
"Effective Date") (such period, the "Financing Restriction Period"), the Company
shall not issue or agree to issue (except (i) to the Purchasers pursuant to this
Agreement, (ii) pursuant to any employee stock option, stock purchase or
restricted stock plan of the Company, so long as the issuance of such stock or
option is approved by a majority of the non-employee members of the board of
directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, (iii) pursuant to strategic
investments from industry participants, the primary purpose of each of which is
not to raise equity capital, (iv) to a seller or sellers of a business being
acquired by the Company in such transaction, provided, however, that issuances
pursuant to this clause (iv) shall not exceed, in the aggregate, 1,384,816
Shares of Common Stock or securities convertible into such number of Shares of
Common Stock without written consent of the Purchasers, which consent shall not
be unreasonably withheld or delayed; (v) the issuance to one purchaser or a
group of related purchasers of securities, which, immediately following such
issuance, constitute greater than 80% of the outstanding voting securities or
economic interest in the Company, and which issuance is approved by a majority
vote of the holders of voting capital stock of the Company, or (vi) in a public
offering) any equity-like or equity-linked securities of the Company or any
security convertible into or exercisable or exchangeable, directly or
indirectly, for equity, equity-like or equity-linked securities of the Company
(any such securities, "Restricted Securities").
(b) During the six (6) month period beginning on the date immediately
following the final day of the Financing Restriction Period, other than to a
seller or sellers of a business being acquired by the Company in such
transaction, the Company will not issue or agree to issue or offer to issue or
solicit any offer or inquiry with regard to any Restricted Securities unless the
Company has satisfied all of the following requirements with respect to such
issuance:
(I) The Company shall have delivered a notice to each
Purchaser (the "Transfer Notice"), which notice shall include (A) the
terms and number of units of the security and the consideration per
unit which the Company desires to receive for the securities (which, in
the case where the Company shall have received an offer to purchase
such securities other than from the Purchasers (a "Third Party Offer"),
shall be the consideration set forth in such offer) and (B) all of the
material terms and conditions, including the terms and conditions of
payment, upon which the Company proposes to transfer said securities
(which, in the case of a Third Party Offer, shall be the terms and
conditions set forth in the Third Party Offer).
(II) Upon the delivery of the Transfer Notice, each Purchaser
shall have an option to purchase up to its pro rata portion of the
securities described therein based on the number of shares of Common
Stock purchased by all Purchasers hereunder on the terms and conditions
described therein. Such option shall be exercisable by such Purchaser
by service of written notice upon the Company within five (5) business
days of receipt of the Transfer
13
<PAGE>
Notice. In the event that any Purchaser declines to exercise such
option, such option may be exercised by the remaining Purchasers.
Notwithstanding the foregoing, (i) if during such Financing Restriction
Period the Company delivers a Transfer Notice notifying the Purchasers
that it will issue or agree to issue or offer to issue or solicit any
offer or inquiry with regard to any Restricted Securities for an
aggregate amount of Five Million Dollars ($5,000,000)or less, the
Purchasers' option pursuant to this clause (II) shall be to purchase in
the aggregate all, but not less than all, of the securities described
therein on the terms and conditions described therein, and (ii) if
during such Financing Restriction Period the Company delivers a
Transfer Notice notifying the Purchasers that it will issue or agree to
issue or offer to issue or solicit any offer or inquiry with regard to
any Restricted Securities for an aggregate amount of more than Five
Million Dollars ($5,000,000), the Purchasers' option pursuant to this
clause (II) shall be to purchase in the aggregate either (x) all or (y)
an amount which is half or fewer, of the securities described therein
on the terms and conditions described therein.
(III) If the options created in clause (II) hereof are not
exercised by Purchaser within five (5) business days of service of the
Transfer Notice, or if such options are exercised only in part, then,
within a period of thirty (30) days beginning on the day following the
date of expiration of the option period, the Company may issue some or
all of the securities sought to be issued as to which such options were
not exercised, at a price which is not less than one hundred percent
(100%) of the price specified in the Transfer Notice and on terms and
conditions not less favorable to the Company than those specified in
the Transfer Notice.
4.6 Further Restrictions on Issuance of Securities. While any
Purchaser holds any Shares, Warrants, or Warrant Shares, the Company shall not,
and shall cause each of its direct and indirect subsidiaries not to, issue,
agree to issue or authorize for issuance, or otherwise transfer or enter into
any commitment to issue or otherwise transfer, or offer to issue or transfer or
solicit any issuance or proposal with regard to, any debt or equity security,
bond, note or other security of any of the Company's direct or indirect
subsidiaries (including, without limitation, any such subsidiaries as listed in
the Latest Form 10-Q or Schedule 3.3), except for trade indebtedness and bank
financing, in each case incurred on customary terms and conditions in the
ordinary course of business (but, without limitation and by way of
clarification, not including any equity-like or equity-linked terms and
conditions).
4.7 Expenses. The Company shall pay to Castle Creek Technology
Partners LLC ("CCTP") at the Closing reimbursement for the expenses incurred by
it and its affiliates and advisors in connection with the negotiation,
preparation, execution, and delivery of this Agreement and the other agreements
and documents to be executed in connection herewith, including, without
limitation, due diligence and attorneys' fees and expenses (the "Expenses"). In
addition, from time to time thereafter, upon CCTP's written request, the Company
shall pay to CCTP such Expenses, if any, not so paid at Closing and/or covered
by such payment, in each case to the extent incurred by CCTP. The Company shall
not be required to reimburse Expenses to the extent such Expenses exceed fifty
thousand dollars ($50,000) in the aggregate.
14
<PAGE>
4.8 Information. The Company agrees to send the following reports to
each Purchaser until the earlier of (i) the date on which such Purchaser
transfers, assigns or sells all of its Securities; or (ii) the second
anniversary of the Closing Date: (a) within three (3) business days after the
filing with the SEC, a copy of its Annual Report on Form 10-K, its Quarterly
Reports on Form 10-Q, any proxy statements and any Current Reports on Form 8-K;
and (b) within two (2) business days after release, copies of all press releases
issued by the Company or any of its subsidiaries.
4.9 Listing. For a period of beginning on the Closing Date and ending
on the fifth (5th) anniversary of the Closing Date, the Company shall continue
the listing and trading of its Common Stock on The Nasdaq National Market, the
Nasdaq SmallCap Market, the New York Stock Exchange or the American Stock
Exchange, secure and maintain listing and trading of the Shares and Warrant
Shares on such exchange, and comply in all respects with the Company's
reporting, filing and other obligations under the by-laws or rules of such
exchange; provided, however, that if the Company is a party to a transaction
following which no Purchaser holds any shares of capital stock or securities
convertible into shares of capital stock of the Company, such obligation shall
cease with respect to the Company; provided, further, that if the Shares and the
Warrant Shares are converted in such transaction into shares of capital stock or
other equivalent equity interest of another entity, such entity shall be bound
by the provisions of this Section 4.9 for the remainder of the five (5) year
term. If the Company fails to maintain the listing or trading of the Common
Stock as required by this Section 4.9, then beginning on the tenth (10th)
business day following such failure, if the Common Stock is still not listed or
traded, then the Company shall pay to each Purchaser an amount equal to one
percent (1%) of the fair market value of the Shares and Warrant Shares then held
by such Purchaser per day that such failure continues. For purposes hereof, the
number of Warrant Shares held by a Purchaser shall be calculated as though all
Warrants held by such Purchaser were fully exercised at the Exercise Price then
in effect, without regard to any limitations on the exercise thereof.
4.10 Prospectus Delivery Requirement. Each Purchaser understands that
the Securities Act may require delivery of a prospectus relating to the Common
Stock in connection with any sale thereof pursuant to a registration statement
under the Securities Act covering the resale by such Purchaser of the Common
Stock being sold.
4.11 Intentional Acts or Omissions. The Company shall not intentionally
perform any act which if performed, or intentionally omit to perform any act
which, if omitted to be performed, would prevent or excuse the performance of
this Agreement or any of the transactions contemplated hereby.
4.12 Share Authorization. The Company covenants and agrees that it
shall (i) solicit by proxy the Stockholder Approval (as defined below) and (ii)
use its best efforts to obtain the Stockholder Approval at its next annual
stockholder meeting, which shall be held no later than May 1, 2000 ("Stockholder
Approval Date"). For purposes hereof, "Stockholder Approval" means authorization
by the stockholders of the Company for the issuance of Common Stock to the
Purchasers at the Closing, upon the Effective Date and upon the exercise of the
Warrants pursuant to the terms thereof in the aggregate in excess of twenty
percent (20%) of the Company's total
15
<PAGE>
Common Stock outstanding and, if necessary, the elimination of any prohibitions
under the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the Company
or any of its securities on the Company's ability to issue Common Stock in
excess of twenty percent (20%). In addition, the Company shall, unless otherwise
consented to by Purchasers, have a definitive proxy statement mailed to each
stockholder of the Company at least twenty (20) days prior to the Stockholder
Approval Date. The Company shall deliver one copy of any SEC comments it
receives with respect to its proxy statement to each Purchaser and will not file
such proxy statement (or any amendments thereto), whether such proxy statement
is in preliminary or definitive form, without the approval of each Purchaser.
ARTICLE V
LEGEND REMOVAL AND TRANSFER INSTRUCTIONS
5.1 Removal of Legend. The Legend shall be removed and the Company
shall issue a certificate without any legend to the holder of any Security upon
which such Legend is stamped, and a certificate for a Security shall be
originally issued without any legend, if, unless otherwise required by
applicable state securities laws, (a) the sale of such Security is registered
under the Securities Act, (b) such holder provides the Company with an opinion
of counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, and reasonably satisfactory to the Company (the cost of
which shall be borne by the Holder), to the effect that a public sale or
transfer of such Security may be made without registration under the Securities
Act or (c) such Security can be sold pursuant to Rule 144. Each Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the Legend has been removed, or which were originally issued without the
Legend, (i) pursuant to an effective registration statement and to deliver a
prospectus in connection with such sale or (ii) in compliance with an exemption
from the registration requirements of the Securities Act. In the event the
Legend is removed from any Security or any Security is issued without the Legend
and thereafter the effectiveness of a registration statement covering the resale
of such Security is suspended or a supplement or amendment thereto is required
by applicable securities laws, then upon reasonable advance notice to Purchaser
holding such Security, the Company may require that the Legend be placed on any
such Security that cannot then be sold pursuant to an effective registration
statement or Rule 144 or with respect to which the opinion referred to in clause
(b) next above has not been rendered, which Legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule 144
or such holder provides the opinion with respect thereto described in clause (b)
next above. Except for the Legend required pursuant to Section 2.7 and this
Section 5.1, the Securities shall bear no legend.
5.2 Transfer Agent Instructions. The Company shall instruct its
transfer agent to issue certificates, registered in the name of each Purchaser
or its nominee, for the Shares and Warrant Shares in such amounts as specified
from time to time by each Purchaser to the Company. Such certificates shall bear
a legend only in the form of the Legend and only to the extent permitted by
Section 2.7 and Section 5.1 above. The Company warrants that no instruction
other than such instructions referred to in this Article V, and no stop transfer
instructions other than stop transfer instructions to give effect to Section 2.6
hereof in the case of the Shares and Warrant Shares prior
16
<PAGE>
to registration thereof under the Securities Act, will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company. Nothing in this Section
shall affect in any way any Purchaser's obligations and agreement set forth in
Section 5.1 hereof to resell the Securities pursuant to an effective
registration statement and to deliver a prospectus in connection with such sale
or in compliance with an exemption from the registration requirements of
applicable securities laws. Without limiting any other rights of a Purchaser or
obligations of the Company, if (a) a Purchaser provides the Company with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions (the
reasonable cost of which shall be borne by the Company), to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration or (b) a Purchaser transfers Securities pursuant to
Rule 144, the Company shall permit the transfer, and promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denomination as specified by such Purchaser in order to effect such a transfer
or sale. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to a Purchaser by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Article V will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Article V, that the Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
5.3 Failure to Remove Legend. If the Company fails to remove any legend
as required by this Article V (a "Legend Removal Failure"), then beginning on
the tenth (10th) day following such failure, if the Company continues to fail to
remove such legend, the Company shall pay to each Purchaser holding shares
subject to a Legend Removal Failure an amount equal to one percent (1%) of the
fair market value of the Shares and Warrant Shares then held by such Purchaser
per day that such failure continues. For purposes hereof, the number of Warrant
Shares held by a Purchaser shall be calculated as though all Warrants held by
such Purchaser were fully exercised, without regard to any limitations on the
exercise thereof. If during any twelve (12) month period, the Company fails to
remove any legend as required by this Article V for an aggregate of thirty (30)
days, each Purchaser holding shares subject to a Legend Removal Failure may, at
its option, require the Company to purchase all or any portion of the Shares and
Warrant Shares held by such Purchaser at a price per share equal to the greater
of (i) one hundred fifty percent (150%) of the Per Share Purchase Price and (ii)
the fair market value of such Share.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
17
<PAGE>
6.1 Conditions to the Company's Obligation to Sell. The obligation of
the Company hereunder to issue and sell the Shares and Warrants to a Purchaser
at the Closing is subject to the satisfaction, as of the Closing Date and with
respect to such Purchaser, of each of the following conditions thereto, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion:
(i) Such Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement and delivered the
same to the Company.
(ii) Such Purchaser shall deliver the applicable Purchase
Price for the Shares and Warrants purchased at the Closing.
(iii) The representations and warranties of such Purchaser
shall be true and correct as of the date when made and as of the
Closing as though made at that time, and Purchaser shall have
performed, satisfied and complied in all material respects with the
covenants and agreements required by this Agreement to be performed or
complied with by Purchaser at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits the
consummation of any of the transactions contemplated by this Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 Conditions to the Closing. The obligation of each Purchaser
hereunder to purchase the Shares and Warrants to be purchased by it on the
Closing Date is subject to the satisfaction of each of the following conditions,
provided that these conditions are for each Purchaser's sole benefit and may be
waived by such Purchaser (with respect to it) at any time in such Purchaser's
sole discretion:
(i) The Company shall have executed the signature page to this
Agreement and the Registration Rights Agreement and delivered the same
to such Purchaser.
(ii) The Company shall have delivered duly executed
certificates for the Shares (in such denominations as such Purchaser
shall reasonably request) and Warrants being so purchased by Purchaser
at the Closing.
(iii) The Common Stock, including all Shares and Warrant
Shares, shall be listed on the Nasdaq and trading in the Common Stock
shall not have been suspended by the
18
<PAGE>
Nasdaq, the SEC or other regulatory authority and no de-listing or
suspension shall be reasonably likely for the foreseeable future.
(iv) The representations and warranties of the Company shall
be true and correct as of the date when made and as of the Closing as
though made at that time and the Company shall have performed,
satisfied and complied with the covenants and agreements required by
this Agreement to be performed or complied with by the Company at or
prior to the Closing. Such Purchaser shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of
the Company, dated as of the Closing to the foregoing effect.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any
of the transactions contemplated by this Agreement.
(vi) Such Purchaser shall have received the officer's
certificate described in Section 3.3, dated as of the Closing and there
shall be no material changes from the date of signing of this Agreement
to the date of the Closing other than as a result of issuance of Common
Stock pursuant to options, warrants and other obligations disclosed on
Schedule 3.3 as of the date of this Agreement.
(vii) Each other Purchaser shall have tendered payment of its
applicable Purchase Price for the number of Shares set forth on such
other Purchaser's signature page hereto so that the aggregate amount
tendered by all of the Purchasers hereunder is no less than twelve
million dollars ($12,000,000).
(viii) Such Purchaser shall have received opinions of the
Company's counsel, dated as of the Closing, in the form attached hereto
as Exhibit D.
(ix) The Company's transfer agent shall have agreed to act in
accordance with irrevocable instructions in the form attached hereto as
Exhibit E.
(x) The Company has filed an Additional Listing Application
(and no additional time is required for the effectiveness thereof) with
respect to all Shares and Warrant Shares with the National Association
of Securities Dealers and has provided a copy thereof to the Purchaser.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed
19
<PAGE>
in the State of New York. The parties hereto irrevocably consent to the
jurisdiction of the United States federal courts located in the State of New
York and the state courts located in the County of New York in the State of New
York in any suit or proceeding based on or arising under this Agreement or the
transactions contemplated hereby and irrevocably agree that all claims in
respect of such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company further agrees that service of process upon
the Company mailed by the first class mail shall be deemed in every respect
effective service of process upon the Company in any suit or proceeding arising
hereunder. Nothing herein shall affect any Purchaser's right to serve process in
any other manner permitted by law. The parties hereto agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
8.2 Officer and Director Transactions. If any officer (as defined in
Rule 16a-1(f) promulgated under the Exchange Act) or director of the Company,
directly or indirectly, including through family members, trusts or other
entities related to such executive officer or director, disposes, or provides or
files any public notice, including pursuant to Rule 144 of the Securities Act,
of a bona fide intent to dispose of, any Common Stock beneficially owned by him
during the period beginning on the Closing Date and ending on the date which is
six (6) months after the Effective Date, the Company shall pay to each Purchaser
an amount equal to (x) the number of Shares and Warrant Shares (without giving
effect to any exercise or limitation on exercise thereof) then held by such
Purchaser times (y) the difference between (m) the closing bid price of the
Common Stock on the trading day (the "Announcement Date") immediately preceding
the day on which such disposal was publicly announced and (n) the lowest closing
bid price of the Common Stock during the thirty (30) trading day period
beginning on the Announcement Date; provided, however, that the P/A Fund, L.P.
may transfer the Common Stock beneficially owned by it to its partners without
triggering the Company's payment obligations pursuant to this Section 8.2; and
provided, further that an officer or director (and all such entities for the
benefit of any member of his/her family, collectively) may in the aggregate sell
during the six (6) month period following the Effective Date up to ten percent
(10%) of his/her total holdings as of the date hereof without triggering any
payment pursuant to this section.
8.3 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall cause additional
original executed signature pages to be promptly delivered to the other parties.
8.4 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.5 Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the
20
<PAGE>
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
8.6 Scope of Agreement; Amendments. This Agreement and the documents
and instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, no Purchaser makes any representation,
warranty, covenant or undertaking with respect the transactions contemplated
hereby. No provision of this Agreement may be waived other than by an instrument
in writing signed by the party to be charged with enforcement and no provision
of this Agreement may be amended other than by an instrument in writing signed
by the Company and each Purchaser.
8.7 Notice. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
facsimile-machine confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
ON Technology Corporation
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
Telecopy: (781)487-3300
Attention: President
with a copy to:
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109-1807
Telecopy: (617)342-4001
Attention: Gabor Garai, Esq.
If to any Purchaser, to such address set forth under such Purchaser's name on
the signature page hereto executed by such Purchaser. Each party shall provide
notice to the other parties of any change in address.
8.8 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each Purchaser may assign its rights and
obligations hereunder and may transfer any or all of its Securities to any of
its "affiliates," as that term is defined
21
<PAGE>
under the Exchange Act, without the consent of the Company so long as such
affiliate is an accredited investor. This provision shall not limit each
Purchaser's right to transfer the Securities pursuant to the terms of this
Agreement. In addition, and notwithstanding anything to the contrary contained
in this Agreement, the Warrants or the Registration Rights Agreement, the
Securities may be pledged, and all rights of a Purchaser under this Agreement or
any other agreement or document related to the transaction contemplated hereby
may be assigned, without further consent of the Company, to a bona fide pledgee
in connection with a Purchaser's margin or brokerage accounts.
8.9 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
8.10 Survival. The representations, warranties, agreements and
covenants of the Company in this Agreement shall survive the Closing hereunder
notwithstanding any due diligence investigation conducted by or on behalf of any
Purchaser. The Company agrees to indemnify and hold harmless each Purchaser and
each of such Purchaser's officers, directors, stockholders, members, employees,
partners, agents and affiliates and any direct or indirect investors,
stockholders, officers, directors, agents, partners, employees, members, agents
or affiliates of any of the foregoing for loss or damage arising as a result of
or related to (a) any breach by the Company of any of its representations or
covenants set forth herein or the unenforceability or invalidity of any
provision of any of this Agreement, the Registration Rights Agreement, or the
Warrants (collectively, the "Investment Agreements"), (b) any cause of action,
suit or claim brought or made against such indemnitee (other than directly by
the Company solely for breach of this Agreement, the Warrants or the
Registration Rights Agreement by the indemnitee or by governmental or regulatory
authorities), and arising out of or resulting from (whether in whole or in part)
the execution, delivery, performance or enforcement of this Agreement or any
other Investment Agreements or any other instrument, document or agreement
executed pursuant hereto or thereto or contemplated hereby or thereby (including
without limitation the acquisition of the the Warrants, the Shares, and the
Warrant Shares), any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of the issuance of the Securities or
the status of the Purchaser as an investor in the Company, except to the extent
that such actual loss or damage results from a breach by such indemnitee of this
Agreement, the Warrants or the Registration Rights Agreement or from a
Purchaser's violation of law, or (c) any characterization concerning any
Investment Agreement other than as expressly provided herein or therein, as the
case may be, including, without limitation, any characterization that the
exercise of Purchaser rights and remedies under any of the Investment Agreements
(or through a combination) results in Purchaser acting (or agreeing to act)
other than independently and on its own behalf. The right to indemnification
shall include the right to advancement of expenses as they are incurred.
8.11 Public Filings; Publicity. Immediately following execution of this
Agreement, the Company shall issue a press release with respect to the
transactions contemplated hereby. The Company and each Purchaser shall have the
right to approve before issuance any press releases (including the foregoing
press release), SEC or other filings, or any other public statements, with
22
<PAGE>
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Purchaser, to make
any press release or SEC, Nasdaq, NASD or exchange filings with respect to such
transactions as is required by applicable law and regulations (although each
Purchaser shall (to the extent time permits) be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
8.12 Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby, including, without limitation, the filing of
all appropriate documentation and notifications with Nasdaq with respect to the
Warrant Shares immediately following either of the Stockholder Approval or the
Nasdaq Approval.
8.13 Remedies. No provision of this Agreement providing for any remedy
to a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity. Nothing in this Agreement shall limit any rights
a Purchaser may have with any applicable federal or state securities laws with
respect to the investment contemplated hereby.
8.14 Directly or Indirectly. Where any provision in this Agreement
refers to action to be taken by any person or entity, or which such person or
entity is prohibited from taking, such provision shall be applicable whether the
action in question is taken directly or indirectly by such person or entity.
8.15 Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Agreement shall be cumulative
and in addition to all other remedies available under this Agreement, at law or
in equity (including a decree of specific performance and/or other injunctive
relief), no remedy contained herein shall be deemed a waiver of compliance with
the provisions giving rise to such remedy and nothing herein shall limit a
Purchaser's right to actual damages for any failure by the Company to comply
with the terms of this Agreement. The Company covenants to each Purchaser that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments and the like (and the computation thereof) shall be the amounts to
be received by each Purchaser and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Purchaser and that the remedy at
law for any such breach may be inadequate. The Company therefore agrees that, in
the event of any such breach or threatened breach, each Purchaser shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
23
<PAGE>
8.16 Payment of Cash; Defaults. Whenever the Company is required to
make any cash payment to a Purchaser under this Agreement, such cash payment
shall be due on the date (the "Cash Due Date") that such Purchaser delivers
written notice from the Purchaser to the Company. Such cash payment shall be
made to the Purchaser by the method (by certified or cashier's check or wire
transfer of immediately available funds) elected by such Purchaser.
8.17 Failure or Indulgence Not Waiver. No failure or delay on the part
of a Purchaser in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
8.18 Termination. In the event that the Closing shall not have occurred
on or before two (2) business days after the date of this agreement, unless the
parties agree otherwise, this Agreement shall terminate at the close of business
on such date.
* * *
24
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Agreement to be duly executed as of the date first above written.
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
BY: Castle Creek Partners, L.L.C.
ITS: Investment Manager
BY: _____________________________
NAME: Fred Goldman
TITLE: Member
Address: 77 W. Wacker Drive, Suite 4040
Chicago, Illinois 60601
Facsimile: (312)499-6999
Copy to:
Altheimer & Gray
10 S. Wacker Drive Ste. 4000
Chicago, Illinois 60606
Facsimile: (312)715-4800
Attn: Peter H. Lieberman, Esq.
JURISDICTION: ILLINOIS
AGGREGATE NUMBER OF SHARES PURCHASED AT CLOSING: 514,837
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY SERIES I WARRANT: 257,419
25
<PAGE>
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
By: __________________________
Name: Allan Weine
Title: President
Address:
c/o Credit Suisse First Boston
11 Madison Ave., Seventh Floor
New York, NY 10010
Copy to:
c/o Credit Suisse First Boston
227 W. Monroe Street, 41st Floor
Chicago, IL 60606
Facsimile: (312)750-1031
JURISDICTION: NEW YORK
AGGREGATE NUMBER OF SHARES PURCHASED AT CLOSING: 514,837
AGGREGATE NUMBER OF WARRANT SHARES REPRESENTED BY SERIES I WARRANT: 257,419
26
<PAGE>
COMPANY:
ON TECHNOLOGY CORPORATION
By: _________________________
Name: _______________________
Title: ______________________
27
EXECUTION COPY
VOID AFTER 5:00 P.M.
EASTERN TIME ON DECEMBER 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 257,419 Shares of
Common Stock
Date: December 29, 1999
ON TECHNOLOGY CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CASTLE CREEK TECHNOLOGY
PARTNERS LLC or its registered assigns, is entitled to purchase from ON
Technology Corporation, a Delaware corporation (the "Company"), at any time or
from time to time during the period specified in Section 2 hereof, 257,419 fully
paid and nonassessable shares of the Company's common stock, $0.01 par value
(the "Common Stock"), at an initial exercise price of $15.15 per share (the
"Exercise Price"), subject to adjustment as contained in Section 4 hereof. This
Warrant is being issued pursuant to that certain Securities Purchase Agreement
dated December 29, 1999 between the Company and the signatories thereto (the
"Securities Purchase Agreement"). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and any other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively,
<PAGE>
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 8(c) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the Company
of a written Exercise Agreement for a Cashless Exercise hereunder for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the Holder or Holder's designees, as
the record owner of such shares, as of the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall have
been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be reasonably requested by the Holder and
shall be registered in the name of Holder or such other name as shall be
designated by such Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the Holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the
2
<PAGE>
Company shall submit the disputed calculations to a nationally recognized
independent accounting firm (selected by the Company) via facsimile within three
(3) business days of receipt of the Exercise Agreement. The accounting firm
shall audit the calculations and notify the Company and the converting Holder of
the results no later than two (2) business days from the date it receives the
disputed calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Company shall then issue the appropriate
number of shares of Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay to the Company the Exercise Price or to deliver to the
Company a duly executed notice to exercise a Cashless Exercise) to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "Sold Shares") which Holder was entitled to receive upon such
exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 P.M., Eastern Time on
the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
3
<PAGE>
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least five
(5) years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange, as required by Section 4.10 of the Securities
Purchase Agreement and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of any other shares of capital stock of the
Company issuable upon the exercise of this Warrant so long as any shares of the
same class shall be listed on such national securities exchange or automated
quotation system; provided, however, that if the Company is a party to a
transaction following which the holder hereof no longer holds shares of capital
stock or securities convertible into shares of capital stock of the Company,
such obligation shall cease with respect to the Company; provided, further, that
if the shares of Common Stock, including the Warrant Shares, are converted in
such transaction into shares of capital stock or other equivalent equity
interest of another entity, such entity shall be bound by the provisions of this
Section 3(c) for the remainder of the five (5) year term.
(d) Certain Actions Prohibited. Subject to the provisions of
Section 4(f), the Company will not, by amendment of its charter or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such actions as may
reasonably be requested by the Holder of this Warrant in order to protect the
exercise privilege of the Holder of this Warrant, consistent with the tenor and
purpose of this Warrant (including, without limitation, Section 4(f) hereof).
Without limiting the generality of the foregoing, the Company will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant; provided, however, that if the Company is a party to a
transaction following which the stockholders of the Company no longer hold
shares of capital stock of the Company, such obligation shall cease with respect
to the Company; provided, further, that if the shares of Common Stock, including
the Warrant Shares, are converted in such transaction into shares of capital
stock or other equivalent equity interest of another entity, such entity shall
be bound by the provisions of this Section 3(d) for the remainder of the five
(5) year term.
4. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Reset. If on the first (1st) anniversary of the date
hereof, the Market Price as defined in Section 4(l) on such anniversary of the
date hereof is less than the Exercise Price on such
4
<PAGE>
anniversary of the date hereof, the Exercise Price shall be adjusted to equal to
the Market Price on such anniversary of the date hereof.
(b) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Section 4(d) and 4(f)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(c) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance (a
"Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock
outstanding immediately prior to the
Dilutive Issuance;
P = the aggregate consideration, calculated as
set forth in Section 4(c) hereof, received
by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock
Deemed Outstanding (as herein defined)
immediately after the Dilutive Issuance.
(c) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for
5
<PAGE>
such price per share. For purposes of the preceding sentence, the price per
share for which Common Stock is issuable upon the exercise of such Below Market
Options is determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or granting of such
Below Market Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Below Market Options, plus, in the case of Convertible Securities issuable upon
the exercise of such Below Market Options, the minimum aggregate amount of
additional consideration payable upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(c)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(c)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "Assumed Variable Market Price").
6
<PAGE>
(iii) Change in Option Price or Conversion Rate.
Except for the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Options or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
7
<PAGE>
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement; or (iv) upon the
exercise of the Warrants.
(d) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(e) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(f) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
thirty percent (30%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues thirty percent (30%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant may
thereafter, at its option, be entitled, at its election, either to (a) in the
event the Common Stock remains outstanding or holders of Common Stock receive
any common stock or substantially similar equity interest, in each of the
foregoing cases which is publicly traded, retain its Warrant and such Warrant
shall continue to apply to such Common Stock or shall apply, as nearly as
practicable, to such other common stock or equity interest, as the
8
<PAGE>
case may be, or (b) regardless of whether (a) applies, receive consideration, in
exchange for such Warrant, equal to the greater of, as determined in the sole
discretion of such holder, (i) the number of shares of stock or securities or
property of the Company, or of the entity resulting from such Major Transaction
(the "Major Transaction Consideration"), to which a holder of the number of
shares of Common Stock delivered upon the cashless exercise of such Warrant
would have been entitled upon such Major Transaction had such holder so
exercised the Warrant (without regard to any limitations on conversion or
elsewhere contained) on the trading date immediately preceding, at the option of
Holder, either the public announcement of the transaction resulting in such
Major Transaction or the consummation of such Major Transaction and had such
Common Stock been issued and outstanding and had such Holder been the holder of
record of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available funds,
in an amount equal to one hundred percent (100%) of the Black-Scholes Amount (as
defined herein) times the number of shares of Common Stock for which this
Warrant was exercisable (without regard to any limitations on exercise herein
contained); and the Company shall make lawful provision for the foregoing as a
part of such Major Transaction and shall cause the issuer of any security in
such transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 29, 1999 among the Company and the
signatories thereto (the "Registration Rights Agreement") to assume all of the
Company's obligations under the Registration Rights Agreement (provided any cash
election pursuant to clause (ii) above must be made in writing to the Company
within ten (10) business days following consummation of such applicable
transaction (or, in the event that a Company Transaction (as defined below)
occurs, within ten (10) business days following the Measurement Period (as
defined below)). If the application of clause (b) of the first sentence of this
Section 4(f) would result in the holder of a Warrant receiving consideration in
exchange for such Warrant which is greater than one hundred and fifty percent
(150%) of the Exercise Price thereof, then unless the Company determines
otherwise, such holder may not elect to retain such Warrant pursuant to clause
(a) of such sentence, but shall instead receive such consideration pursuant to
clause (b). In the event that the Company shall consolidate or merge with any
other corporation in a transaction in which common stock of the surviving
corporation or the parent thereof (the "Exchange Securities") is issued to the
holders of Common Stock in such transaction in exchange for all such Common
Stock, and (a) the Exchange Securities are publicly traded, (b) the average
daily trading volume of the Exchange Securities during the one hundred eighty
(180) day period ending on the date on which such transaction is publicly
disclosed is greater than two million dollars ($2,000,000) per day, (c) the
historical one hundred (100) day volatility of the Exchange Securities during
the period ending on the date on which such transaction is publicly disclosed is
greater than sixty percent (60%) and (d) the market capitalization of the issuer
of the Exchange Securities is not less than one hundred million dollars
($100,000,000) based on the last sale price of the Exchange Securities on the
date immediately before the date on which such transaction is publicly disclosed
(in each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg), or, in lieu of clauses (c) and (d) only, the market
capitalization of the issuer of the Exchange Securities is not less than one
billion dollars ($1,000,000,000) as reported by Bloomberg, then the provisions
of clause (b) of the first sentence of this Section 4(f) shall not apply. In the
event that the Company shall, in a Major Transaction, consolidate or merge with
any other corporation in a transaction in which the Company is the survivor (a
"Company Transaction"), the provisions of clause (ii) of the first sentence of
this
9
<PAGE>
Section 4(f) shall not apply to the extent that each of the following conditions
remain true for the thirty (30) business days commencing as of the date of the
consummation of such transaction (the "Measurement Period"): (a) the Common
Stock remains publicly traded during the period, (b) the average daily trading
volume of the Common Stock is greater than two million dollars ($2,000,000), (c)
the historical thirty (30) day volatility of the Company's Common Stock is
greater than sixty percent (60%), and (d) the market capitalization of the
Company is not less than one hundred million dollars ($100,000,000) on the last
day of the period (in each case, with respect to the foregoing clauses (a)
through (d), as reported by Bloomberg), or in lieu of clauses (c) and (d) only,
the market capitalization of the Company is not less than one billion dollars
($1,000,000,000) as reported by Bloomberg. No sooner than ten (10) business days
nor later than five (5) business days prior to the consummation of the Major
Transaction, but not prior to the public announcement of such Major Transaction,
the Company shall deliver written notice ("Notice of Major Transaction") to each
holder of a Warrant, which Notice of Major Transaction shall be deemed to have
been delivered one (1) business day after the Company's sending such notice by
telecopy (provided such telecopy receipt has been confirmed and the Company
sends a confirming copy of such notice on the same day by overnight courier) of
such Notice of Major Transaction. Such Notice of Major Transaction shall
indicate the amount and type of the Major Transaction consideration which such
holder of a Warrant would receive under this Section. If the Major Transaction
Consideration does not consist entirely of United States currency, such holder
may elect to receive United States currency in an amount equal to the value of
the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company within five
(5) business days of such holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(g) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
stockholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common
10
<PAGE>
Stock subject hereto, to receive the amount of such assets (or rights) which
would have been payable to the Holder had such Holder been the holder of such
shares of Common Stock on the record date for the determination of stockholders
entitled to such Distribution.
(h) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(i) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(j) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; provided that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
(k) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the
11
<PAGE>
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of any
adjustment required by Section 4(b) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(b) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the
average of the Closing Bid Prices for the shares of Common Stock as reported to
The Nasdaq National Market for the fifteen (15) trading days immediately
preceding, but not including, the day prior to such date, or (ii) if The Nasdaq
National Market is not the principal trading market for the Common Stock, the
average of the last reported bid prices on the principal trading market for the
Common Stock during the same period, or, if there is no bid price for such
period, the last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the average fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holders of a majority in interest of the Warrants, with the costs of the
appraisal to be borne by the Company. The manner of determining the Market Price
of the Common Stock set forth in the foregoing definition shall apply with
respect to any other security in respect of which a determination as to market
value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall
12
<PAGE>
include only Common Stock in respect of which this Warrant is exercisable, or
shares resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or sale
of the character referred to in Section 4(f) hereof, the stock or other
securities or property provided for in such Section.
(m) Other Adjustments If any officer (as defined in Rule
16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended) or
director of the Company, directly or indirectly, including through family
members, trusts or other entities related to such executive officer or director,
disposes, or provides or files any public notice, including pursuant to Rule 144
of the Securities Act, of a bona fide intent to dispose of, any Common Stock
beneficially owned by him during the period beginning on the Closing Date and
ending on the date which is six (6) months following the date on which the
registration statement required to be filed pursuant to Section 2.1 of the
Registration Rights Agreement is first declared effective, then the Exercise
Price shall be adjusted to the Adjusted Exercise Price (as defined herein) if
such adjustment would result in a decrease in the Exercise Price; provided,
however, that the Exercise Price shall not be adjusted upon the occurrence of a
transfer of shares of Common Stock by P/A Fund, L.P. to its partners; provided,
further that an officer or director of the Company (and all such entities for
the benefit of any member of his/her family, collectively) may in the aggregate
sell during the six (6) month period following the effectiveness of such
registration statement up to ten percent (10%) of his/her total holdings as of
the date hereof without triggering any adjustments pursuant to this section. For
any disposal of Common Stock described hereunder, the "Adjusted Exercise Price"
shall mean the lesser of (a) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the trading day (the
"Announcement Date") immediately preceding the day on which such disposal was
publicly announced and (b) 80% of the Exercise Price on the Announcement Date.
5. Cap Amount. Prior to Stockholder Approval as defined in the
Securities Purchase Agreement, unless otherwise permitted by The Nasdaq National
Market or unless the rules thereof no longer are applicable to the Company, in
no event shall the total number of shares of Common Stock issued at the Closing
under the Securities Purchase Agreement and upon exercise of the Warrants exceed
the maximum number of shares of Common Stock that the Company can without
stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon Closing under the Securities Purchase Agreement
and the exercise of the Warrants, which amount, as of the date of initial
issuance of Common Stock and Warrants to the Holders, is 2,768,248 Shares. The
Cap Amount shall be allocated pro rata among the Holders based on the number of
shares of Common Stock and Warrants issued to each Holder. In the event a Holder
shall sell or otherwise transfer any of such Holder's Warrants, each transferee
shall be allocated a pro rata portion of such transferor's Cap Amount. A
Holder's allocable portion of the Cap Amount shall be allocated first to the
Common Stock issued to the Holder at the Closing under the Securities Purchase
Agreement, then to the Series I Warrants (as defined in the Securities Purchase
Agreement) and only the Warrants shall be subject to the limitation imposed by
this Section 5.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs
13
<PAGE>
in respect thereof, provided that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder.
7. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights
granted to the Holder are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the Company
referred to in Section 8(e) below, provided, however, that any transfer or
assignment shall be subject to the provisions of Section 5.1 and 5.2 of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the registration rights described in Section 9
hereof are assignable only in accordance with the provisions of the Registration
Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 8(e) below, for new Warrants, in
the form hereof, of different denominations representing in the aggregate the
right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the Holder of at the time of such
surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
14
<PAGE>
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer.
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the above
limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder which contain similar
limitations on conversion) and of which Warrants shall be exercisable (as among
Warrants) shall be made on the basis of the earliest submission of the Warrants
(vis-a-vis other securities owned by the Holder which contain similar
limitations on conversion and vis a vis other Warrants), in each case subject to
such aggregate percentage limitation. No prior inability to exercise Warrants
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations, including without limitation, with respect to
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section 8(f)
with the approval of the board of directors of the Company and the Holder: (i)
with respect to any matter to cure any ambiguity herein, to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Applicable Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Applicable Percentage limitation; and (ii) with respect to
any other matter (including through any amendment of this Warrant), with the
further consent of the holders of a majority of the then outstanding shares of
Common Stock. For clarification, it is expressly a term of this security that
the limitations contained in this Section shall apply to each successor Holder.
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ON Technology Corporation
15
<PAGE>
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
Telecopy: (781)487-3300
Attention: President
with a copy to:
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109-1807
Telecopy: (617)342-4001
Attention: Gabor Garai, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of New York and the state courts located in the County of
New York in the State of New York in any suit or proceeding based on or arising
under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company agrees that a final nonappealable judgment in any such
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 8(f).
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a
16
<PAGE>
Cashless Exercise, in lieu of paying the Exercise Price in cash, the Holder
shall surrender this Warrant for the number of shares of Common Stock determined
by multiplying the number of Warrant Shares to which it would otherwise be
entitled by a fraction, the numerator of which shall be the difference between
the then current Market Price per share of the Common Stock and the Exercise
Price, and the denominator of which shall be such then current Market Price per
share of Common Stock.
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ON Technology Corporation
By: __________________________
Name: __________________________
Title: __________________________
18
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ON Technology Corporation, a
Delaware corporation (the "Company"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a Cashless Exercise pursuant to the terms of the
Warrant], all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:___________________ ________________________
Signature of Holder
________________________
Name of Holder (Print)
Address:
________________________
________________________
19
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock covered thereby set forth hereinbelow,
to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
________________________
Name:_________________________________
Signature: ___________________________
Title of Signing Officer
or Agent (if any):
Address:
___________________________
___________________________
Note: The above signature
should correspond
exactly with the name
on the face of the
within Warrant.
20
EXECUTION COPY
VOID AFTER 5:00 P.M.
EASTERN TIME ON DECEMBER 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase 257,419 Shares of
Common Stock
Date: December 29, 1999
ON TECHNOLOGY CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, MARSHALL CAPITAL MANAGEMENT,
INC. or its registered assigns, is entitled to purchase from ON Technology
Corporation, a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Section 2 hereof, 257,419 fully paid and
nonassessable shares of the Company's common stock, $0.01 par value (the "Common
Stock"), at an initial exercise price of $15.15 per share (the "Exercise
Price"), subject to adjustment as contained in Section 4 hereof. This Warrant is
being issued pursuant to that certain Securities Purchase Agreement dated
December 29, 1999 between the Company and the signatories thereto (the
"Securities Purchase Agreement"). The number of shares of Common Stock
purchasable hereunder (the "Warrant Shares") and the Exercise Price are subject
to adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and any other warrants of the Company issued pursuant to the terms of
the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively,
<PAGE>
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
This Warrant is subject to the following terms, provisions, and
conditions:
1. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 8(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 8(c) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 12(c) below), delivery to the Company
of a written Exercise Agreement for a Cashless Exercise hereunder for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the Holder or Holder's designees, as
the record owner of such shares, as of the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall have
been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 1(c), certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be reasonably requested by the Holder and
shall be registered in the name of Holder or such other name as shall be
designated by such Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the Holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the
2
<PAGE>
Company shall submit the disputed calculations to a nationally recognized
independent accounting firm (selected by the Company) via facsimile within three
(3) business days of receipt of the Exercise Agreement. The accounting firm
shall audit the calculations and notify the Company and the converting Holder of
the results no later than two (2) business days from the date it receives the
disputed calculations. The accounting firm's calculation shall be deemed
conclusive, absent manifest error. The Company shall then issue the appropriate
number of shares of Common Stock in accordance with this Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay to the Company the Exercise Price or to deliver to the
Company a duly executed notice to exercise a Cashless Exercise) to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "Sold Shares") which Holder was entitled to receive upon such
exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 P.M., Eastern Time on
the fifth (5th) anniversary of the date hereof (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
3
<PAGE>
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least five
(5) years after the date of issuance of this Warrant, maintain the listing of
the shares of Common Stock issuable upon exercise of this Warrant upon The
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange, as required by Section 4.10 of the Securities
Purchase Agreement and upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all shares of Common Stock from time to time
issuable upon the exercise of this Warrant; and the Company shall so list on
each national securities exchange or automated quotation system, as the case may
be, and shall maintain such listing of any other shares of capital stock of the
Company issuable upon the exercise of this Warrant so long as any shares of the
same class shall be listed on such national securities exchange or automated
quotation system; provided, however, that if the Company is a party to a
transaction following which the holder hereof no longer holds shares of capital
stock or securities convertible into shares of capital stock of the Company,
such obligation shall cease with respect to the Company; provided, further, that
if the shares of Common Stock, including the Warrant Shares, are converted in
such transaction into shares of capital stock or other equivalent equity
interest of another entity, such entity shall be bound by the provisions of this
Section 3(c) for the remainder of the five (5) year term.
(d) Certain Actions Prohibited. Subject to the provisions of
Section 4(f), the Company will not, by amendment of its charter or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such actions as may
reasonably be requested by the Holder of this Warrant in order to protect the
exercise privilege of the Holder of this Warrant, consistent with the tenor and
purpose of this Warrant (including, without limitation, Section 4(f) hereof).
Without limiting the generality of the foregoing, the Company will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant; provided, however, that if the Company is a party to a
transaction following which the stockholders of the Company no longer hold
shares of capital stock of the Company, such obligation shall cease with respect
to the Company; provided, further, that if the shares of Common Stock, including
the Warrant Shares, are converted in such transaction into shares of capital
stock or other equivalent equity interest of another entity, such entity shall
be bound by the provisions of this Section 3(d) for the remainder of the five
(5) year term.
4. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 4. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Reset. If on the first (1st) anniversary of the date
hereof, the Market Price as defined in Section 4(l) on such anniversary of the
date hereof is less than the Exercise Price on such
4
<PAGE>
anniversary of the date hereof, the Exercise Price shall be adjusted to equal to
the Market Price on such anniversary of the date hereof.
(b) Adjustment of Exercise Price and Number of Shares upon
Issuance of Common Stock. Except as otherwise provided in Section 4(d) and 4(f)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(c) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance (a
"Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = (E) (O + P/M) / (CSDO)
where:
E' = the adjusted Exercise Price
E = the then current Exercise Price;
M = the then current Market Price;
O = the number of shares of Common Stock
outstanding immediately prior to the Dilutive
Issuance;
P = the aggregate consideration, calculated as
set forth in Section 4(c) hereof, received
by the Company upon such Dilutive Issuance;
and
CSDO = the total number of shares of Common Stock
Deemed Outstanding (as herein defined)
immediately after the Dilutive Issuance.
(c) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities"), but not to include the grant or exercise of any
stock or options which may hereafter be granted or exercised under any employee
or Director benefit plan of the Company now existing or to be implemented in the
future, so long as the issuance of such stock or options is approved by a
majority of the non-employee members of the Board of Directors of the Company or
a majority of the members of a committee of non-employee directors established
for such purpose (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options"), and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance ("Below Market Options"),
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Below Market Options (assuming full exercise, conversion or
exchange of Convertible Securities, if applicable) will, as of the date of the
issuance or grant of such Below Market Options, be deemed to be outstanding and
to have been issued and sold by the Company for
5
<PAGE>
such price per share. For purposes of the preceding sentence, the price per
share for which Common Stock is issuable upon the exercise of such Below Market
Options is determined by dividing (i) the total amount, if any, received or
receivable by the Company as consideration for the issuance or granting of such
Below Market Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Below Market Options, plus, in the case of Convertible Securities issuable upon
the exercise of such Below Market Options, the minimum aggregate amount of
additional consideration payable upon the exercise, conversion or exchange
thereof at the time such Convertible Securities first become exercisable,
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Below Market Options or upon the
exercise, conversion or exchange of Convertible Securities issuable upon
exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(c)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the price per share for which Common Stock is issuable upon such
exercise, conversion or exchange is determined by dividing (i) the total amount,
if any, received or receivable by the Company as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange thereof at the time such Convertible Securities first
become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuances of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange for purposes of the calculation contemplated by Section 4(c)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
assuming that (1) all holding period and other conditions to any discounts
contained in such Convertible Security have been satisfied, and (2) the Market
Price on the date of issuance of such Convertible Security was 80% of the Market
Price on such date (the "Assumed Variable Market Price").
6
<PAGE>
(iii) Change in Option Price or Conversion Rate.
Except for the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose, if there is a change at any
time in (i) the amount of additional consideration payable to the Company upon
the exercise of any Options; (ii) the amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange or any
Convertible Securities; or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock (other than under or by
reason of provisions designed to protect against dilution), the Exercise Price
in effect at the time of such change will be readjusted to the Exercise Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Options or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Options or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued, granted or sold for
cash, the consideration received therefor for purposes of this Warrant will be
the amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration except where such consideration consists of
freely-tradeable securities, in which case the amount of consideration received
by the Company will be the Market Price thereof as of the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued in
connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor will be deemed to be
the fair market value of such portion of the net assets and business of the
non-surviving corporation as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair market value of any
consideration other than cash or securities will be determined in the good faith
reasonable business judgment of the Board of Directors.
7
<PAGE>
(vi) Exceptions to Adjustment of Exercise Price. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee or Director benefit plan of the Company
now existing or to be implemented in the future, so long as the issuance of such
stock or options is approved by a majority of the non-employee members of the
Board of Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; (iii) upon the issuance of
the Common Shares (as defined in the Securities Purchase Agreement) or Warrants
in accordance with terms of the Securities Purchase Agreement; or (iv) upon the
exercise of the Warrants.
(d) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(e) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(f) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
thirty percent (30%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues thirty percent (30%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant may
thereafter, at its option, be entitled, at its election, either to (a) in the
event the Common Stock remains outstanding or holders of Common Stock receive
any common stock or substantially similar equity interest, in each of the
foregoing cases which is publicly traded, retain its Warrant and such Warrant
shall continue to apply to such Common Stock or shall apply, as nearly as
practicable, to such other common stock or equity interest, as the
8
<PAGE>
case may be, or (b) regardless of whether (a) applies, receive consideration, in
exchange for such Warrant, equal to the greater of, as determined in the sole
discretion of such holder, (i) the number of shares of stock or securities or
property of the Company, or of the entity resulting from such Major Transaction
(the "Major Transaction Consideration"), to which a holder of the number of
shares of Common Stock delivered upon the cashless exercise of such Warrant
would have been entitled upon such Major Transaction had such holder so
exercised the Warrant (without regard to any limitations on conversion or
elsewhere contained) on the trading date immediately preceding, at the option of
Holder, either the public announcement of the transaction resulting in such
Major Transaction or the consummation of such Major Transaction and had such
Common Stock been issued and outstanding and had such Holder been the holder of
record of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available funds,
in an amount equal to one hundred percent (100%) of the Black-Scholes Amount (as
defined herein) times the number of shares of Common Stock for which this
Warrant was exercisable (without regard to any limitations on exercise herein
contained); and the Company shall make lawful provision for the foregoing as a
part of such Major Transaction and shall cause the issuer of any security in
such transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 29, 1999 among the Company and the
signatories thereto (the "Registration Rights Agreement") to assume all of the
Company's obligations under the Registration Rights Agreement (provided any cash
election pursuant to clause (ii) above must be made in writing to the Company
within ten (10) business days following consummation of such applicable
transaction (or, in the event that a Company Transaction (as defined below)
occurs, within ten (10) business days following the Measurement Period (as
defined below)). If the application of clause (b) of the first sentence of this
Section 4(f) would result in the holder of a Warrant receiving consideration in
exchange for such Warrant which is greater than one hundred and fifty percent
(150%) of the Exercise Price thereof, then unless the Company determines
otherwise, such holder may not elect to retain such Warrant pursuant to clause
(a) of such sentence, but shall instead receive such consideration pursuant to
clause (b). In the event that the Company shall consolidate or merge with any
other corporation in a transaction in which common stock of the surviving
corporation or the parent thereof (the "Exchange Securities") is issued to the
holders of Common Stock in such transaction in exchange for all such Common
Stock, and (a) the Exchange Securities are publicly traded, (b) the average
daily trading volume of the Exchange Securities during the one hundred eighty
(180) day period ending on the date on which such transaction is publicly
disclosed is greater than two million dollars ($2,000,000) per day, (c) the
historical one hundred (100) day volatility of the Exchange Securities during
the period ending on the date on which such transaction is publicly disclosed is
greater than sixty percent (60%) and (d) the market capitalization of the issuer
of the Exchange Securities is not less than one hundred million dollars
($100,000,000) based on the last sale price of the Exchange Securities on the
date immediately before the date on which such transaction is publicly disclosed
(in each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg), or, in lieu of clauses (c) and (d) only, the market
capitalization of the issuer of the Exchange Securities is not less than one
billion dollars ($1,000,000,000) as reported by Bloomberg, then the provisions
of clause (b) of the first sentence of this Section 4(f) shall not apply. In the
event that the Company shall, in a Major Transaction, consolidate or merge with
any other corporation in a transaction in which the Company is the survivor (a
"Company Transaction"), the provisions of clause (ii) of the first sentence of
this
9
<PAGE>
Section 4(f) shall not apply to the extent that each of the following conditions
remain true for the thirty (30) business days commencing as of the date of the
consummation of such transaction (the "Measurement Period"): (a) the Common
Stock remains publicly traded during the period, (b) the average daily trading
volume of the Common Stock is greater than two million dollars ($2,000,000), (c)
the historical thirty (30) day volatility of the Company's Common Stock is
greater than sixty percent (60%), and (d) the market capitalization of the
Company is not less than one hundred million dollars ($100,000,000) on the last
day of the period (in each case, with respect to the foregoing clauses (a)
through (d), as reported by Bloomberg), or in lieu of clauses (c) and (d) only,
the market capitalization of the Company is not less than one billion dollars
($1,000,000,000) as reported by Bloomberg. No sooner than ten (10) business days
nor later than five (5) business days prior to the consummation of the Major
Transaction, but not prior to the public announcement of such Major Transaction,
the Company shall deliver written notice ("Notice of Major Transaction") to each
holder of a Warrant, which Notice of Major Transaction shall be deemed to have
been delivered one (1) business day after the Company's sending such notice by
telecopy (provided such telecopy receipt has been confirmed and the Company
sends a confirming copy of such notice on the same day by overnight courier) of
such Notice of Major Transaction. Such Notice of Major Transaction shall
indicate the amount and type of the Major Transaction consideration which such
holder of a Warrant would receive under this Section. If the Major Transaction
Consideration does not consist entirely of United States currency, such holder
may elect to receive United States currency in an amount equal to the value of
the Major Transaction Consideration in lieu of the Major Transaction
Consideration by delivering notice of such election to the Company within five
(5) business days of such holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(g) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
stockholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common
10
<PAGE>
Stock subject hereto, to receive the amount of such assets (or rights) which
would have been payable to the Holder had such Holder been the holder of such
shares of Common Stock on the record date for the determination of stockholders
entitled to such Distribution.
(h) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(i) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(j) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; provided that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
(k) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the
11
<PAGE>
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in case of any
adjustment required by Section 4(b) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(b) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "Market Price," as of any date, (i) means the
average of the Closing Bid Prices for the shares of Common Stock as reported to
The Nasdaq National Market for the fifteen (15) trading days immediately
preceding, but not including, the day prior to such date, or (ii) if The Nasdaq
National Market is not the principal trading market for the Common Stock, the
average of the last reported bid prices on the principal trading market for the
Common Stock during the same period, or, if there is no bid price for such
period, the last reported sales price for such period, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Market
Price shall be the average fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holders of a majority in interest of the Warrants, with the costs of the
appraisal to be borne by the Company. The manner of determining the Market Price
of the Common Stock set forth in the foregoing definition shall apply with
respect to any other security in respect of which a determination as to market
value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall
12
<PAGE>
include only Common Stock in respect of which this Warrant is exercisable, or
shares resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or sale
of the character referred to in Section 4(f) hereof, the stock or other
securities or property provided for in such Section.
(m) Other Adjustments If any officer (as defined in Rule
16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended) or
director of the Company, directly or indirectly, including through family
members, trusts or other entities related to such executive officer or director,
disposes, or provides or files any public notice, including pursuant to Rule 144
of the Securities Act, of a bona fide intent to dispose of, any Common Stock
beneficially owned by him during the period beginning on the Closing Date and
ending on the date which is six (6) months following the date on which the
registration statement required to be filed pursuant to Section 2.1 of the
Registration Rights Agreement is first declared effective, then the Exercise
Price shall be adjusted to the Adjusted Exercise Price (as defined herein) if
such adjustment would result in a decrease in the Exercise Price; provided,
however, that the Exercise Price shall not be adjusted upon the occurrence of a
transfer of shares of Common Stock by P/A Fund, L.P. to its partners; provided,
further that an officer or director of the Company (and all such entities for
the benefit of any member of his/her family, collectively) may in the aggregate
sell during the six (6) month period following the effectiveness of such
registration statement up to ten percent (10%) of his/her total holdings as of
the date hereof without triggering any adjustments pursuant to this section. For
any disposal of Common Stock described hereunder, the "Adjusted Exercise Price"
shall mean the lesser of (a) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the trading day (the
"Announcement Date") immediately preceding the day on which such disposal was
publicly announced and (b) 80% of the Exercise Price on the Announcement Date.
5. Cap Amount. Prior to Stockholder Approval as defined in the
Securities Purchase Agreement, unless otherwise permitted by The Nasdaq National
Market or unless the rules thereof no longer are applicable to the Company, in
no event shall the total number of shares of Common Stock issued at the Closing
under the Securities Purchase Agreement and upon exercise of the Warrants exceed
the maximum number of shares of Common Stock that the Company can without
stockholder approval so issue pursuant to Nasdaq Rule 4460(i) (or any successor
rule) (the "Cap Amount") upon Closing under the Securities Purchase Agreement
and the exercise of the Warrants, which amount, as of the date of initial
issuance of Common Stock and Warrants to the Holders, is 2,768,248 Shares. The
Cap Amount shall be allocated pro rata among the Holders based on the number of
shares of Common Stock and Warrants issued to each Holder. In the event a Holder
shall sell or otherwise transfer any of such Holder's Warrants, each transferee
shall be allocated a pro rata portion of such transferor's Cap Amount. A
Holder's allocable portion of the Cap Amount shall be allocated first to the
Common Stock issued to the Holder at the Closing under the Securities Purchase
Agreement, then to the Series I Warrants (as defined in the Securities Purchase
Agreement) and only the Warrants shall be subject to the limitation imposed by
this Section 5.
6. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs
13
<PAGE>
in respect thereof, provided that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the Holder.
7. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
8. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights
granted to the Holder are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the Company
referred to in Section 8(e) below, provided, however, that any transfer or
assignment shall be subject to the provisions of Section 5.1 and 5.2 of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the registration rights described in Section 9
hereof are assignable only in accordance with the provisions of the Registration
Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 8(e) below, for new Warrants, in
the form hereof, of different denominations representing in the aggregate the
right to purchase the number of shares of Common Stock which may be purchased
hereunder, each of such new Warrants to represent the right to purchase such
number of shares as shall be designated by the Holder of at the time of such
surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 8, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 8.
14
<PAGE>
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer.
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the above
limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder which contain similar
limitations on conversion) and of which Warrants shall be exercisable (as among
Warrants) shall be made on the basis of the earliest submission of the Warrants
(vis-a-vis other securities owned by the Holder which contain similar
limitations on conversion and vis a vis other Warrants), in each case subject to
such aggregate percentage limitation. No prior inability to exercise Warrants
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations, including without limitation, with respect to
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section 8(f)
with the approval of the board of directors of the Company and the Holder: (i)
with respect to any matter to cure any ambiguity herein, to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Applicable Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Applicable Percentage limitation; and (ii) with respect to
any other matter (including through any amendment of this Warrant), with the
further consent of the holders of a majority of the then outstanding shares of
Common Stock. For clarification, it is expressly a term of this security that
the limitations contained in this Section shall apply to each successor Holder.
9. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement.
10. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ON Technology Corporation
15
<PAGE>
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
Telecopy: (781)487-3300
Attention: President
with a copy to:
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109-1807
Telecopy: (617)342-4001
Attention: Gabor Garai, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 10.
11. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of New York and the state courts located in the County of
New York in the State of New York in any suit or proceeding based on or arising
under this Warrant and irrevocably agrees that all claims in respect of such
suit or proceeding may be determined in such courts. The Company irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company agrees that a final nonappealable judgment in any such
suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
12. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 8(f).
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a
16
<PAGE>
Cashless Exercise, in lieu of paying the Exercise Price in cash, the Holder
shall surrender this Warrant for the number of shares of Common Stock determined
by multiplying the number of Warrant Shares to which it would otherwise be
entitled by a fraction, the numerator of which shall be the difference between
the then current Market Price per share of the Common Stock and the Exercise
Price, and the denominator of which shall be such then current Market Price per
share of Common Stock.
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ON Technology Corporation
By: __________________________
Name: __________________________
Title: __________________________
18
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ON Technology Corporation, a
Delaware corporation (the "Company"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a Cashless Exercise pursuant to the terms of the
Warrant], all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date: __________________________
Signature of Holder
__________________________
Name of Holder (Print)
Address:
__________________________
__________________________
19
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock covered thereby set forth hereinbelow,
to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
________________________
Name: _____________________________________________
Signature: ________________________________________
Title of Signing Officer or Agent (if any):
___________________________________
Address:
___________________________________
___________________________________
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
20
EXECUTION COPY
VOID AFTER 5:00 P.M.
EASTERN TIME ON DECEMBER 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of Common Stock
Date: December 29, 1999
ON TECHNOLOGY CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, CASTLE CREEK TECHNOLOGY
PARTNERS LLC or its registered assigns, is entitled to purchase from ON
Technology Corporation, a Delaware corporation (the "Company"), at any time or
from time to time during the period specified in Section 3 hereof, that number
(if any) of fully paid and nonassessable shares of the Company's common stock,
$0.01 par value (the "Common Stock"), determined pursuant to Section 1 hereof at
the exercise price (the "Exercise Price") defined below, subject to adjustment
as contained herein. This Warrant is being issued pursuant to that certain
Securities Purchase Agreement dated December 29, 1999 between the Company and
the signatories thereto (the "Securities Purchase Agreement"). The number of
shares of Common Stock purchasable hereunder (the "Warrant Shares") and the
Exercise Price are subject to adjustment as provided in Section 5 hereof. The
term "Warrants" means this Warrant and any other warrants of the Company issued
pursuant to the terms of the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively,
<PAGE>
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
The Exercise Price shall equal to $0.01 per share, subject to
adjustment as contained herein.
This Warrant is subject to the following terms, provisions, and
conditions:
1. (a)Number of Shares Into Which This Warrant is Exercisable. Subject
to adjustment as provided herein, on and after any Effective Date (as defined
herein), this Warrant shall become exercisable into additional Shares. For
purposes hereof, the number of additional Shares into which this Warrant becomes
exercisable on and after an Effective Date shall be determined according to the
following formula, where N represents such number:
P - M
N = [-------] *O - V
M
where: P = the Per Share Purchase Price;
M = the greater of (x) the Market Price on
the applicable Effective Date and (y)
the lesser of (i) $8.00 and (ii) 80% of
the Per Share Purchase Price;
O = the number of shares of the Company's
Common Stock purchased by Holder at
Closing; and
V = number of shares of the Company's
Common Stock issued or issuable to
Holder on any Effective Date pursuant
to this Warrant.
Notwithstanding the foregoing, this Warrant shall not become exercisable for
additional Shares pursuant to this Section 1(a) if such exercise would violate
NASDAQ Rule 4460(i) (or any successor rule). To the extent that the immediately
preceding sentence is applicable, the Company shall pay to the Purchaser an
amount equal to (x) "N" times the Market Price on the applicable Effective Date.
(b) Effective Dates. An "Effective Date" shall mean:
2
<PAGE>
(i) the date on which the Registration Statement (as defined in the
Registration Rights Agreement) required to be filed by the Company
pursuant to Section 2.1 of the Registration Rights Agreement is first
declared effective; and
(ii) if the Registration Statement has not been declared effective by
the date which is six (6) months after the Closing Date (the
"Effectiveness Trigger Date"), (A) the Effectiveness Trigger Date and
(B) each date which is three (3) calendar months following the
Effectiveness Trigger Date on which the Registration Statement has not
yet been declared effective.
2. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 9(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 9(c) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 13(c) below), delivery to the Company
of a written Exercise Agreement for a Cashless Exercise hereunder for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the Holder or Holder's designees, as
the record owner of such shares, as of the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall have
been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 2(c), certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be reasonably requested by the Holder and
shall be registered in the name of Holder or such other name as shall be
designated by such Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the Holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the
3
<PAGE>
converting Holder of the results no later than two (2) business days from the
date it receives the disputed calculations. The accounting firm's calculation
shall be deemed conclusive, absent manifest error. The Company shall then issue
the appropriate number of shares of Common Stock in accordance with this
Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay to the Company the Exercise Price or to deliver to the
Company a duly executed notice to exercise a Cashless Exercise) to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "Sold Shares") which Holder was entitled to receive upon such
exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
3. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 P.M., Eastern Time on
the fifth (5th) anniversary of the date hereof (the "Exercise Period").
4. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least five
(5) years after the date of issuance of this Warrant,
4
<PAGE>
maintain the listing of the shares of Common Stock issuable upon exercise of
this Warrant upon The Nasdaq National Market, the Nasdaq SmallCap Market, the
New York Stock Exchange or the American Stock Exchange, as required by Section
4.10 of the Securities Purchase Agreement and upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed or become listed and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system; provided, however, that if
the Company is a party to a transaction following which the holder hereof no
longer holds shares of capital stock or securities convertible into shares of
capital stock of the Company, such obligation shall cease with respect to the
Company; provided, further, that if the shares of Common Stock, including the
Warrant Shares, are converted in such transaction into shares of capital stock
or other equivalent equity interest of another entity, such entity shall be
bound by the provisions of this Section 4(c) for the remainder of the five (5)
year term.
(d) Certain Actions Prohibited. Subject to the provisions of
Section 5(c), the Company will not, by amendment of its charter or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such actions as may
reasonably be requested by the Holder of this Warrant in order to protect the
exercise privilege of the Holder of this Warrant, consistent with the tenor and
purpose of this Warrant (including, without limitation, Section 5(c) hereof).
Without limiting the generality of the foregoing, the Company will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant; provided, however, that if the Company is a party to a
transaction following which the stockholders of the Company no longer hold
shares of capital stock of the Company, such obligation shall cease with respect
to the Company; provided, further, that if the shares of Common Stock, including
the Warrant Shares, are converted in such transaction into shares of capital
stock or other equivalent equity interest of another entity, such entity shall
be bound by the provisions of this Section 4(d) for the remainder of the five
(5) year term.
5. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 5. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise
5
<PAGE>
Price in effect immediately prior to such subdivision will be proportionately
reduced. If the Company, at any time after the initial issuance of this Warrant,
combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a smaller number
of shares, then, after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased.
(b) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 5, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(c) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
thirty percent (30%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues thirty percent (30%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant may
thereafter, at its option, be entitled, at its election, either to (a) in the
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each of
the foregoing cases which is publicly traded, retain its Warrant and such
Warrant shall continue to apply to such Common Stock or shall apply, as nearly
as practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless of whether (a) applies, receive consideration, in exchange
for such Warrant, equal to the greater of, as determined in the sole discretion
of such holder, (i) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such Major Transaction (the "Major
Transaction Consideration"), to which a holder of the number of shares of Common
Stock delivered upon the cashless exercise of such Warrant would have been
entitled upon such Major Transaction had such holder so exercised the Warrant
(without regard to any limitations on conversion or elsewhere contained) on the
trading date immediately preceding, at the option of Holder, either the public
announcement of the transaction resulting in such Major Transaction or the
consummation of such major transaction and had such Holder been the holder of
record of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available funds,
in an amount equal to one hundred percent (100%) of the Black-Scholes Amount (as
defined herein) times the number of shares of Common Stock for which this
Warrant was exercisable (without regard to any limitations on exercise herein
contained); and the Company shall make lawful provision for the foregoing as a
part of such Major Transaction and shall cause the issuer of any security in
such transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 29, 1999 among the Company and the
6
<PAGE>
signatories thereto (the "Registration Rights Agreement") to assume all of the
Company's obligations under the Registration Rights Agreement (provided any cash
election pursuant to clause (ii) above must be made in writing to the Company
within ten (10) business days following consummation of such applicable
transaction (or, in the event that a Company Transaction (as defined below)
occurs, within ten (10) business days following the Measurement Period (as
defined below)). If the application of clause (b) of the first sentence of this
Section 5(c)) would result in the holder of a Warrant receiving consideration in
exchange for such Warrant which is greater than one hundred and fifty percent
(150%) of the Exercise Price thereof, then unless the Company determines
otherwise, such holder may not elect to retain such Warrant pursuant to clause
(a) of such sentence, but shall instead receive such consideration pursuant to
clause (b). In the event that the Company shall consolidate or merge with any
other corporation in a transaction in which common stock of the surviving
corporation or the parent thereof (the "Exchange Securities") is issued to the
holders of Common Stock in such transaction in exchange for all such Common
Stock, and (a) the Exchange Securities are publicly traded, (b) the average
daily trading volume of the Exchange Securities during the one hundred eighty
(180) day period ending on the date on which such transaction is publicly
disclosed is greater than two million dollars ($2,000,000) per day, (c) the
historical one hundred (100) day volatility of the Exchange Securities during
the period ending on the date on which such transaction is publicly disclosed is
greater than sixty percent (60%) and (d) the market capitalization of the issuer
of the Exchange Securities is not less than one hundred million dollars
($100,000,000) based on the last sale price of the Exchange Securities on the
date immediately before the date on which such transaction is publicly disclosed
(in each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg) or, in lieu of clauses (c) and (d) only, the market
capitalization of the issuer of the Exchange Securities is not less than one
billion dollars ($1,000,000,000) as reported by Bloomberg, then the provisions
of clause (b) of the first sentence of this Section 5(c) shall not apply. In the
event that the Company shall, in a Major Transaction, consolidate or merge with
any other corporation in a transaction in which the Company is the survivor (a
"Company Transaction"), the provisions of clause (ii) of the first sentence of
this Section 5(c) shall not apply to the extent that each of the following
conditions remain true for the thirty (30) business days commencing as of the
date of the consummation of such transaction (the "Measurement Period"): (a) the
Common Stock remains publicly traded during the period, (b) the average daily
trading volume of the Common Stock is greater than two million dollars
($2,000,000), (c) the historical thirty (30) day volatility of the Company's
Common Stock is greater than sixty percent (60%), and (d) the market
capitalization of the Company is not less than one hundred million dollars
($100,000,000) on the last day of the period (in each case, with respect to the
foregoing clauses (a) through (d), as reported by Bloomberg) or, in lieu of
clauses (c) and (d)only, the market capitalization of the Company is not less
than one billion dollars ($1,000,000,000) as reported by Bloomberg. No sooner
than ten (10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction, but not prior to the public announcement
of such Major Transaction, the Company shall deliver written notice ("Notice of
Major Transaction") to each holder of a Warrant, which Notice of Major
Transaction shall be deemed to have been delivered one (1) business day after
the Company's sending such notice by telecopy (provided such telecopy receipt
has been confirmed and the Company sends a confirming copy of such notice on the
same day by overnight courier) of such Notice of Major Transaction. Such Notice
of Major Transaction shall indicate the amount and
7
<PAGE>
type of the Major Transaction consideration which such holder of a Warrant would
receive under this Section. If the Major Transaction Consideration does not
consist entirely of United States currency, such holder may elect to receive
United States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of such
holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(d) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
stockholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of stockholders entitled to such Distribution.
(e) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(f) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
8
<PAGE>
(g) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; provided that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(i) Certain Definitions.
(i) "Market Price," as of any date, (i) means the
average of the Closing Bid Prices for the shares of Common Stock as reported to
The Nasdaq National Market for the
9
<PAGE>
fifteen (15) trading days immediately preceding, but not including, the day
prior to such date, or (ii) if The Nasdaq National Market is not the principal
trading market for the Common Stock, the average of the last reported bid prices
on the principal trading market for the Common Stock during the same period, or,
if there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the Warrants,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(ii) "Common Stock," for purposes of this Section 5,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 5(e) hereof, the stock or other securities or
property provided for in such Section.
(j) Other Adjustments. If any officer (as defined in Rule
16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended) or
director of the Company, directly or indirectly, including through family
members, trusts or other entities related to such executive officer or director,
disposes, or provides or files any public notice, including pursuant to Rule 144
of the Securities Act, of a bona fide intent to dispose of, any Common Stock
beneficially owned by him during the period beginning on the Closing Date and
ending on the date which is six (6) months following the date on which the
registration statement required to be filed pursuant to Section 2.1 of the
Registration Rights Agreement is first declared effective, then the Exercise
Price shall be adjusted to the Adjusted Exercise Price (as defined herein) if
such adjustment would result in a decrease in the Exercise Price; provided,
however, that the Exercise Price shall not be adjusted upon the occurrence of a
transfer of shares of Common Stock by P/A Fund, L.P. to its partners; and
provided, further that an officer or director (and all such entities for the
benefit of any member of his/her family, collectively) may in the aggregate sell
during the six (6) month period following the effectiveness of the registration
statement up to ten percent (10%) of his/her total holdings as of the date
hereof without triggering any adjustments pursuant to this section. For any
disposal of Common Stock described hereunder, the "Adjusted Exercise Price"
shall mean the lesser of (a) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the trading day (the
"Announcement Date") immediately preceding the day on which such disposal was
publicly announced and (b) 80% of the Exercise Price on the Announcement Date.
6. Cap Amount. Prior to Stockholder Approval (as defined in the
Securities Purchase Agreement), unless otherwise permitted by The Nasdaq
National Market or unless the rules thereof no longer are applicable to the
Company, in no event shall the total number of shares of Common
10
<PAGE>
Stock issued at the Closing under the Securities Purchase Agreement and upon
exercise of the Warrants exceed the maximum number of shares of Common Stock
that the Company can without stockholder approval so issue pursuant to Nasdaq
Rule 4460(i) (or any successor rule) (the "Cap Amount") upon Closing under the
Securities Purchase Agreement and the exercise of the Warrants, which amount, as
of the date of initial issuance of Common Stock and Warrants to the Holders, is
2,768,248 shares. The Cap Amount shall be allocated pro rata among the Holders
based on the number of shares of Common Stock and Warrants issued to each
Holder. In the event a Holder shall sell or otherwise transfer any of such
Holder's Warrants, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount. A Holder's allocable portion of the Cap Amount shall be
allocated first to the Common Stock issued to the Holder at the Closing under
the Securities Purchase Agreement, then to the First Warrants (as defined in the
Securities Purchase Agreement) and only the Warrants shall be subject to the
limitation imposed by this Section 6.
7. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
8. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
9. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights
granted to the Holder are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the Company
referred to in Section 9(e) below, provided, however, that any transfer or
assignment shall be subject to the provisions of Section 5.1 and 5.2 of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the registration rights described in Section 10
hereof are assignable only in accordance with the provisions of the Registration
Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 9(e) below, for new Warrants, in
the form hereof, of different denominations representing in the aggregate the
right to purchase the number of shares of Common Stock which
11
<PAGE>
may be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the Holder of at the
time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 9, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 9.
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer.
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the above
limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder which contain similar
limitations on conversion) and of which Warrants shall be exercisable (as among
Warrants) shall be made on the basis of the earliest submission of the Warrants
(vis-a-vis other securities owned by the Holder which contain similar
limitations on conversion and vis a vis other Warrants), in each case subject to
such aggregate percentage limitation. No prior inability to exercise Warrants
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations, including without limitation, with respect to
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section 9(f)
with the approval of the Board of Directors of the Company and the Holder: (i)
with respect to any matter to cure any ambiguity herein, to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Applicable Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Applicable Percentage limitation; and (ii) with respect to
any other matter (including through any amendment of this
12
<PAGE>
Warrant), with the further consent of the holders of a majority of the then
outstanding shares of Common Stock. For clarification, it is expressly a term of
this security that the limitations contained in this Section shall apply to each
successor Holder.
10. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
11. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ON Technology Corporation
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
Telecopy: (781)487-3300
Attention: President
with a copy to:
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109-1807
Telecopy: (617)342-4001
Attention: Gabor Garai, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11.
12. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of New York and the state courts located in the County of
[New York] in the State of New York in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that a final nonappealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
13
<PAGE>
13. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 9(f).
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ON Technology Corporation
By: _________________________
Name: _________________________
Title: _________________________
15
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ON Technology Corporation, a
Dalaware corporation (the "Company"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a Cashless Exercise pursuant to the terms of the
Warrant], all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date:____________________ ________________________
Signature of Holder
________________________
Name of Holder (Print)
Address:
________________________
________________________
16
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock covered thereby set forth herein below,
to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
________________________
Name:______________________________________________
Signature:_________________________________________
Title of Signing Officer or Agent (if any):
_________________________________________
Address:
_________________________________________
_________________________________________
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
17
EXECUTION COPY
VOID AFTER 5:00 P.M.
EASTERN TIME ON DECEMBER 29, 2004
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Right to Purchase Shares of Common Stock
Date: December 29, 1999
ON TECHNOLOGY CORPORATION
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, MARSHALL CAPITAL MANAGEMENT,
INC. or its registered assigns, is entitled to purchase from ON Technology
Corporation, a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Section 3 hereof, that number (if any) of
fully paid and nonassessable shares of the Company's common stock, $0.01 par
value (the "Common Stock"), determined pursuant to Section 1 hereof at the
exercise price (the "Exercise Price") defined below, subject to adjustment as
contained herein. This Warrant is being issued pursuant to that certain
Securities Purchase Agreement dated December 29, 1999 between the Company and
the signatories thereto (the "Securities Purchase Agreement"). The number of
shares of Common Stock purchasable hereunder (the "Warrant Shares") and the
Exercise Price are subject to adjustment as provided in Section 5 hereof. The
term "Warrants" means this Warrant and any other warrants of the Company issued
pursuant to the terms of the Securities Purchase Agreement.
The term "Closing Bid Price" means, for any security as of any date,
the closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Company and reasonably acceptable to the holder hereof (the
"Holder") if Bloomberg Financial Markets is not then reporting closing bid
prices of such security (collectively,
<PAGE>
"Bloomberg"), or if the foregoing does not apply, the last reported sale price
of such security in the over-the-counter market on the electronic bulletin board
of such security as reported by Bloomberg, or, if no sale price is reported for
such security by Bloomberg, the average of the bid prices of any market makers
for such security as reported in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date on any of the foregoing bases, the Closing Bid Price of such security
on such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Company and reasonably acceptable to the
Holder with the costs of such appraisal to be borne by the Company.
The Exercise Price shall equal to $0.01 per share, subject to
adjustment as contained herein.
This Warrant is subject to the following terms, provisions, and
conditions:
1. (a)Number of Shares Into Which This Warrant is Exercisable. Subject
to adjustment as provided herein, on and after any Effective Date (as defined
herein), this Warrant shall become exercisable into additional Shares. For
purposes hereof, the number of additional Shares into which this Warrant becomes
exercisable on and after an Effective Date shall be determined according to the
following formula, where N represents such number:
P - M
N = [-------] *O - V
M
where: P = the Per Share Purchase Price;
M = the greater of (x) the Market Price on
the applicable Effective Date and (y)
the lesser of (i) $8.00 and (ii) 80%
of the Per Share Purchase Price;
O = the number of shares of the Company's
Common Stock purchased by Holder at
Closing; and
V = number of shares of the Company's
Common Stock issued or issuable to
Holder on any Effective Date pursuant
to this Warrant.
Notwithstanding the foregoing, this Warrant shall not become exercisable for
additional Shares pursuant to this Section 1(a) if such exercise would violate
NASDAQ Rule 4460(i) (or any successor rule). To the extent that the immediately
preceding sentence is applicable, the Company shall pay to the Purchaser an
amount equal to (x) "N" times the Market Price on the applicable Effective Date.
(b) Effective Dates. An "Effective Date" shall mean:
2
<PAGE>
(i) the date on which the Registration Statement (as defined in the
Registration Rights Agreement) required to be filed by the Company
pursuant to Section 2.1 of the Registration Rights Agreement is first
declared effective; and
(ii) if the Registration Statement has not been declared effective by
the date which is six (6) months after the Closing Date (the
"Effectiveness Trigger Date"), (A) the Effectiveness Trigger Date and
(B) each date which is three (3) calendar months following the
Effectiveness Trigger Date on which the Registration Statement has not
yet been declared effective.
2. Mechanics of Exercise. Subject to the provisions hereof, including,
without limitation, the limitations contained in Section 9(f) hereof, this
Warrant may be exercised as follows:
(a) Manner of Exercise. This Warrant may be exercised by the Holder, in
whole or in part, by the surrender of this Warrant (or evidence of loss, theft,
destruction or mutilation thereof in accordance with Section 9(c) hereof),
together with a completed exercise agreement in the Form of Exercise Agreement
attached hereto as Exhibit 1 (the "Exercise Agreement"), to the Company at the
Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the Holder), and upon (i) payment to
the Company in cash, by certified or official bank check or by wire transfer for
the account of the Company, of the Exercise Price for the Warrant Shares
specified in the Exercise Agreement or (ii) if the Holder elects to effect a
Cashless Exercise (as defined in Section 13(c) below), delivery to the Company
of a written Exercise Agreement for a Cashless Exercise hereunder for the
Warrant Shares specified in the Exercise Agreement. The Warrant Shares so
purchased shall be deemed to be issued to the Holder or Holder's designees, as
the record owner of such shares, as of the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment (or notice of an election to effect a Cashless Exercise) shall have
been made for such shares as set forth above.
(b) Issuance of Certificates. Subject to Section 2(c), certificates for
the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the Holder within a
reasonable time, not exceeding three (3) business days, after this Warrant shall
have been so exercised (the "Delivery Period"). The certificates so delivered
shall be in such denominations as may be reasonably requested by the Holder and
shall be registered in the name of Holder or such other name as shall be
designated by such Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the Holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
(c) Exercise Disputes. In the case of any dispute with respect to an
exercise, the Company shall promptly issue such number of shares of Common Stock
as are not disputed in accordance with this Section. If such dispute involves
the calculation of the Exercise Price, the Company shall submit the disputed
calculations to a nationally recognized independent accounting firm (selected by
the Company) via facsimile within three (3) business days of receipt of the
Exercise Agreement. The accounting firm shall audit the calculations and notify
the Company and the
3
<PAGE>
converting Holder of the results no later than two (2) business days from the
date it receives the disputed calculations. The accounting firm's calculation
shall be deemed conclusive, absent manifest error. The Company shall then issue
the appropriate number of shares of Common Stock in accordance with this
Section.
(d) Fractional Shares. No fractional shares of Common Stock are to be
issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Exercise Price of a share of
Common Stock (as determined for exercise of this Warrant into whole shares of
Common Stock); provided that in the event that sufficient funds are not legally
available for the payment of such cash adjustment any fractional shares of
Common Stock shall be rounded up to the next whole number.
(e) Buy-In. If (i) the Company fails for any reason (other than
Holder's failure to pay to the Company the Exercise Price or to deliver to the
Company a duly executed notice to exercise a Cashless Exercise) to deliver
during the Delivery Period shares of Common Stock to Holder upon an exercise of
this Warrant and (ii) after the applicable Delivery Period with respect to such
an exercise, Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to make delivery upon a sale by Holder of the shares of
Common Stock (the "Sold Shares") which Holder was entitled to receive upon such
exercise (a "Buy-in"), the Company shall pay Holder (in addition to any other
remedies available to Holder) the amount by which (x) Holder's total purchase
price (including brokerage commission, if any) for the shares of Common Stock so
purchased exceeds (y) the lesser of (A) the Exercise Price or (B) the net
proceeds received by Holder from the sale of the Sold Shares. Holder shall
provide the Company written notification indicating any amounts payable to
Holder pursuant to this subsection.
3. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date hereof and before 5:00 P.M., Eastern Time on
the fifth (5th) anniversary of the date hereof (the "Exercise Period").
4. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and non-assessable and free from all liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. From and after the date of issuance of this
Warrant, the Company shall have secured and shall thereafter, for at least five
(5) years after the date of issuance of this Warrant,
4
<PAGE>
maintain the listing of the shares of Common Stock issuable upon exercise of
this Warrant upon The Nasdaq National Market, the Nasdaq SmallCap Market, the
New York Stock Exchange or the American Stock Exchange, as required by Section
4.10 of the Securities Purchase Agreement and upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed or become listed and shall maintain, so long as any other
shares of Common Stock shall be so listed, such listing of all shares of Common
Stock from time to time issuable upon the exercise of this Warrant; and the
Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant so long as any shares of the same class shall be listed on such national
securities exchange or automated quotation system; provided, however, that if
the Company is a party to a transaction following which the holder hereof no
longer holds shares of capital stock or securities convertible into shares of
capital stock of the Company, such obligation shall cease with respect to the
Company; provided, further, that if the shares of Common Stock, including the
Warrant Shares, are converted in such transaction into shares of capital stock
or other equivalent equity interest of another entity, such entity shall be
bound by the provisions of this Section 4(c) for the remainder of the five (5)
year term.
(d) Certain Actions Prohibited. Subject to the provisions of
Section 5(c), the Company will not, by amendment of its charter or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such actions as may
reasonably be requested by the Holder of this Warrant in order to protect the
exercise privilege of the Holder of this Warrant, consistent with the tenor and
purpose of this Warrant (including, without limitation, Section 5(c) hereof).
Without limiting the generality of the foregoing, the Company will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant; provided, however, that if the Company is a party to a
transaction following which the stockholders of the Company no longer hold
shares of capital stock of the Company, such obligation shall cease with respect
to the Company; provided, further, that if the shares of Common Stock, including
the Warrant Shares, are converted in such transaction into shares of capital
stock or other equivalent equity interest of another entity, such entity shall
be bound by the provisions of this Section 4(d) for the remainder of the five
(5) year term.
5. Antidilution Provisions. During the Exercise Period or until fully
exercised, the Exercise Price and the number of Warrant Shares shall be subject
to adjustment from time to time as provided in this Section 5. In the event that
any adjustment of the Exercise Price as required herein results in a fraction of
a cent, such Exercise Price shall be rounded up or down to the nearest cent.
(a) Subdivision or Combination of Common Stock. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise
5
<PAGE>
Price in effect immediately prior to such subdivision will be proportionately
reduced. If the Company, at any time after the initial issuance of this Warrant,
combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a smaller number
of shares, then, after the date of record for effecting such combination, the
Exercise Price in effect immediately prior to such combination will be
proportionately increased.
(b) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 5, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(c) Major Transactions. If the Company shall consolidate or
merge with any other corporation or entity (other than a merger in which the
Company is the surviving or continuing entity and its capital stock is unchanged
and unissued in such transaction (except for Common Stock constituting less than
thirty percent (30%) of the Company's Common Stock then outstanding)) or any
subsidiary of the Company shall be a party to a merger or consolidation or other
extraordinary transaction and the Company issues thirty percent (30%) or more of
its Common Stock in any such merger, consolidation or other transaction or there
shall occur any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property or any
reclassification or change of the outstanding shares of Common Stock (each of
the foregoing being a "Major Transaction"), then each holder of a Warrant may
thereafter, at its option, be entitled, at its election, either to (a) in the
event that the Common Stock remains outstanding or holders of Common Stock
receive any common stock or substantially similar equity interest, in each of
the foregoing cases which is publicly traded, retain its Warrant and such
Warrant shall continue to apply to such Common Stock or shall apply, as nearly
as practicable, to such other common stock or equity interest, as the case may
be, or (b) regardless of whether (a) applies, receive consideration, in exchange
for such Warrant, equal to the greater of, as determined in the sole discretion
of such holder, (i) the number of shares of stock or securities or property of
the Company, or of the entity resulting from such Major Transaction (the "Major
Transaction Consideration"), to which a holder of the number of shares of Common
Stock delivered upon the cashless exercise of such Warrant would have been
entitled upon such Major Transaction had such holder so exercised the Warrant
(without regard to any limitations on conversion or elsewhere contained) on the
trading date immediately preceding, at the option of Holder, either the public
announcement of the transaction resulting in such Major Transaction or the
consummation of such major transaction and had such Holder been the holder of
record of such Common Stock at the time of the consummation of such Major
Transaction, and (ii) cash paid by the Company in immediately available funds,
in an amount equal to one hundred percent (100%) of the Black-Scholes Amount (as
defined herein) times the number of shares of Common Stock for which this
Warrant was exercisable (without regard to any limitations on exercise herein
contained); and the Company shall make lawful provision for the foregoing as a
part of such Major Transaction and shall cause the issuer of any security in
such transaction which constitutes Registrable Securities under that certain
Registration Rights Agreement dated December 29, 1999 among the Company and the
6
<PAGE>
signatories thereto (the "Registration Rights Agreement") to assume all of the
Company's obligations under the Registration Rights Agreement (provided any cash
election pursuant to clause (ii) above must be made in writing to the Company
within ten (10) business days following consummation of such applicable
transaction (or, in the event that a Company Transaction (as defined below)
occurs, within ten (10) business days following the Measurement Period (as
defined below)). If the application of clause (b) of the first sentence of this
Section 5(c)) would result in the holder of a Warrant receiving consideration in
exchange for such Warrant which is greater than one hundred and fifty percent
(150%) of the Exercise Price thereof, then unless the Company determines
otherwise, such holder may not elect to retain such Warrant pursuant to clause
(a) of such sentence, but shall instead receive such consideration pursuant to
clause (b). In the event that the Company shall consolidate or merge with any
other corporation in a transaction in which common stock of the surviving
corporation or the parent thereof (the "Exchange Securities") is issued to the
holders of Common Stock in such transaction in exchange for all such Common
Stock, and (a) the Exchange Securities are publicly traded, (b) the average
daily trading volume of the Exchange Securities during the one hundred eighty
(180) day period ending on the date on which such transaction is publicly
disclosed is greater than two million dollars ($2,000,000) per day, (c) the
historical one hundred (100) day volatility of the Exchange Securities during
the period ending on the date on which such transaction is publicly disclosed is
greater than sixty percent (60%) and (d) the market capitalization of the issuer
of the Exchange Securities is not less than one hundred million dollars
($100,000,000) based on the last sale price of the Exchange Securities on the
date immediately before the date on which such transaction is publicly disclosed
(in each case, with respect to the foregoing clauses (a) through (d), as
reported by Bloomberg) or, in lieu of clauses (c) and (d) only, the market
capitalization of the issuer of the Exchange Securities is not less than one
billion dollars ($1,000,000,000) as reported by Bloomberg, then the provisions
of clause (b) of the first sentence of this Section 5(c) shall not apply. In the
event that the Company shall, in a Major Transaction, consolidate or merge with
any other corporation in a transaction in which the Company is the survivor (a
"Company Transaction"), the provisions of clause (ii) of the first sentence of
this Section 5(c) shall not apply to the extent that each of the following
conditions remain true for the thirty (30) business days commencing as of the
date of the consummation of such transaction (the "Measurement Period"): (a) the
Common Stock remains publicly traded during the period, (b) the average daily
trading volume of the Common Stock is greater than two million dollars
($2,000,000), (c) the historical thirty (30) day volatility of the Company's
Common Stock is greater than sixty percent (60%), and (d) the market
capitalization of the Company is not less than one hundred million dollars
($100,000,000) on the last day of the period (in each case, with respect to the
foregoing clauses (a) through (d), as reported by Bloomberg) or, in lieu of
clauses (c) and (d)only, the market capitalization of the Company is not less
than one billion dollars ($1,000,000,000) as reported by Bloomberg. No sooner
than ten (10) business days nor later than five (5) business days prior to the
consummation of the Major Transaction, but not prior to the public announcement
of such Major Transaction, the Company shall deliver written notice ("Notice of
Major Transaction") to each holder of a Warrant, which Notice of Major
Transaction shall be deemed to have been delivered one (1) business day after
the Company's sending such notice by telecopy (provided such telecopy receipt
has been confirmed and the Company sends a confirming copy of such notice on the
same day by overnight courier) of such Notice of Major Transaction. Such Notice
of Major Transaction shall indicate the amount and
7
<PAGE>
type of the Major Transaction consideration which such holder of a Warrant would
receive under this Section. If the Major Transaction Consideration does not
consist entirely of United States currency, such holder may elect to receive
United States currency in an amount equal to the value of the Major Transaction
Consideration in lieu of the Major Transaction Consideration by delivering
notice of such election to the Company within five (5) business days of such
holder's receipt of the Notice of Major Transaction.
The "Black-Scholes Amount" shall be an amount determined by calculating
the "Black-Scholes" value of an option to purchase one share of Common Stock on
the applicable page on the Bloomberg online page, using the following variable
values: (i) the current market price of the Common Stock equal to the closing
trade price on the last trading day before the date of the Notice of the Major
Transaction; (ii) volatility of the Common Stock equal to the volatility of the
common Stock during the 100 trading day period preceding the date of the Notice
of the Major Transaction; (iii) a risk free rate equal to the interest rate on
the United States treasury bill or treasury note with a maturity corresponding
to the remaining term of this Warrant on the date of the Notice of the Major
Transaction; and (iv) an exercise price equal to the Exercise Price on the date
of the Notice of the Major Transaction. In the event such calculation function
is no longer available utilizing the Bloomberg online page, the Holder shall
calculate such amount in its sole discretion using the closest available
alternative mechanism and variable values to those available utilizing the
Bloomberg online page for such calculation function.
(d) Distribution of Assets. In case the Company shall declare
or make any distribution of its assets (or rights to acquire its assets) to
holders of Common Stock as a partial liquidating dividend, by way of return of
capital or otherwise (including any dividend or distribution to the Company's
stockholders of cash or shares (or rights to acquire shares) of capital stock of
a subsidiary) (a "Distribution"), at any time after the initial issuance of this
Warrant, then the Holder shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to receive
the amount of such assets (or rights) which would have been payable to the
Holder had such Holder been the holder of such shares of Common Stock on the
record date for the determination of stockholders entitled to such Distribution.
(e) Notices of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the Holder, which notice shall
state the Exercise Price resulting from such adjustment and the increase or
decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(f) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
8
<PAGE>
(g) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock; provided that in the event that sufficient funds are not
legally available for the payment of such cash adjustment any fractional shares
of Common Stock shall be rounded up to the next whole number.
(h) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or merger
of the Company with or into, or sale of all or substantially all of its assets
to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the Holder (a) notice of the
date on which the books of the Company shall close or a record shall be taken
for determining the holders of Common Stock entitled to receive any such
dividend, distribution, or subscription rights or for determining the holders of
Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto, but in no event earlier than public announcement of such
proposed transaction or event. Failure to give any such notice or any defect
therein shall not affect the validity of the proceedings referred to in clauses
(i), (ii), (iii) and (iv) above.
(i) Certain Definitions.
(i) "Market Price," as of any date, (i) means the
average of the Closing Bid Prices for the shares of Common Stock as reported to
The Nasdaq National Market for the
9
<PAGE>
fifteen (15) trading days immediately preceding, but not including, the day
prior to such date, or (ii) if The Nasdaq National Market is not the principal
trading market for the Common Stock, the average of the last reported bid prices
on the principal trading market for the Common Stock during the same period, or,
if there is no bid price for such period, the last reported sales price for such
period, or (iii) if market value cannot be calculated as of such date on any of
the foregoing bases, the Market Price shall be the average fair market value as
reasonably determined by an investment banking firm selected by the Company and
reasonably acceptable to the Holders of a majority in interest of the Warrants,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(ii) "Common Stock," for purposes of this Section 5,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock in respect of which this Warrant is exercisable, or shares resulting from
any subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 5(e) hereof, the stock or other securities or
property provided for in such Section.
(j) Other Adjustments. If any officer (as defined in Rule
16a-1(f) promulgated under the Securities Exchange Act of 1934, as amended) or
director of the Company, directly or indirectly, including through family
members, trusts or other entities related to such executive officer or director,
disposes, or provides or files any public notice, including pursuant to Rule 144
of the Securities Act, of a bona fide intent to dispose of, any Common Stock
beneficially owned by him during the period beginning on the Closing Date and
ending on the date which is six (6) months following the date on which the
registration statement required to be filed pursuant to Section 2.1 of the
Registration Rights Agreement is first declared effective, then the Exercise
Price shall be adjusted to the Adjusted Exercise Price (as defined herein) if
such adjustment would result in a decrease in the Exercise Price; provided,
however, that the Exercise Price shall not be adjusted upon the occurrence of a
transfer of shares of Common Stock by P/A Fund, L.P. to its partners; and
provided, further that an officer or director (and all such entities for the
benefit of any member of his/her family, collectively) may in the aggregate sell
during the six (6) month period following the effectiveness of the registration
statement up to ten percent (10%) of his/her total holdings as of the date
hereof without triggering any adjustments pursuant to this section. For any
disposal of Common Stock described hereunder, the "Adjusted Exercise Price"
shall mean the lesser of (a) the lowest closing bid price of the Common Stock
during the thirty (30) trading day period beginning on the trading day (the
"Announcement Date") immediately preceding the day on which such disposal was
publicly announced and (b) 80% of the Exercise Price on the Announcement Date.
6. Cap Amount. Prior to Stockholder Approval (as defined in the
Securities Purchase Agreement), unless otherwise permitted by The Nasdaq
National Market or unless the rules thereof no longer are applicable to the
Company, in no event shall the total number of shares of Common
10
<PAGE>
Stock issued at the Closing under the Securities Purchase Agreement and upon
exercise of the Warrants exceed the maximum number of shares of Common Stock
that the Company can without stockholder approval so issue pursuant to Nasdaq
Rule 4460(i) (or any successor rule) (the "Cap Amount") upon Closing under the
Securities Purchase Agreement and the exercise of the Warrants, which amount, as
of the date of initial issuance of Common Stock and Warrants to the Holders, is
2,768,248 shares. The Cap Amount shall be allocated pro rata among the Holders
based on the number of shares of Common Stock and Warrants issued to each
Holder. In the event a Holder shall sell or otherwise transfer any of such
Holder's Warrants, each transferee shall be allocated a pro rata portion of such
transferor's Cap Amount. A Holder's allocable portion of the Cap Amount shall be
allocated first to the Common Stock issued to the Holder at the Closing under
the Securities Purchase Agreement, then to the First Warrants (as defined in the
Securities Purchase Agreement) and only the Warrants shall be subject to the
limitation imposed by this Section 6.
7. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder or such
shares for any issuance tax or other costs in respect thereof, provided that the
Company shall not be required to pay any tax which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than the Holder.
8. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder to any voting rights or other rights as a stockholder of the
Company. No provision of this Warrant, in the absence of affirmative action by
the Holder to purchase Warrant Shares, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Exercise Price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company.
9. Transfer, Exchange, Redemption and Replacement of Warrant.
a. Restriction on Transfer. This Warrant and the rights
granted to the Holder are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the Form of
Assignment attached hereto as Exhibit 2, at the office or agency of the Company
referred to in Section 9(e) below, provided, however, that any transfer or
assignment shall be subject to the provisions of Section 5.1 and 5.2 of the
Securities Purchase Agreement. Until due presentment for registration of
transfer on the books of the Company, the Company may treat the registered
holder hereof as the owner and holder hereof for all purposes, and the Company
shall not be affected by any notice to the contrary. Notwithstanding anything to
the contrary contained herein, the registration rights described in Section 10
hereof are assignable only in accordance with the provisions of the Registration
Rights Agreement.
b. Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Holder at the office
or agency of the Company referred to in Section 9(e) below, for new Warrants, in
the form hereof, of different denominations representing in the aggregate the
right to purchase the number of shares of Common Stock which
11
<PAGE>
may be purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the Holder of at the
time of such surrender.
c. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant or, in the case of any such loss, theft, or destruction, upon
delivery, of an indemnity agreement reasonably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant, in the form hereof, in such
denominations as Holder may request.
d. Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 9, this Warrant shall be promptly canceled by the
Company. The Company shall pay all issuance taxes (other than securities
transfer taxes) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 9.
e. Warrant Register. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the Holder), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
f. Additional Restriction on Exercise or Transfer.
Notwithstanding anything to the contrary contained herein, the Warrants shall
not be exercisable by the Holder to the extent (but only to the extent) that, if
exercisable by Holder, Holder would beneficially own in excess of 4.9% (the
"Applicable Percentage") of the shares of Common Stock. To the extent the above
limitation applies, the determination of whether the Warrants shall be
exercisable (vis-a-vis other securities owned by Holder which contain similar
limitations on conversion) and of which Warrants shall be exercisable (as among
Warrants) shall be made on the basis of the earliest submission of the Warrants
(vis-a-vis other securities owned by the Holder which contain similar
limitations on conversion and vis a vis other Warrants), in each case subject to
such aggregate percentage limitation. No prior inability to exercise Warrants
pursuant to this paragraph shall have any effect on the applicability of the
provisions of this paragraph with respect to any subsequent determination of
exercisability. For the purposes of this paragraph, beneficial ownership and all
determinations and calculations, including without limitation, with respect to
calculations of percentage ownership, shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13D and G thereunder. The provisions of this paragraph may be implemented in a
manner otherwise than in strict conformity with the terms of this Section 9(f)
with the approval of the Board of Directors of the Company and the Holder: (i)
with respect to any matter to cure any ambiguity herein, to correct this
paragraph (or any portion hereof) which may be defective or inconsistent with
the intended Applicable Percentage beneficial ownership limitation herein
contained or to make changes or supplements necessary or desirable to properly
give effect to such Applicable Percentage limitation; and (ii) with respect to
any other matter (including through any amendment of this
12
<PAGE>
Warrant), with the further consent of the holders of a majority of the then
outstanding shares of Common Stock. For clarification, it is expressly a term of
this security that the limitations contained in this Section shall apply to each
successor Holder.
10. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement.
11. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier or by
confirmed telecopy, and shall be deemed delivered at the time and date of
receipt (which shall include telephone line facsimile transmission). The
addresses for such communications shall be:
If to the Company:
ON Technology Corporation
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
Telecopy: (781)487-3300
Attention: President
with a copy to:
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109-1807
Telecopy: (617)342-4001
Attention: Gabor Garai, Esq.
and if to the Holder, at such address as Holder shall have provided in writing
to the Company, or at such other address as each such party furnishes by notice
given in accordance with this Section 11.
12. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in the State of New York. The Company
irrevocably consents to the jurisdiction of the United States federal courts
located in the State of New York and the state courts located in the County of
[New York] in the State of New York in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company agrees that a final nonappealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
13
<PAGE>
13. Miscellaneous.
a. Amendments. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Company and the Holder,
subject to the limitation contained in Section 9(f).
b. Descriptive Headings. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
c. Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised by presentation and
surrender of this Warrant to the Company at its principal executive offices with
a written notice of the Holder's intention to effect a Cashless Exercise,
including a calculation of the number of shares of Common Stock to be issued
upon such exercise in accordance with the terms hereof (a "Cashless Exercise").
In the event of a Cashless Exercise, in lieu of paying the Exercise Price in
cash, the Holder shall surrender this Warrant for the number of shares of Common
Stock determined by multiplying the number of Warrant Shares to which it would
otherwise be entitled by a fraction, the numerator of which shall be the
difference between the then current Market Price per share of the Common Stock
and the Exercise Price, and the denominator of which shall be such then current
Market Price per share of Common Stock.
d. Assignability. This Warrant shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of Holder
and its successors and assigns. The Holder shall notify the Company upon the
assignment of this Warrant.
* * *
14
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
ON Technology Corporation
By: _________________________
Name: _________________________
Title: _________________________
15
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of common stock of ON Technology Corporation, a
Dalaware corporation (the "Company"), evidenced by the attached Warrant, and
[herewith makes payment of the Exercise Price with respect to such shares in
full/ elects to effect a Cashless Exercise pursuant to the terms of the
Warrant], all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws.
(ii) The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder (or such other person or
persons indicated below) and delivered to the undersigned (or designee(s) at the
address (or addresses) set forth below:
Date: _______________________ ____________________________
Signature of Holder
____________________________
Name of Holder (Print)
Address:
____________________________
____________________________
16
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all rights of the undersigned under the within Warrant, with respect
to the number of shares of Common Stock covered thereby set forth herein below,
to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Date:____________, _____,
In the presence of
________________________
Name:_______________________________________________
Signature: _________________________________________
Title of Signing Officer or Agent (if any):
_________________________________________
Address:
__________________________________
__________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
17
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), is made as of
December 29, 1999, by and among ON Technology Corporation, a Delaware
corporation (the "Company"), with headquarters located at Waltham Woods, 880
Winter Street, Building 4, Waltham, MA 02451 and the undersigned (the "Initial
Purchasers").
RECITALS
--------
A. In connection with the Securities Purchase Agreement dated of even
date herewith by and among the Company and the Initial Purchasers (the
"Securities Purchase Agreement"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to each Initial
Purchaser (i) shares of the Company's common stock (the "Common Stock"), (ii) a
warrant exercisable for shares of Common Stock, in the form attached as Exhibit
A to the Securities Purchase Agreement ( the "Series I Warrant") and (iii) upon
certain conditions, a warrant exercisable for shares of Common Stock, in the
form attached as Exhibit B to the Securities Purchase Agreement (the "Series II
Warrant" and, together with the Series I Warrant, the "Warrants"). Shares of
Common Stock issued and purchased pursuant to the Securities Purchase Agreement
are herein referred to as "Shares" and shares of Common Stock issuable upon
exercise of the Warrants are herein referred to as "Warrant Shares".
B. To induce the Initial Purchasers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws.
AGREEMENTS
----------
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company, and the
Initial Purchasers hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
<PAGE>
(a) "Purchasers" means the Initial Purchasers and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Article IX hereof.
(b) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("Rule 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
(c) "Registrable Securities" means the Shares and the
Warrant Shares and any shares of capital stock issued or issuable, from time to
time (with any adjustments), on or in exchange for or otherwise with respect to
the Common Stock or any other Registrable Securities.
(d) "Registration Statement" means a registration
statement of the Company under the Securities Act pursuant to the provisions of
this Agreement.
(e) "Funded Amount" means Twelve Million Dollars
($12,000,000).
1.2 Capitalized Terms. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Securities
Purchase Agreement.
ARTICLE II
REGISTRATION
------------
2.1 Mandatory Registration.
(a) The Company shall prepare and file as soon as practicable
but in any event on or prior to twenty-five (25) days after the date of the
Closing (the "Filing Date") with the SEC a Registration Statement on Form S-3
(but, without limiting the Company's obligation to file on Form S-3, if Form S-3
is unavailable to the Company, on Form S-1) covering the resale of all of the
Registrable Securities in a secondary offering by Purchasers, provided that each
Purchaser shall have provided timely to the Company all information needed for
the Registration Statement regarding it and its plan of distribution. The
Registration Statement (and each amendment or supplement thereto, and each
request for acceleration of effectiveness thereof) shall be provided to (and
subject to the approval of (which approval shall not be unreasonably withheld or
denied)) each Initial Purchaser and its counsel at least five (5) days (or fewer
to the extent provided herein) prior to its filing or other submission.
(b) If the Company fails to timely obtain Stockholder Approval
(as defined in the Securities Purchase Agreement), the Company shall (i) within
five (5) days (also a "Filing Date") amend the Registration Statement required
to be filed under subsection (a) to cover the resale of
2
<PAGE>
as many of the the Shares and the Warrant Shares issuable upon exercise of the
Warrants as are registrable in a secondary offering by Purchasers in such
Registration Statement and (ii) prepare and file as soon as practicable but in
any event on or prior to five (5) days after the date of the Stockholder
Approval (also a "Filing Date") with the SEC a Registration Statement on Form
S-3 covering the resale of all of the Registrable Securities not covered by the
Registration Statement as described in clause (i) in a secondary offering by
Purchasers, provided that each Purchaser shall have provided timely to the
Company all information needed for the Registration Statement regarding it and
its plan of distribution. Each Registration Statement required to be filed
hereunder (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of (which approval shall not be unreasonably withheld or denied)) each
Initial Purchaser and its counsel at least five (5) business days (or fewer to
the extent provided herein) prior to its filing or other submission.
2.2 Underwritten Offering. If any offering pursuant to a Registration
Statement filed pursuant to Section 2.1 hereof involves an underwritten
offering, the Purchasers who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of each
Initial Purchaser, shall have the right to select a total of one legal counsel
to represent the Purchasers and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company, and all
fees and expenses of which shall be paid by the Purchasers.
2.3 Payments by the Company. The Company shall cause the Registration
Statement filed pursuant to Section 2.1(a) (or such Registration Statement as
amended pursuant to Section 2.1(b)(i), as applicable) to become effective as
soon as practicable, but in no event later than the one hundred twentieth
(120th) day (or the one hundred fiftieth (150th) day if the SEC reviews such
Registration Statement) following the applicable Filing Date (the "Registration
Deadline"). The Company shall cause the Registration Statement filed pursuant to
Section 2.1(b)(ii), if applicable, to become effective as soon as practicable,
but in no event later than the forty-fifth (45th) day following the applicable
Filing Date (also a "Registration Deadline"). If any Registration Statement
required to be filed by the Company pursuant to Section 2.1 hereof is not
declared effective by the SEC on or before the applicable Registration Deadline
(a "Registration Failure"), or (ii) after such Registration Statement has been
declared effective by the SEC, sales of all the Registrable Securities cannot be
made pursuant to the registration statement (by reason of a stop order or the
Company's failure to update the registration statement or any other reason
outside the control of the Purchasers) (a "Registration Suspension"), then the
Company will make payments to the Purchasers in such amounts and at such times
as shall be determined pursuant to this Section 2.3 as partial relief for the
damages to the Purchasers by reason of any such delay in or reduction of their
ability to sell the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity). In the event of a
Registration Failure, the Company shall pay to the Purchasers an amount equal to
(A) .015 times (B) the sum of the aggregate Funded Amount times (C) the number
of months (prorated per day for partial months) following the Registration
Deadline prior to the date the Registration Statement filed pursuant to Section
2.1 is declared effective by the SEC. In addition, in the event of a
Registration Suspension, the Company shall pay to the Purchasers an amount equal
to (D) .015 times (E) the
3
<PAGE>
Applicable Funded Amount times (F) the number of months (prorated per day for
partial months) from (x) the date on which sales of all the Registrable
Securities first cannot be made to (y) the date on which sales of all the
Registrable Securities can again be made. For the purposes of this Section 2.3,
"Applicable Funded Amount" shall mean (G) the sum of the Funded Amount times (H)
the number of Shares and Warrant Shares then owned by the Purchasers (or
issuable at that time as Warrant Shares upon full exercise of the Warrant,
without regard to any limitations on conversion thereof) divided by (I) the
number of Shares originally purchased and Warrant Shares issuable upon full
exercise of the Warrant at the time of the original purchase of the Warrants, in
each case without regard to any limitations on conversion thereof. Amounts to be
paid pursuant to this Section 2.3 shall be paid pro rata to Purchasers based
upon the number of Shares and Warrant Shares owned and Warrant Shares issuable
upon full conversion of the Warrant by each Purchaser, and shall be paid in
cash. Such payments shall be made within five (5) days after the end of each
period that gives rise to such obligation, provided that, if any such period
extends for more than thirty (30) days, payments shall be made for each such
thirty (30) day period within five (5) days after the end of such thirty (30)
day period.
2.4 Intentionally deleted
2.5 Eligibility for Form S-3. The Company represents and warrants that
it meets the requirements for the use of Form S-3 for registration of the
re-sale by the Initial Purchaser and any other Purchaser of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
ARTICLE III
OBLIGATIONS OF THE COMPANY
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
3.1 The Company shall prepare promptly and file with the SEC each
Registration Statement required by Section 2.1, and cause each such Registration
Statement relating to Registrable Securities to become effective as soon as
practicable after such filing, and keep the Registration Statement effective
pursuant to Rule 415 and available for use at all times until such date as is
the earlier of (i) the date on which all of the Registrable Securities have been
sold (and no further Registrable Securities may be issued in the future) and
(ii) the date on which all of the Registrable Securities (in the reasonable
opinion of counsel to the Initial Purchasers) may be immediately sold to the
public without registration and without restriction as to the number of
Registrable Securities to be sold, whether pursuant to Rule 144 or otherwise
(the "Registration Period"). Each such Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein and all
documents incorporated by reference therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading.
4
<PAGE>
3.2 The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to a Registration
Statement and the prospectus used in connection with each Registration Statement
as may be necessary to keep such Registration Statement effective and available
for use at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by such Registration
Statement until the termination of the Registration Period or, if earlier, such
time as all of such Registrable Securities have been disposed of in accordance
with the intended methods of disposition by the seller or sellers thereof as set
forth in such Registration Statement. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement is at
any time insufficient to cover all shares of Common Stock issued or issuable
pursuant to the Warrant or the Securities Purchase Agreement (without regard to
any limitations on exercise contained therein), the Company shall amend, if
permissible, the Registration Statement, or file a new Registration Statement
(on the short form available therefor, if applicable), or both, so as to cover
all of the Warrant Shares issued or issuable upon exercise of the Warrant
(without regard to any limitation on exercise contained therein), in each case,
as soon as practicable, but in any event within five (5) days. The Company shall
cause such amendment and/or new Registration Statement to become effective as
soon as practicable following the filing thereof.
3.3 The Company shall furnish to each Purchaser whose Registrable
Securities are included in the Registration Statement and its legal counsel (a)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2.1, each letter written by or on behalf of the Company to the SEC
or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion, if any, thereof which contains information for which the
Company has sought confidential treatment), and (b) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Purchaser may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned (or to be owned) by such Purchaser.
3.4 The Company shall (a) register and qualify the Registrable
Securities covered by each Registration Statement under securities laws of such
jurisdictions in the United States as each Purchaser who holds (or has the right
to hold) Registrable Securities being offered reasonably requests, (b) prepare
and file in those jurisdictions such amendments (including post-effective
amendments) and supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness and availability for use thereof during
the applicable Registration Period, (c) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the applicable Registration Period, and (d) take all other actions
reasonably necessary or advisable to qualify the Registrable Securities for sale
in such jurisdictions; provided, however, that the Company shall not be required
in connection therewith or as a condition thereto to (i) qualify to do business
in any jurisdiction where it would not otherwise be required to qualify
5
<PAGE>
but for this Section 3.4, (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any undertakings that cause the Company material
expense or burden, or (v) make any change in its charter or by-laws, which in
each case the board of directors of the Company determines to be contrary to the
best interests of the Company and its stockholders.
3.5 In the event the Purchasers who hold a majority in interest of the
Registrable Securities being offered in an offering pursuant to a Registration
Statement or any amendment or supplement thereto under Section 2.1 or 3.2 hereof
select pursuant to Section 2.2 underwriters for the offering, the Company shall
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, including, without limitation, customary indemnification and
contribution obligations, with the underwriters of such offering, but shall not
bear any costs or expenses of the underwriting.
3.6 As soon as practicable after becoming aware of such event, the
Company shall notify (by telephone and also by facsimile and reputable overnight
courier) each Purchaser of the happening of any event, of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omission to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, and use its best efforts as soon as
possible (but in any event within five (5) days) to prepare a supplement or
amendment to the Registration Statement (and make all required filings with the
SEC) to correct such untrue statement or omission, and the Company shall
simultaneously (and thereafter as requested) deliver such number of copies of
such supplement or amendment to each Purchaser (or other applicable document) as
such Purchaser may request in writing. Unless such an event is publicly
announced, the Company shall not, without the consent of the Purchaser, give
such Purchaser any material non-public information, but shall inform the
Purchasers that such prospectus includes an untrue statement of a material fact
or omission to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
3.7 The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest practicable time and the Company shall immediately notify by facsimile
each Purchaser (at the facsimile number for such Purchaser set forth on the
signature page hereto) who holds Registrable Securities (or, in the event of an
underwritten offering, the managing underwriters) of the issuance of such order
and the resolution thereof.
3.8 The Company shall permit counsel designated by each Initial
Purchaser to review the Registration Statement and all amendments and
supplements thereto a reasonable period of time prior to their filing with the
SEC, and not file any document in a form to which such counsel reasonably
objects.
3.9 Intentionally deleted.
6
<PAGE>
3.10 Intentionally deleted.
3.11 The Company shall make available for inspection by (i) any
Purchaser, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) attorneys and accountants retained by any
Purchaser, and (iv) attorneys retained by such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector and cause the Company's
officers, directors and employees to supply all information which any Inspector
may reasonably request; provided, however, that each Inspector shall hold in
confidence and shall not make any disclosure (except to a Purchaser) of any
Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified in
writing, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement or is otherwise
required to be disclosed in such Registration Statement to permit Purchaser to
sell under such Registration Statement, (b) the release of such Records is
ordered pursuant to a subpoena or other order from a court or government body of
competent jurisdiction, or is otherwise required by applicable law or legal
process or (c) the information in such Records has been made generally available
to the public other than by disclosure in violation of this or any other
agreement (to the knowledge of the relevant Purchaser). The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and reasonable substance satisfactory to the
Company) with the Company with respect thereto, substantially in the form of
this Section 3.11. Each Purchaser agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit a Purchaser's ability to
sell Registrable Securities in a manner which is consistent with applicable laws
and regulations.
3.12 The Company shall hold in confidence and not make any disclosure
of information concerning a Purchaser provided to the Company excluding any
information provided by Purchaser for use in or in connection with a
Registration Statement unless (a) disclosure of such information is necessary to
comply with federal or state securities laws, (b) the disclosure of such
information is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (c) the release of such information is ordered pursuant
to a subpoena or other order from a court or governmental body of competent
jurisdiction or is otherwise required by applicable law or legal process, (d)
such information has been made generally available to the public other than by
disclosure in violation of this or any other agreement (to the knowledge of the
Company), or (e) such Purchaser consents to the form and content of any such
disclosure. The Company agrees that it shall, upon learning that disclosure of
such information concerning a Purchaser is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Purchaser prior to making such disclosure, and allow the
Purchaser, at its expense, to undertake appropriate action to prevent disclosure
of, or to obtain a protective order for, such information.
7
<PAGE>
3.13 From and after each Closing, the Company shall cause the listing
and the continuation of listing of all the Registrable Securities related to
such Closing and required to be covered by a Registration Statement on The
Nasdaq National Market or the New York Stock Exchange, and cause the Registrable
Securities to be quoted or listed on each additional national securities
exchange or quotation system upon which the Class A Common Stock is then listed
or quoted.
3.14 The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the applicable Registration Statement.
3.15 The Company shall cooperate with the Purchasers who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Purchasers may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Purchasers may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchasers whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as Exhibit 1.
3.16 At the request of any Purchaser, the Company shall promptly
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with a Registration Statement filed pursuant hereto as may be
necessary in order to change the plan of distribution set forth in such
Registration Statement.
3.17 The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities covered by the
Registration Statement and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated by the Commission).
3.18 The Company shall take all such other actions as any Purchaser or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities, but shall not be required to
incur any costs or expenses in connection therewith not otherwise provided
herein to be borne by the Company.
3.19 From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company
(other than Purchasers with respect to Registrable Securities) to include any of
their securities in any Registration Statement or any amendment or supplement
thereto under Section 2.1 or 3.2 hereof without the consent of each of the
Initial Purchasers and the holders of a majority of the Registrable Securities.
Without the consent of
8
<PAGE>
each of the Initial Purchasers, until the effectiveness of the Registration
Statements contemplated by Section 2.1 hereof, the Company shall not file any
other Registration Statement for the sale of any securities, whether for the
account of the Company or any other person.
3.20 The Registration Statement shall state that it covers such
indeterminate number of additional shares as may be issuable upon exercise of
the Warrants to prevent dilution resulting from stock splits, stock dividends
and other similar transactions.
ARTICLE IV
OBLIGATIONS OF THE PURCHASERS
-----------------------------
In connection with the registration of the Registrable Securities, the
Purchasers shall have the following obligations:
4.1 Each Purchaser shall furnish to the Company such information
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities. At least
five (5) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Purchaser of the
information the Company requires from each such Purchaser.
4.2 Each Purchaser, by such Purchaser's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Purchaser has notified the Company in writing
of such Purchaser's election to exclude all of such Purchaser's Registrable
Securities from the Registration Statement.
4.3 Each Purchaser whose Registrable Securities are included in a
Registration Statement understands that the Securities Act may require delivery
of a prospectus relating thereto in connection with any sale thereof pursuant to
such Registration Statement, and each such Purchaser shall use its reasonable
efforts to comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale.
4.4 [Intentionally omitted]
4.5 Each Purchaser agrees that, upon receipt of written notice from the
Company of the happening of any event of the kind described in Section 3.6, such
Purchaser will immediately discontinue disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Purchaser's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.6 or advice that a supplement or amendment
is not required and, if so directed by the Company, such Purchaser shall deliver
to the Company (at the expense of the Company) or destroy (and deliver to the
Company a certificate of destruction) all copies in such Purchaser's possession
(other than a limited number of permanent file copies), of the prospectus
9
<PAGE>
covering such Registrable Securities current at the time of receipt of such
notice. Purchaser's obligations under this paragraph shall in no way limit the
Company's obligations under this Agreement or Purchaser's rights or remedies
against the Company with respect to any breach or threatened breach by the
Company of any such obligations.
4.6 Without limiting a Purchaser's rights under Section 2.1 or 3.2
hereof, no Purchaser may participate in any underwritten distribution hereunder
unless such Purchaser (a) agrees to sell such Purchaser's Registrable Securities
on the basis provided in any underwriting agreements in usual and customary form
entered into by the Company pursuant to Section 3.5 hereof, (b) completes and
executes all questionnaires, powers of attorney, custody agreements,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements, and (c) agrees to pay its pro
rata share of all underwriting discounts and commissions and any expenses in
excess of those payable by the Company pursuant to Article V. Without
implication that the contrary would otherwise be true, it is expressly
understood and agreed that no Purchaser shall be required to participate in any
such underwritten distribution.
ARTICLE V
EXPENSES OF REGISTRATION
------------------------
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Articles II and III, including, without limitation, all registration, listing
and qualification fees, printers and accounting fees, the fees and disbursements
of counsel for the Company, shall be borne by the Company.
ARTICLE VI
INDEMNIFICATION
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
6.1 To the extent permitted by law, the Company will indemnify, hold
harmless and defend (a) each Purchaser who holds such Registrable Securities,
(b) each underwriter of Registrable Securities and (c) the directors, officers,
partners, members, employees, agents and persons who control any Purchaser
within the meaning of Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), if any, (each,
an "Indemnified Person"), against any losses, claims, damages, liabilities or
expenses (collectively, together with actions, proceedings or inquiries whether
or not in any court, before any administrative body or by any regulatory or
self-regulatory organization, whether commenced or threatened, in respect
thereof, "Claims") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the
10
<PAGE>
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the Securities Act, the Exchange Act, any other law, including, without
limitation, any state securities law, or any rule or regulation thereunder
relating to the offer or sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively, "Violations"). The
Company shall reimburse each such Indemnified Person, promptly as such expenses
are incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6.1: (x) shall
not apply to an Indemnified Person with respect to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (y) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (z) with respect
to any preliminary prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company pursuant to Section 3.3 hereof, and the Indemnified
Person was promptly advised in writing not to use the incorrect prospectus prior
to the use giving rise to a Violation and such Indemnified Person,
notwithstanding such advice, used it. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the
Indemnified Person and shall survive the transfer of the Registrable Securities
by a Purchaser pursuant to Article IX.
6.2 In connection with any Registration Statement in which a Purchaser
is participating, to the extent permitted by law, each such Purchaser agrees to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6.1, the Company, each of its directors, each of its
officers who signs the Registration Statement, its employees, agents and
persons, if any, who control the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement, together with its
directors, officers and members, and any person who controls such stockholder or
underwriter within the meaning of the Securities Act or the Exchange Act (such
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by such
Purchaser expressly for use in connection with such Registration Statement; and
such Purchaser will reimburse any legal or other expenses (promptly as such
expenses are incurred and are due and payable) reasonably incurred by them in
connection with investigating or defending any such Claim; provided, however,
that the indemnity agreement contained in this Section 6.2 shall not apply to
amounts paid
11
<PAGE>
in settlement of any Claim if such settlement is effected without the prior
written consent of such Purchaser, which consent shall not be unreasonably
withheld; provided, further, however, that a Purchaser shall be liable under
this Agreement (including this Section 6.2 and Article VII) for only that amount
as does not exceed the net proceeds actually received by such Purchaser as a
result of the sale of Registrable Securities pursuant to such Registration
Statement. Such indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of such Indemnified Party and shall
survive the transfer of the Registrable Securities by the Purchasers pursuant to
Article IX. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6.2 with respect to any
preliminary prospectus shall not inure to the benefit of any Indemnified Party
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
6.3 Promptly after receipt by an Indemnified Person or Indemnified
Party under this Article VI of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Article VI, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right (at its expense) to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume and continue control of the defense thereof with
counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that
such indemnifying party shall diligently pursue such defense and an indemnifying
party shall not be entitled to assume (or continue) such defense if the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
conflicts of interest between such Indemnified Person or Indemnified Party and
the indemnifying party, and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and any such
Indemnified Person or Indemnified Party reasonably determines that there may be
legal defenses available to such Indemnified Person or Indemnified Party which
are different from or in addition to those available to such indemnifying party.
Notwithstanding any assumption of such defense and without limiting any
indemnification obligation provided for in Section 6.1 or 6.2, the Indemnified
Party or Indemnified Persons, as the case may be, shall be entitled to be
represented by counsel (at its own expense if the indemnifying party is
permitted to assume and continue control of the defense and otherwise at the
expense of the indemnifying party) and such counsel shall be entitled to
participate in such defense. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Article VI, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Article VI shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
12
<PAGE>
ARTICLE VII
CONTRIBUTION
------------
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Article VI to the fullest extent permitted by law; provided, however, that
(i) no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation, and (ii)
contribution (together with any indemnification or other obligations under this
Agreement) by any Purchaser of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such Purchaser from the sale of its
Registrable Securities.
ARTICLE VIII
REPORTS UNDER THE EXCHANGE ACT
------------------------------
With a view to making available to each Purchaser the benefits of Rule
144, the Company agrees that so long as a Purchaser holds Warrants or any
Registrable Securities, the Company shall:
8.1(a) Not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and regulations
thereunder would permit such termination.
8.1(b) File with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange Act so long as the filing and availability of such reports and
other documents is required for the applicable provisions of Rule 144; and
8.2 Furnish to each Purchaser promptly upon written request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Purchaser to sell such securities
pursuant to Rule 144 without registration.
Notwithstanding the foregoing, if the Company is a party to a transaction
following which the holders of the Warrants or Registrable Securities no longer
hold shares of capital stock or securities convertible into shares of capital
stock of the Company, such obligation shall cease with respect to the Company;
provided, however, that if the Shares and the Warrant Shares are converted in
such transaction into shares of capital stock or other equivalent equity
interest of another entity, such entity shall be bound by the provisions of this
Article VIII.
13
<PAGE>
ARTICLE IX
ASSIGNMENT OF REGISTRATION RIGHTS
---------------------------------
The rights of the Purchasers hereunder as to Registrable Securities
transferred by a Purchaser (or represented by Warrants transferred by a
Purchaser), including the right to have the Company register Registrable
Securities pursuant to this Agreement, shall be automatically assigned by each
Purchaser to any transferee of all or any portion of the Registrable Securities
if: (a) the Purchaser agrees in writing with the transferee or assignee to
assign such rights, and a copy of such agreement is furnished to the Company
within a reasonable time after such assignment, (b) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of (i) the name and address of such transferee or assignee, (ii) the securities
with respect to which such registration rights are being transferred or assigned
and (iii) the information specified in Section 3.12 to such transferee, (c)
following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the Securities Act
or applicable state securities laws, and (d) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing for the benefit of the Company to be
bound by all of the provisions contained herein. The rights of a Purchaser
hereunder with respect to any Registrable Securities not transferred (and not
represented by Warrants transferred) shall not be assigned by virtue of the
transfer of other Registrable Securities or transferred Warrants representing
other Registrable Securities.
ARTICLE X
AMENDMENT OF REGISTRATION RIGHTS
--------------------------------
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, any
Initial Purchaser (but not an Initial Purchaser who no longer owns any
Registrable Securities and who is not affected by such amendment or waiver) and
Purchasers who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Article X shall be binding
upon each Purchaser and the Company. Notwithstanding the foregoing, no amendment
or waiver shall retroactively affect any Purchaser without its consent or
prospectively adversely affect any Purchaser who no longer owns any Warrants,
Registrable Securities without its consent. No amendment or waiver may adversely
affect one or more Purchasers or group of Purchasers vis-a-vis any other
Purchaser or group of Purchasers. Neither Article VI nor Article VII hereof may
be amended or waived in a manner adverse to a Purchaser without its consent.
Notwithstanding anything to the contrary contained in this Article X, no
amendment or waiver shall be applicable to an Initial Purchaser who does not
consent in writing thereto.
14
<PAGE>
ARTICLE XI
MISCELLANEOUS
-------------
11.1 A person or entity is deemed to be a holder (or a holder in
interest) of Registrable Securities whenever such person or entity owns of
record such Registrable Securities (or the Warrants which may be exercised for
Registrable Securities). If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities (or Warrants, as the case may be).
11.2 Any notices herein required or permitted to be given shall be in
writing and may be personally served or delivered by courier or by
machine-generated confirmed telecopy, and shall be deemed delivered at the time
and date of receipt (which shall include telephone line facsimile transmission).
The addresses for such communications shall be:
If to the Company:
ON Technology Corporation
Waltham Woods
880 Winter Street, Building 4
Waltham, MA 02451-1449
Telecopy: (781)487-3300
Attention: President
with a copy to:
Epstein Becker & Green, P.C.
75 State Street
Boston, Massachusetts 02109-1807
Telecopy: (617)342-4001
Attention: Gabor Garai, Esq.
and if to any Purchaser, at such address as such Purchaser, shall have provided
in writing to the Company, or at such other address as each such party furnishes
by notice given in accordance with this Section 11.2.
11.3 Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
15
<PAGE>
11.4 This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed in the State of New York. The Company irrevocably consents to the
jurisdiction of the federal courts located in the state of New York and the
state courts of the State of New York located in the County of New York in any
suit or proceeding based on or arising under this Agreement and irrevocably
agrees that all claims in respect of such suit or proceeding may be determined
in such courts. The Company irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. The parties hereto further
agree that service of process upon the parties hereto mailed by first class mail
shall be deemed in every respect effective service of process upon each such
party in any such suit or proceeding. Nothing herein shall affect either party's
right to serve process in any other manner permitted by law. The parties hereto
agree that a final non-appealable judgment in any such suit or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on such
judgment or in any other lawful manner.
11.5 This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto and all certificates and opinions required
thereby) constitute the entire agreement among the parties hereto with respect
to the subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
11.6 Subject to the requirements of Article IX hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto. Notwithstanding anything to the contrary contained
herein, including, without limitation, Article IX (and without compliance
therewith), the rights of a Purchaser hereunder shall be assignable to and
exercisable by a bona fide pledgee of the Registrable Securities in connection
with a Purchaser's margin or brokerage accounts.
11.7 The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
11.8 This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto, by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
11.9 Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
11.10 Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by each Purchaser and shall
16
<PAGE>
not, except as expressly provided herein, be subject to any other obligation of
the Company (or the performance thereof). The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Purchasers
and that the remedy at law for any such breach may be inadequate.
11.11 The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Purchasers based on the
number of Registrable Securities held by each Purchaser at the time of such
establishment or increase, as the case may be. In the event a Purchaser shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Purchasers, pro rata based on the number of shares of
Registrable Securities then held by such Purchasers. Without implication that
the contrary would otherwise be true, for purposes of this paragraph, all
Warrants then outstanding shall be assumed exercised for Registrable Securities
(without giving effect to any limitations on exercise contained therein).
11.12 Payment of Cash; Defaults. Whenever the Company is required to
make any cash payment to a Purchaser under this Agreement, such cash payment
shall be due on the date (the "Cash Due Date") that such Purchaser delivers
written notice from the Purchaser to the Company. Such cash payment shall be
made to the Purchaser by the method (by certified or cashier's check or wire
transfer of immediately available funds) elected by such Holder.
11.13 If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement.
* * *
17
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
ON TECHNOLOGY CORPORATION
By: ______________________________
Name: ______________________________
Title: ______________________________
18
<PAGE>
PURCHASER:
CASTLE CREEK TECHNOLOGY PARTNERS LLC
BY: Castle Creek Partners, L.L.C.
ITS: Investment Manager
BY: _____________________________
NAME: Fred Goldman
TITLE: Member
Address: 77 W. Wacker Drive, Suite 4040
Chicago, Illinois 60601
Facsimile: (312)499-6999
Copy to:
Altheimer & Gray
10 S. Wacker Drive Ste. 4000
Chicago, Illinois 60606
Facsimile: (312)715-4800
Attn: Peter H. Lieberman, Esq.
19
<PAGE>
PURCHASER:
MARSHALL CAPITAL MANAGEMENT, INC.
By: _______________________
Name: Allan Weine
Title: President
Address:
c/o Credit Suisse First Boston
11 Madison Ave., Seventh Floor
New York, NY 10010
Copy to:
c/o Credit Suisse First Boston
227 W. Monroe Street, 41st Floor
Chicago, IL 60606
Facsimile: (312)750-1031
20
<PAGE>
EXHIBIT 1
TO REGISTRATION
RIGHTS AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: ON TECHNOLOGY CORPORATION
Ladies and Gentlemen:
We are counsel to ON Technology Corporation, a Delaware corporation
(the "Company"), and we understand that [Name of Purchaser] (the "Holder") has
purchased from the Company shares of the Company's common stock (the "Common
Stock"). The Common Stock was purchased by the Holder pursuant to a Securities
Purchase Agreement, dated as of December __, 1999, by and among the Company and
the signatories thereto (the "Agreement"). Pursuant to a Registration Rights
Agreement, dated as of December __, 1999, by and among the Company and the
signatories thereto (the "Registration Rights Agreement"), the Company agreed
with the Holder, among other things, to register the Registrable Securities (as
that term is defined in the Registration Rights Agreement) under the Securities
Act of 1933, as amended (the "Securities Act"), upon the terms provided in the
Registration Rights Agreement. In connection with the Company's obligations
under the Registration Rights Agreement, on December __, 1999, the Company filed
a Registration Statement on Form S-3 (File No. 333- __________) (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") relating to the Registrable Securities, which names the Holder as a
selling stockholder thereunder.
[Other customary introductory and scope of examination language to be
inserted, in each case as reasonably acceptable to Holders.]
Based on the foregoing, we are of the opinion that the resale of
Registrable Securities have been registered under the Securities Act.
[Other appropriate customary language to be included, in each case as
reasonably acceptable to Holders.]
Very truly yours,
cc: Castle Creek Technology Partners LLC
Thursday December 30, 4:10 pm Eastern Time
Company Press Release
ON TECHNOLOGY CONSUMMATES $12 MILLION PRIVATE PLACEMENT
WALTHAM, Mass.--(BUSINESS WIRE)--Dec. 30, 1999--ON Technology, Inc. (NASDAQ:
ONTC), today announced that it has completed a $12 million private placement of
common stock and warrants to two institutional investors. The financing was lead
by Castle Creek Technology Partners LLC, and the other investor was Marshall
Capital Management, Inc., an affiliate of Credit Suisse First Boston. Thomas
Weisel Partners LLC acted as placement agents and advisors to the company.
The investors each purchased 514,837 shares of common stock and received
warrants to purchase 257,419 shares of common stock at $15.15 per share. The
Investors also received warrants to purchase additional shares of common stock
upon certain events.
"We're pleased that distinguished investors like Castle Creek Technology
Partners and Marshall Capital Management are enthusiastic about ON Technology's
prospects," said Herman DeLatte, President and CEO of ON Technology, "Their
investment provides us the capital to seize the opportunities presented by the
rapid growth of our ON Command CCM business in both the US and Europe thus
creating long term shareholder value."
About ON Technology Corporation
ON Technology is a leading provider of advanced solutions for managing and
configuring software across corporate networks and the Internet. Global 2000
organizations such as MCI WorldCom, AutoNation, Citigroup, Airbus Industries,
and Goodyear Tire & Rubber have realized a rapid return on investment (ROI) as a
result of ON Command CCM's quick implementation cycle and ability to accelerate
the roll-out of new hardware and software technology. IT organizations,
outsourcers, and PC manufacturers are using ON Command CCM to reduce PC Total
Cost of Ownership (TCO), deliver a higher quality of service to end-users, and
expedite strategic technology initiatives for increased competitive advantage.
ON Command CCM manages and configures software on over 100,000 PCs at Deutsche
Telekom, representing the world's largest corporate network of managed PCs. ON
Technology has formed business and technology alliances with major technology
suppliers and service providers including Dell Computer Corporation (NASDAQ:
DELL), Micron Electronics, Inc. (NASDAQ: MUEI), Microsoft Corp. (NASDAQ: MSFT),
Intel Corporation (NASDAQ: INTC), 3Com Corporation (NASDAQ: COMS), Computer
Associates International, Inc. (NYSE: CA), Sun Microsystems (NASDAQ: SUNW),
Tivoli Systems Inc., IBM Global Services (NYSE: IBM), Unisys (NYSE: UIS), and
Wang Global Services. Additional information about ON Technology Corporation can
be found at www.on.com.
About Castle Creek Technology Partners LLC
<PAGE>
Castle Creek Technology Partners LLC makes privately placed investments in
quality small-cap public companies with proven management teams, leading edge
technologies and strong market demand.
ON Technology and ON Command CCM are registered trademarks of ON Technology
Corporation. All other brand names and trademarks are properties of their
respective owners.
The statements in this news release that relate to future plans, events or
performance are forward-looking statements that involve risks and uncertainties,
including risks associated with uncertainties pertaining to customer orders,
demand for products and services, development of markets for the Company's
products and services and other risks identified in the Company's SEC filings.
Actual results, events and performance may differ materially. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date hereof. The Company undertakes no obligation to
release publicly the result of any revisions to these forward-looking statements
that may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Contact:
ON Technology
Stephen J, Wietrecki
Chief Financial Officer
781/487-3300
or
DeMonte Associates
Cynthia DeMonte - Investor Relations
[email protected]
212/473-3700
