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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
</TABLE>
USDATA CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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[USDATA LOGO]
www.usdata.com
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
-- SEPTEMBER 11, 2000 --
Dear USDATA Corporation Stockholder:
A special meeting of stockholders of USDATA Corporation will be held on Monday,
September 11, 2000, at 10:00 a.m. local time, at our headquarters located at
2435 North Central Expressway, Richardson, TX 75080-2722. You will find
directions to the meeting on our web site at www.usdata.com.
Only stockholders who owned stock at the close of business on August 17, 2000,
can vote at this meeting or any adjournments that may take place. At the
meeting, we will:
o request approval of a proposal to potentially issue shares of common
stock, upon conversion of our series B preferred stock, that may be
equal to or in excess of 20% of the number of shares of common stock
outstanding,
o request approval of a proposal to amend our certificate of
incorporation to amend the terms of the existing series A preferred
stock,
o request approval of a proposal to amend our certificate of
incorporation to increase the number of authorized shares of common
stock from 22,000,000 to 40,000,000, and
o attend to any other business properly presented at the meeting.
You will have an opportunity at the meeting to ask questions, make comments and
meet our management team.
All stockholders are cordially invited to attend the meeting. No admission
tickets are required. Whether or not you expect to attend the meeting, please
fill in, date and sign the accompanying proxy card and mail it promptly in the
enclosed envelope.
NO MATTER HOW MANY SHARES YOU HOLD, WE CONSIDER YOUR VOTE IMPORTANT AND WE
ENCOURAGE YOU TO VOTE AS SOON AS POSSIBLE.
This proxy statement and accompanying proxy card are being mailed to
stockholders beginning on or about August 21, 2000, in connection with the
solicitation of proxies by the board of directors.
Please contact Robert L. Drury, Secretary and Chief Financial Officer, at (972)
680-9700 with any questions.
Sincerely,
/s/ ROBERT A. MERRY /s/ ROBERT L. DRURY
Robert A. Merry Robert L. Drury
Chief Executive Officer Secretary
August 21, 2000
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QUESTIONS AND ANSWERS
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Q: WHO IS SOLICITING MY PROXY?
A: The board of directors is sending this proxy statement in connection with
the solicitation of proxies for use at our special meeting of stockholders
on September 11, 2000.
Q: WHO IS ENTITLED TO VOTE?
A: Stockholders of record as of the close of business on August 17, 2000, may
vote at the annual meeting.
Q: HOW MANY SHARES CAN VOTE?
A: On July 31, 2000, there were 13,974,596 shares of common stock issued and
outstanding and 50,000 shares of series A preferred stock issued and
outstanding. Every holder of common stock may cast one vote for each share
of common stock owned. Every holder of series A preferred stock may cast
approximately 23 votes for each share of series A preferred stock owned.
The number of votes that the holder of each share of series A preferred
stock is entitled to is calculated by dividing the liquidation amount of
$100 (plus accrued but unpaid dividends of $8.00 per share per year
commencing on August 6, 1999) by $4.65.
Q: WHAT MAY I VOTE ON?
A: There are three proposals on which you may vote. You may vote on the
proposal to potentially issue shares of common stock, upon conversion of
our series B preferred stock, that may be equal to or in excess of 20% of
the number of shares of common stock outstanding; the proposal to amend our
certificate of incorporation to amend the terms of the existing series A
preferred stock; and the proposal to amend our certificate of incorporation
to increase the number of authorized shares of common stock from 22,000,000
to 40,000,000.
Q: HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
A: The board of directors recommends a vote FOR each of the three proposals on
which you may vote.
Q: HOW DO I VOTE?
A: Sign and date each proxy card you receive, mark the boxes indicating how
you wish to vote, and return the proxy card in the prepaid envelope
provided.
If you sign your proxy card but do not mark any boxes showing how you wish
to vote, Robert A. Merry and Robert L. Drury will vote your shares as
recommended by the board of directors.
Q: WHAT IF I HOLD MY SHARES IN A BROKERAGE ACCOUNT?
A: If you hold your shares through a broker, bank or other nominee, you will
receive a voting instruction form directly from them describing how to vote
your shares. This form will, in most cases, offer you the following ways to
vote:
o by telephone,
o via the Internet, or
o by returning the form to your broker.
Q: WHAT IF I WANT TO CHANGE MY VOTE?
A: You may change your vote at any time before the meeting in any of the
following ways:
o notifying our corporate secretary, Robert L. Drury, in writing,
o voting in person at the meeting, or
o submitting a proxy card with a later date.
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If you hold your shares through a broker, bank or other nominee and wish to
vote at the meeting, you must obtain a legal proxy from that nominee
authorizing you to vote at the meeting. We will be unable to accept a vote
from you at the meeting without that form. If you hold your shares directly
and wish to vote at the meeting, no additional forms will be required.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL TO POTENTIALLY ISSUE SHARES
OF COMMON STOCK, UPON CONVERSION OF OUR SERIES B PREFERRED STOCK, THAT MAY
BE EQUAL TO OR IN EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING?
A: To approve the proposal to potentially issue shares of common stock, upon
conversion of our series B preferred stock, that may be equal to or in
excess of 20% of the number of shares of common stock outstanding, a quorum
must be present and voting on the proposal, and a majority of the votes
cast must be in favor of the proposal. In addition, holders of a majority
of the outstanding shares of series A preferred stock, voting as a separate
class, must vote in favor of the proposal.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL TO AMEND OUR CERTIFICATE OF
INCORPORATION TO AMEND THE TERMS OF THE EXISTING SERIES A PREFERRED STOCK?
A: To approve the proposal to amend our certificate of incorporation to amend
the terms of the existing series A preferred stock, a quorum must be
present and voting on the proposal and the holders of a majority of all of
our outstanding common stock must be in favor of the proposal. In addition,
holders of a majority of the outstanding shares of series A preferred
stock, voting as a separate class, must vote in favor of the proposal.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSAL TO AMEND OUR CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM 22,000,000 TO 40,000,000?
A: To approve the proposal to amend our certificate of incorporation to
increase the number of authorized shares of common stock from 22,000,000 to
40,000,000, a quorum must be present and voting on the proposal and the
holders of a majority of all of our outstanding common stock must be in
favor of the proposal. In addition, holders of a majority of the
outstanding shares of series A preferred stock, voting as a separate class,
must vote in favor of the proposal.
Q: WHO WILL COUNT THE VOTES?
A: One or more of our representatives will count the votes and act as the
judge of elections.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD?
A: Your shares may be registered differently or may be in more than one
account. We encourage you to have all accounts registered in the same name
and address (whenever possible). You may obtain information about how to do
this by contacting our transfer agent at:
ChaseMellon Stockholder Services
85 Challenger Road
Ridgefield Park, NJ 07660
(toll-free telephone 800-526-0801)
If you provide ChaseMellon with photocopies of the proxy cards that you
receive or with the account numbers
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that appear on each proxy card, it will be easier for ChaseMellon to
combine your accounts.
You also can find information on transferring shares and other useful
stockholder information on their web site at www.chasemellon.com.
Q: WHAT IS A QUORUM?
A: A quorum is a majority of the outstanding shares of common stock able to
vote at the special meeting. In addition, the votes that may be cast by the
holders of the series A preferred stock are included in the calculation of
a quorum, on an as converted basis. The shares may be represented at the
meeting either in person or by proxy. To hold the special meeting, there
must be a quorum present.
Q: WHAT IS THE EFFECT IF I ABSTAIN OR FAIL TO GIVE INSTRUCTIONS TO MY BROKER?
A: If you submit a properly executed proxy, your shares will be counted as
part of the quorum even if you abstain from voting.
Broker non-votes also are counted as part of the quorum. A broker non-vote
occurs when banks, brokers or other nominees holding shares on behalf of a
stockholder do not receive voting instructions from the stockholder by a
specified date before the meeting. In this event, banks, brokers and other
nominees may vote those shares on matters deemed routine.
The three proposals upon which you may vote at the special meeting are
considered non-routine matters. Therefore, brokers, banks or other nominees
will not be able to vote on these matters without instructions from the
stockholder. This will result in a "broker non-vote" on these matters equal
to the number of shares for which the brokers do not receive specific
voting instructions.
Abstentions are counted in tabulations of the votes cast on proposals
presented to stockholders and have the effect of negative votes. A
"withheld" vote is treated the same as an abstention. Broker non-votes are
not counted for purposes of determining whether a proposal has been
approved.
Q: WHO CAN ATTEND THE MEETING?
A: All stockholders are encouraged to attend the meeting. Admission tickets
are not required.
Q: ARE THERE ANY EXPENSES ASSOCIATED WITH COLLECTING THE STOCKHOLDER VOTES?
A: We will reimburse brokerage firms and other custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses for forwarding
proxy and other materials to our stockholders. We do not anticipate hiring
an agency to solicit votes at this time.
Q: WHAT IS A STOCKHOLDER PROPOSAL?
A: A stockholder proposal is your recommendation or requirement that we or our
board of directors take action on a matter that you intend to present at a
meeting of stockholders. Under the proxy rules we have the ability to
exclude certain matters proposed, including those that deal with matters
relating to our ordinary business operations.
Q: CAN ANYONE SUBMIT A STOCKHOLDER PROPOSAL?
A: To be eligible to submit a proposal, you must have continuously held at
least $2,000 in market value, or 1%, of our common stock for at least one
year by the date you submit your proposal.
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You also must continue to hold those securities through the date of the
special meeting.
Q: IF I WISH TO SUBMIT A STOCKHOLDER PROPOSAL FOR THE ANNUAL MEETING IN 2001,
WHAT ACTION MUST I TAKE?
A: If you wish us to consider including a stockholder proposal in the proxy
statement for the annual meeting in 2001, you must submit the proposal, in
writing, so that we receive it no later than December 19, 2000. The
proposal must meet the requirements established by the Securities and
Exchange Commission. Send your proposal to:
Robert L. Drury, Secretary
USDATA Corporation
2435 North Central Expressway
Richardson, TX 75080-2722
As to any proposal presented by a stockholder at the annual meeting that
has not been included in the proxy statement, management proxies will be
allowed to use their discretionary voting authority unless we receive
notice of such proposal no later than March 4, 2001.
Q: WHO ARE OUR LARGEST STOCKHOLDERS?
A: As of July 31, 2000, Safeguard Scientifics, Inc., beneficially owns
approximately 38.8%, Technology Leaders I L.P. beneficially owns
approximately 10.4%, Technology Leaders II L.P. beneficially owns
approximately 10.4%, and other directors and executive officers, as a
group, beneficially own approximately an additional 4.2%, of the common
stock. As of July 31, 2000, Bob B. Midyett owned approximately 7.0% of the
common stock. At that date, no other stockholder owned more than 5% of our
common stock. Safeguard Scientifics, Inc. beneficially owns all of the
outstanding series A preferred stock.
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PROPOSAL TO POTENTIALLY ISSUE SHARES OF COMMON STOCK, UPON CONVERSION OF
OUR SERIES B PREFERRED STOCK, THAT MAY BE EQUAL TO OR IN EXCESS
OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
ITEM 1 ON THE PROXY CARD
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PROPOSAL
The board of directors recommends that the stockholders approve the following
resolution:
RESOLVED, that the proposal of the board of directors to authorize the
potential issuance of shares of common stock, upon conversion of our series
B preferred stock, that may be equal to or in excess of 20% of the number
of shares of common stock outstanding is hereby approved and adopted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PROPOSAL TO
POTENTIALLY ISSUE SHARES OF COMMON STOCK, UPON CONVERSION OF OUR SERIES B
PREFERRED STOCK, THAT MAY BE EQUAL TO OR IN EXCESS OF 20% OF THE NUMBER OF
SHARES OF COMMON STOCK OUTSTANDING. Approval of this proposal requires a
majority of the votes cast at a meeting at which a quorum representing a
majority of all outstanding voting stock is present, either in person or by
proxy, and voting on the proposal. In addition, approval of the proposal
requires the vote of the holders of a majority of the outstanding shares of
series A preferred stock. The board of directors believes that Safeguard
Scientifics, Inc. (Safeguard), Technology Leaders I L.P. and Technology Leaders
II L.P. intend to vote their shares in favor of the proposal. Safeguard, through
an affiliate, participates in the management of Technology Leaders I L.P. and
Technology Leaders II L.P. In this event, the proposal will be assured passage
based on the ownership of these entities. In the event the proposal is not
approved, the proposed investment described in this proxy statement is expected
to not occur.
BACKGROUND
On August 6, 1999, we acquired the assets of Smart Shop Software, Inc. (Idaho).
In connection with this transaction, an affiliate of Safeguard Scientifics, Inc.
(Safeguard), our primary stockholder, provided us with an investment of
$10,000,000 to assist us in creating and launching a new division, called eMake,
based in part on the purchased assets. The investment by Safeguard was in the
form of a private placement of 1,204,819 shares of our common stock for a
purchase price of $5,000,000 and 50,000 shares of our series A preferred stock
for a purchase price of $5,000,000.
The eMake division is focused on Internet applications for manufacturing. The
assets of the eMake division, including a number of our contracts and other
assets and all of the capital stock of Smart Shop Software, Inc. (Delaware), the
entity that purchased the Smart Shop Software, Inc. (Idaho) assets, recently
were contributed to a newly-formed subsidiary named eMake Corporation. At the
time of the contribution, Smart Shop Software, Inc. (Delaware) became a wholly
owned subsidiary of eMake Corporation and shortly thereafter changed its name to
eMake Solutions, Inc.
Following the August 1999 investment, the board of directors continued to
explore various financing alternatives for raising additional capital to fund
the continued development and expansion of the eMake division's operations. The
alternatives considered by the board of directors included raising additional
capital through public and private offerings of our equity
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securities, the potential spin-off of the eMake division, the public or private
offering of equity securities of a new entity created with the assets of the
eMake division and various other potential sources of capital.
At a meeting on November 8, 1999, the board of directors authorized us to
accelerate the development and launch of eMake and its products and to begin
negotiations with interested parties for the purpose of raising additional
capital for eMake. Based on this authorization, our management began exploring
capital raising alternatives.
One of the alternative sources of capital explored by our management was an
additional investment by Safeguard or one or more of its affiliated or related
entities. Based on the expected terms of the proposed alternative and the timing
of eMake's capital needs, our management determined that an additional
investment by Safeguard would represent a benefit to us and eMake.
Our management presented and discussed the status of their review of financing
sources with the board of directors at a meeting of the board of directors held
on April 6, 2000. This discussion included a discussion of the terms of a
proposed investment by Safeguard. In considering this alternative, the board of
directors examined the our financial needs for the development of the eMake
business, the economic value and impact of the terms of the proposed
transaction, the expected timetable for obtaining other sources of capital, our
longstanding relationship with Safeguard and the quality of its operations and
personnel and various other factors.
After exploring each of the alternatives in detail, including the Safeguard
proposal, the board of directors determined that an additional investment by
Safeguard presented an economically desirable and viable method of raising
additional capital for the development of the eMake business in the time period
desired by the board of directors. This determination was based on the analysis
conducted by the board of directors in consultation with its financial and legal
advisors and with our management.
In this regard, at its April 6, 2000 meeting, the board of directors unanimously
approved the proposed investment by Safeguard, subject to further modifications
as made by our management.
Based on the size of Safeguard's ownership of our equity securities, and the
fact that Safeguard and one of its related private equity funds are the proposed
investors, the board of directors determined that it was prudent to conduct a
more thorough review of the proposed transaction. In this regard, the board of
directors made its approval of the proposed investment conditional upon approval
by a special committee of the board of directors appointed to examine the
fairness of the proposed investment, from a financial point of view, to our
stockholders other than Safeguard.
At the April 6, 2000 meeting, the board of directors unanimously approved the
creation of a special committee and the appointment to the special committee of
two directors who were not employed by or affiliated with Safeguard. The two
members of the special committee are Max D. Hopper and Robert A. Merry. The
special committee was given broad authority to take the steps it determined were
necessary to review whether the proposed investment by Safeguard was fair to our
other stockholders and to report to the board of directors regarding its
approval or disapproval of the proposed investment.
In connection with a review of the proposed investment, the board of directors
and the special committee began discussions with Howard, Lawson & Co., LLC
(Howard, Lawson) regarding the proposed transaction. On May 12, 2000, Howard,
Lawson reported their preliminary results to the board of directors regarding
the comparative market valuation research
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and discounted cash flow analysis in connection with a potential valuation of us
and eMake.
At a meeting of the special committee held on July 3, 2000, the special
committee reviewed the updated terms of the proposed investment by Safeguard. At
this meeting, the special committee directed our management to separately engage
Howard, Lawson on behalf of the special committee to act as its financial
advisor in reviewing the fairness of the proposed investment, from a financial
point of view, to our stockholders other than Safeguard.
Although Howard, Lawson had previously provided services to us in connection
with financial advisory matters, the special committee determined that based on
the reputation of Howard, Lawson and its familiarity with us and our industry,
it would be in the best position to provide a fairness review on the timetable
desired by the special committee.
The special committee separately engaged Howard, Lawson pursuant to an
engagement letter dated as of July 12, 2000. In connection with the
consideration by the special committee of the fairness of the proposed
investment, Howard, Lawson was asked under the terms of the engagement letter to
perform various financial analyses and deliver to the special committee the
opinion based on such analyses.
In preparing its analysis, Howard, Lawson met with the special committee and
representatives of our management on July 23 and 24, 2000. Based on these
meetings, other discussions with the special committee and our management, a
review of the economic terms of the proposed transaction and an analysis of
market conditions, Howard, Lawson prepared its opinion letter and materials in
support of the opinion dated July 28, 2000. The opinion and materials in support
of the opinion were delivered to the special committee and discussed in detail
at a meeting of the special committee held on July 28, 2000.
In preparing and delivering its opinion at the meeting, Howard, Lawson discussed
the following with the special committee, among other things:
o the background of the proposed investment and development of eMake;
o the terms of the proposed transaction, including a review of draft
transaction documents;
o a review and analysis of our current and pro forma financial position,
capitalization and market valuation and that of eMake;
o a review of the capitalization of eMake post investment and the pre- and
post-investment values of eMake;
o an analysis of our historical trading price and volume history;
o a conversion price analysis based on trading prices and a protective put
pricing analysis;
o an analysis of the terms and pricing of relevant private investments in
public companies during a selected period;
o a review of our historical financial performance and how it compares to
relevant publicly-traded guideline companies; and
o an analysis of the projected financial performance of eMake based on a
discounted cash flow analysis and a comparison with relevant publicly-traded
guideline companies.
In preparing its opinion, Howard, Lawson, among other things, reviewed and
analyzed the materials it deemed relevant regarding us, eMake and the proposed
investment, including:
o recent financial reports for us and eMake;
o financial projections for us and eMake as prepared by management;
o drafts of the documents relating to the proposed investment;
o documents relating to Safeguard's August 1999 investment;
o selected periods of our historical stock price and volume information;
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o publicly available financial and market price information regarding relevant
companies and transactions;
o the relative size of the block of stock (on an as converted basis) and the
degree of control represented by the proposed investment; and
o the impact and effect on value of any marketability restrictions on the
securities issued in the proposed investment.
Howard, Lawson has included a number of limiting conditions in its opinion,
including the following:
o the information provided to it has not been independently verified, and it
has relied on the completeness and accuracy of all information;
o it has not made any independent appraisals or evaluations of our assets, the
assets of eMake and has not made any audit of our or eMake's financial
statements that were prepared by management;
o it has relied on management's representations concerning financial statements
provided to it;
o it has assumed that all financial forecasts and information regarding our and
eMake's future prospects reflect the best currently available estimates and
judgments of management;
o it has relied on us to advise it if any information provided to it became
inaccurate or was required to be updated;
o it did not represent us in the proposed investment nor did it seek
alternatives to the proposed investment on our behalf;
o it has assumed the proposed investment will have no tax impact on us or
eMake, but has not independently verified the tax treatment; and
o its analysis does not incorporate or provide an opinion on the effects of
future transactions on our future market price.
Based on a review of the information set forth in its opinion, and subject to
the limiting conditions contained in its opinion, the opinion provides that the
proposed investment is fair, from a financial point of view, to our stockholders
other than investors in the investment.
THE OPINION OF HOWARD, LAWSON IS DIRECTED SOLELY TO THE SPECIAL COMMITTEE FOR
ITS CONSIDERATION IN CONNECTION WITH THE PROPOSED INVESTMENT, AND IS NOT A
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER THE INVESTMENT IS IN THAT
STOCKHOLDER'S BEST INTEREST OR AS TO WHETHER ANY STOCKHOLDER SHOULD VOTE FOR OR
AGAINST THE PROPOSAL.
THE FULL TEXT OF THE WRITTEN OPINION OF HOWARD, LAWSON IS ATTACHED AS APPENDIX A
AND CONTAINS QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS CONSIDERED, AREAS OF
RELIANCE ON OTHERS, AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH
THE OPINION. THE SUMMARY DESCRIPTION OF THE OPINION CONTAINED ABOVE IS QUALIFIED
IN ITS ENTIRETY BY THE FULL TEXT OF THE OPINION. THE FULL TEXT OF THE OPINION
SHOULD BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT.
After analyzing the proposed investment in detail, and after considering the
study, presentation and opinion of Howard, Lawson, the special committee
unanimously approved the proposed investment with Safeguard at the July 28, 2000
meeting. At a meeting held on August 3, 2000, the board of directors ratified
its prior approval of the proposed investment based on the approval of the
proposed investment by the special committee, and also ratified the actions of
the special committee.
PURPOSE
We are subject to a variety of corporate governance standards that are imposed
by The Nasdaq Stock Market because our common stock is listed on the Nasdaq
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National Market. Specifically, we must comply with Rule 4460 of The Nasdaq Stock
Market. This rule requires, among other things, that we obtain stockholder
approval prior to the sale or issuance of a number of shares of common stock (or
securities convertible into or exchangeable for common stock) equal to or in
excess of 20% of the number of shares of common stock outstanding prior to the
issuance if the issuance is for a purchase price that is less than the greater
of the book or market value of the common stock.
Under the terms of the proposed investment, we may under some circumstances be
required to issue shares of common stock that equal or exceed the 20% threshold
of the rule. In addition, we are offering the eMake series A preferred stock at
a price that, if converted into our series B preferred stock and then converted
into our common stock, the corresponding price for our common stock may be at a
discount to the market price of our common stock. Accordingly, to the extent
these conditions are met, we are seeking stockholder approval to authorize the
issuance of the shares of common stock that may be received upon the conversion
of our series B preferred stock into our common stock.
PROPOSED INVESTMENT
On August 4, 2000, we entered into a securities purchase agreement among us,
eMake, an affiliate of Safeguard Scientifics, Inc. (Safeguard 2000 Capital,
L.P.) and SCP Private Equity Partners II, L.P. Safeguard Scientifics, Inc.,
through an affiliate, participates in the management of and is a general partner
of SCP Private Equity Partners II, L.P. Pursuant to the securities purchase
agreement eMake, among other things, will issue shares of its series A preferred
stock (specifically series A-1 and A-2) and a warrant to purchase additional
shares of eMake series A preferred stock.
The proposed investment will have additional terms than those described in this
proxy statement. These terms impact the ability of eMake to take, and may
require the consent of the holders of the eMake series A preferred stock to
take, a variety of corporate actions. These terms also may impact our ability to
sell or transfer our common stock of eMake.
The purchase price for the eMake series A preferred stock will be $26,500,000,
in the amount of $13,250,000 for each of the two investors. The purchase price
payable by Safeguard, and a portion of the purchase price payable by SCP Private
Equity Partners, will be used to offset advances made to us and eMake pursuant
to a series of notes we and eMake have entered into with Safeguard. The proceeds
from these notes has primarily been used to fund the development of eMake's
products and its operations.
For this purchase price, eMake will issue to each investor 5,300,000 shares of
eMake series A preferred stock. In addition, eMake will issue to each investor a
warrant to purchase additional shares of series A preferred stock. The number of
shares of series A preferred stock for which the warrant may be exercised is
based on performance criteria for eMake's software products as of June 30, 2001.
If, on that date, eMake has not met the performance criteria, the warrant
becomes exercisable for a sliding number of shares of series A preferred stock
based on the relative differential between the performance criteria and the
actual performance of eMake.
Under the terms of the warrant, the minimum number of shares of series A
preferred stock for which each warrant may be exercised is zero and the maximum
number of shares is 5,300,000. The exercise price for each share of series A
preferred stock that may be purchased pursuant to the warrants will be $0.01.
The warrants become exercisable upon the earliest to occur of one of the
following events, but in no case sooner than July 1, 2001:
o June 1, 2006;
o the liquidation or winding up of eMake;
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o the sale of all or substantially all of the assets and properties of eMake;
o a merger, consolidation or similar transaction involving eMake where eMake is
not the surviving entity;
o a public offering of securities by eMake;
o when we cease to own sufficient voting securities to include eMake in our
consolidated financial statements; or
o upon the exchange of the last outstanding share of eMake series A preferred
stock into our series B preferred stock.
Each share of eMake series A preferred stock initially may be converted into one
share of eMake common stock (specifically Class A and Class B, depending on the
investor), at the option of the holder. Upon the issuance of securities by eMake
for a price of less than the $2.50 per share of eMake series A preferred stock
paid by the investors, the conversion ratio may be increased. A variety of
issuances of securities are not subject to these provisions, including
securities issued to employees under stock incentive plans, securities issued in
mergers approved by the eMake board of directors, securities issued upon
conversion of outstanding securities of eMake and similar events.
Pursuant to exchange agreements that we will enter into in connection with the
proposed investment, each share of series A preferred stock alternatively may be
exchanged at the option of the holder for our series B preferred stock. The
right to exchange will commence on the closing date of the proposed investment
and end on the earlier of June 30, 2006 or the date the holder no longer owns
any shares of eMake series A preferred stock.
Initially, each share of eMake series A preferred stock may be exchanged
pursuant to the exchange agreement for 0.025 shares of our series B preferred
stock. This exchange ratio is subject to an equitable adjustment based on a
change in our series B preferred stock or eMake's series A preferred stock due
to stock dividends, stock splits, mergers and similar events.
SERIES B PREFERRED STOCK
Our certificate of incorporation grants the board of directors discretion in
creating and authorizing series of preferred stock and issuing shares of those
series. In accordance with this discretion, in connection with the proposed
investment, the board of directors will create a new series of preferred stock
designated as series B preferred stock. The series B preferred stock potentially
may be issued to holders of eMake series A preferred stock that exchange those
shares pursuant to the exchange agreements.
A summary of the rights and privileges of the holders of series B preferred
stock follows:
o The series B preferred stock will be on parity with the series A preferred
stock with respect to dividends, rights on liquidation, dissolution and
winding up and redemption rights.
o Holders of series B preferred stock will be entitled to cumulative dividends
at the rate of $8.00 per share per year. Dividends will be payable in
additional shares of series B preferred stock upon being declared by the
board of directors or upon conversion of the shares of series B preferred
stock to common stock.
o In the event of our liquidation, dissolution or winding up the holders of the
series B preferred stock will receive an amount equal to $100 per share, plus
any accrued but unpaid dividends, prior to any other stockholders receiving
any distributions (other than holders of series A preferred stock). After the
payment of this amount, the holders of the series B preferred stock will then
be entitled to receive with the other stockholders a pro rata portion of our
remaining assets, determined on an as converted basis, up to a maximum of
$500 per share.
10
<PAGE> 13
o On matters submitted to stockholders, holders of shares of series B preferred
stock will be entitled to the number of votes equal to the number of whole
shares of our common stock into which the shares of series B preferred stock
may be converted. Except as otherwise required by law, holders of series B
preferred stock vote with holders of series A preferred stock as a single
class.
o Holders of series B preferred stock have the right to convert the series B
preferred stock, at their option, into shares of our common stock. Initially,
the conversion ratio is determined by dividing $100.00, plus accrued but
unpaid dividends, by the initial price of $6.09 per share. This ratio is
subject to adjustment for some types of dilutive issuances.
o As long as shares of series B preferred stock remain outstanding, the vote of
holders of two-thirds of the then outstanding shares of series B preferred
stock, voting as a separate class, is necessary for us to modify the rights
of the holders of the series B preferred stock, increase the authorized
number of or issue any series B preferred stock other than for the payment of
dividends, authorize any equity security senior to or on parity with the
series B preferred stock with respect to dividends, liquidation rights or
redemption rights or redeem or acquire any shares of series B preferred stock
or series A preferred stock other than some forms of repurchases from
employees and others performing services for us.
A more detailed description of the rights and privileges of the series B
preferred stock can be found in the Amended and Restated Certificate of
Designation for Series A Preferred Stock and Series B Preferred Stock of USDATA
Corporation, attached as Appendix B.
11
<PAGE> 14
--------------------------------------------------------------------------------
PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO
AMEND THE TERMS OF THE EXISTING SERIES A PREFERRED STOCK
ITEM 2 ON THE PROXY CARD
--------------------------------------------------------------------------------
PROPOSED AMENDMENT
The board of directors recommends that the stockholders approve the following
resolutions:
RESOLVED, that the proposal of the board of directors to amend the
certificate of incorporation to amend and restate the terms of the Series A
Preferred Stock in accordance with the terms Amended and Restated
Certificate of Designation for Series A Preferred Stock and Series B
Preferred Stock of USDATA Corporation is hereby approved and adopted; and
it is further
RESOLVED, that at any time prior to the filing of the amendment to the
certificate of incorporation with the Secretary of State of the State of
Delaware, the board of directors is authorized and empowered to abandon
such amendment without further action by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION. Approval of this amendment requires the vote of a
majority of our outstanding voting securities cast at a meeting at which a
quorum representing a majority of all outstanding voting stock is present,
either in person or by proxy, and voting on the amendment. In addition, approval
of the amendment requires the vote of the holders of a majority of the
outstanding shares of series A preferred stock. The board of directors believes
that Safeguard, Technology Leaders I L.P. and Technology Leaders II L.P. intend
to vote their shares in favor of the proposal. Safeguard, through an affiliate,
participates in the management of Technology Leaders I L.P. and Technology
Leaders II L.P. In this event, the proposal will be assured passage based on the
ownership of these entities. In the event the proposal is not approved, the
proposed investment described in this proxy statement is expected to not occur.
BACKGROUND
On August 6, 1999, we issued 50,000 shares of series A preferred stock to an
affiliate of Safeguard Scientifics, Inc. for a purchase price of $5,000,000.
Holders of the series A preferred stock have the rights and privileges that are
described in our certificate of incorporation, in particular the Certificate of
Designation for Series A Preferred Stock of USDATA Corporation.
PURPOSE
In connection with the securities purchase agreement we entered into in
connection with the eMake transaction described in proposal one above, we agreed
to amend the terms of the series A preferred stock. One of the closing
conditions of the securities purchase agreement is that we amend our certificate
of incorporation to amend the terms of the series A preferred stock in
accordance with the Amended and Restated Certificate of Designation for Series A
Preferred Stock and Series B Preferred Stock of USDATA Corporation.
In deciding to amend the terms series A preferred stock, the board of directors
considered many factors, including those described in more detail in proposal
one above. In addition, the board of directors considered the impact of the
changes on the existing rights and privileges of the holders of the series A
preferred stock. Based on these factors, the board of directors believes that it
is in our best interests to amend the certificate of incorporation to amend and
restate the terms of the series A preferred stock.
AMENDMENT OF TERMS OF SERIES A PREFERRED STOCK
A detailed description of the rights and privileges of the series A preferred
stock
12
<PAGE> 15
can be found in the Amended and Restated Certificate of Designation for Series A
Preferred Stock and Series B Preferred Stock of USDATA Corporation, attached as
Appendix B. A summary of the proposed amendment of the terms of the series A
preferred stock is as follows:
o Currently, we are prohibited from authorizing or issuing any equity
securities that are senior to or on parity with the series A preferred
stock. The amended certificate of designation provides that the series B
preferred stock will be on parity with the series A preferred stock with
respect to dividend rights, rights on liquidation, dissolution and winding
up and redemption rights.
o Currently, any accumulated dividends on the series A preferred stock bear
interest at the rate of 8% per year compounded annually. The amended
certificate of designation eliminates the payment of interest on any
accumulated dividends on the series A preferred stock.
o Currently, in the event of our liquidation, dissolution or winding up the
holders of the series A preferred stock will receive an amount equal to
$100 per share, plus any accrued but unpaid dividends and interest on
dividends, prior to any other stockholders receiving any distributions.
After the payment of this amount, the holders of the series A preferred
stock would then be entitled to receive with the other stockholders a pro
rata portion of our remaining assets, determined on an as converted basis.
The amended certificate of designation limits the distributions payable to
the holders of the series A preferred under these events to a maximum of
$500 per share.
o Currently, at any time after December 31, 2002 the holders of a majority of
the outstanding shares of series A preferred stock may require that we
redeem all of the outstanding shares of series A preferred stock at a price
equal to $100 per share, plus any accrued but unpaid dividends and interest
on dividends. The amended certificate of designation eliminates the ability
of the holders of the series A preferred stock to require us to redeem
their shares.
o Currently, the holders of the series A preferred stock may convert shares
into common stock or into the common stock of any of our direct or indirect
subsidiaries of which we own more than 50% of that subsidiary's outstanding
voting securities. The number of shares of subsidiary common stock that may
be received upon this type of conversion currently is determined by
dividing the fair market value (as determined in the certificate of
incorporation) of our common stock that may be received by the conversion
of the shares and dividing that amount by the fair market value of the
common stock of the subsidiary.
For example, each share of series A preferred stock currently may be
converted into approximately 23 shares of our common stock, calculated by
dividing the $100 liquidation amount plus accrued dividends and interest by
the initial conversion price of $4.65. Based on an assumed fair market
value of our common stock of $6.09 per share, each share of series A
preferred stock would currently be convertible into approximately $140
worth of common stock of a subsidiary.
The amended certificate of designation modifies the conversion ratio so
that each share of series A preferred stock may be converted into shares of
subsidiary common stock with a fair market value of the liquidation amount
of the series A preferred stock plus accrued dividends. In the example
above, each share of series A preferred
13
<PAGE> 16
stock would be convertible into approximately $108 worth of common stock of
a subsidiary.
o The amended certificate of designation also provides that holders of series
A preferred stock may not convert their shares into the common stock of
eMake until one of the following events occur:
- June 1, 2006;
- the liquidation or winding up of eMake;
- the sale of all or substantially all of the assets and properties of
eMake;
- a merger, consolidation or similar transaction involving eMake where
eMake is not the surviving entity;
- a public offering of securities by eMake; or
- when we cease to own sufficient voting securities to include eMake in
our consolidated financial statements.
o Currently, the vote or written consent of a majority of the holders of the
series A preferred stock, voting as a separate class, is required in order
for us to, among other things:
- merge or consolidate with any entity or sell lease or convey any
substantial amount of our assets that is more than a change in
corporate form or in which we are not the surviving entity;
- amend or modify our certificate of incorporation or bylaws; or
- amend or modify any existing employee stock plan or create a new
employee stock plan.
The amended certificate of designation eliminates the requirement that we
obtain the consent of the holders of a majority of the series A preferred
stock for these events. However, the amended certificate of designation
adds the requirement that we obtain the consent of a majority of the
holders of the series A preferred stock prior to allowing any of our
subsidiaries other than eMake to issue more than one class of capital
stock.
The terms of the series A preferred stock also include an equitable adjustment
to the amounts receivable by the holders of the series A preferred stock for
stock dividends, stock splits, combinations, reorganizations, recapitalizations,
reclassifications and similar events. For purposes of the summary contained in
this proxy statement, the effect of these types of events has been omitted. The
Amended and Restated Certificate of Designation for Series A Preferred Stock and
Series B Preferred Stock of USDATA Corporation contain a detailed description of
the impact of these events.
ANTI-TAKEOVER EFFECT
The amended certificate of designation as it relates to amending and restating
the terms of the series A preferred stock is not expected to have an
anti-takeover effect.
14
<PAGE> 17
--------------------------------------------------------------------------------
PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
FROM TWENTY-TWO MILLION TO FORTY MILLION
ITEM 3 ON THE PROXY CARD
--------------------------------------------------------------------------------
PROPOSED AMENDMENT
The board of directors recommends that the stockholders approve the following
resolutions:
RESOLVED, that the proposal of the board of directors to amend the
certificate of incorporation to increase the number of shares of common
stock authorized to be issued from 22,000,000 to 40,000,000 is hereby
approved and adopted; and it is further
RESOLVED, that at any time prior to the filing of the amendment to the
certificate of incorporation with the Secretary of State of the State of
Delaware, the board of directors is authorized and empowered to abandon
such amendment without further action by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE
CERTIFICATE OF INCORPORATION. Approval of this amendment requires the vote of a
majority of our outstanding voting securities cast at a meeting at which a
quorum representing a majority of all outstanding voting stock is present,
either in person or by proxy, and voting on the amendment. In addition, approval
of the amendment requires the vote of the holders of a majority of the
outstanding shares of series A preferred stock. The board of directors believes
that Safeguard, Technology Leaders I L.P. and Technology Leaders II L.P. intend
to vote their shares in favor of the proposal. Safeguard, through an affiliate,
participates in the management of Technology Leaders I L.P. and Technology
Leaders II L.P. In this event, the proposal will be assured passage based on
the ownership of these entities. In the event the proposal is not approved, the
proposed investment described in this proxy statement is expected to not occur.
If the proposal is approved, the first paragraph of Article IV of the
certificate of incorporation will be replaced with the following:
"ARTICLE IV: The Corporation shall be authorized to issue 42,200,000 shares
which are divided into two classes consisting of (a) 40,000,000 shares of
Common Stock, par value $.01 per share, and (b) 2,200,000 shares of
Preferred Stock, par value $.01 per share."
The remainder of Article IV will not be amended and will remain unchanged in its
entirety.
BACKGROUND
Our certificate of incorporation currently provides that 22,000,000 shares of
common stock are authorized to be issued. The board of directors has unanimously
approved and adopted, subject to stockholder approval, an amendment to the
certificate of incorporation that increases the number of shares of common stock
authorized to be issued from 22,000,000 shares to 40,000,000 shares.
As of July 31, 2000, there were 13,974,596 outstanding shares of common stock
and 2,924,517 shares of common stock that were reserved for issuance upon
conversion of the outstanding series A preferred stock and pursuant to options
granted under our stock option plans. On a fully diluted basis as of that date,
16,899,113 shares of common stock would be outstanding. As a result, as of that
date we had available for issuance 5,100,887 additional shares of common stock.
15
<PAGE> 18
PURPOSE
The authorization of an additional 18,000,000 shares of common stock as
contemplated by the proposal would give the board of directors the authority,
without further stockholder action, to issue shares of common stock from time to
time as the board of directors deems necessary or advisable.
The additional shares of common stock primarily will be reserved for the
potential issuance of common stock, upon the conversion of the series B
preferred stock, that potentially may be issued in connection with the eMake
transaction that is discussed in proposal number one above.
Under the terms of the eMake transaction, up to an aggregate of 530,000 shares
(plus additional shares pursuant to the accrual of dividends) of series B
preferred stock may be issued upon conversion of the maximum number of series A
preferred stock of eMake that may be issued in the eMake transaction (including
pursuant to the warrants). Upon issuance, each share of series B preferred stock
may be converted into 16.42 shares of common stock, subject to increase for
dividends and dilutive issuances. If all 530,000 shares of series B preferred
stock were issued (excluding the effect of dividends), these shares could be
converted into an aggregate of 8,702,791 shares of common stock.
Taken together with the 16,899,113 shares of common stock currently outstanding
on a fully diluted basis, there would be 25,601,904 shares of common stock
outstanding. As a result, the additional shares of common stock authorized by
the proposal will enable us to reserve sufficient shares for the issuance of the
maximum number of shares of common stock that may be issued upon conversion of
the series B preferred stock.
In addition, we believe that having available additional authorized shares of
common stock will allow us greater flexibility in considering the potential
future issuance of common stock for business and financial purposes. Except in
connection with the financing described above, we currently have no specific
plans to issue the additional shares of common stock that would be authorized by
this proposal. The additional shares may be used for various purposes including,
but not limited to, raising capital, acquisitions, providing equity incentives
to employees, officers or directors and stock splits in the form of stock
dividends.
ANTI-TAKEOVER EFFECT
Although the proposed increase in our authorized common stock could be construed
as having anti-takeover effects, neither the board of directors nor our
management views this proposal in that perspective. Nevertheless, we could use
the additional shares to frustrate persons seeking to effect a takeover or
otherwise gain control of us by, for example, privately placing shares to
purchasers who might side with the board of directors in opposing a hostile
takeover bid. We are not aware of any hostile takeover bid at this time. Shares
of common stock could also be issued to a holder that would thereafter have
sufficient voting power to assure that any proposal to amend or repeal the
certificate of incorporation would not receive the requisite vote required.
These uses of the common stock could render it more difficult or discourage an
attempt to acquire control of us if any transactions were opposed by the board
of directors.
RIGHTS OF COMMON STOCK
The additional shares of common stock will have rights identical to the
currently outstanding common stock. The shares of common stock have no
preemptive rights or other rights to subscribe for additional shares. Adoption
of the proposed amendment and any issuance of the
16
<PAGE> 19
common stock would not affect the rights of the holders of currently outstanding
common stock, except for effects incidental to increasing the outstanding number
of shares of common stock, such as dilution of earnings per share and voting
rights of current holders of common stock.
The shares of series B preferred stock that potentially may be issued in
connection with the conversion of the series A preferred stock of eMake have
certain rights that are described in more detail in proposal one above.
17
<PAGE> 20
--------------------------------------------------------------------------------
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS
AND GREATER THAN 5% STOCKHOLDERS
AS OF JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES
OPTIONS BENEFICIALLY
SHARES EXERCISABLE OWNED ASSUMING
BENEFICIALLY WITHIN 60 EXERCISE OF PERCENT OF
NAME OWNED DAYS OPTIONS SHARES
--------------------------------------- --------------------- --------------------- ------------------------ --------------
<S> <C> <C> <C> <C>
Safeguard Scientifics, Inc. 6,177,195 0 6,177,195 38.8%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Technology Leaders I L. P. 1,654,356 0 1,654,356 10.4%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Technology Leaders II L. P. 1,654,356 0 1,654,356 10.4%
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Bob B. Midyett 1,120,124 0 1,120,124 7.0%
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Max D. Hopper 0 35,750 35,750 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Stephen J. Andriole, Ph.D. 0 0 0 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
James W. Dixon 12,450 18,000 30,450 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Robert A. Merry 0 375,000 375,000 2.4%
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Jack L. Messman 69,225 18,000 87,225 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Arthur R. Spector 5,595 18,000 23,595 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Robert L. Drury 2,515 50,000 52,515 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Tim Davis 1,000 27,000 28,000 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Ed Nugent 3,505 31,000 34,505 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Kerry Walbridge 3,000 0 3,000 *
--------------------------------------- --------------------- --------------------- ------------------------ --------------
Executive officers and directors as a
group (11 persons) 97,290 572,750 670,040 4.2%
--------------------------------------- --------------------- --------------------- ------------------------ --------------
</TABLE>
* Constitutes less than 1% of our outstanding shares of common stock
Each individual has the sole power to vote and to dispose of the shares (other
than shares held jointly with spouse) except as follows:
Safeguard Scientifics, Inc. Includes shares held by Safeguard
Scientifics (Delaware), Inc., a wholly-owned
subsidiary of Safeguard Scientifics, Inc.
All of the shares beneficially owned by
Safeguard have been pledged by Safeguard as
collateral under its line of credit. Also
includes 1,161,290 shares that may be
acquired upon conversion of series A
preferred stock. Does not include shares
beneficially owned by each of Technology
Leaders I and Technology Leaders II, venture
capital partnerships in which Safeguard has
a beneficial interest. Safeguard disclaims
beneficial ownership of the shares
beneficially owned by each of Technology
Leaders I and Technology Leaders II. Does
not include shares of common stock that
18
<PAGE> 21
may be acquired upon conversion of the
series B preferred stock in the transaction
described in proposal one of this proxy
statement.
Technology Leaders I Consists of Technology Leaders L. P. and
Technology Leaders Offshore C.V. Technology
Leaders Management L. P., the sole general
partner of Technology Leaders L. P. and the
co-general partner of Technology Leaders
Offshore C.V., exercises, through its
executive committee, sole investment and
voting power with respect to the shares
owned by such entities. Of the 1,654,356
shares owned by Technology Leaders I,
772,418 shares are owned by Technology
Leaders L. P. and 881,938 shares are owned
by Technology Leaders Offshore C.V.
Technology Leaders L. P., Technology Leaders
Offshore C.V., Technology Leaders Management
L. P., Technology Leaders II L. P.,
Technology Leaders II Offshore C.V. and
Technology Leaders II Management L. P. are
members of a group for purposes of Sections
13(d) and 13(g) of the Securities Exchange
Act of 1934. Technology Leaders I disclaims
beneficial ownership of the shares
beneficially owned by Technology Leaders II.
Technology Leaders II Consists of Technology Leaders II L. P. and
Technology Leaders II Offshore C.V.
Technology Leaders II Management L. P., the
sole general partner of Technology Leaders
II L. P. and the co-general partner of
Technology Leaders II Offshore C.V.,
exercises, through its executive committee,
sole investment and voting power with
respect to the shares owned by such
entities. Of the 1,654,356 shares owned by
Technology Leaders II, 921,972 shares are
owned by Technology Leaders II L. P. and
732,384 shares are owned by Technology
Leaders II Offshore C.V. Technology Leaders
L. P., Technology Leaders Offshore C.V.,
Technology Leaders Management L. P.,
Technology Leaders II L. P., Technology
Leaders II Offshore C.V. and Technology
Leaders II Management L. P. are members of a
group for purposes of Sections 13(d) and
13(g) of the Securities Exchange Act of
1934. Technology Leaders II disclaims
beneficial ownership of the shares
beneficially owned by Technology Leaders I.
Bob B. Midyett Includes 226,900 shares held in a family
partnership and 893,224 shares held in a
family trust.
Jack L. Messman Includes 6,620 shares held in trust for Mr.
Messman's daughter, and 6,620 shares held in
trust for Mr. Messman's son. Mr. Messman
disclaims beneficial ownership of the
securities held in trust for his children.
19
<PAGE> 22
Appendix A
[LETTERHEAD OF HOWARD, LAWSON & CO.]
July 28, 2000
The Special Committee of the Board of Directors of
USDATA Corporation
2435 N. Central Expressway
Richardson, TX 75080
Dear Gentlemen:
You have asked us to advise you in connection with a transaction
whereby eMake Corporation ("eMake"), a wholly-owned subsidiary of USDATA
Corporation ("USDATA" or the "Company"), will issue to Safeguard Capital 2000,
L.P. ("Safeguard Capital") and SCP Private Equity Partners II, L.P. ("SCP
Partners" and collectively with Safeguard Capital, the "Investors") a new series
of convertible preferred stock (the "Transaction" and the "Transaction
Consideration"). Specifically, you have asked us to provide you with an opinion
as to whether the Transaction Consideration is fair, from a financial point of
view, to the shareholders of USDATA other than the Investors.
THE TRANSACTION
The Transaction, which is more fully described in a securities purchase
agreement and exhibits thereto (the "Securities Purchase Agreement"), involves
the issuance by eMake to the Investors of a newly established Series A-1
Convertible Preferred Stock (the "Series A-1 Preferred") and Series A-2
Convertible Preferred Stock (the "Series A-2 Preferred") in the face amount of
$26.5 million. The funds provided by the Transaction will be used by eMake to
complete initial product releases and complete the initial US market launch of
the eMake products.
Prior to the Transaction, Safeguard Scientifics, Inc. ("Safeguard
Scientifics") owned approximately 35.9% of the Common Stock of USDATA (or 39.1%
on a fully-diluted basis). On prior occasions, Safeguard Scientifics and related
companies have provided financial assistance to the Company and eMake, including
$5.0 million of indebtedness evidenced by two convertible promissory notes
issued by eMake to Safeguard Capital, each in the principal amount of $2.5
million, and an additional $3.25 million of indebtedness evidenced by two
promissory notes issued by eMake to Safeguard Capital, one in the amount of $1.5
million and the next in the amount of $1.75 million (the "Safeguard Capital
Notes"). Additionally, in July 2000, Safeguard Capital provided an additional
$2.5 million to eMake in exchange for a promissory note. Finally, a promissory
note was issued by USDATA to Safeguard Delaware, Inc. in the principal amount of
$5.0 million (the "Safeguard Delaware Note").
<PAGE> 23
The Special Committee of the
Board of Directors of
USDATA Corporation
July 28, 2000
Page 2
THE TRANSACTION (continued)
On the closing date of the Transaction, $8.25 million of indebtedness
by eMake to Safeguard Capital will be contributed to capital, $2.5 million of
indebtedness by eMake will be repaid to Safeguard Capital from proceeds received
by eMake from SCP Partners, and the $5.0 million Safeguard Delaware Note shall
be repaid by USDATA via funds from eMake to USDATA for repayment of cash
advances by USDATA, which funds to eMake will be provided by Safeguard Capital
at closing.
In the Transaction, eMake will issue 5,300,000 Shares of Series A-1
Preferred to Safeguard Capital in exchange for an investment totaling $13.25
million. Safeguard Capital will fund the purchase of the Series A-1 Preferred
through $3.25 million of cash and the cancellation of the $10.0 million
indebtedness evidenced by the Safeguard Capital Notes and the Safeguard Delaware
Note as previously described. Additionally, eMake will issue 5,300,000 shares of
Series A-2 Preferred to SCP Partners in exchange for $13.25 million in cash.
The Series A-1 Preferred and Series A-2 Preferred (collectively the
"Series A Preferred") will rank senior to any other equity security of eMake
with regard to liquidation preferences, dividends and redemptions. The Series A
Preferred pays a cumulative, paid-in-kind dividend of 8.0% of the original
purchase price per annum.
The Series A-1 Preferred Shares are convertible into shares of Class B
Common Stock of eMake (the "Class B Common") at any time at a conversion price
of $2.50 per share, subject to anti-dilution adjustments. The Series A-2
Preferred shares are convertible into shares of Class A Common Stock of eMake
(the "Class A Common") at any time at a conversion price of $2.50 per share,
subject to anti-dilution adjustments. The Investors have the right to exchange
their shares of Series A Preferred into shares of Series B Convertible Preferred
Stock of USDATA ("USDATA Preferred") having a liquidation preference of $100.00
per share, at any time at a rate of 0.025 of a share of USDATA Preferred for
each share of Series A Preferred owned, subject to appropriate adjustment for
stock splits, dividends, combinations, and recapitalization.
<PAGE> 24
The Special Committee of the
Board of Directors of
USDATA Corporation
July 28, 2000
Page 3
THE TRANSACTION (continued)
The Series A-1 Preferred and Series A-2 Preferred will be entitled to a
number of votes equal to the number of votes to which the Class A Common and
Class B Common to which the Series A-1 Preferred and Series A-2 Preferred could
be converted are entitled. The Class A Common carries voting rights of one vote
per share and the Class B Common carries voting rights of two votes per share
for all corporate issues. Each share of the Class B Common will be convertible
into one share of Class A Common at any time. The Board of Directors of eMake
will consist of seven directors, two to be nominated by Safeguard Capital, two
to be nominated by SCP Partners, two to be nominated by USDATA, and the Chief
Executive Officer of eMake. The Class A Common and Class B Common will initially
be unregistered; however, the Investors will have the right to cause eMake to
enter into an agreement to register the Class A Common and Class B Common at any
time after the sixth month anniversary of eMake's initial public offering, as
defined in the Securities Purchase Agreement.
The Series A Preferred will be redeemable at any time after the fifth
anniversary of the date of issuance in three annual installments upon the
election of holders of two-thirds of the Series A Preferred at the original
purchase price plus accrued and unpaid dividends. In the event of liquidation of
eMake, the holders of the Series A Preferred will be entitled to receive face
value plus accrued and unpaid dividends and will share in the distribution of
the remaining assets ratably with holders of eMake's common stock on an as
converted basis up to 5 times their original purchase price. As long as SCP
Partners holds Series A Preferred sufficient to enable SCP Partners to convert
it into at least 5% of USDATA common stock then outstanding, SCP Partners will
have the right to nominate one director to the Board of Directors of USDATA.
The USDATA Preferred will rank on parity with the existing Series A
Preferred Stock of USDATA and will pay a cumulative, paid-in-kind dividend of
8.0% of the USDATA Preferred face value per share per annum. In the event of
liquidation of USDATA, the holders of USDATA Preferred will be entitled to
receive on a parri passu basis with the existing USDATA Series A Preferred, an
amount equal to the face value of the USDATA Preferred plus any accrued but
unpaid dividends. After payment in full of the USDATA Preferred liquidation
preference, the remaining assets of USDATA will be distributed ratably to common
shareholders and preferred stock holders on an as converted basis up to 5 times
their original purchase price.
<PAGE> 25
The Special Committee of the
Board of Directors of
USDATA Corporation
July 28, 2000
Page 4
THE TRANSACTION (continued)
The holders of the USDATA Preferred will have the right to convert at
any time the USDATA Preferred into shares of USDATA Common Stock at a conversion
price of $6.09 per share, subject to certain anti-dilution adjustments. The
USDATA Preferred will have anti-dilution protection. The holders of the USDATA
Preferred will have no rights of redemption, but will carry voting rights equal
to the number of shares of USDATA Common Stock issuable upon conversion.
The Series A Preferred terms include a warrant which is exercisable in
the event that eMake does not have 9,000 discrete concurrent users authorized to
access its software from a server or client workstation by June 30, 2001 (the
"Baseline Amount"). The warrant is exercisable into shares of Series A Preferred
at an exercise price of $0.01 per share. The number of shares exercisable under
the warrant is tiered and based on the number of subscribers below the Baseline
Amount.
MATERIALS REVIEWED AND ACTIVITIES CONDUCTED
In arriving at our opinion, we reviewed and analyzed materials we
deemed relevant regarding USDATA, eMake and the Transaction, including the
following:
1. USDATA's Form 10-K reports for the fiscal years ended December 31,
1998 and December 31, 1999 and the Form 10-Q for the quarter ended
March 31, 2000;
2. Financial statements for USDATA and eMake for the fiscal year
ended December 31, 1999 and the quarters ended March 31, 2000 and
estimated June 30, 2000 prepared by management;
3. The pro forma balance sheet for USDATA on a consolidated basis as
of June 30, 2000 prepared by management;
4. Financial forecasts for USDATA and eMake for the fiscal years 2000
through 2004;
5. The Term Sheet for the Private Placement of $26,500,000 of Series
A-1 and Series A-2 Convertible Preferred Stock;
6. The Securities Purchase Agreement (draft dated July 18, 2000);
<PAGE> 26
The Special Committee of the
Board of Directors of
USDATA Corporation
July 28, 2000
Page 5
MATERIALS REVIEWED AND ACTIVITIES CONDUCTED (continued)
7. The Exchange Agreement (draft dated July 18, 2000);
8. Co-Sale and First Refusal Agreement (draft dated July 18, 2000);
9. eMake Corporation Series A-2 Preferred Stock Purchase Warrant
(draft dated July 18, 2000);
10. Amended and Restated Certificate of Incorporation of eMake
Corporation (draft dated July 18, 2000);
11. Amended and Restated Certificate of Designation for Series A
Preferred Stock and Series B Preferred Stock of USDATA Corporation
(draft dated July 18, 2000);
12. Investors' Rights Agreement (draft dated July 18, 2000);
13. Amended and Restate Investors' Rights Agreement (draft dated July
18, 2000);
14. Documents related to Safeguard Scientifics purchase of USDATA
Series A Preferred Stock on August 6, 1999;
15. The historical stock price and volume data of USDATA's Common
Stock during the period from May 11, 1999 through July 25, 2000;
16. Publicly available financial and market price information
regarding certain companies we believe share valuation
characteristics with USDATA and eMake and for certain acquisitions
which we deemed relevant;
16. Publicly available information regarding certain private
investments in public equities;
17. We also analyzed the size of the block of Stock and the degree of
control of USDATA represented by the USDATA Preferred Shares on an
as converted basis; and,
18. We analyzed the effects of lack of marketability and other
restrictions on the value of the securities of USDATA and eMake
issuable in the Transaction.
<PAGE> 27
The Special Committee of the
Board of Directors of
USDATA Corporation
July 28, 2000
Page 6
MATERIALS REVIEWED AND ACTIVITIES CONDUCTED (continued)
We also held meetings with certain members of management of USDATA and
eMake to discuss the Transaction, the events leading to the Transaction, the
business and operations of USDATA and eMake, and historical and projected
financial statements of USDATA and eMake.
LIMITING CONDITIONS
In rendering our opinion, we have not independently verified any of the
foregoing information provided to us. We have relied on the completeness and
accuracy of this information in all respects. We have not made independent
appraisals or evaluations of the assets of USDATA and eMake. Although the fiscal
year-end consolidated financial statements of USDATA, on which we relied, were
audited by USDATA's outside accountants, an audit has not been provided on the
financial statements of the USDATA and eMake divisions which were prepared by
management. We have relied on management's representations concerning USDATA and
eMake and the financial statements provided to us.
We have also assumed that financial forecasts, the pro forma balance
sheet, and information relating to the prospects of USDATA and eMake furnished
to us by management reflect the best currently available estimates and
judgements of management of the future financial performance of USDATA and
eMake.
We relied on the Company to advise us promptly if any information
previously provided became inaccurate or was required to be updated. Our
analysis is necessarily based upon economic, market and other conditions and the
information made available to us as of the date of our opinion. We did not
represent the Company in the financing nor did we seek alternatives to the
Transaction. We have assumed that the Transaction will have no tax impact on the
Company, based on management's representation, but have not independently
confirmed the tax treatment of the Transaction. Our analysis does not
incorporate or provide an opinion on the effects of future transactions or the
future market price of the USDATA Common Stock.
<PAGE> 28
The Special Committee of the
Board of Directors of
USDATA Corporation
July 28, 2000
Page 7
STATEMENT OF DISCLOSURE AND INDEPENDENCE
Howard, Lawson & Co., LLC has rendered financial advisory services to
both the Company and Safeguard Scientifics, and to Safeguard Scientifics
portfolio companies, in other instances prior to being retained to render our
opinion to you as to the fairness of the Transaction. Howard, Lawson & Co., LLC
is independent of all parties to the Transaction and does not have a present
interest in the Company or Safeguard Scientifics and does not contemplate
acquiring an interest in the Company, eMake or Safeguard Scientifics, nor is
there any association which would prevent the preparation of a fair and unbiased
opinion.
OPINION
Based upon and subject to the foregoing, it is our opinion that the
Transaction Consideration is fair, from a financial point of view, to the
shareholders of USDATA other than the Investors.
/s/ HOWARD, LAWSON & CO., LLC
HOWARD, LAWSON & CO., LLC
<PAGE> 29
Appendix B
AMENDED AND RESTATED CERTIFICATE OF DESIGNATION
FOR
SERIES A PREFERRED STOCK AND
SERIES B PREFERRED STOCK
OF
USDATA CORPORATION
USDATA Corporation (the "Corporation"), a corporation
organized and existing under and by virtue of the Delaware General Corporation
Law (the "DGCL"), does hereby certify that:
FIRST: The name of the Corporation is USDATA Corporation. The
Corporation was originally incorporated on December 6, 1991, pursuant to the
DGCL, and filed a Certificate of Designation for Series A Preferred Stock (the
"Certificate of Designation") pursuant to Section 151 of the DGCL on August 6,
1999.
SECOND: The Certificate of Designation hereby is amended and
restated to read in its entirety as follows:
WHEREAS, the Corporation's Certificate of Incorporation
authorizes a class of stock designated Preferred Stock (the "Preferred Stock"),
comprised of 2,200,000 shares, par value $0.01 per share, provides that such
Preferred Stock may be issued from time to time in one or more series, and vests
authority in the Board of Directors of the Corporation to fix or alter the
rights, preferences, restrictions and other terms and conditions of any wholly
unissued series of Preferred Stock;
WHEREAS, by resolution of the Board of Directors of the
Corporation dated August 4, 1999, the Corporation designated 100,000 shares of
Preferred Stock as "Series A Preferred Stock"; and
WHEREAS, the Corporation desires to amend and restate the
terms of the Series A Preferred Stock and to designate 800,000 shares of
Preferred Stock as "Series B Preferred Stock"; and
NOW, THEREFORE, BE IT:
RESOLVED, that, subject to receiving the requisite consent of
the stockholders of the Corporation, the Board of Directors of the Corporation
does hereby amend the voting powers, preferences and relative participation,
optional and other special rights and qualifications, limitations and
restrictions of the Series A Preferred Stock as set forth herein; and be it
FURTHER RESOLVED, that, the Board of Directors of the
Corporation does hereby designate 800,000 shares of authorized but unissued
Preferred Stock as Series B Preferred Stock, and does hereby designate the
voting powers, preferences and relative participation, optional or other special
rights and qualifications, limitations or restrictions of the Series B Preferred
Stock as set forth herein; and be it:
FURTHER RESOLVED, that the foregoing amendment to the
Certificate of Designation be submitted to the stockholders of the Corporation
for their approval at a special meeting of the stockholders of the Corporation;
and be it
<PAGE> 30
FURTHER RESOLVED, that, subject to receiving the requisite
consent of the stockholders of the Corporation, the Chief Executive Officer,
Chief Financial Officer, President, any Vice President or the Secretary of the
Corporation, individually or collectively, be, and such officers hereby are,
authorized and directed to execute, acknowledge, attest, record and file with
the Secretary of State of the State of Delaware an Amended and Restated
Certificate of Designation relating to the Series A Preferred Stock and the
Series B Preferred Stock and to take all other actions that such officers deem
appropriate to effectuate such Certificate of Designation and the intent of
these resolutions.
1. Rank. The Series A Preferred Stock and Series B Preferred
Stock shall, with respect to dividend rights, rights on liquidation, dissolution
and winding up and redemption rights, rank senior to all other classes and
series of stock of the Corporation, now or hereafter authorized, issued or
outstanding (collectively, "Junior Securities"), including, without limitation,
the Corporation's Common Stock, par value $0.01 per share ("Common Stock"), and
all series of the Corporation's Preferred Stock other than those whose terms
specifically provide that such series will rank on a parity with the Series A
Preferred Stock and Series B Preferred Stock (collectively, "Parity
Securities"). All Parity Securities shall rank on parity with each other with
respect to dividend rights, rights on liquidation, dissolution and winding up
and redemption rights.
2. Dividends.
a. The holders of the Series A Preferred Stock shall be
entitled to receive cumulative dividends at the rate of $8.00 per share per
annum (as adjusted for any stock dividends, combinations, splits or similar
events) whether or not earned or declared. Such dividends shall be payable, at
the election of the Corporation, in additional shares of Series A Preferred
Stock (valued at $100.00 per share, as adjusted for any stock dividends,
combinations, splits or similar events) or in cash, (i) when, as and if declared
by the Board of Directors of the Corporation or (ii) upon conversion of all of
the Series A Preferred Stock to Common Stock pursuant to Section 6 below.
b. The holders of the Series B Preferred Stock shall be
entitled to receive cumulative dividends at the rate of $8.00 per share per
annum (as adjusted for any stock dividends, combinations, splits or similar
events) whether or not earned or declared. Such dividends shall be payable in
additional shares of Series B Preferred Stock (valued at $100.00 per share, as
adjusted for any stock dividends, combinations, splits or similar events), (i)
when, as and if declared by the Board of Directors of the Corporation or (ii)
upon conversion of all of the Series B Preferred Stock to Common Stock pursuant
to Section 6 below.
c. No dividends or distributions of any sort (other than a
dividend payable solely in the Common Stock of the Corporation) shall be
declared or paid by the Corporation on any Junior Securities of the Corporation
so long as any accrued dividends on the Series A Preferred Stock, the Series B
Preferred Stock or any other Parity Securities remain unpaid.
d. So long as shares of Series A Preferred Stock, Series B
Preferred Stock or any other Parity Securities are outstanding, the Corporation
shall not declare or pay any distribution on any shares of its Junior Securities
except as otherwise provided in this Section 2.d. In the event that the
Corporation shall declare a dividend or distribution payable in securities of
other persons, evidences of indebtedness issued by the Corporation or other
persons, or options or rights to purchase any such securities or evidences of
indebtedness or other assets (including cash), to the holders of the Common
Stock of the Corporation, then the holders of the Series A Preferred Stock and
the Series B Preferred Stock shall be entitled, on a pari passu basis with the
holders of all other Parity Securities, to a proportionate share of any such
dividend or distribution as though the holders of the Series A Preferred Stock,
the Series
2
<PAGE> 31
B Preferred Stock and all other Parity Securities were the holders of the number
of shares of Common Stock of the Corporation into which their respective shares
of Series A Preferred Stock, Series B Preferred Stock and Parity Securities are
convertible as of the record date fixed for the determination of the holders of
the Common Stock of the Corporation entitled to receive such dividend or
distribution.
e. All numbers relating to calculation of cumulative
dividends or the payment of dividends on the Series A Preferred Stock or Series
B Preferred Stock in kind shall be subject to equitable adjustment in the event
of any stock dividend, stock split, combination, reorganization,
recapitalization, reclassification or other similar event involving a change in
the capital structure of the Series A Preferred Stock or Series B Preferred
Stock, as applicable.
3. Liquidation Preference.
a. In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
Series A Preferred Stock and Series B Preferred Stock shall be entitled, on a
pari passu basis with the holders of all other Parity Securities, to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock or any other Junior
Securities of the Corporation, by reason of their ownership thereof, an amount
equal to $100.00 (as adjusted for any stock dividends, combinations, splits or
similar events) plus all accrued but unpaid dividends thereon (the "Liquidation
Amount") for each share of Series A Preferred Stock and Series B Preferred Stock
then held by them. If upon the occurrence of such event, the assets and funds
thus distributed among the holders of the Series A Preferred Stock, the Series B
Preferred Stock and the liquidation amounts required to be distributed to the
holders of all other Parity Securities shall be insufficient to permit the
payment to such holders of the full amounts required, then the entire assets and
funds of the Corporation legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock, the Series B
Preferred Stock and all other Parity Securities in proportion to the aggregate
amount each such holder is otherwise entitled to receive. The holders of Series
A Preferred Stock and Series B Preferred Stock shall have the right to convert
such shares into Common Stock, in accordance with Section 6 hereof, at any time
prior to or in connection with any liquidation, dissolution or winding up of the
Corporation.
b. After payment to the holders of the Series A Preferred
Stock, the Series B Preferred Stock and all other Parity Securities of the
amounts set forth in Section 3.a. above, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, to the
Corporation's stockholders shall be distributed among the holders of the Junior
Securities other than Common Stock to the extent of the respective liquidation
values of such Junior Securities. After payment to the holders of any Junior
Securities other than Common Stock of the respective liquidation values of such
Junior Securities, the entire remaining assets and funds of the Corporation
legally available for distribution, if any, to the Corporation's stockholders
shall be distributed among the holders of the Common Stock, the Series A
Preferred Stock, the Series B Preferred Stock and all other Parity Securities in
proportion to the shares of Common Stock then held by them and the shares of
Common Stock which they then have the right to acquire upon conversion of the
shares of Series A Preferred Stock, Series B Preferred Stock and other Parity
Securities then held by them; provided, however, that, in connection with any
such distribution, the holders of the Series A Preferred Stock and the Series B
Preferred Stock shall be entitled to receive a maximum $500.00 (as adjusted for
any stock split, stock dividend, combination, reorganization, recapitalization,
reclassification or other similar event), including the Liquidation Amount and
any other amounts distributed to the holders of the Series A Preferred Stock and
the Series B Preferred Stock pursuant to this Section 3.b., for each outstanding
share of Series A Preferred Stock and Series B Preferred Stock held by them.
3
<PAGE> 32
c. For purposes of this Section 3, (i) any acquisition of
the Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration issued or paid, or caused to be issued or paid, by the
acquiring entity or its subsidiary (other than a mere reincorporation
transaction) or (ii) a sale, lease or conveyance of all or substantially all of
the assets of the Corporation (upon such written direction, each event described
in (i) and (ii), a "Corporate Transaction"), shall be treated as a liquidation,
dissolution or winding up of the Corporation and shall entitle the holders of
Series A Preferred Stock, Series B Preferred Stock and all other Parity
Securities to receive at the closing of such Corporate Transaction in cash,
securities or other property (valued as provided in Section 3.d. below) the
amounts specified in Sections 3.a. and 3.b. above. The provisions of this
Section 3 shall not apply to any reorganization, merger or consolidation
involving (1) only a change in the state of incorporation of the Corporation,
(2) a merger of the Corporation with or into a wholly-owned subsidiary of the
Corporation that is incorporated in the United States of America, or (3) an
acquisition by merger, reorganization or consolidation of another corporation
(a) in which the Corporation is substantively the surviving corporation, the
Corporation continues to operate thereafter as a going concern and the
Corporation is not the target in such acquisition, and (b) that (i) is approved
by the Board of Directors of the Corporation, (ii) does not result in the
holders of the Corporation's Common Stock and Preferred Stock immediately prior
thereto holding less than 50% of the outstanding voting securities of the
surviving corporation immediately thereafter and (iii) does not involve a
recapitalization of the Series A Preferred Stock, the Series B Preferred Stock
or any other Parity Securities.
d. Whenever the distribution provided for in this Section 3
shall be payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board of Directors. The Liquidation Amount
shall in all events be paid in cash; provided, however, that if the Liquidation
Amount is otherwise payable in connection with a consolidation or merger of the
Corporation, or sale of substantially all of the capital stock of the
Corporation, then each holder of the Series A Preferred Stock, the Series B
Preferred Stock and any other Parity Securities shall receive payments with
respect to such shares in the same form of consideration as is payable with
respect to the Common Stock. In the event of any business combination or
acquisition involving the Corporation which is intended to be treated as a
"pooling of interests" for accounting purposes under Accounting Principles Board
Opinion No. 16, the acquisition consideration (including any shares of capital
stock or other securities to be delivered or exchanged by the acquiring
corporation) shall be reallocated among the holders of Series A Preferred Stock,
Series B Preferred Stock and any other Parity Securities in an appropriate
manner to give economic effect to the essential intent and purposes of Sections
3.a, 3.b, and 3.c.
4. Redemption.
None of the Series A Preferred Stock, the Series B Preferred
Stock or any other Parity Securities shall be redeemable.
5. Voting Rights. Each holder of shares of Series A Preferred
Stock and Series B Preferred Stock shall (a) be entitled to the number of votes
equal to the number of whole shares of Common Stock into which such shares of
Series A Preferred Stock or Series B Preferred Stock, as applicable could be
converted, (b) have voting rights and powers equal to the voting rights and
powers of such Common Stock (except as otherwise expressly provided herein or as
required by law, voting together with the Common Stock as a single class), and
(c) be entitled to notice of any stockholders' meeting in accordance with the
Bylaws of the Corporation and the Delaware General Corporation Law. Fractional
votes shall not, however, be permitted and any fractional voting rights
resulting from the above formula (after aggregating all shares into which shares
of Series A Preferred Stock and Series B Preferred
4
<PAGE> 33
Stock held by each holder could be converted) shall be rounded to the nearest
whole number (with one-half being rounded upward). Each holder of Common Stock
shall be entitled to one vote for each share of Common Stock held. Except as
otherwise expressly provided herein or in the Certificate of Incorporation, the
holders of shares of Series A Preferred Stock, Series B Preferred Stock and
Common Stock shall vote together (or render written consents in lieu of a vote)
as a single class on all matters submitted to the stockholders of the
Corporation.
6. Conversion. The holders of the Series A Preferred Stock and
the Series B Preferred Stock shall have conversion rights as follows (the
"Conversion Rights"):
a. Right to Convert. Each share of Series A Preferred Stock
shall be convertible, at the option of the holder thereof, at any time at the
office of the Corporation or any transfer agent for such stock, into such number
of fully paid and nonassessable shares of Common Stock as is determined by
dividing $100.00 plus all accrued but unpaid dividends thereon by the conversion
price applicable to such share (the "Series A Conversion Price"), determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion. The Series A Conversion Price at which shares of Common Stock shall
be deliverable upon conversion of shares of the Series A Preferred Stock
initially shall be $4.65 per share of Common Stock. Such initial Series A
Conversion Price shall be adjusted as hereinafter provided. Each share of Series
B Preferred Stock shall be convertible, at the option of the holder thereof, at
any time at the office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $100.00 plus all accrued but unpaid dividends thereon by
the conversion price applicable to such share (the "Series B Conversion Price"),
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The Series B Conversion Price at which shares of
Common Stock shall be deliverable upon conversion of shares of the Series B
Preferred Stock initially shall be $6.09 per share of Common Stock. Such initial
Series B Conversion Price shall be adjusted as hereinafter provided. The Series
A Conversion Price and the Series B Conversion Price sometimes are referred to
herein collectively as the "Conversion Price."
b. Mechanics of Conversion. Before any holder of Series A
Preferred Stock or Series B Preferred Stock shall be entitled to convert the
same into shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for such stock, and shall give written notice to the Corporation
at such office that such holder elects to convert the same and shall state
therein the name or names in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series A Preferred Stock or Series B Preferred Stock, as applicable, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of
surrender of the shares of Series A Preferred Stock or Series B Preferred Stock
to be converted, as applicable, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
c. Adjustments to Conversion Price for Certain Diluting
Issues.
(i) Special Definitions. For purposes of this Section
6.c., the following definitions apply:
(1) "Options" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities
5
<PAGE> 34
(defined below), other than rights, options or warrants relating to Employee
Stock (defined below).
(2) "Measurement Date" shall mean, with respect to
the Series A Preferred Stock, August 6, 1999, and with respect to the Series B
Preferred Stock, June 30, 2000.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock, Series A Preferred
Stock and Series B Preferred Stock) or other securities convertible into or
exchangeable for Common Stock (other than Options).
(4) "Additional Shares of Common Stock" shall mean
all shares of Common Stock issued (or, pursuant to Section 6.c.(iv), deemed to
be issued) by the Corporation after the applicable Measurement Date, other than
shares of Common Stock issued (or deemed issued):
(A) upon conversion of shares of Series A
Preferred Stock and Series B Preferred Stock;
(B) to outside directors, officers, employees
and consultants pursuant to the Corporation's 1994 Equity Compensation Plan or
Employee Stock Purchase Plan or other employee stock plan (the "Employee
Stock"), provided that (i) the issuance of such shares is or has been approved
by a majority of the members of the Board of Directors or any duly constituted
committee thereof and (ii) the number of shares of Employee Stock does not
exceed an aggregate of 2,700,000 shares (as adjusted for any stock dividends,
combinations, splits or similar events) regardless of whether issued by the
Corporation prior to the date hereof;
(C) as a dividend or distribution on Series A
Preferred Stock and Series B Preferred Stock; or
(D) for which adjustment of the Series A
Conversion Price or the Series B Conversion Price is made pursuant to Section
6.d.
(ii) No Adjustment of Series A Conversion Price. Any
provision herein to the contrary notwithstanding, no adjustment in the Series A
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share (determined pursuant to
Section 6.c.(vi) hereof) for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Series A Conversion
Price in effect on the date of, and immediately prior to such issue. In
computing each adjusted Series A Conversion Price, the result shall be rounded
to five decimal places, and such adjustment shall be made separately in each
instance, and in the event the adjustment therefrom results in a change of the
Series A Conversion Price of less than $0.01, no adjustment to the then Series A
Conversion Price shall be made, but the amount of said adjustment calculated
thereby shall be carried forward to successive occasions until such adjustments
in the aggregate equal or exceed $0.01.
(iii) No Adjustment of Series B Conversion Price. Any
provision herein to the contrary notwithstanding, no adjustment in the Series B
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share (determined pursuant to
Section 6.c.(vi) hereof) for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Series B Conversion
Price in effect on the date of, and immediately prior to such issue. In
computing each adjusted Series B Conversion Price, the result shall be rounded
to five decimal
6
<PAGE> 35
places, and such adjustment shall be made separately in each instance, and in
the event the adjustment therefrom results in a change of the Series B
Conversion Price of less than $0.01, no adjustment to the then Series B
Conversion Price shall be made, but the amount of said adjustment calculated
thereby shall be carried forward to successive occasions until such adjustments
in the aggregate equal or exceed $0.01.
(iv) Deemed Issue of Additional Shares of Common Stock. In
the event the Corporation at any time or from time to time after the applicable
Measurement Date shall issue any Options or Convertible Securities or shall fix
a record date for the determination of holders of any class of securities then
entitled to receive any such Options or Convertible Securities, except, in both
cases, where Common Stock to be issued upon conversion or exercise of such
securities would not constitute Additional Shares of Common Stock, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date, provided
further that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(1) no further adjustments in the Conversion Price
shall be made upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of the Series
A Conversion Price or the Series B Conversion Price shall affect Common Stock
previously issued upon conversion of the Series A Preferred Stock or the Series
B Preferred Stock, as applicable); and
(3) no readjustment pursuant to clause (1) or (2)
above shall have the effect of increasing the Series A Conversion Price or the
Series B Conversion Price to an amount which exceeds the lower of (a) the Series
A Conversion Price or the Series B Conversion Price, as applicable, on the
original adjustment date, or (b) the Series A Conversion Price or the Series B
Conversion Price, as applicable, that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(v) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock.
(1) In the event the Corporation, at any time after
the Measurement Date, shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section
6.c.(iv)) without consideration or for a consideration per share less than the
Series A Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, the Series A Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series A Conversion Price by a fraction, the
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<PAGE> 36
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at the Series A
Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued. For the purpose of the above calculation, the number of
shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series A Preferred
Stock, Series B Preferred Stock and all Convertible Securities had been fully
converted into shares of Common Stock and any outstanding Options or other
Convertible Securities had been fully exercised (and the resulting securities
fully converted into shares of Common Stock, if so convertible) as of such date.
The provisions of this paragraph may be waived in any instance (without the
necessity of convening any meeting of stockholders of the Corporation) upon the
written approval of the holders of a majority of the outstanding shares of
Series A Preferred Stock.
(2) In the event that, at any time prior to the third
anniversary of the applicable Measurement Date, the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 6.c.(iv)) without consideration or for a
consideration per share less than the Series B Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event, the Series
B Conversion Price shall be reduced, concurrently with such issue, to a price
equal to the price per share paid for such Additional Shares of Common Stock.
The provisions of this paragraph may be waived in any instance (without the
necessity of convening any meeting of stockholders of the Corporation) upon the
written approval of the holders of a majority of the outstanding shares of
Series B Preferred Stock.
(3) In the event, at any time on or after the third
anniversary of the applicable Measurement Date, the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 6.c.(iv)) without consideration or for a
consideration per share less than the Series B Conversion Price in effect on the
date of and immediately prior to such issue, then and in such event, the Series
B Conversion Price shall be reduced, concurrently with such issue, to a price
(calculated to the nearest cent) determined by multiplying the Series B
Conversion Price by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of shares of Common Stock which the aggregate consideration received by
the Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at the Series B Conversion Price in effect immediately
prior to such issuance, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares of Common Stock so issued. For the purpose of
the above calculation, the number of shares of Common Stock outstanding
immediately prior to such issue shall be calculated on a fully diluted basis, as
if all shares of Series A Preferred Stock, Series B Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock and
any outstanding Options or other Convertible Securities had been fully exercised
(and the resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date. The provisions of this paragraph may be waived in
any instance (without the necessity of convening any meeting of stockholders of
the Corporation) upon the written approval of the holders of a majority of the
outstanding shares of Series B Preferred Stock.
(vi) Determination of Consideration. For purposes of this
Section 6.c., the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
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<PAGE> 37
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of cash received by the Corporation;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received in exchange for the Additional Shares of Common Stock,
computed as provided in clauses (A) and (B) above, as determined in good faith
by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 6.c.(iv), relating
to Options and Convertible Securities shall be determined by dividing:
(D) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution) payable
to the Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, by
(E) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against the dilution) issuable
upon the exercise of such Options or conversion or exchange of such Convertible
Securities.
d. Adjustments to Conversion Price for Stock Dividends and
for Combinations or Subdivisions of Common Stock. In the event that the
Corporation at any time or from time to time after the applicable Measurement
Date shall effect a (i) subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by stock dividend, stock split,
reclassification or otherwise), or (ii) combination or consolidation of the
outstanding shares of Common Stock into a lesser number of shares of Common
Stock (by reclassification or otherwise), then the Series A Conversion Price and
the Series B Conversion Price in effect immediately prior to such event shall,
concurrently with the effectiveness of such event, be proportionately decreased
or increased, as appropriate. In the event that the Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in Common
Stock or in any right to acquire Common Stock for no consideration, then the
Corporation shall be deemed to have subdivided the outstanding shares of Common
Stock by an amount of shares equal to the maximum number of shares issuable
through such dividend and/or upon exercise of such rights to acquire Common
Stock.
e. Adjustments to Conversion Price for Reclassification and
Reorganization. If the Common Stock issuable upon conversion of the Series A
Preferred Stock and Series B Preferred Stock shall be changed into the same or a
different number of shares of any other class or classes of stock, whether by
capital reorganization, reclassification or otherwise (other than as provided
for in Section 6.d. above or in connection with a Corporate Transaction), the
Series A Conversion Price and the Series B Conversion Price then in effect
9
<PAGE> 38
shall, concurrently with the effectiveness of such reorganization or
reclassification, be proportionately adjusted so that the Series A Preferred
Stock and Series B Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of the Series A Preferred Stock and
Series B Preferred Stock immediately before that change.
f. No Impairment. The Corporation shall not, by amendment
of its Certificate of Incorporation or the Certificate of Incorporation of any
Subsidiary (as hereinafter defined) 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 hereunder by the Corporation or any
Subsidiary, but shall at all times in good faith assist in the carrying out of
all the provisions of this Section 6 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series A Preferred Stock and Series B Preferred Stock against
impairment.
g. Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Section
6, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock and Series B Preferred Stock a certificate
executed by the Corporation's President or Chief Financial Officer setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock or Series B
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of the Series A Preferred Stock or Series B
Preferred Stock, as applicable.
h. Notices of Record Date. In the event that the
Corporation shall propose at any time to effect any reclassification or
recapitalization, to merge or consolidate with or into any other entity, or
sell, lease or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up, then, in connection with each such event, the Corporation
shall send to the holders of Series A Preferred Stock and Series B Preferred
Stock: (1) at least 20 days prior written notice of the date on which a record
shall be taken for such event and specifying the date on which such event shall
occur; and (2) at least 20 days prior written notice of the record date for
determining rights to vote, if any, in respect of such event.
i. Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue or delivery of
shares of Common Stock on conversion of shares of Series A Preferred Stock and
Series B Preferred Stock pursuant hereto; provided, however, that the
Corporation shall not be obligated to pay any transfer taxes resulting from any
transfer requested by any holder in connection with any such conversion.
j. Reservation of Stock Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock and Series B Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series A
Preferred Stock and Series B Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series A Preferred Stock
and Series B Preferred
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<PAGE> 39
Stock, the Corporation shall take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to this Certificate of
Incorporation.
k. Fractional Shares. No fractional share shall be issued
upon the conversion of any share or shares of Series A Preferred Stock or Series
B Preferred Stock. All shares of Common Stock (including fractions thereof)
issuable upon conversion of more than one share of Series A Preferred Stock or
Series B Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fair market value of such
fraction on the date of conversion (as determined in good faith by the Board of
Directors).
l. Notices. Any notice required by the provisions of this
Section 6 to be given to the holders of shares of Series A Preferred Stock or
Series B Preferred Stock shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at his address
appearing on the books of the Corporation.
m. Series A Option to Convert to Securities of Subsidiary.
At the option of any holder of Series A Preferred Stock, such holder shall have
the right (but not the obligation) to convert in the manner provided in this
Section 6.m any share of Series A Preferred Stock then held by it into fully
paid and nonassessable shares of the common stock ("Subsidiary Common Stock") of
any direct or indirect subsidiary of the Corporation more than 50% of the
outstanding voting securities of which are owned directly or indirectly by the
Corporation (each, a "Subsidiary"); provided, however, that a holder may not
exercise such right to convert Series A Preferred Stock into common stock of
eMake Corporation ("eMake"), a Delaware corporation, or its wholly owned
subsidiaries, unless a Trigger Event (as hereafter defined) has occurred. For
purposes of this Section, a "Trigger Event" shall be the first to occur of the
following events: (a) June 1, 2006; (b) the commencement of the liquidation or
winding up of the business of eMake; (c) the sale of all or substantially all of
the assets and properties of eMake; (d) a merger, consolidation or other similar
transaction involving eMake, in which eMake is not the surviving entity or a
merger, consolidation or other similar transaction involving eMake where eMake
is the surviving entity but after which the holders of the outstanding voting
securities of eMake before the transaction hold less than 50% of eMake's
outstanding voting securities after the transaction; (e) the sale by eMake of
its securities in a public offering pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended; or (f) a decrease in the ownership
percentage of the Corporation in the voting securities of eMake below the
percentage required under generally accepted accounting principles to include
such Subsidiary in eMake's consolidated financial statements. Such right may be
exercised by delivery to the Corporation of the certificates representing the
shares of Series A Preferred Stock to be converted together with written notice
of such exercise specifying the applicable Subsidiary. The number of shares of
Subsidiary Common Stock into which any share of Series A Preferred Stock is
convertible under Section 6.m shall be equal to the quotient obtained by
dividing the Liquidation Amount therefor by the Fair Market Value of a share of
Subsidiary Common Stock. As used herein, the term "Fair Market Value" shall mean
as of any date and with respect to a share of Subsidiary Common Stock, the price
per share which the Corporation could obtain from a willing buyer for shares of
Subsidiary Common Stock as determined by mutual agreement of the Corporation and
the holder of the Series A Preferred Stock exercising its conversion rights
hereunder. If such holder and the Corporation are unable to agree on such fair
market value, such holder and the Corporation shall each select
11
<PAGE> 40
an independent and nationally-recognized investment banking firm and such
selected firms shall select another such firm to appraise the fair market value
of the Subsidiary Common Stock and to perform the computations involved. The
determination of such investment banking firm shall be binding upon the
Corporation and such holder. All expenses of such investment banking firm shall
be borne equally by the Corporation and such holder. In all cases, the
determination of fair market value shall be made without consideration of the
lack of a liquid public market for the Subsidiary Common Stock and without
consideration of any "control premium" or any discount for holding less than a
majority or controlling interest of the outstanding Subsidiary Common Stock. The
Corporation shall take, and shall cause the related Subsidiary to take, all
actions necessary to issue any shares of Subsidiary Common Stock issuable under
this Section 6.m and to cause such shares to be duly authorized, validly issued,
fully paid and nonassessable, including, without limitation, amending such
Subsidiary's Certificate of Incorporation to increase the number of shares of
Subsidiary Common Stock issuable thereunder, if necessary, and pay, on the
holders behalf, any consideration required to accomplish the foregoing. Shares
of Subsidiary Common Stock delivered hereunder may be newly-issued shares or
outstanding shares then held by the Corporation. The Corporation shall notify
each holder of shares of Series A Preferred Stock of any sale of Subsidiary
Common Stock or securities exchangeable or convertible into Subsidiary Common
Stock as reasonably as is practical in advance of such issuance, but in no event
at least ten business days prior thereto. Any such notice shall be in writing
and shall describe the securities to be issued and sold by such Subsidiary and
the consideration to be received by it in connection therewith.
7. Series A Restrictions and Limitations. So long as any
shares of Series A Preferred Stock remain outstanding, in addition to any other
vote required by the Delaware General Corporation Law, the vote or written
consent or written agreement of the holders of at least a majority of the then
outstanding shares of the Series A Preferred Stock, voting as a separate class,
shall be required in order to:
(i) alter, amend or modify the rights, preferences or
privileges of the Series A Preferred Stock;
(ii) increase the authorized number of shares of the Series
A Preferred Stock or issue any additional shares of Series A Preferred Stock
other than shares issued in payment of dividends on the outstanding shares of
Series A Preferred Stock pursuant to Section 2.a. above;
(iii) authorize or issue, or obligate itself to issue, any
other equity security (including any security convertible into or exercisable
for any equity security) senior to or on a parity with the Series A Preferred
Stock as to dividend rights, liquidation preferences or redemption rights;
(iv) redeem, purchase or otherwise acquire any Parity
Securities or Junior Securities (or pay into a sinking fund for such purpose);
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock at the original purchase price from employees, officers,
directors or other persons performing services for this Corporation;
(v) allow any Subsidiary other than eMake Corporation to
authorize or issue any shares of capital stock other than a single class of
common stock.
8. Series B Restrictions and Limitations. So long as any
shares of Series B Preferred Stock remain outstanding, in addition to any other
vote required by the Delaware General Corporation Law, the vote or written
consent or written agreement of the holders of at
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<PAGE> 41
least two-thirds of the then outstanding shares of the Series B Preferred Stock,
voting as a separate class, shall be required in order to:
(i) alter, amend or modify the rights, preferences or
privileges of the Series B Preferred Stock;
(ii) increase the authorized number of shares of the Series
B Preferred Stock or issue any additional shares of Series B Preferred Stock
other than shares issued in payment of dividends on the outstanding shares of
Series B Preferred Stock pursuant to Section 2.b above;
(iii) authorize or issue, or obligate itself to issue, any
other equity security (including any security convertible into or exercisable
for any equity security) senior to or on a parity with the Series B Preferred
Stock as to dividend rights, liquidation preferences or redemption rights;
(iv) redeem, purchase or otherwise acquire any Parity
Securities or Junior Securities (or pay into a sinking fund for such purpose);
provided, however, that this restriction shall not apply to the repurchase of
shares of Common Stock at the original purchase price from employees, officers,
directors or other persons performing services for this Corporation;
9. No Reissuance. No share or shares of Series A Preferred
Stock or Series B Preferred Stock acquired by the Corporation by reason of
redemption, purchase, conversion or otherwise shall be reissued, and all such
shares shall be cancelled, retired and restored to the status of undesignated
Preferred Stock.
THIRD: The foregoing amendment and restatement of the
Corporation's Certificate of Designation was approved by the holders of the
requisite number of shares of capital stock of the Corporation in accordance
with Section 228 of the DGCL.
FOURTH: The foregoing amendment and restatement of the
Corporation's Certificate of Designation was duly adopted in accordance with the
provisions of Sections 151, 242 and 245 of the DGCL.
* * *
[Signature page follows.]
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<PAGE> 42
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Designation for Series A Preferred Stock and Series B Preferred Stock has been
signed by the Chief Financial Officer of the Corporation this ____ day of
_____________, 2000.
---------------------------------------------
Robert L. Drury, Chief Financial Officer
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<PAGE> 43
--------------------------------------------------------------------------------
PROXY
USDATA CORPORATION
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please sign and date this proxy, and indicate how you wish to vote, on the back
of this card. Please return this card promptly in the enclosed envelope. YOUR
VOTE IS IMPORTANT.
When you sign and return this proxy card, you
o appoint Robert A. Merry and Robert L. Drury, and each of them (or any
substitutes they may appoint), as proxies to vote your shares, as you
have instructed, at the special meeting on September 11, 2000, and at
any adjournments of that meeting,
o authorize the proxies to vote, in their discretion, upon any other
business properly presented at the meeting, and
o revoke any previous proxies you may have signed.
IF YOU DO NOT INDICATE HOW YOU WISH TO VOTE, THE PROXIES WILL VOTE FOR APPROVAL
OF ALL PROPOSALS PRESENTED AT THE SPECIAL MEETING, AND AS THEY MAY DETERMINE IN
THEIR DISCRETION WITH REGARD TO ANY OTHER MATTER PROPERLY PRESENTED AT THE
MEETING.
- FOLD AND DETACH HERE -
<PAGE> 44
USDATA CORPORATION
2435 NORTH CENTRAL EXPRESSWAY
RICHARDSON, TEXAS 75080-2722
SPECIAL MEETING OF STOCKHOLDERS
SEPTEMBER 11, 2000
Please mark your vote as indicated in this example: [X]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE FOLLOWING PROPOSALS:
1. PROPOSAL TO APPROVE THE POTENTIAL ISSUANCE OF SHARES OF COMMON STOCK,
UPON CONVERSION OF OUR SERIES B PREFERRED STOCK, THAT MAY BE EQUAL TO
OR IN EXCESS OF 20% OF THE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. PROPOSAL TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO
AMEND AND RESTATE THE TERMS OF THE EXISTING SERIES A PREFERRED STOCK.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO APPROVE AN AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM
22,000,000 TO 40,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Signature: Date:
------------------------------ ----------------------------
Signature: Date:
------------------------------ ----------------------------
YOU MUST SIGN EXACTLY AS YOUR NAME APPEARS ON THIS CARD. If shares are jointly
owned, you must both sign. Include your title if you are signing as an attorney,
executor, administrator, trustee or guardian, or on behalf of a corporation or
partnership.
