-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqnFEUBt5oWvJ+5KFAmUXYkj3Cdr+JTQFmPKdpwWNnWlx+yWltNYXHxMjN0jvcOL NyvciXra6p68/RCmnVkv2A== 0000909518-07-000539.txt : 20070531 0000909518-07-000539.hdr.sgml : 20070531 20070531164850 ACCESSION NUMBER: 0000909518-07-000539 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20070525 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070531 DATE AS OF CHANGE: 20070531 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMVERSE TECHNOLOGY INC/NY/ CENTRAL INDEX KEY: 0000803014 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 133238402 STATE OF INCORPORATION: NY FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15502 FILM NUMBER: 07891374 BUSINESS ADDRESS: STREET 1: 810 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212-739-1000 MAIL ADDRESS: STREET 1: 810 SEVENTH AVENUE CITY: NEW YORK STATE: NY ZIP: 10019 8-K 1 mm05-3107_8k.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): May 25, 2007 COMVERSE TECHNOLOGY, INC. (Exact name of registrant as specified in its charter) NEW YORK 0-15502 13-3238402 (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 810 Seventh Avenue, New York, New York 10019 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (212) 739-1000 Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. INVESTMENT IN VERINT SYSTEMS INC. SECURITIES PURCHASE AGREEMENT On May 25, 2007, Comverse Technology, Inc. (the "Company") entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") with its majority owned subsidiary, Verint Systems Inc. ("Verint"), pursuant to which the Company agreed to purchase 293,000 shares of Series A Convertible Perpetual Preferred Stock (the "Preferred Stock"). The Preferred Stock was purchased at a price of $1,000 per share, for an aggregate purchase price of $293 million. The Company used cash on hand to fund the purchase of the Preferred Stock. The Securities Purchase Agreement contains customary representations and warranties of the parties. In addition, the Company agreed that it will not sell or transfer any Preferred Stock or shares of Verint common stock issuable upon conversion of the Preferred Stock until the six-month anniversary of the closing date of the purchase of the Preferred Stock and the Acquisition (as defined below). The Company entered into the Securities Purchase Agreement to finance, in part, Verint's acquisition of Witness Systems, Inc. ("Witness"), whereby Witness has become a wholly-owned subsidiary of Verint (the "Acquisition"). The foregoing description is qualified in its entirety to the Securities Purchase Agreement, attached as Exhibit 10.1 to this Current Report on Form 8-K and incorporated herein by reference. PREFERRED STOCK The Preferred Stock is designated as Series A Convertible Perpetual Preferred Stock and ranks senior to Verint's common stock. Dividends on the Preferred Stock are cumulative and are paid quarterly at the rate of 4.25% per annum per share on the liquidation preference in effect at such time; provided that beginning on the first day of the first quarter after the quarter in which the interest rate initially applicable to the first lien term loan obtained by Verint in connection with the Acquisition has been reduced by 0.50% or more, and thereafter, the dividend rate will be reset to 3.875% per annum. If any shares of Preferred Stock are transferred by the Company prior to the time that the interest rate applicable to the first lien term loan has been reset, the dividend rate applicable to the shares held by such third-parties shall be set at 4.625% per annum per share on the liquidation preference in effect at such time, and will not reset, even if the interest rate applicable to the first lien term loan is later reduced. Notwithstanding the foregoing, subject to certain exceptions, if the underlying shares of common stock have not been approved by a majority vote of Verint's stockholders on or prior to the last day of the fiscal quarter following the date that is 180 days after the first date on which Verint is in compliance with SEC reporting requirements, then on such date and on the last day of each subsequent fiscal quarter the annual dividend rate will increase by 1%. If Verint determines that it is prohibited from paying cash dividends on the Preferred Stock under the terms of its then-existing debt instruments, Verint may elect to make such dividend payments in shares of its common stock, which common stock will be valued at 95% of the volume weighted average price of such common stock for each of the five consecutive trading days ending on the second trading day immediately prior to the record date for such dividend. The Preferred Stock will not have general voting or conversion rights until the underlying shares of common stock are authorized by a majority vote of Verint's stockholders. Once the underlying shares of common stock are so authorized, each holder of Preferred Stock will be entitled to a number of votes in respect of the Preferred Stock owned by it equal to the number of shares of Verint common stock into which such holder's Preferred Stock is initially convertible based on a conversion rate equal to the issue price of $1,000 per share of Preferred Stock divided by $32.66, the conversion price in effect on May 25, 2007 (the "Issue Date").. For as long as shares of Preferred Stock are outstanding, the consent of holders of at least 66 2/3% of the outstanding shares of Preferred Stock, voting separately as a class with all other series of preferred stock which have similar voting rights, will be required for Verint to take certain 2 actions, including amending Verint's certificate of incorporation if the amendment would adversely alter or change the powers and rights of such holders. Following authorization of the underlying shares, each share of Preferred Stock will be convertible at the option of the holder thereof into a number of shares of Verint common stock equal to the liquidation preference then in effect divided by the conversion price then in effect, which will initially be $32.66, which was calculated as 112.5% of the volume weighted average share price of Verint common stock for the 25 trading days prior to the closing of the Acquisition (as may be adjusted from time to time, the "Conversion Rate"). The initial Conversion Rate is 30.6185 shares of Verint common stock for each share of Preferred Stock. Verint may convert all, but not less than all, of the Preferred Stock at its option, at any time on or after the second anniversary of the Issue Date, if the closing sale price of Verint's common stock immediately prior to such conversion equals or exceeds the conversion price then in effect by: (i) 150%, on or after the second anniversary of the Issue Date but prior to the third anniversary of the Issue Date, (ii) 140%, on or after the third anniversary of the Issue Date but prior to the fourth anniversary of the Issue Date, and (iii) 135%, on or after the fourth anniversary of the Issue Date. Upon a "Fundamental Change", which subject to certain exceptions, consists of: (i) the sale of all or substantially all of Verint's assets, (ii) certain other change of control transactions, (iii) certain directors ceasing to constitute a majority of Verint's Board of Directors, or (iv) the consolidation or merger of Verint with or into any other entity (subject to certain exceptions), the conversion price will be adjusted, and, subject to certain exceptions, holders of Preferred Stock will have the right to require Verint to purchase the Preferred Stock for 100% of the liquidation preference. In addition, if holders of Preferred Stock elect to convert upon the occurrence of certain Fundamental Changes prior to May 22, 2017, such holders will receive "Transaction Consideration" (as so defined) in respect of a specified additional number of shares of Verint's Common Stock. The foregoing description of the terms of the Preferred Stock is qualified in its entirety to Verint's Certificate of Designation, attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference. REGISTRATION RIGHTS AGREEMENT Concurrently with entering into the Securities Purchase Agreement, the Company and Verint entered into a Registration Rights Agreement, dated as of May 25, 2007 (the "Registration Rights Agreement") pursuant to which the holders of the Preferred Stock have the right to require Verint to register the Preferred Stock (or any conversion shares issuable upon conversion of shares of Preferred Stock) ("Registrable Securities") in accordance with the terms of the Registration Rights Agreement. Demand Registration Rights. Beginning 180 days after Verint is in compliance with SEC reporting obligations and the date that Verint obtains the requisite stockholder consent for the issuance of the conversion stock, the holders may request, on no more than two occasions, that Verint effect the registration of all or part of the Registrable Securities having an aggregate market value of $100 million (before deducting any underwriting discounts and commissions), including using a shelf registration if Verint is eligible to use Form S-3 at such time. Verint is not required to effect a demand registration (i) if it has effected a demand registration in the twelve months preceding the demand notice, (ii) within 90 days of a piggyback underwritten registration in which the holders were allowed to include all Registrable Securities without limitation, or between 25% to 50% of the Registrable Securities requested to be included therein, (iii) within 180 days of a piggyback underwritten registration in which the holders were allowed to include more than 50% of the Registrable Securities requested to be included therein, or (iv) during a blackout period. Piggyback Registration Rights. If Verint proposes to file a registration statement under the Securities Act of 1933 with respect to an offering of any class of equity securities, either for its own account or for the account of other stockholders exercising their registration rights, the holders will have the right to include their Registrable Securities in such registration statement. 3 Marketing Limitation. The underwriters of any underwritten offering will have the right, for marketing reasons, to limit the number of Registrable Securities to be included in any registration statement initiated pursuant to demand or piggyback registration rights. Expenses of Registration. Verint is are required to pay all expenses in connection with any registration, other than underwriting discounts and commissions. Indemnification. The agreement contains customary indemnification provisions, pursuant to which each party is obligated to indemnify the other party in the event of material misstatements or omissions in a registration statement attributable to that party. The foregoing description is qualified in its entirety to the Registration Rights Agreement, attached as Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference. CERTAIN RISKS AND UNCERTAINTIES - ------------------------------- This Current Report contains "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. There can be no assurances that any forward-looking statements shall be achieved, and actual results could differ materially from forecasts and estimates. Important factors that could affect the Company include: the results of the investigation of the Special Committee, appointed by the Board of Directors on March 14, 2006, of matters relating to the Company's stock option grant practices and other accounting matters, including errors in revenue recognition, errors in the recording of deferred tax accounts, expense misclassification, the possible misuse of accounting reserves and the understatement of backlog; the impact of any restatement of financial statements of the Company or other actions that may be taken or required as a result of such reviews; the Company's inability to file reports with the Securities and Exchange Commission; the effects of the delisting of the Company's Common Stock from NASDAQ and the quotation of the Company's Common Stock in the "Pink Sheets," including any adverse effects relating to the trading of the stock due to, among other things, the absence of market makers; risks relating to alleged defaults under the Indentures for the Company's convertible debt, known as ZYPS, including acceleration of repayment; risks of litigation (including pending securities class actions and derivative lawsuits) and of governmental investigations or proceedings arising out of or related to the Company's stock option practices or any other accounting irregularities or any restatement of the financial statements of the Company, including the direct and indirect costs of such investigations and restatement; risks related to the Acquisition including risks associated with Verint integrating the businesses and employees of Witness; risks associated with integrating the businesses and employees of the Global Software Services division acquired from CSG Systems International, Netcentrex S.A. and Netonomy, Inc.; changes in the demand for the Company's products; changes in capital spending among the Company's current and prospective customers; the risks associated with the sale of large, complex, high capacity systems and with new product introductions as well as the uncertainty of customer acceptance of these new or enhanced products from either the Company or its competition; risks associated with rapidly changing technology and the ability of the Company to introduce new products on a timely and cost-effective basis; aggressive competition may force the Company to reduce prices; a failure to compensate any decrease in the sale of the Company's traditional products with a corresponding increase in sales of new products; risks associated with changes in the competitive or regulatory environment in which the Company operates; risks associated with prosecuting or defending allegations or claims of infringement of intellectual property rights; risks associated with significant foreign operations and international sales and investment activities, including fluctuations in foreign currency exchange rates, interest rates, and valuations of public and private equity; the volatility of macroeconomic and industry conditions and the international marketplace; risks associated with the Company's ability to retain existing personnel and recruit and retain qualified personnel; and other risks described in filings with the Securities and Exchange Commission. 4 ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (d) EXHIBITS: Exhibit No. Description ----------- ----------- 10.1 Securities Purchase Agreement, dated May 25, 2007, between Verint Systems Inc. and Comverse Technology, Inc. 10.2 Registration Rights Agreement, dated as of May 25, 2007, by and between Verint Systems Inc. and Comverse Technology, Inc. 99.1 Certificate of Designation of Verint Systems Inc. relating to the Series A Convertible Perpetual Preferred Stock 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COMVERSE TECHNOLOGY, INC. Date: May 31, 2007 By: /s/ Paul L. Robinson ----------------------------------- Name: Paul L. Robinson Title: Chief Operating Officer, Executive Vice President and General Counsel 6 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 10.1 Securities Purchase Agreement, dated May 25, 2007, between Verint Systems Inc. and Comverse Technology, Inc. 10.2 Registration Rights Agreement, dated as of May 25, 2007, by and between Verint Systems Inc. and Comverse Technology, Inc. 99.1 Certificate of Designation of Verint Systems Inc. relating to the Series A Convertible Perpetual Preferred Stock 7 EX-10 2 mm05-3107_8ke101.txt EX.10.1 - SECURITIES PUR. AGREEMENT EXHIBIT 10.1 ------------ Execution Version SECURITIES PURCHASE AGREEMENT BETWEEN VERINT SYSTEMS INC. AND COMVERSE TECHNOLOGY, INC. Dated May 25, 2007 TABLE OF CONTENTS PAGE Article I Definitions.....................................................1 1.1 Certain Definitions.............................................1 1.2 Construction....................................................3 Article II Purchase and Sale of Securities.................................3 2.1 Purchase and Sale of Securities.................................3 2.2 Purchase Price..................................................3 2.3 Closing Date....................................................3 2.4 Proceedings at Closing..........................................4 Article III Representations and Warranties of the Company...................4 3.1 Organization and Power..........................................4 3.2 Authorization...................................................4 3.3 Consents and Approvals..........................................5 3.4 No Conflicts....................................................5 3.5 Authorization of Securities.....................................5 3.6 Valid Offering..................................................5 3.7 Brokers' Fees...................................................5 Article IV Representations and Warranties of the Purchaser.................6 4.1 Organization....................................................6 4.2 Authorization...................................................6 4.3 Consents and Approvals..........................................6 4.4 No Conflicts....................................................6 4.5 Brokers' Fees...................................................7 4.6 Investment Representations......................................7 4.7 Restricted Securities...........................................7 4.8 Accredited Investor.............................................7 4.9 Investment......................................................7 4.10 Knowledge and Experience........................................7 4.11 No Solicitation.................................................7 4.12 Restrictions on Transfer .......................................7 4.13 Access to Management............................................8 Article V Covenants.......................................................8 5.1 All Reasonable Efforts; Further Assurances......................8 5.2 Public Announcements............................................9 5.3 Confidentiality.................................................9 5.4 Use of Proceeds.................................................9 5.5 Removal of Legends..............................................9 Article VI Closing Deliveries.............................................10 6.1 Items to Be Delivered by the Company...........................10 6.2 Items to Be Delivered by the Purchaser.........................10 Article VII Survival.......................................................10 7.1 Survival of Representations, Warranties, and Covenants.........10 Article VIII Miscellaneous..................................................10 i TABLE OF CONTENTS (CONTINUED) PAGE 8.1 Amendments.....................................................10 8.2 Assignment.....................................................10 8.3 Binding Effect.................................................11 8.4 Counterparts...................................................11 8.5 Entire Agreement...............................................11 8.6 Fees and Expenses..............................................11 8.7 Governing Law..................................................11 8.8 Headings.......................................................11 8.9 Notices........................................................11 8.10 Severability...................................................12 8.11 Third-Party Beneficiaries......................................13 8.12 Waiver.........................................................13 ii SECURITIES PURCHASE AGREEMENT ----------------------------- THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is entered into as of May 25, 2007, between Verint Systems Inc., a Delaware corporation (the "Company"), and Comverse Technology, Inc., a New York corporation (the "Purchaser"). WHEREAS, the Company has entered into the Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, White Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("White"), and Witness Systems, Inc., a Delaware corporation ("Witness"), pursuant to which Witness will, on the terms and subject to the conditions set forth in the Merger Agreement, merge with and into White (the "Merger"); WHEREAS, pursuant to the Merger Agreement, the Company has agreed to finance the Merger through a combination of (i) cash on hand (including cash of Witness), (ii) the proceeds from a debt financing (the "Debt Financing"), pursuant to a commitment letter dated February 11, 2007, among Lehman Brothers Inc., Lehman Commercial Paper Inc., Lehman Brothers Commercial Bank, Deutsche Bank Securities Inc., Deutsche Bank AG, New York Branch, Credit Suisse Securities (USA) LLC and Credit Suisse and the Company (the "Debt Commitment Letter"), and (iii) the proceeds from the issuance of equity securities to the Purchaser (the "Equity Financing") pursuant to a commitment letter (the "Equity Commitment Letter") dated February 11, 2007, between the Company and the Purchaser; WHEREAS, in connection with the Equity Financing, the Company desires to create a new series of preferred stock, designated as the Series A Convertible Perpetual Preferred Stock, par value $0.001 per share (the "Convertible Preferred Stock"), of the Company by filing a Certificate of Designation, Preferences and Rights in the form attached hereto as Exhibit A (the "Certificate of Designation") with the office of the Secretary of State of the State of Delaware, in accordance with the General Corporation Law of the State of Delaware (the "DGCL"); and WHEREAS, on the terms and subject to the conditions set forth in this Agreement, the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase and acquire from the Company, 293,000 shares (the "Preferred Shares") of Convertible Preferred Stock. NOW, THEREFORE, in consideration of the foregoing recitals and the representations, warranties, covenants, and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I Definitions ----------- 1.1 Certain Definitions. The following terms shall have the meanings set forth below (and such meanings shall be equally applicable to both the singular and plural form of the terms defined, as the context may require): "Affiliate" means, in respect of any Person, any other Person that is directly or indirectly controlling, controlled by, or under common control with such Person or any of its Subsidiaries, and the term "control" (including the terms "controlled by" and "under common control with") means having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise. "Certificate of Designation" has the meaning ascribed to it in the recitals to this Agreement. "Closing" has the meaning ascribed to it in Section 2.3. "Closing Date" has the meaning ascribed to it in Section 2.3. "Common Stock" means the shares of the Company's common stock, par value $0.001 per share. "Company" has the meaning ascribed to it in the preamble to this Agreement. "Conversion Shares" has the meaning ascribed to it in Section 3.5. "Convertible Preferred Stock" has the meaning ascribed to it in the recitals to this Agreement. "DGCL" has the meaning ascribed to it in the recitals to this Agreement. "Encumbrance" means any security interest, lien, pledge, claim, charge, escrow, encumbrance, option, right of first offer, right of first refusal, preemptive right, mortgage, indenture, security agreement or other similar agreement, arrangement, contract, commitment, understanding, or obligation, whether written or oral, and whether or not relating in any way to credit or the borrowing of money. "Governmental Entity" means any federal, state, or municipal court or other governmental department, commission, board, bureau, agency, or instrumentality, governmental or quasi-governmental, domestic or foreign. "Law" means, the common law and all federal, state, local, and foreign laws, rules and regulations, Orders, and other determinations of the United States, any foreign country, or any domestic or foreign Governmental Entity. "Material Adverse Effect" means, with respect to any party, any result, occurrence, fact, change, or event that, individually, or in the aggregate with any such other results, occurrences, facts, changes, or events, has a material adverse effect on (i) the business, operations, or financial position of any of such party and its Subsidiaries, taken as a whole, (ii) the ability of any of such party to perform in a timely manner any of its obligations under this Agreement or any of the Transaction Documents or any transaction contemplated hereby or thereby, or (iii) the legality, validity, or enforceability of this Agreement or the other Transaction Documents. "Order" has the meaning ascribed to it in Section 3.4. "Person" means any individual, partnership, limited partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, or Governmental Entity. "Preferred Shares" has the meaning ascribed to it in the recitals to this Agreement. "Preferred Stock" has the meaning ascribed to it in Section 3.5. "Purchase Price" has the meaning ascribed to it in Section 2.2. "Purchaser" has the meaning ascribed to it in the recitals to this Agreement. "Receiving Party" has the meaning ascribed to it in Section 5.3. 2 "Registration Rights Agreement" shall mean that Registration Rights Agreement to be entered into at the Closing by and among the Company and the Purchaser. "Representatives" has the meaning ascribed to it in Section 5.3. "SEC" means the U.S. Securities and Exchange Commission and any governmental body or agency succeeding to the functions thereof. "Securities Act" means the Securities Act of 1933, as amended. "Subsidiary" means, in respect of any Person, any Person in which such first Person, directly or indirectly, beneficially owns more than 50% of either the equity interest in, or the voting control of, such Person, whether or not existing on the date hereof. "Transaction Documents" means, collectively, this Agreement and the Registration Rights Agreement, and each other document, instrument, certificate, or agreement to be executed by the parties to effect each of the forgoing agreements. "White" has the meaning ascribed to it the recitals to this Agreement. "Witness" has the meaning ascribed to it the recitals to this Agreement. 1.2 Construction. (a) All references to "Articles," "Sections," "Schedules," and "Exhibits" contained in this Agreement are, unless specifically indicated otherwise, references to articles, sections, schedules, or exhibits of or to this Agreement. (b) As used in this Agreement, the following terms shall have the meanings indicated: (i) "day" means a calendar day; (ii) "U.S." or "United States" means the United States of America; (iii) "dollar" or "$" means lawful currency of the United States; (iv) "including" or "include" means "including without limitation"; and (v) references in this Agreement to specific Laws (such as the DGCL), or to specific sections or provisions of Laws, apply to the respective U.S. or state Laws that bear the names so specified and to any succeeding Law, section, or provision corresponding thereto and the rules and regulations promulgated thereunder. ARTICLE II Purchase and Sale of Securities ------------------------------- 2.1 Purchase and Sale of Securities. On the terms and subject to the conditions set forth herein, on the Closing Date, the Company shall issue, sell, and deliver to the Purchaser, and the Purchaser shall purchase and acquire from the Company, the Preferred Shares. 2.2 Purchase Price. On the terms and subject to the conditions set forth herein, the consideration to be paid to the Company by the Purchaser for the 293,000 shares of Convertible Preferred Stock is $1,000 per share, for a collective purchase price of $293.0 million (the "Purchase Price"). The Purchase Price shall be paid by wire transfer of immediately available funds to the Company's account designated on Exhibit B. 2.3 Closing Date. The closing of the purchase and sale of the Preferred Shares (the "Closing") shall take place at the offices of Jones Day, 222 East 41st Street, New York, New York 10017, at 10:00 a.m., local time, on 3 the closing date of the Merger. The date of the Closing is referred to herein as the "Closing Date." 2.4 Proceedings at Closing. All actions to be taken and all documents to be executed and delivered by the Company in connection with the consummation of the transactions offer, sale and issuance of the Preferred Shares shall be reasonably satisfactory in form and substance to the Purchaser and its counsel, and all actions to be taken and all documents to be executed and delivered by the Purchaser in connection with the consummation of the offer, sale and issuance of the Preferred Shares shall be reasonably satisfactory in form and substance to the Company and its counsel. All actions to be taken and all documents to be executed and delivered by all parties hereto at the Closing shall be deemed to have been taken and executed and delivered simultaneously, and no action shall be deemed taken nor any document executed or delivered until all have been taken, executed, and delivered. At the Closing, (i) the Company shall deliver to the Purchaser the items in Section 6.1 and (ii) the Purchaser shall deliver to the Company the items described in Section 6.2. ARTICLE III Representations and Warranties of the Company --------------------------------------------- The Company hereby makes the following representations and warranties to the Purchaser, each of which is true and correct as of the date hereof, and shall be unaffected by any investigation heretofore or hereafter made by the Purchaser: 3.1 Organization and Power. The Company and each of its Subsidiaries is a corporation duly incorporated, validly existing, and, in good standing under the Laws of the jurisdiction of its incorporation. The Company and each of its Subsidiaries has the requisite corporate power and authority to own, lease, or otherwise hold the assets and properties owned, leased, or otherwise held by it and necessary to carry on their business as presently conducted, taken as a whole. Except as set forth on Schedule 3.1, the Company and each of its Subsidiaries is in good standing and is duly qualified to conduct business as a foreign corporation in each jurisdiction in which the nature of its business or the ownership of property make such qualification necessary, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole. 3.2 Authorization. The Company has the requisite corporate power and authority to execute and deliver this Agreement and each other Transaction Document to be executed by it in connection with the consummation of the transactions contemplated hereby and to perform its obligations hereunder and thereunder. The execution and delivery by the Company of this Agreement and each other Transaction Document and the performance by it of its obligations hereunder and thereunder have been (or at the time of execution will be) duly authorized by all necessary corporate action on the part of the Company. This Agreement and each Transaction Document to which the Company is a party has been duly executed and delivered by duly authorized officers of the Company and, assuming the due execution and delivery of this Agreement and each other Transaction Document by the other party or parties hereto or thereto, each of the Agreement and the other Transaction Documents which constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, and other Laws of general applicability affecting the enforcement of creditors' and contracting parties' rights generally and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 4 3.3 Consents and Approvals. Assuming the accuracy of the representations made by the Purchaser in Article IV of this Agreement, no consent, approval, license, permit, order or authorization of, or registration, declaration, notice or filing with, any Governmental Entity or any stock market or stock exchange on which shares of Company Common Stock are listed for trading is required on the part of the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (i) the filing of the Certificate of Designation with the Secretary of State of the State of Delaware, (ii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable state securities Laws, and (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as have been made or obtained, as applicable. 3.4 No Conflicts. The execution and delivery of this Agreement does not and neither the performance by the Company of its obligations hereunder and thereunder, nor the consummation of the transactions contemplated hereby and thereby, will, (i) conflict with the certificate of incorporation or bylaws of the Company or comparable organizational documents of any of the Subsidiaries of the Company, (ii) conflict with, result in any violation of, constitute a default under, or give rise to a right of termination, cancellation, or acceleration of, or any obligation or to loss of a benefit under, any contract to which the Company or any of its Subsidiaries is a party, except in the case where there would be no Material Adverse Effect on the Company and the Subsidiaries, taken as a whole, (iii) violate any citation, order, judgment, decree, writ, or injunction ("Order") of any Governmental Entity applicable to the Company or any of its Subsidiaries, except in the case where there would be no Material Adverse Effect on the Company and the Subsidiaries, taken as a whole, or (iv) violate any Law applicable to the Company or any of its Subsidiaries, except in the case where there would be no Material Adverse Effect on the Company and the Subsidiaries, taken as a whole. 3.5 Authorization of Securities. The authorized capital stock of the Company consists of 120,000,000 shares of Common Stock and 2,500,000 shares of preferred stock, $0.001 par value per share (the "Preferred Stock"), 293,000 of which have been designated as the Convertible Preferred Stock. As of April 30, 2007, there are 32,519,327 shares of Common Stock issued and outstanding and 1,800 shares of Common Stock are held by the Company as treasury stock. As of the date hereof, there are no shares of Preferred Stock issued and outstanding. The rights, preferences, privileges and restrictions of the Preferred Shares will be as set forth in the Certificate of Designation. The shares of Common Stock issuable upon conversion of the Preferred Shares (the "Conversion Shares") have been duly and validly reserved for issuance. When issued and delivered in accordance with the terms of this Agreement and the Certificate of Designation, the Preferred Shares and the Conversion Shares will be duly authorized, validly issued, fully paid, and nonassessable, and free and clear of all Encumbrances. 3.6 Valid Offering. Assuming the truth and accuracy of the representations and warranties of the Purchaser set forth in Article IV hereof, the offer, sale, and issuance of the Preferred Shares and the Conversion Shares as contemplated by this Agreement and the Certificate of Designation do not require registration under the Securities Act or applicable blue-sky Laws. 3.7 Brokers' Fees. No person has acted, directly or indirectly, as a broker, finder or financial advisor for the Company or any of its Subsidiaries in connection with the transactions contemplated by this Agreement. Neither the Company nor any Person acting on its behalf has agreed to pay any commission, finder's or broker's fee, or similar payment in connection with the transactions contemplated by this Agreement or any matter related hereto to any Person for which the Company or any of its Subsidiaries will be liable. The Company agrees to indemnify and hold harmless the Purchaser from any liability for any commission or compensation in the nature of a finder's or broker's fee arising out of this transaction (and the costs and expenses of defending against such 5 liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. ARTICLE IV Representations and Warranties of the Purchaser ----------------------------------------------- The Purchaser hereby makes the following representations and warranties to the Company, each of which is true and correct as of the date hereof: 4.1 Organization. The Purchaser is a corporation duly incorporated, validly existing, and in good standing under the Laws of the State of New York, and the Purchaser's principal place of business is the State of New York. The Purchaser has the requisite corporate power and authority to own, lease, or otherwise hold the assets and properties owned, leased, or otherwise held by it and necessary to carry on its business as presently conducted. Except as set forth on Schedule 4.1, the Purchaser is in good standing and is duly qualified to conduct business as a foreign corporation in each jurisdiction in which the nature of its business or the ownership of property make such qualification necessary, except where the failure to be so qualified would not reasonably be expected to have a Material Adverse Effect on the Purchaser. 4.2 Authorization. The Purchaser has the requisite corporate power and authority to execute and deliver this Agreement and each other Transaction Document and to perform its obligations hereunder and thereunder. The execution and delivery by the Purchaser of this Agreement and each other Transaction Document and the performance by it of its obligations hereunder and thereunder have been (or at the time of execution will be) duly authorized by all necessary corporate action on the part of the Purchaser. This Agreement has been and each other Transaction Document will be duly executed and delivered by the Purchaser and, assuming the due execution and delivery of this Agreement and each other Transaction Document by the other party or parties hereto or thereto, each of this Agreement and the other Transaction Documents constitute valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium, and other Laws of general applicability affecting the enforcement of creditors' and contracting parties' rights generally and subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding at law or in equity). 4.3 Consents and Approvals. No consent, approval, waiver, order, or authorization of, or registration, declaration, or filing with, or notice to, any Person or Governmental Entity is required to be obtained or made on the part of the Purchaser in connection with the execution and delivery of this Agreement or any Transaction Document by the Purchaser, the performance by the Purchaser of its obligations hereunder and thereunder, or the consummation of the transactions contemplated hereby or thereby. 4.4 No Conflicts. The execution and delivery of this Agreement does not and each other Transaction Document will not, and neither the performance by the Purchaser of its obligations hereunder and thereunder, nor the consummation of the transactions contemplated hereby and thereby, will not (i) conflict with the certificate of incorporation or bylaws of the Purchaser or comparable organizational documents of any of the Subsidiaries of the Purchaser, (ii) conflict with, result in any violation of, constitute a default under, or give rise to a right of termination, cancellation, or acceleration of, or any obligation or to loss of a benefit under, any contract to which the Purchaser or any of its Subsidiaries is a party, except in the case where there would be no Material Adverse Effect on the Purchaser and the Subsidiaries, taken as a whole, (iii) violate any Order of any Governmental Entity applicable to the Purchaser or any of its Subsidiaries, except in the case where there would be no Material Adverse Effect on the Company and the Subsidiaries, taken as a whole, or (iv) violate any Law applicable to the Purchaser or any of its Subsidiaries, except 6 in the case where there would be no Material Adverse Effect on the Purchaser and its Subsidiaries, taken as a whole. 4.5 Brokers' Fees. Neither the Purchaser nor any Person acting on its behalf has agreed to pay any commission, finder's or broker's fee, or similar payment in connection with the transactions contemplated by this Agreement or any matter related hereto to any Person for which the Company or any of its Subsidiaries will be liable. The Purchaser agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder's or broker's fee arising out of this transaction (and the costs and expenses of defending against such liability or asserted liability) for which the Purchaser or any of its officers, employees, or representatives is responsible. 4.6 Investment Representations. The Purchaser understands that neither the Preferred Shares nor the Conversion Shares have been registered under the Securities Act and that the Preferred Shares are being offered and sold to the Purchaser pursuant to an exemption from the registration requirements of the Securities Act based in part upon the Purchaser's representations contained in this Agreement. 4.7 Restricted Securities. The Purchaser understands that the Preferred Shares will be characterized as "restricted securities" under the Securities Act and that, as such, the Preferred Shares may be resold without registration under the Securities Act only pursuant to an effective registration statement, or pursuant to an exemption from or in a transaction not subject to, the registration requirements of the Securities Act. Except as contemplated by the Registration Rights Agreement, the Purchaser understands that the Company is under no obligation to register the Preferred Shares or the Conversion Shares and that the Company has no present intention of doing so. The Purchaser also understands that there is no assurance that any exemption from registration under the Securities Act will be available with respect to any transfer of Preferred Shares or Conversion Shares by the Purchaser and that, even if available, such exemption may not allow the Purchaser to transfer all or any portion of the Preferred Shares or the Conversion Shares under the circumstances, in the amounts or at the times the Purchaser might propose. 4.8 Accredited Investor. The Purchaser is an "accredited investor" as such term is defined in Regulation D under the Securities Act. 4.9 Investment. The Purchaser is acquiring the Preferred Shares for its own account for investment and not with a view to, or for sale in connection with, any distribution thereof, nor with any present intention of distributing or selling the same and, except for transfers permitted without provision of an opinion of counsel reasonably acceptable to the Company, the Purchaser has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof. The Purchaser also represents that it has not been formed for the specific purpose of acquiring the Preferred Shares. 4.10 Knowledge and Experience. The Purchaser has such knowledge and experience in financial and business matters that the Purchaser is capable of evaluating the merits and risks of an investment in the Preferred Shares and of making an informed investment decision and can bear a complete loss of the Purchaser's investment. 4.11 No Solicitation. At no time was the Purchaser presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Preferred Shares. 4.12 Restrictions on Transfer. 7 (a) Until the six-month anniversary of the Closing Date, the Purchaser hereby agrees that it will not, directly or indirectly, sell, offer, contract or grant any option to sell (including without limitation any short sale), pledge, transfer or otherwise dispose of any Preferred Shares or Conversion Shares. (b) The Purchaser understands that certificates representing the Preferred Shares and, when issued, the Conversion Shares will bear legends as follows: (i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN THE STOCK PURCHASE AGREEMENT DATED AS OF MAY 25, 2007, A COPY OF WHICH IS AVAILABLE FROM THE COMPANY." (ii) Any legend required by the securities laws of any state to the extent such laws are applicable to the Preferred Shares and Conversion Shares represented by the certificate so legended. 4.13 Access to Management. The Purchaser confirms that, in making its decision to purchase the Preferred Shares, the Purchaser has relied solely upon the Company's representations and warranties in Section 3 hereof and independent investigations made by the Purchaser (including through its designated representatives on the Company's Board of Directors), and that the Purchaser's representatives have been given the opportunity to ask questions of, and to receive answers from, management, the Company's legal and financial advisors, and other persons acting on behalf of the Company concerning the Company and the terms and conditions of the transactions contemplated by this Agreement (including the Merger), and to obtain any additional information, to the extent such persons possess such information. ARTICLE V Covenants --------- 5.1 All Reasonable Efforts; Further Assurances. Subject to the terms and conditions hereof, each of the parties hereto shall use its commercially reasonable efforts to take, or cause to be taken, all action, and do, or cause to be done, as promptly as practicable, all things necessary, proper, or advisable under applicable Law to consummate and make effective as promptly as practicable the transactions contemplated hereby. At and from time to time after the Closing, at the request of any party hereto, the other party shall execute and deliver such additional certificates, instruments, and other documents and take such other actions as such party may reasonably request in order to carry out the purposes of this Agreement. 8 5.2 Public Announcements. The Company and the Purchaser will consult with each other and will mutually agree (the agreement of each party not to be unreasonably withheld) upon the content and timing of any press release or other public statement in respect of the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to such consultation and agreement, except as may be required by applicable Law; provided, however, that the Company and the Purchaser will give prior notice to the other party of the content and timing of any such press release or other public statement. 5.3 Confidentiality. Each party hereto agrees that such party will hold, and will use its commercially reasonable efforts to cause its officers, directors, members, managers, partners, employees, accountants, counsel, consultants, advisors, financial sources, financial institutions, and agents (the "Representatives") to hold, in confidence all confidential information and documents received from the other party hereto, except to the extent such information (i) was previously known on a non-confidential basis to the party receiving such information or documents ("Receiving Party"), (ii) was in the public domain through no fault of the Receiving Party, (iii) was independently developed by the Receiving Party, (iv) was later developed by the Receiving Party from sources other than the disclosing party not known by the Receiving Party to be bound by any confidentiality obligation, or (v) is required to be disclosed by Law or by any Governmental Entity. 5.4 Use of Proceeds. The Company will use the proceeds received from the issuance and sale of the Preferred Shares to pay a portion of the purchase price for the Merger and related fees and expenses, and for no other purposes. 5.5 Removal of Legends. The Company, as promptly as practicable after the six-month anniversary of the Closing Date and without any requirement of a legal opinion provided by the Purchaser, shall remove or cause to be removed all restrictive stock legends set forth in Section 4.12 from the certificates representing the Preferred Shares and, if any then issued, the Conversion Shares, and after such six-month anniversary, the Preferred Shares and, when issued, the Conversion Shares will bear legends as follows: (i) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT." (ii) Any legend required by the securities laws of any state to the extent such laws are applicable to the Preferred Shares and Conversion Shares represented by the certificate so legended. 9 ARTICLE VI Closing Deliveries ------------------ 6.1 Items to Be Delivered by the Company. At the Closing, the Company shall deliver to Purchaser: (a) Convertible Preferred Stock Certificates. One or more validly issued certificates representing the Preferred Shares duly executed by the appropriate officers of the Company. (b) Certified Copy of Certificate of Designation. A file-stamped copy of the Certificate of Designation as certified by the Secretary of State of the State of Delaware. (c) Registration Rights Agreement. The Registration Rights Agreement duly executed by an authorized officer of the Company. (d) Opinion. An opinion from Jones Day, dated as of the Closing Date, in the form attached hereto as Exhibit C. 6.2 Items to Be Delivered by the Purchaser. At the Closing, the Purchaser shall deliver to the Company: (a) Purchase Price. The Purchase Price in accordance with Section 2.2. ARTICLE VII Survival -------- 7.1 Survival of Representations, Warranties, and Covenants. (a) The representations and warranties of the Company and Purchaser contained in this Agreement shall survive indefinitely and shall be unaffected by any investigation heretofore or hereafter made by the Purchaser or the Company. (b) Unless a specified period is set forth in this Agreement (in which event such specified period will control), the covenants in this Agreement will survive and remain in effect indefinitely. ARTICLE VIII Miscellaneous ------------- 8.1 Amendments. This Agreement may be amended, modified, or supplemented only pursuant to a written instrument making specific reference to this Agreement and signed by each of the parties hereto. 8.2 Assignment. The Purchaser shall be entitled to assign its rights and obligations hereunder to one or more Affiliates (so long as any such Affiliate is an "accredited investor" as such term is defined in Regulation D of the Securities Act) that agree to assume the Purchaser's obligations hereunder; provided, that the Purchaser shall remain obligated to perform its obligations hereunder to the extent not performed, or unable to be performed, by such Affiliate(s). This Agreement and the rights and obligations hereunder shall not be otherwise assigned, delegated, or otherwise transferred (whether by operation 10 of law, by contract, or otherwise) without the prior written consent of the other party hereto. Any attempted assignment, delegation, or transfer in violation of this Section 8.2 shall be void and of no force or effect. 8.3 Binding Effect. Except as otherwise expressly provided herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 8.4 Counterparts. This Agreement may be executed in multiple counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument. 8.5 Entire Agreement. This Agreement (including the Exhibits attached hereto) and the Transaction Documents constitute the entire agreement of the parties hereto in respect of the subject matter hereof and thereof, and supersede all prior agreements or understandings, among the parties hereto in respect of the subject matter hereof and thereof. 8.6 Fees and Expenses. Each party shall bear all of its own expenses (including fees and disbursements of its counsel) incurred by or on its behalf in connection with the preparation, negotiation, execution, delivery, and performance of this Agreement and each Transaction Document and the consummation of the transactions contemplated hereby and thereby. 8.7 Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of New York (without reference to the conflicts of law provisions thereof). Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the State of New York or of the United States of America located in the State of New York. By execution and delivery of this Agreement, each of the parties hereto accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereby irrevocably waive an objection or defense that they now or hereafter have to the assertion of personal jurisdiction by any court in any such action or to the laying of the venue of any such action in any such court, and hereby waive, to the extent not prohibited by law, and agree not to assert, by way of motion, as a defense, or otherwise, in any such proceeding, any claim that it is not subject to the jurisdiction of the above-named courts for such proceedings. 8.8 Headings. The article and section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provision hereof. 8.9 Notices. Any notice, demand, request, instruction, correspondence, or other document required or permitted to be given hereunder by any party to the other shall be in writing and delivered (i) in person, (ii) by a nationally recognized overnight courier service requiring acknowledgment of receipt of delivery, (iii) by United States certified mail, postage prepaid and return receipt requested, or (iv) by facsimile, as follows: 11 If to the Company, to: Verint Systems Inc. 330 South Service Road Melville, New York 11747 Attention: General Counsel Facsimile No.: 212-755-7306 with a copy to (which shall not constitute notice): Jones Day 222 East 41st Street New York, New York 10017 Attention: Dennis P. Barsky Facsimile No.: 212-755-7306 If to the Purchaser, to: Comverse Technology, Inc. 810 Seventh Avenue New York, New York 10019 Attention: General Counsel Facsimile No.: 212-739-1001 with a copy to (which shall not constitute notice): Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: David Zeltner Facsimile No.: 212-310-8007 Notice shall be deemed given, received, and effective on: (i) if given by personal delivery or courier service, the date of actual receipt by the receiving party, or if delivery is refused on the date delivery was first attempted; (ii) if given by certified mail, the third day after being so mailed if posted with the United States Postal Service; and (iii) if given by facsimile, the date on which the facsimile is transmitted if confirmed by transmission report during the transmitter's normal business hours, or at the beginning of the next business day after transmission if confirmed at any time other than the transmitter's normal business hours. Any person entitled to notice may change any address or facsimile number to which notice is to be given to it by giving notice of such change of address or facsimile number as provided in this Section 8.9. The inability to deliver notice because of changed address or facsimile number of which no notice was given shall be deemed to be receipt of the notice as of the date such attempt was first made. 8.10 Severability. If any provision of this Agreement or the application of such provision to any person or circumstance shall be held (by a court of competent jurisdiction) to be invalid, illegal, or unenforceable under the applicable Law of any jurisdiction, (i) the remainder of this Agreement or the application of such provision to other persons or circumstances or in other jurisdictions shall not be affected thereby, and (ii) such invalid, illegal, or unenforceable provision shall not affect the validity or enforceability of any other provision of this Agreement. 12 8.11 Third-Party Beneficiaries. Nothing express or implied in this Agreement is intended or shall be construed to confer upon or give any other Person any rights or remedies under of by reason of this Agreement or the transactions contemplated hereby. 8.12 Waiver. The rights and remedies provided for herein are cumulative and not exclusive of any right or remedy that may be available to any party whether at law, in equity, or otherwise. No delay, forbearance, or neglect by any party, whether in one or more instances, in the exercise of any right, power, privilege, or remedy hereunder or in the enforcement of any term or condition of this Agreement shall constitute or be construed as a waiver thereof. No waiver of any provision hereof, or consent required hereunder, or any consent or departure from this Agreement, shall be valid or binding unless expressly and affirmatively made in writing and duly executed by the party to be charged with such waiver. No waiver shall constitute or be construed as a continuing waiver or a waiver in respect of any subsequent breach or Default, either of similar or different nature, unless expressly so stated in such writing. * * * * * [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 13 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. VERINT SYSTEMS INC. By: /s/ Peter Fante ---------------------------------------- Name: Peter Fante Title: General Counsel and Secretary COMVERSE TECHNOLOGY, INC. By: /s/ Andre Dahan ---------------------------------------- Name: Andre Dahan Title: Chief Executive Officer and President [SIGNATURE PAGE FOR SECURITIES PURCHASE AGREEMENT] 14 Exhibit A --------- Certificate of Designations Exhibit B --------- Wire Transfer Instructions Bank: Bank of America ABA No.: 26009593 Account No.: 4602291022 Account Name: EquiServe Contact/Reference: Witness/Matt Attubato X62628 Exhibit C --------- [Jones Day Opinion] May 25, 2007 Comverse Technology, Inc. 810 Seventh Avenue New York, New York Attention: Paul L. Robinson Re: Series A Convertible Perpetual Preferred Stock ---------------------------------------------- Ladies and Gentlemen: We have acted as counsel for Verint Systems Inc., a Delaware corporation (the "Company"), in connection with the purchase from the Company by Comverse Technology, Inc. ("Comverse") of 293,000 shares (the "Shares") of Series A Convertible Perpetual Preferred Stock, par value $0.001 per share, of the Company (the "Convertible Preferred Stock") pursuant to the Securities Purchase Agreement, dated as of May 25, 2007 (the "Purchase Agreement"), by and between the Company and Comverse. This letter is furnished to Comverse pursuant to Section 6.1(d) of the Purchase Agreement. Except as otherwise defined herein, terms used in this letter but not otherwise defined herein are used as defined in the Purchase Agreement. In connection with the opinions expressed herein, we have examined such documents, records and matters of law as we have deemed relevant or necessary for purposes of such opinions. Based on the foregoing, and subject to the further limitations, qualifications and assumptions set forth herein, we are of the opinion that: 1. The Company is a corporation existing and in good standing under the laws of the State of Delaware, with the corporate power and authority to conduct its business and to own or lease its properties as described in the Company's most recent filings under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). 2. Each of the Purchase Agreement and the Registration Rights Agreement, dated May 25, 2007 (the "Registration Rights Agreement"), by and between the Company and Comverse, has been authorized by all necessary corporate action of, and executed and delivered by, the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. 3. The Shares have been authorized by all necessary corporate action of the Company and, when issued and delivered to Comverse in accordance with the Certificate of Designation, Preferences and Rights and pursuant to the Purchase Agreement against payment of the consideration therefor as provided therein, will be validly issued, fully paid and nonassessable. The Conversion Shares have been authorized by all necessary corporate action of the Company Comverse Technology, Inc. May 25, 2007 Page 2 and, after the Conversion Shares have been approved by the stockholders of the Company, and when issued upon conversion of the Convertible Preferred Stock pursuant to the terms and conditions of the Convertible Preferred Stock and the Certificate of Designation, Preferences and Rights, will be validly issued, fully paid and nonassessable. 4. No consent, approval, authorization or order of, or filing with, any New York State or U.S. federal governmental agency or body or any New York or U.S. federal court is required in connection with the execution, delivery or performance of the Purchase Agreement or the Registration Rights Agreement by the Company, or in connection with the issuance or sale of the Shares by the Company to Comverse, except (i) for the registration of the Shares under the Securities Act of 1933 (the "Securities Act") and the rules and regulations thereunder, (ii) periodic and other reporting requirements under the Exchange Act and the rules and regulations thereunder or (iii) as may be required under state securities or "blue sky" laws. 5. It is not necessary in connection with the offer and sale of the Shares to Comverse under the Purchase Agreement to register the Shares under the Securities Act. 6. The execution, delivery and performance of the Purchase Agreement and the Registration Rights Agreement by the Company, the issuance and sale of the Convertible Preferred Stock by the Company and the compliance with the terms and provisions of the Purchase Agreement and the Registration Rights Agreement by the Company will not violate or result in a default under any of the terms and provisions of the Amended and Restated Certificate of Incorporation of the Company or the Bylaws of the Company. The opinions set forth above are subject to the following limitations, qualifications and assumptions: We have assumed, for purposes of the opinions expressed herein, the legal capacity of all natural persons executing documents, the genuineness of all signatures, the authenticity of original and certified documents and the conformity to original or certified copies of all copies submitted to us as conformed or reproduction copies. For the purposes of the opinions expressed herein, we also have assumed that Comverse has authorized, executed, authenticated and delivered the documents to which it is a party and that each of such documents is the valid, binding and enforceable obligation of Comverse. As to facts material to the opinions and assumptions expressed herein, we have, with your consent, relied upon written statements and representations of officers and other representatives of the Company and others, including the representations and warranties of the Company in the Purchase Agreement. We have not independently verified such matters. The opinions expressed in paragraph 1 above with respect to the existence and good standing of the Company are based solely on certificates of public officials as to factual matters or legal conclusions set forth therein. Our opinions set forth in paragraph 2 above with respect to the enforceability of the documents or securities referred to in such opinions are subject to: (i) bankruptcy, insolvency, reorganization, fraudulent transfer and fraudulent conveyance, voidable preference, moratorium or other similar laws, and related regulations and judicial doctrines from time to time in effect relating to or affecting creditors' rights and remedies generally; (ii) general Comverse Technology, Inc. May 25, 2007 Page 3 equitable principles, whether such principles are considered in a proceeding at law or in equity; (iii) the qualification that we express no opinion as to the validity, binding effect or enforceability of any provision in any document (A) relating to indemnification, contribution or exculpation in connection with violations of any securities laws or statutory duties or public policy, or in connection with willful, reckless or unlawful acts or gross negligence of the indemnified or exculpated party or the party receiving contribution, (B) relating to forum selection to the extent the forum is a federal court, (C) relating to forum selection to the extent that any relevant action or proceeding does not arise out of or relate to such document or to the extent that the enforceability of any such provision is to be determined by any court other than a court of the State of New York, (D) relating to choice of governing law to the extent that the enforceability of any such provision is to be determined by any court other than a court of the State of New York or may be subject to constitutional limitations, (E) waiving any rights to trial by jury or (F) specifying that provisions thereof may be waived only in writing, to the extent that an oral agreement or an implied agreement by trade practice or course of conduct has been created that modifies any provision of such documents; and (iv) the effect of applicable rules of law that (A) provide that forum selection clauses in contracts are not necessarily binding on the courts in the forum selected, (B) may, where less than all of a contract may be unenforceable, limit the enforceability of the balance of the contract to circumstances in which the unenforceable portion is not an essential part of the agreed exchange, or that permit a court to reserve to itself a decision as to whether any provision of any agreement is severable, and (C) govern and afford judicial discretion regarding the determination of damages and entitlement to attorneys' fees and other costs. In rendering the opinions set forth in paragraph 5 above, we have assumed: (i) that the offer and sale of the Shares will be conducted solely in the manner contemplated by the Purchase Agreement and (ii) the accuracy and completeness of the respective representations and warranties of the Company and Comverse, and the compliance by each of them with their respective covenants and agreements, as set forth in the Purchase Agreement, it being understood that no opinion is hereby expressed as to any resale of the Shares. The opinions expressed herein are limited to (i) the federal securities laws of the United States of America, (ii) the laws of the State of New York and (iii) insofar as relevant to the opinions expressed in paragraphs 1, 2 and 3 above, the Delaware General Corporation Law, in each case as currently in effect, and we express no opinion as to the effect of the laws of any other jurisdiction on the opinions expressed herein. Our opinions are limited to those expressly set forth herein, and we express no opinions by implication. This letter is furnished by us to you solely for your benefit and solely with respect to your purchase of the Shares from the Company pursuant to the Purchase Agreement, upon the understanding that we are not hereby assuming any professional responsibility to any other person whatsoever, and that this letter is not to be used, circulated, quoted or otherwise referred to for any other purpose. Very truly yours, EX-10 3 mm05-3107_8ke102.txt EX.10.2 - REGISTRATION RIGHT AGREEMENT EXHIBIT 10.2 ------------ EXECUTION VERSION REGISTRATION RIGHTS AGREEMENT DATED AS OF MAY 25, 2007 BY AND BETWEEN VERINT SYSTEMS INC., AND COMVERSE TECHNOLOGY, INC. TABLE OF CONTENTS PAGE ARTICLE I. DEFINITIONS AND CERTAIN INTERPRETATIVE MATTERS................1 1.1 Definitions...................................................1 1.2 Certain Interpretative Matters................................5 ARTICLE II. DEMAND REGISTRATION...........................................5 2.1 Right to Demand Registration..................................5 2.2 Blackout Period...............................................6 2.3 Effective Demand Registrations................................6 2.4 Revocation of Demand Registration.............................7 2.5 Continuous Effectiveness of Registration Statement............7 2.6 Underwritten Demand Registration..............................7 2.7 Priority in Demand Registration...............................8 ARTICLE III. PIGGYBACK REGISTRATION........................................8 3.1 Right to Piggyback............................................8 3.2 Priority on Piggyback Registrations...........................9 3.3 Withdrawal of Piggyback Registration.........................10 ARTICLE IV. PROCEDURES AND EXPENSES......................................10 4.1 Registration Procedures......................................10 4.2 Information from Holders.....................................14 4.3 Suspension of Disposition....................................14 4.4 Registration Expenses........................................15 ARTICLE V. INDEMNIFICATION..............................................16 5.1 Indemnification by the Company...............................16 5.2 Indemnification by Holders...................................16 5.3 Conduct of Indemnification Proceedings.......................17 5.4 Contribution.................................................18 5.5 Continuing Effect............................................18 ARTICLE VI. RULE 144.....................................................18 -i- TABLE OF CONTENTS (continued) PAGE ARTICLE VII. PARTICIPATION IN UNDERWRITTEN OFFERINGS......................19 ARTICLE VIII. MISCELLANEOUS................................................19 8.1 No Conflicting Agreements....................................19 8.2 Notices......................................................19 8.3 Confidentiality..............................................20 8.4 Assignment...................................................21 8.5 No Third-Party Beneficiaries.................................21 8.6 Entire Agreement.............................................21 8.7 Amendment and Waiver.........................................21 8.8 Counterparts.................................................21 8.9 Severability.................................................21 8.10 Governing Law................................................21 8.11 Specific Performance.........................................21 8.12 Further Assurances...........................................21 -ii- REGISTRATION RIGHTS AGREEMENT ----------------------------- This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 25, 2007, is made by and between Verint Systems Inc., a Delaware corporation (the "Company"), and Comverse Technology, Inc., a New York corporation (the "Purchaser"). RECITALS -------- WHEREAS, the Company has entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, White Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Company ("White"), and Witness Systems, Inc., a Delaware corporation ("Witness"), pursuant to which Witness will, on the terms and subject to the conditions set forth in the Merger Agreement, merge with and into White (the "Merger"); WHEREAS, pursuant to the Merger Agreement, the Company has agreed to finance the Merger through a combination of (i) cash on hand (including cash of Witness), (ii) the proceeds from a debt financing, pursuant to a commitment letter dated February 11, 2007, among Lehman Brothers Inc., Lehman Commercial Paper Inc., Lehman Brothers Commercial Bank, Deutsche Bank Securities Inc., Deutsche Bank AG, New York Branch, Credit Suisse Securities (USA) LLC and Credit Suisse and the Company, and (iii) the proceeds from the issuance of equity securities to the Purchaser (the "Equity Financing") pursuant to a commitment letter (the "Equity Commitment Letter") dated February 11, 2007, between the Company and the Purchaser; WHEREAS, in connection with the Equity Financing, the Company has created a new series of preferred stock, designated as the Series A Convertible Perpetual Preferred Stock, par value $0.001 per share (the "Convertible Preferred Stock"), consisting of 293,000 shares of Convertible Preferred Stock, all of which have been issued and sold to the Purchaser pursuant to a Securities Purchase Agreement dated the date hereof between the Company and the Purchaser (the "Securities Purchase Agreement"); and WHEREAS, as an inducement to the Purchaser to purchase the Convertible Preferred Stock and pursuant to the Equity Commitment Letter, the Company and the Purchaser have agreed to enter into this Agreement. AGREEMENTS ---------- NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows: Article I. Definitions and Certain Interpretative Matters 1.1 Definitions. For purposes of this Agreement, the following terms have the following meanings: (a) "Advice": As defined in Section 4.3. (b) "Affiliate": Means, in respect of any Person, any other Person that is directly or indirectly controlling, controlled by, or under common control with such Person or any of its subsidiaries, and the term "control" (including the terms "controlled by" and "under common control with") means having, directly or indirectly, the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities or by contract or otherwise. (c) "Agreement": As defined in the introductory paragraph hereof. (d) "Blackout Period": Any period during which, in accordance with Section 2.2, the Company is not required to effect the filing of a Registration Statement or is entitled to postpone the filing or effectiveness or suspend the effectiveness of a Registration Statement. (e) "Business Day": Any day, other than a Saturday or Sunday, on which national banking institutions in New York, New York, are open. (f) "Common Stock": The Company's common stock, par value $0.001 per share. (g) "Company": As defined in the introductory paragraph hereof. (h) "Compliance Date": The first date on which the Company is in compliance with SEC reporting requirements promulgated under the Exchange Act. (i) "Conversion Stock": means the Common Stock issuable upon conversion of the Convertible Preferred Stock. (j) "Convertible Preferred Stock": As defined in the recitals. (k) "Demand Notice": As defined in Section 2.1(a). (l) "Demand Registration": A registration of Registrable Securities requested pursuant to Section 2.1. (m) "Equity Commitment": As defined in the recitals. (n) "Equity Financing": As defined in the recitals. (o) "Exchange Act": The Securities Exchange Act of 1934, as amended. (p) "Filing Date": (i) with respect to a Registration Statement to be filed on Form S-1 (or any applicable successor form), not later than 90 days after receipt by the Company of a request for such Registration Statement and (ii) with respect to a Registration Statement to be filed on Form S-3 (or any applicable successor form), not later than 60 days after receipt by the Company of a request for such Registration Statement. (q) "Free Writing Prospectus": As defined in Rule 405. 2 (r) "Holders": The Purchaser or one or more of its Affiliates or any subsequent transferee of any Registrable Securities, in each case if such Affiliate or other transferee becomes the record owner of Registrable Securities and has become a party to this Agreement by executing a joinder agreement agreeing to be bound by all of the terms and conditions of this Agreement, in form and substance reasonably satisfactory to the Company. (s) "Indemnified Party": As defined in Section 5.3. (t) "Indemnifying Party": As defined in Section 5.3. (u) "Interference": As defined in Section 2.3(b). (v) "Losses": As defined in Section 5.1. (w) "Merger": As defined in the recitals. (x) "Merger Agreement": As defined in the recitals. (y) "Other Holders": Any Person having rights to participate in a registration of the Company's securities. (z) "Person": Any individual, corporation, general or limited partnership, limited liability company, joint venture, trust or other entity or association, including, without limitation, any governmental authority. (aa) "Piggyback Notice": As defined in Section 3.1. (bb) "Piggyback Registration": As defined in Section 3.1. (cc) "Prospectus": The prospectus forming a part of any Registration Statement, as supplemented by any and all prospectus supplements and as amended by any and all amendments (including post-effective amendments) and including all material incorporated by reference or explicitly deemed to be incorporated by reference in such prospectus. (dd) "Purchaser": As defined in the introductory paragraph hereof. (ee) "Registrable Securities": (i) the Convertible Preferred Stock and the Conversion Stock and (ii) any securities paid, issued or distributed in respect of the Convertible Preferred Stock or the Conversion Stock by way of stock dividend, stock split or distribution, or in connection with a combination of shares, recapitalization, reorganization, merger or consolidation, or otherwise; provided, however, that as to any Registrable Securities, such securities will irrevocably cease to constitute "Registrable Securities" upon the earliest to occur of: (A) the date on which such securities are disposed of pursuant to an effective Registration Statement; (B) the date on which such securities are sold to the public pursuant to Rule 144; (C) the date on which the securities may be sold to the public pursuant to Rule 144(k); or (D) the date on which such securities cease to be outstanding; provided, further, that in the case of clauses (A), (B) and (C), the legend on such securities with respect to transfer restrictions required by the Securities 3 Purchase Agreement is removed or is removable in accordance with the terms of the Securities Purchase Agreement or such legend, as the case may be. (ff) "Registration Expenses": As defined in Section 4.4(a). (gg) "Registration Statement": Any registration statement of the Company under the Securities Act that covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement (including post-effective amendments), and all exhibits and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such registration statement. (hh) "Required Period": (A) With respect to a Shelf Registration, the earlier to occur of: (i) the date on which there cease to be any Registrable Securities outstanding and (ii) the date which is two years after the date on which such Registration Statement was declared effective and (B) with respect to a Demand Registration or a Piggyback Registration that is not a Shelf Registration, the earlier of (i) the date on which all Registrable Securities covered by such Demand Registration or Piggyback Registration are sold pursuant thereto and (ii) 120 days following the first day of effectiveness of the Registration Statement for such Demand Registration or Piggyback Registration, in each case subject to extension as set forth herein; provided, however, that in no event will the Required Period expire prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174. (ii) "Rule 144": Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (jj) "Rule 144(k)": Rule 144(k) promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (kk) "Rule 158": Rule 158 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (ll) "Rule 174": Rule 174 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (mm) "Rule 405": Rule 405 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (nn) "Rule 415": Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC. (oo) "SEC": The Securities and Exchange Commission. 4 (pp) "Securities Act": The Securities Act of 1933, as amended. (qq) "Securities Purchase Agreement": As defined in the recitals. (rr) "Shelf Registration": A registration of Registrable Securities requested pursuant to Section 2.1(b). (ss) "Underwritten Registration" or "Underwritten Offering": A registration in which securities of the Company are sold to an underwriter for reoffering to the public. (tt) "White": As defined in the recitals. (uu) "Witness": As defined in the recitals. 1.2 "Certain Interpretative Matters. Unless the context otherwise requires, (a) all references to Articles or Sections are to Articles or Sections of this Agreement, (b) each term defined in this Agreement has the meaning assigned to it, (c) all uses of "herein," "hereto," "hereof" and words similar thereto in this Agreement refer to this Agreement in its entirety, and not solely to the Article, Section or provision in which it appears, (d) "or" is disjunctive but not necessarily exclusive, and (e) words in the singular include the plural and vice versa. Unless otherwise specified, the use of the term "day" will be deemed to be a calendar day and not a Business Day. Article II. Demand Registration 2.1 Right to Demand Registration. (a) At any time and from time to time following the date that is 180 days after (i) the Compliance Date and (ii) the date that the Company has obtained the requisite stockholder approval for the issuance of the Conversion Stock, any Holder of Registrable Securities may request in writing that the Company effect the registration of all or part of such Holders' Registrable Securities with the SEC under and in accordance with the provisions of the Securities Act and this Agreement (which written request will specify (i) the then current name and address of such Holder or Holders, (ii) the aggregate number of shares of Registrable Securities requested to be registered, and (iii) the means of distribution (the "Demand Notice"). (b) If a Holder or Holders request that the Company effect a Demand Registration and the Company is at such time eligible to use Form S-3 (or any applicable successor form), the Holder or Holders making such request may specify in the Demand Notice that the requested registration be a Shelf Registration for an offering on a delayed or continuous basis pursuant to Rule 415. (c) The Company will file a Registration Statement covering such Holder's or Holders' Registrable Securities requested to be registered as promptly as practicable (and, in any event, by the applicable Filing Date) after receipt of a Demand Notice; provided, however, that the Company will not be required to take any action pursuant to this Article II if: 5 (A) prior to the date of such request, the Company has effected two Demand Registrations or if the Company has effected one Demand Registration in the 12-month period preceding the Demand Notice; (B) (i) within the 90-day period preceding such request, the Company has effected (x) any registration other than an Underwritten Registration pursuant to which the Holders were entitled to participate pursuant to Article III hereof without any limitation on their ability to include all of their Registrable Securities requested to be included therein or (y) an Underwritten Registration pursuant to which the Holders were entitled to participate and include between 25% to 50% of the Registrable Securities requested to be included therein pursuant to Article III hereof, or (ii) within the 180-day period preceding such request, the Company has effected an Underwritten Registration pursuant to which the Holders were entitled to participate and include more than 50% of the Registrable Securities requested to be included therein pursuant to Article III hereof; (C) a Registration Statement is effective at the time such request is made pursuant to which the Holder or Holders making such request can effect the disposition of such Holder's or Holders' Registrable Securities in the manner requested; (D) the Registrable Securities requested to be registered (i) have an aggregate then-current market value of less than $100.0 million (before deducting any underwriting discounts and commission) or (ii) constitute less than all remaining Registrable Securities if less than $100.0 million of then-current market value of Registrable Securities are then outstanding; or (E) during the pendency of any Blackout Period. 2.2 Blackout Period. Notwithstanding anything contained in Section 2.1 to the contrary, if the Board of Directors of the Company determines, in the good faith exercise of its reasonable business judgment, that the registration and distribution of Registrable Securities pursuant to a Demand Registration (i) would materially impede, delay or interfere with any financing, acquisition, corporate reorganization or other significant transaction, or any negotiations, discussions or pending proposals with respect thereto, involving the Company or any of its subsidiaries or (ii) would require disclosure of non-public material information, the disclosure of which would materially and adversely affect the Company, the Company will promptly give the Holders written notice of such determination and will be entitled to postpone the filing or effectiveness or suspend the effectiveness of a Registration Statement for a reasonable period of time; provided, however, that in no event shall the Company be entitled to exercise its rights under this Section 2.2 more than four times in any 12-month period and any period during which the filing or effectiveness of a Registration Statement or any Prospectus is suspended or postponed shall not exceed 120 days in any 12-month period. Any Holder receiving any such written notice from the Company pursuant to this Section 2.2 shall treat such notice confidentially and shall not disclose such information to any Person other than as necessary to exercise it rights under this Agreement or as required by applicable law or court order. 6 2.3 Effective Demand Registrations. (a) The Company may satisfy its obligations under Section 2.1 by amending or supplementing (including, if permitted, through incorporation by reference), in each case to the extent permitted by applicable law, any effective registration statement previously filed by the Company under the Securities Act so that such amended registration statement will permit the disposition (in accordance with the intended methods of disposition specified in the Demand Notice) of all of the Registrable Securities for which a Demand Registration has been made under Section 2.1. (b) Except as provided in Section 2.4, a Demand Registration will not be deemed to be effected for purposes of Section 2.1 if the Registration Statement for such Demand Registration has not been declared effective by the SEC or become effective in accordance with the Securities Act and the rules and regulations thereunder and kept effective for the Required Period. In addition, if after such Registration Statement has been declared or becomes effective, an offering of Registrable Securities pursuant to such Registration Statement is interfered with by any stop order, injunction, or other order or requirement of the SEC or other governmental agency or court (an "Interference") and any such Interference is not cured within 90 days thereof, such Demand Registration will be deemed not to have been effected and will not count as a Demand Registration. In the event such Interference occurs and is cured, the Required Period relating to such Registration Statement will be extended by the number of days of such Interference, including the date such Interference is cured. 2.4 Revocation of Demand Registration. Holders of at least a majority of the Registrable Securities to be included in a Registration Statement pursuant to a Demand Registration may, at any time prior to the effective date of the Registration Statement relating to such registration (or, if the Company relies on Section 2.3(a), prior to the inclusion of such Registrable Securities in such previously filed Registration Statement), revoke its or their request to have Registrable Securities included therein and to revoke the request for such Demand Registration by providing a written notice to the Company. In the event such Holders of Registrable Securities revoke such request, the Holders of Registrable Securities to be included in such Demand Registration shall reimburse the Company for all its reasonable out of pocket expenses incurred in the preparation, filing and processing of the Registration Statement or the Demand Registration that has been revoked will be deemed to have been effected for purposes of Section 2.1; unless, in either case, such revocation was based on (i) a material adverse change in circumstances with respect to the Company or any of its subsidiaries not known to the Holders of the Registrable Securities at the time the Demand Registration was first made or (ii) the Company's failure to comply in any material respect with its obligations hereunder, in which case such Demand Registration that has been revoked will be deemed not to have been effected and will not count as a Demand Registration. 2.5 Continuous Effectiveness of Registration Statement. The Company will use its reasonable best efforts to cause each Registration Statement to be declared effective by the SEC or to become effective under the Securities Act as promptly as practicable and to keep each such Registration Statement that has been declared or becomes effective continuously effective for the Required Period. 7 2.6 Underwritten Demand Registration. In the event that a Demand Registration is to be an Underwritten Registration, the Holders may specify such in the Demand Notice and the managing underwriter of the Underwritten Offering relating thereto will be selected, after consultation with the Company, by the Holders of at least a majority of the Registrable Securities proposed to be included in such Underwritten Registration. The Company and all Holders proposing to distribute their securities through an Underwritten Offering agree to enter into an underwriting agreement with the underwriters, provided that the underwriting agreement is in customary form and reasonably acceptable to the Company and the Holders of a majority of the Registrable Securities to be included in the Underwritten Offering. Notwithstanding the foregoing, if an independent financial advisor retained by the Company advises the Company that, in its good faith determination, the total amount of securities that Holders propose to register is such as to materially and adversely affect the then current stock price of the Company's common stock (it being understood that any proposed sale of Registrable Securities at a 10% or greater discount to the then current market price of the Company's common stock shall be deemed materially and adversely effect the Company's common stock price), then the Company will provide a copy of such notice to the Holders and the Company shall have the right to decrease number of shares the Holders may include in such Underwritten Registration pro rata among the Holders of such Registrable Securities on the basis of the total number of Registrable Securities held by such Holders. In the event the Company exercises its right to decrease the total number of Registrable Securities that may be included by the Holders, Holders representing a majority of the securities requested to be included in such Demand Registration will have right to withdraw such Demand Registration, in which case such Demand Registration will not count as a Demand Registration; provided that the right to withdraw such registration and not have such registration count as a Demand Registration may be exercised only once by the Holders of Registrable Securities. 2.7 Priority in Demand Registration. With respect to any Demand Registration of Registrable Securities to be sold in one or more Underwritten Offerings, the Company may also provide written notice of such Underwritten Offerings to Other Holders and permit all such Other Holders who request to be included in the Demand Registration to include any or all Company securities held by such Other Holders in such Demand Registration on the same terms and conditions as the Registrable Securities. Notwithstanding the foregoing, if the managing underwriter or underwriters of the Underwritten Offering to which any Demand Registration relates advise the Company and the Holders of Registrable Securities that, in its good faith determination, the total amount of Registrable Securities that such Holders, Other Holders, and the Company intend to include in such Demand Registration is in an amount in the aggregate which would adversely affect the success of such Underwritten Offering, then such Demand Registration shall include (i) first, all Registrable Securities of the Holders allocated, if the amount is less than all the Registrable Securities requested to be sold, pro rata on the basis of the total number of Registrable Securities held by such Holders; and (ii) second, as many other securities proposed to be included in the Demand Registration by the Company and any Other Holders, allocated pro rata among the Company and Other Holders, on the basis of the amount of securities requested to be included therein by each such holder so that the total amount of securities to be included in such Underwritten Offering is the full amount that, in the written opinion of such managing underwriter, can be sold without materially and adversely affecting the success of such Underwritten Offering. 8 Article III. Piggyback Registration 3.1 Right to Piggyback. If at any time, and from time to time, the Company proposes to file a registration statement under the Securities Act with respect to an offering of any class of equity securities (other than a registration statement (a) on Form S-4, Form S-8 or any successor forms thereto or (b) filed solely in connection with an offering made solely to existing stockholders or employees of the Company), whether or not for its own account, then the Company will give written notice (the "Piggyback Notice") of such proposed filing to the Holders at least 45 days before the anticipated filing date. Such notice will offer the Holders the opportunity to register such amount of Registrable Securities as each Holder may request on the same terms and conditions as the registration of the Company's or Other Holders' securities, as the case may be (a "Piggyback Registration"). The Company will include in each Piggyback Registration all Registrable Securities for which the Company has received written requests for inclusion within 15 days after delivery of the Piggyback Notice, subject to Section 3.2. 3.2 Priority on Piggyback Registrations. If the Piggyback Registration is an Underwritten Offering, the Company will cause the managing underwriter of that proposed offering to permit the Holders that have requested Registrable Securities to be included in the Piggyback Registration to include all such Registrable Securities on the same terms and conditions as any other securities, if any, of the Company. Notwithstanding the foregoing, if the managing underwriter or underwriters of such Underwritten Offering advises the Company and the selling Holders that, in its good faith determination, the total amount of securities that the Company, such Holders and any Other Holders propose to include in such offering is such as to materially and adversely affect the success of such Underwritten Offering, then: (a) if such Piggyback Registration is a registration initiated by the Company for its own account, the Company will include in such Piggyback Registration: (i) first, all securities to be offered by the Company; (ii) second, up to the full amount of Registrable Securities requested to be included in such Piggyback Registration by the Holders allocated pro rata among such Holders on the basis of the total amount of Registrable Securities held by such Holders; and (iii) third, up to the full amount of securities requested to be included in such Piggyback Registration by any Other Holders in accordance with the priorities, if any, then existing among the Company and the Other Holders so that the total amount of securities to be included in such Underwritten Offering is the full amount that, in the opinion of such managing underwriter, can be sold without materially and adversely affecting the success of such Underwritten Offering; or (b) if such Piggyback Registration is an underwritten secondary registration for the account of holders of securities of the Company, the Company will include in such registration: (i) first, all securities of the Persons exercising "demand" registration rights requested to be included therein (including any Demand Registration made pursuant to Section 2.1 hereof); (ii) second, up to the full amount securities proposed to be included in the registration by the Company, Holders and any Other Holders having piggyback registration rights on a pari passu basis, allocated pro rata among such holders, on the basis of the amount of securities requested to be included therein by each such Person (provided that the Company shall not be entitled to include more than the total number of securities requested to be included in the Registration Statement by the Holders and Other Holders in such Underwritten Offering) so that the total amount of securities to be included in such 9 Underwritten Offering is the full amount that, in the written opinion of such managing underwriter, can be sold without materially and adversely affecting the success of such Underwritten Offering. (c) if so requested (pursuant to a timely written notice) by the managing underwriter in any Underwritten Offering, the Holders participating in such Underwritten Offering will agree not to effect any public sale or distribution (or any other type of sale as the managing underwriter reasonably determines is necessary in order to effect the Underwritten Offering) of any such Registrable Securities, including a sale pursuant to Rule 144 (but excluding the sale of any Registrable Securities included in such Underwritten Offering), during the ten days prior to, and for such period following the closing date of such Underwritten Offering as the managing underwriter reasonably determines is necessary in order to effect the Underwritten Offering (such period not to exceed 90 days or such longer period as may be required solely to comply with the rules and regulations of any securities exchange upon which the Company's common stock is then listed). In the event of such a request, the Company may impose, during such period, appropriate stop-transfer instructions with respect to the Registrable Securities subject to such restrictions. 3.3 Withdrawal of Piggyback Registration. (a) If at any time after giving a Piggyback Notice and prior to the effective date of the Registration Statement filed in connection with the Piggyback Registration, the Company determines for any reason not to continue with the Piggyback Registration, the Company may, at its election, give written notice of its determination to all Holders, and will be relieved of its obligation to register any Registrable Securities in connection with the abandoned Piggyback Registration, without prejudice. Any Holder receiving any such written notice from the Company pursuant to this Section 3.3(a) shall treat such notice confidentially and shall not disclose such information to any Person other than as necessary to exercise it rights under this Agreement or as required by applicable law or court order. (b) Any Holder of Registrable Securities requesting to be included in a Piggyback Registration may withdraw its request for inclusion by giving written notice to the Company of its intention to withdraw from that registration, provided, however, (i) the Holder's request must be made in writing, in the case of an Underwritten Registration, at least five Business Days prior to the anticipated effective date of the Registration Statement as set forth in the Piggyback Notice or other timely written notice provided by the Company, or if the registration is not an Underwritten Registration, at least five Business Days prior to the anticipated filing date of the Registration Statement covering the Piggyback Registration as set forth in the Piggyback Notice or other timely written notice provided by the Company, and (ii) the withdrawal will be irrevocable and, after making the withdrawal, a Holder will no longer have any right to include its Registrable Securities in that Piggyback Registration. (c) The Company shall be deemed to have satisfied its obligations with respect to any Piggyback Registration to any Holder under this Article III notwithstanding an election to withdraw under this Section 3.3. 10 Article IV. Procedures and Expenses 4.1 Registration Procedures. In connection with the Company's registration obligations pursuant to Articles II and III, the Company will effect such registrations to permit the sale of Registrable Securities by a Holder in accordance with the intended method or methods of disposition thereof, and pursuant thereto the Company will as promptly as reasonably practicable: (a) subject to and in accordance with Section 2.1, prepare and file with the SEC a Registration Statement on an appropriate form under the Securities Act available for the sale of the Registrable Securities by the selling Holders in accordance with the intended method or methods of distribution thereof; provided, however, that the Company will, before filing, furnish to each selling Holder and the managing underwriter, if any, copies of the Registration Statement or Prospectus proposed to be filed; (b) subject to Section 2.5, prepare and file with the SEC any amendments and post-effective amendments to the Registration Statement as may be necessary and any supplements to the Prospectus as may be required, in the opinion of the Company and its counsel, by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective for the Required Period, provided, however, that the Company will, before filing, furnish to each Selling Holder and the managing underwriter, if any, copies of any such amendments or supplements, provided, however, that any Holder receiving any such amendments or supplements from the Company shall, until such amendments or supplement are filed with the SEC, treat such information confidentially and shall not disclose such information to any Person other than as necessary to exercise it rights under this Agreement or as required by law or applicable court order; (c) promptly following its actual knowledge thereof, notify the selling Holders and the managing underwriter, if any: (i) when a Prospectus or any Prospectus supplement or amendment or Free Writing Prospectus has been filed and, with respect to a Registration Statement or any post-effective amendment, when the Registration Statement has been declared or becomes effective; (ii) of any request by the SEC or any other governmental authority for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (iii) of the issuance by the SEC or any other governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any written notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; 11 (v) of the occurrence of any event which makes any statement of a material fact made in the Registration Statement or Prospectus untrue or which requires the making of any changes in a Registration Statement or Prospectus or other documents incorporated therein by reference, if any, so that it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (vi) of the Company's reasonable determination that a post-effective amendment to a Registration Statement would be appropriate; (d) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement, or the lifting of any suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, at the earliest practicable date; (e) furnish to each selling Holder and the managing underwriter, if any, at least one conformed copy of the Registration Statement and any post-effective amendment thereto, including financial statements (but excluding all schedules, all documents incorporated or deemed incorporated therein by reference and all exhibits); (f) prior to any public offering of Registrable Securities, register or qualify or cooperate with the selling Holders, the managing underwriter, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions within the United States as the selling Holders or the managing underwriter reasonably request in writing and maintain each registration or qualification (or exemption therefrom) effective during the Required Period; provided, however, the Company will not be required to qualify generally to do business in any jurisdiction in which it is not then so qualified or take any action which would subject it to general service of process or taxation in any jurisdiction in which it is not then so subject; (g) as promptly as practicable upon the occurrence of any event contemplated by Section 4.1(c)(v) or 4.1(c)(vi), prepare a supplement or post-effective amendment to each Registration Statement or a supplement to the related Prospectus, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Securities being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (h) in the case of an Underwritten Offering, enter into customary and reasonable agreements (including an underwriting agreement) and take all other actions reasonably necessary or desirable to expedite or facilitate the disposition of the Registrable Securities, and in connection therewith: (i) use its reasonable best efforts to obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) are reasonably satisfactory to the managing underwriter, if any, and each selling Holder) addressed 12 to each selling Holder and the managing underwriter covering the matters customarily covered in opinions requested in Underwritten Offerings; and (ii) use its reasonable best efforts to obtain "comfort" letters and updates thereof from the independent certified public accountants of the Company addressed to the each selling Holder and the managing underwriter covering the matters customarily covered in "comfort" letters in connection with Underwritten Offerings; (i) upon reasonable notice and at reasonable times during normal business hours, make available for inspection by a representative of each selling Holder and any underwriter participating in any disposition of Registrable Securities and any attorneys or accountants retained by any selling Holder or any underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the officers, directors and employees of the Company to supply all information reasonably requested by any such representative, underwriter, attorneys or accountants in connection with the Registration Statement; (j) to participate, to the extent requested by any selling Holder or any underwriter, in efforts to sell the securities under the offering (including participating in no more than one set of "roadshow" meetings per year with prospective investors) that would be customary for underwritten primary offerings of a comparable amount of equity securities by the Company; (k) use its reasonable best efforts to comply with all applicable rules and regulations of the SEC relating to such registration and make generally available to its security holders earning statements satisfying the provisions of Section 11(a) of the Securities Act, provided that the Company will be deemed to have complied with this Section 4(k) with respect to such earning statements if it has satisfied the provisions of Rule 158; (l) if requested by the managing underwriter or any selling Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as the managing underwriter or any selling Holder reasonably requests to be included therein, with respect to the Registrable Securities being sold by such selling Holder, including, without limitation, the purchase price being paid therefor by the underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such prospectus supplement or post-effective amendment; (m) cause the Registrable Securities included in any Registration Statement to be listed on each securities exchange, if any, on which equity securities issued by the Company are then listed; (n) provide a transfer agent and registrar for all Registrable Securities registered hereunder; and (o) reasonably cooperate with each selling Holder and each underwriter participating in the disposition of such Registrable Securities and 13 their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. 4.2 Information from Holders. (a) The Company may require each selling Holder that has requested inclusion of its Registrable Securities in any Registration Statement to furnish to the Company such information regarding such Holder and its plan and method of distribution of such Registrable Securities as the Company may, from time to time, reasonably request in writing. The Company may refuse to proceed with the registration of such Holder's Registrable Securities if such Holder unreasonably fails to furnish such information within a reasonable time after receiving such request. (b) Each selling Holder will as expeditiously as possible (i) notify the Company of the occurrence of any event that makes any statement of a material fact made in a Registration Statement or Prospectus regarding such selling Holder untrue or that requires the making of any changes in a Registration Statement or Prospectus regarding such selling Holder so that, in such regard, it will not contain any untrue statement of a material fact or omit any material fact required to be stated therein or necessary to make the statements not misleading and (ii) provide the Company with such information regarding such selling Holder as may be required to enable the Company to prepare a supplement or post-effective amendment to any such Registration Statement or a supplement to such Prospectus to correct such statement or omission. The Company may refuse to proceed with the registration of such Holder's Registrable Securities if such Holder unreasonably fails to furnish such information within a reasonable time. (c) With respect to any Registration Statement for an Underwritten Offering, the inclusion of a Holder's Registrable Securities therein will be conditioned upon such Holder's participation in such Underwritten Offering and the execution and delivery by such Holder of an underwriting agreement in customary form and reasonably acceptable to the Company and the Holders of a majority of the Registrable Securities to be included in the Underwritten Offering. 4.3 Suspension of Disposition. (a) Each selling Holder will be deemed to have agreed that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 4.1(c)(ii), 4.1(c)(iii), 4.1(c)(iv), 4.1(c)(v) or 4.1(c)(vi), such Holder will discontinue disposition of Registrable Securities covered by a Registration Statement or Prospectus until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4.1(g) or until it is advised in writing (the "Advice") by the Company that the use of the applicable Prospectus may be resumed and have received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. In the event the Company shall give any such notice, the Required Period will be extended by the number of days during the time period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement has received (i) the copies of the supplemented or amended Prospectus contemplated by Section 4.1(g) or (ii) the Advice. Any Holder receiving any such written notice from the Company pursuant to this Section 14 4.3(a) shall treat such notice confidentially and shall not disclose such information to any Person other than as necessary to exercise it rights under this Agreement or as required by applicable law or court order. (b) Each selling Holder will be deemed to have agreed that, upon receipt of any notice from the Company of the happening of an event specified in Section 2.2, such selling Holder will discontinue disposition of Registrable Securities covered by a Registration Statement or Prospectus until the earlier to occur of the Holder receives (i) copies of a supplemented or amended Prospectus describing the event giving rise to the aforementioned suspension or (ii) (A) notice in writing from the Company that the use of the applicable Prospectus may be resumed and (B) copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus. In the event the Company gives any such notice, the Required Period will be extended by the number of days during the time period from and including the date of giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement receives (i) a supplemented or amended Prospectus describing the event giving rise to the aforementioned suspension or (ii) notice from the Company that use of the applicable Prospectus may resume. Any Holder receiving any such written notice from the Company pursuant to this Section 4.3(b) shall treat such notice confidentially and shall not disclose such information to any Person other than as necessary to exercise it rights under this Agreement or as required by applicable law or court order. 4.4 Registration Expenses. (a) Subject to Section 2.4, all fees and expenses incurred by the Company in complying with Articles II, III and Section 4.1 ("Registration Expenses") will be borne by the Company. These fees and expenses will include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (x) with respect to filings required to be made with the National Association of Securities Dealers, Inc. and (y) of compliance with securities or blue sky laws (including, without limitation, reasonable fees and disbursements of one counsel for the underwriters and selling Holders in connection with blue sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the managing underwriter or underwriters, if any, or the selling Holders may designate))(not to exceed $10,000), (ii) printing expenses (including without limitation the expenses of printing certificates for securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses if the printing of Prospectuses is requested by the selling Holders), (iii) fees and disbursements of counsel for the Company, (iv) reasonable fees and disbursements (not to exceed $30,000) of one counsel for all selling Holders collectively (which counsel will be selected by the Holders holding a majority of the Registrable Securities sought to be included in the Registration Statement), (v) fees and disbursements of all independent certified public accountants referred to in Section 4.1(h)(ii) (including, without limitation, the expenses of any special audit and "comfort" letters required by or incident to such performance) and (vi) fees and expenses of all other Persons retained by the Company. In addition, the Company will pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the securities to be registered on each securities exchange, if any, on which equity securities 15 issued by the Company are then listed or the quotation of such securities on any national securities exchange on which equity securities issued by the Company are then quoted. (b) Notwithstanding anything contained herein to the contrary, (i) all costs and fees of counsel (except as specifically set forth in Section 4.4(a)) and experts retained by the selling Holders and (ii) all underwriting fees, discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities will be borne by the Holder owning such Registrable Securities. (c) Notwithstanding anything contained herein to the contrary, each selling Holder may have its own separate counsel in connection with the registration of any of its Registrable Securities, which counsel may participate therein to the full extent provided herein; provided, however, that all fees and expenses of such separate counsel will be paid for by such selling Holder. Article V. Indemnification 5.1 Indemnification by the Company. The Company will indemnify and hold harmless, to the fullest extent permitted by law each Holder owning Registrable Securities registered pursuant to this Agreement, its officers, directors, agents and employees, each Person who controls such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, owners, agents and employees of any such controlling Person, from and against all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys' fees and disbursements) and expenses (collectively but not including any consequential or indirect losses, other than those actually awarded or paid to third parties, "Losses") arising out of or based upon (i) any violation by the Company of the provisions of the Securities Act or any of the rules or regulations promulgated thereunder with respect to Registrable Securities covered by any Registration Statement or (ii) any untrue or alleged untrue statement of a material fact contained or incorporated by reference in any Registration Statement, Prospectus, Free Writing Prospectus or preliminary prospectus or any amendment thereof, (including any term sheet or other information provided to purchasers at or prior to the time of sale) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except insofar as the same are based solely upon information furnished in writing to the Company by or on behalf of such Holder expressly for use in such Registration Statement, Prospectus, Free Writing Prospectus or preliminary prospectus: 5.2 Indemnification by Holders. Each Holder (severally and not jointly) will indemnify and hold harmless, to the fullest extent permitted by law, the Company, its officers, directors, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), and the directors, officers, owners, agents and employees of any such controlling Person, from and against all Losses arising out of or based upon (i) any violation by the Holders (through no fault of the Company) of the provisions of the Securities Act or any of the rules or regulations promulgated thereunder with respect to Registrable Securities covered by any Registration Statement or (ii) any untrue or alleged untrue statement of a material fact contained or incorporated by reference in any 16 Registration Statement, Prospectus, Free Writing Prospectus, or preliminary prospectus or any amendment thereof, (including any term sheet or other information provided to purchasers at or prior to the time of sale) or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, to the extent, and only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information so furnished in writing by or on behalf of such Holder to the Company expressly for use in such Registration Statement, Prospectus or preliminary prospectus. In no event will the liability of any Holder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. 5.3 Conduct of Indemnification Proceedings. If any Person becomes entitled to indemnity hereunder (an "Indemnified Party"), such Indemnified Party will give prompt notice to the party from which indemnity is sought (the "Indemnifying Party") of any claim or of the commencement of any action or proceeding with respect to which the Indemnified Party seeks indemnification or contribution pursuant hereto; provided, however, that the failure to so notify the Indemnifying Party will not relieve the Indemnifying Party from any obligation or liability except to the extent that the Indemnifying Party has been prejudiced materially by such failure. If such an action or proceeding is brought against the Indemnified Party, the Indemnifying Party will be entitled to participate therein and, to the extent it may elect by written notice delivered to the Indemnified Party promptly after receiving the notice referred to in the immediately preceding sentence, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. Notwithstanding the foregoing, the Indemnified Party will have the right to employ its own counsel in any such case, but the fees and expenses of that counsel will be at the expense of the Indemnified Party unless (i) the employment of the counsel has been authorized in writing by the Indemnifying Party, (ii) the Indemnifying Party has not employed counsel (reasonably satisfactory to the Indemnified Party) to take charge of such action or proceeding within a reasonable time after notice of commencement thereof, or (iii) the Indemnified Party reasonably concludes, based upon the advice of counsel, that there may be defenses or actions available to it which are different from or in addition to those available to the Indemnifying Party which, if the Indemnifying Party and the Indemnified Party were to be represented by the same counsel, could result in a conflict of interest for such counsel or materially prejudice the prosecution of defenses or actions available to the Indemnified Party. If any of the events specified in clause (i), (ii) or (iii) of the immediately preceding sentence are applicable, then the reasonable fees and expenses of separate counsel for the Indemnified Party will be borne by the Indemnifying Party; provided, however, that in no event will the Indemnifying Party be liable for the fees and expenses of more than one separate firm for all Indemnified Parties. If, in any case, the Indemnified Party employs separate counsel, the Indemnifying Party will have the right to participate in, but not have the right to direct, the defense of the action or proceeding on behalf of the Indemnified Party. All fees and expenses required to be paid to the Indemnified Party pursuant to this Article V will be paid periodically during the course of the investigation or defense, as and when reasonably itemized bills therefore are delivered to the Indemnifying Party in respect of any particular Loss that is incurred. Notwithstanding anything contained in this Section 5.3 to the contrary, an Indemnifying Party will not be liable for the settlement of any action or proceeding effected without its prior written consent (which consent shall not be unreasonably withheld). The Indemnifying Party will not, without the consent of the Indemnified Party (which 17 consent will not be unreasonably withheld), consent to entry of any judgment or enter into any settlement or otherwise seek to terminate any action or proceeding in which any Indemnified Party is or could be a party and as to which indemnification or contribution could be sought by such Indemnified Party under this Article V, unless such judgment, settlement or other termination provides solely for the payment of money and includes as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability or further obligation in respect of such claim or litigation for which such Indemnified Party would be entitled to indemnification hereunder. 5.4 Contribution. (a) If the indemnification provided for in this Article V is unavailable to an Indemnified Party under Section 5.1 or 5.2 in respect of any Losses or is insufficient to hold the Indemnified Party harmless, then each applicable Indemnifying Party (severally and not jointly), in lieu of indemnifying the Indemnified Party, will contribute to the amount paid or payable by the Indemnified Party as a result of the Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party or Indemnifying Parties, on the one hand, and the Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in the Losses as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party or Indemnifying Parties, on the one hand, and the Indemnified Party, on the other hand, will be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or related to information supplied by, the Indemnifying Party or Indemnifying Parties or the Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses will be deemed to include any legal or other fees or expenses incurred by such party in connection with any action or proceeding. (b) The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5.4 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in Section 5.4(a). Notwithstanding anything contained in this Section 5.4 to the contrary, an Indemnifying Party that is a selling Holder will not be required to contribute any amount greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such contribution obligation. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 18 5.5 Continuing Effect. The provisions of this Article V shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or the Company or any of the Indemnifying Parties or Indemnified Parties and shall survive the sale by a Holder of Registrable Securities covered by any Registration Statement. Article VI. Rule 144 Following the Compliance Date, the Company will file all reports required to be filed by it under the Exchange Act and will cooperate with any Holder to the extent required from time to time to enable such Holder to sell its Registrable Securities without registration under the Securities Act within the limitations of the exemptions provided by Rule 144. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such filing requirements. Notwithstanding the foregoing, nothing in this Article VI will require the Company to register any securities, or file any reports, under the Exchange Act if such registration or filing is not required under the Exchange Act. Article VII. Participation in Underwritten Offerings Notwithstanding anything contained herein to the contrary, no Person may participate in any Underwritten Offering pursuant to a registration hereunder unless that Person (a) agrees to sell its securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. Article VIII. Miscellaneous 8.1 No Conflicting Agreements. The Company hereby represents and warrants to each Holder that it is not, as of the date hereof, a party to, and agrees that it shall not, on or after the date of this Agreement, enter into, any agreement with respect to its securities that conflicts with the rights granted to the Holders in this Agreement. The Company further represents and warrants that the rights granted to the Holders hereunder do not in any way conflict with the rights granted to the holders of the Company's securities under any other agreements. 8.2 Notices. All notices, requests, claims, demands and other communications hereunder will be in writing and will be given or made by delivery in person, by overnight courier, by facsimile transmission or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party specified in a notice given in accordance with this Section 8.2): 19 (a) If to the Company, to: Verint Systems Inc. 330 South Service Road Melville, New York 11747 Attention: General Counsel Facsimile No.: 631-962-9623 with a copy to (which shall not constitute notice): Jones Day 222 East 41st Street New York, New York 10017 Attention: Dennis P. Barsky Facsimile No.: 212-755-7306 (b) If to the Purchaser, to: Comverse Technology, Inc. 810 Seventh Avenue New York, New York 10019 Attention: General Counsel Facsimile No.: 212-739-1001 with a copy to (which shall not constitute notice): Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, New York 10153 Attention: David Zeltner Facsimile No.: 212-310-8007 (c) If to a Holder other than the Purchaser, to such Holder's address on file with the Company's transfer agent. All such notices and communications will be deemed to have been delivered or given upon receipt, if delivered personally or by overnight courier, when receipt is acknowledged, if sent by facsimile transmission and three Business Days after being deposited in the mail, if mailed. 8.3 Confidentiality. Each Holder will, and will cause its officers, directors, employees, legal counsel, accountants, financial advisors and other representatives to, hold in confidence any material nonpublic information received by them pursuant to this Agreement, including, without limitation, any material nonpublic information included in any Registration Statement or Prospectus proposed to be filed with the SEC or provided pursuant to Section 4.1(i). This Section 8.3 shall not apply to any information required to be disclosed by applicable law or court order or to any information which (a) is or 20 becomes generally available to the public, (b) was already in the Holder's possession from a non-confidential source prior to its disclosure by the Company, or (c) is or becomes available to the Holder on a non-confidential basis from a source other than the Company, provided that such source is not known by the Holder to be bound by confidentiality obligations. 8.4 Assignment. This Agreement will be binding upon and inure solely to the benefit of the Company and the Holders and each of their respective successors and permitted assigns. None of the parties to this Agreement may assign or delegate any of its rights or obligations under this Agreement without the prior written consent of each of the other parties hereto, unless assigned together with sale of Registrable Securities. 8.5 No Third-Party Beneficiaries. Except as expressly set forth herein, nothing herein, express or implied, is intended to or will confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. 8.6 Entire Agreement. This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements (including the Equity Commitment Letter) and undertakings, both written and oral, among the parties with respect to the subject matter hereof. 8.7 Amendment and Waiver. This Agreement may not be amended or modified or any provision hereof waived except by an instrument in writing signed by all of the parties to this Agreement. 8.8 Counterparts. This Agreement may be executed by facsimile signature and in any number of counterparts, each such counterpart to be deemed an original and all such counterparts, taken together, to constitute one instrument. 8.9 Severability. If any term or other provision of this Agreement is invalid, illegal or unenforceable under any law or public policy, all other terms and provisions of this Agreement will nevertheless remain in full force and effect. Upon a determination that any term or other provision is invalid, illegal or unenforceable, the parties hereto will endeavor in good faith to replace the invalid, illegal or unenforceable provisions with valid, legal and enforceable provisions the effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 8.10 Governing Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to the principles of conflict of laws thereof. 8.11 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties will be entitled to seek specific performance of the terms hereof, in addition to any other remedy at law or equity. 21 8.12 Further Assurances. The parties hereto will do such further acts and things necessary to ensure that the terms of this Agreement are carried out and observed. 22 IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the date first written above. VERINT SYSTEMS INC. By: /s/ Peter Fante ----------------------------------- Name: Peter Fante Title: General Counsel and Secretary COMVERSE TECHNOLOGY, INC. By: /s/ Andre Dahan ----------------------------------- Name: Andre Dahan Title: Chief Executive Officer and President [SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT] 23 EX-99 4 mm05-3107_8ke991.txt EX.99.1 - CERT OF DESIGNATION EXHIBIT 99.1 ------------ CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF THE SERIES A CONVERTIBLE PERPETUAL PREFERRED STOCK OF VERINT SYSTEMS INC. (PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE) The undersigned, being the President of Verint Systems Inc. (hereinafter called the "Company"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "DGCL"), in accordance with Section 151 of the DGCL, does hereby certify as follows: FIRST: The Certificate of Incorporation of the Corporation ( the "Certificate of Incorporation") authorizes the issuance of up to 2,500,000 shares of preferred stock, $0.001 par value (the "Preferred Stock"), in one or more series, with such voting powers, designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, as may be stated and expressed in a resolution or resolutions providing for the creation and issuance of any such series adopted by the Board of Directors of the Company (the "Board of Directors") prior to the issuance of any shares of such series, pursuant to authority expressly vested in the Board of Directors by the Certificate of Incorporation. SECOND: The Board of Directors, on May 4, 2007, duly adopted resolutions authorizing the creation of a new series of such Preferred Stock, to be known as "Series A Convertible Perpetual Preferred Stock," stating that 293,000 shares of the authorized and unissued preferred stock shall constitute such series, and setting forth a statement of the voting powers, designation, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof as follows: SECTION 1. SERIES A CONVERTIBLE PREFERRED STOCK 1.1 Designation. The series of Preferred Stock is designated and known as "Series A Convertible Perpetual Preferred Stock" (the "Series A Convertible Preferred Stock") and shall consist of 293,000 shares. 1.2 Rank. The Series A Convertible Preferred Stock shall rank, with respect to payment of dividends and distribution of assets upon the liquidation, winding-up or dissolution of the Company, (i) senior to the common stock of the Company, par value $0.001 per share (the "Common Stock"), whether now outstanding or hereafter issued, and to each other class or series of stock of the Company established after the Issue Date by the Board of Directors, the terms of which do not expressly provide that such class or series ranks senior to or pari passu with the Series A Convertible Preferred Stock as to payment of dividends and distribution of assets upon the liquidation, winding-up or dissolution of the Company (collectively referred to as "Junior Stock"); (ii) pari passu with each class or series of stock of the Company (including any series of preferred stock established after the Issue Date by the Board of Directors), the terms of which expressly provide that such class or series ranks pari passu with the Series A Convertible Preferred Stock as to payment of dividends and distribution of assets upon the liquidation, winding-up or dissolution of the Company (collectively referred to as "Parity Stock"); and (iii) junior to each other class or series of stock of the Company (including any series of preferred stock established after the Issue Date by the Board of Directors with the approval or consent of the holders of Series A Convertible Preferred Stock pursuant to Section 4.3), the terms of which expressly provide that such class or series ranks senior to the Series A Convertible Preferred Stock as to payment of dividends and distribution of assets upon the liquidation, winding-up or dissolution of the Company (collectively referred to as "Senior Stock"). SECTION 2. DIVIDEND RIGHTS 2.1 Dividend Rate. (a) For so long as any shares of Series A Convertible Preferred Stock are held by Comverse Technology, Inc., a New York corporation or an affiliate thereof (the "Initial Investor"), dividends on such shares of Series A Convertible Preferred Stock held by the Initial Investor shall be payable quarterly, when, as and if declared by the Board of Directors, at the rate per annum of 4.25% per share on the Liquidation Preference (as defined in Section 3 below) in effect at such time; provided, however, that beginning on the first day (the "Reset Date") of the first quarter after the quarter in which the interest rate initially applicable to the Company's term loan facility (the "Term Loan") has been reduced by 0.50% or more, and thereafter, the dividend rate on such shares of Series A Convertible Preferred Stock held by the Initial Investor shall be reset to 3.875% per annum. If any shares of Series A Convertible Preferred Stock are transferred by the Initial Investor prior to the Reset Date, then dividends on such shares of Series A Convertible Preferred Stock held by persons other than the Initial Investor or any affiliate thereof shall be payable quarterly, when, as and if declared by the Board of Directors at the rate per annum of 4.625% per share on the Liquidation Preference in effect at such time and such dividend rate shall not be reset even if the interest rate applicable to the Term Loan is later reduced. Dividends are cumulative. (b) Notwithstanding the foregoing, if the Company's stockholders have not approved the issuance of the shares of Common Stock underlying the Preferred Shares on or prior to the last day of the fiscal quarter following the date that is 180 days after the first date on which the Company is in compliance with the Securities Exchange Commission ("SEC") reporting requirements promulgated under the Securities Exchange Act of 1934, as amended (such date being the "Compliance Date"), then on such date and on the last day of each subsequent fiscal quarter the annual dividend rate of the Series A Convertible Preferred Stock will increase by 1%, unless the proxy statement referred to below is mailed in such fiscal quarter, in which case there shall be no additional increase in the annual dividend rate. If thereafter the Company mails its proxy statement relating to such stockholder approval, the dividend rate will reset to the applicable dividend rate set forth in clause (a) above beginning on the first day of the fiscal quarter after which such proxy statement was mailed. 2 2.2 Dividend Restrictions. If the Company does not declare a dividend for payment on the regularly scheduled dividend payment date, it may not declare dividends on any Junior Stock or Parity Stock. 2.3 Payment of Dividends. Except as described in Section 2.4 below, the Company shall make each dividend payment in the Series A Convertible Preferred Stock in cash. 2.4 Payment of Dividends in Shares of Common Stock. To the extent that the Company determines in good faith that it is prohibited by the terms of its then-existing credit facilities, debt indentures or any other then-existing debt instruments from paying cash dividends on the Series A Convertible Preferred Stock, the Company may, in its absolute discretion, subject to the remainder of this Section 2.4, elect to make all (or, if less than all, the prohibited portion) of such dividend payment in shares of Common Stock. In order to pay dividends in shares of Common Stock, (i) the shares of Common Stock to be delivered as payment therefor shall have been duly authorized, (ii) the shares of Common Stock, once issued, shall be validly issued, fully paid and nonassessable and (iii) during the period commencing on the Compliance Date and ending on the second anniversary of such date, either (A) the Common Stock to be delivered as payment therefor shall be freely transferable by the recipient without further action on its behalf, other than by reason of the fact that such recipient is an affiliate of the Company or (B) a shelf registration statement relating to such shares of Common Stock shall have been filed with the SEC and shall be effective to permit the resale of such shares by the holders thereof. The Company will use its reasonable best efforts to maintain the effectiveness of the registration statement for one year following the delivery of such Common Stock. Common Stock issued in payment or partial payment of a dividend pursuant to this Section 2.4 shall be valued for such purpose at 95% of the average of the daily volume weighted average stock price for each of the five (5) consecutive trading days ending on the second trading day immediately prior to the record date for such dividend. SECTION 3. LIQUIDATION PREFERENCE. 3.1 Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company, each, a "Liquidation Event"), each holder of Series A Convertible Preferred Stock shall be entitled to receive out of the assets of the Company available for distribution to stockholders of the Company, before any distribution of assets is made on the Common Stock or any other Junior Stock, but after any distribution on any of the Company's indebtedness or Senior Stock, an amount equal to $1,000 per share of Series A Convertible Preferred Stock (the "Issue Price") held by such holder, plus an amount equal to the sum of all accrued and unpaid dividends, whether or not declared (the "Liquidation Preference"). If upon such liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the assets to be distributed to and among the holders of shares of Series A Convertible Preferred Stock shall be insufficient to permit payment of the Liquidation Preference in full to the holders of Series A Convertible Preferred Stock, then the entire assets of the Company available for distribution to holders of Series A Convertible Preferred Stock shall be distributed to and among the holders of the shares of Series A Convertible Preferred Stock then outstanding pro rata to and among them in proportion to the full amounts of Liquidation Preference they would otherwise be entitled to receive pursuant to this Section 3.1. 3 3.2 Non-Cash Consideration. If any assets of the Company distributed to stockholders in connection with any Liquidation Event are in a form other than cash, then the value of such assets shall be their fair market value as determined by the Board of Directors in good faith, except that any securities to be distributed to stockholders upon a Liquidation Event shall be valued as follows: (a) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be, unless otherwise specified in a definitive agreement for the acquisition of the Company giving rise to the Liquidation Event, as follows: (i) if the securities are then traded on a national securities exchange, including The Nasdaq Global Market, or a similar recognized securities exchange or on a national quotation system, then the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the twenty-one (21) consecutive trading day period preceding the consummation of the Liquidation Event; and (ii) if (i) above does not apply but the securities are actively traded over-the-counter, then the value shall be deemed to be the average of the closing bid and ask prices over the twenty-one (21) consecutive trading day period preceding the consummation of the Liquidation Event; and (iii) if there is no active public market for such securities, then the value for such securities shall be the fair market value thereof, as determined in good faith by the Board of Directors as evidenced by a Board resolution thereof. (b) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined as above in subparagraphs (a)(i), (ii) or (iii) of this subsection, as applicable, to reflect the approximate fair market value thereof, as determined by the Board of Directors as evidenced by a resolution of the Board of Directors. 3.3 Notice of Liquidation Event. Written notice of any Liquidation Event stating a payment date and the place where such payments shall be made, shall be given by mail, postage prepaid, or by telecopy to non-U.S. residents, not less than ten (10) days prior to the payment date stated therein, to the holders of record of shares of Series A Convertible Preferred Stock, such notice to be addressed to each such holder at such holder's address as shown by the records of the Company. SECTION 4. VOTING RIGHTS. 4.1 Authorization of Underlying Common Stock. The Series A Convertible Preferred Stock will have no voting rights (except as required by the DGCL or as set forth in this Section 4) until the issuance of the underlying shares of Common Stock upon conversion of the Series A Convertible Preferred Stock is approved by majority vote of the Company's common stockholders (including the Initial Investor)(the "Approval Time"). 4.2 Scope. Following the Approval Time, each share of Series A Convertible Preferred Stock shall entitle its holder to a number of votes equal to the number of shares of Common Stock into which such share of Series A 4 Convertible Preferred Stock is initially convertible, based on a Conversion Rate equal to the Issue Price divided by the Conversion Price in effect on the Issue Date, on all matters voted upon by the holders of Common Stock. 4.3 Class Protective Provisions. (a) So long as any shares of Series A Convertible Preferred Stock are outstanding, the approval or consent of the holders of at least 66 2/3% of the outstanding shares of the Series A Convertible Preferred Stock, voting separately as a class with all other series of preferred stock upon which like voting rights have been conferred and are exercisable, will be required: (i) for any amendment of the Company's Certificate of Incorporation (by merger, consolidation or otherwise), if the amendment would alter or change the powers, preferences, privileges or rights of the holders so as to affect them adversely, (ii) to issue, authorize or increase the authorized amount of, or issue or authorize any obligation or security convertible into or evidencing a right to purchase, any Senior Stock; or (iii) to reclassify any authorized stock of the Company into any Senior Stock, or any obligation or security convertible into or evidencing a right to purchase any Senior Stock, provided that no such vote shall be required for the Company to issue, authorize or increase the authorized amount of, or issue or authorize any obligation or security convertible into or evidencing a right to purchase, any Parity Stock or Junior Stock. (b) If the Company fails to repurchase shares of Series A Convertible Preferred Stock as required upon the occurrence of a Fundamental Change (as defined in Section 5.5(f)(iii) below), then the number of directors constituting the Board of Directors will be increased by two (2) and the holders of the then outstanding Series A Convertible Preferred Stock, voting separately as a class with all other series of preferred stock upon which like voting rights have been conferred and are exercisable, shall have the right to elect two (2) directors to fill such vacancies (the "Additional Directors"). Upon repurchase of all such shares of Series A Convertible Preferred Stock, the holders of the then outstanding Series A Convertible Preferred Stock will no longer have the right to elect the Additional Directors, the term of office of each Additional Director will terminate immediately upon such repurchase of the Series A Convertible Preferred Stock and the number of directors will, without further action, be reduced by two (2). SECTION 5. CONVERSION RIGHTS. The outstanding shares of Series A Convertible Preferred Stock shall be convertible into shares of Common Stock as follows: 5.1 Optional Conversion. Each share of Series A Convertible Preferred Stock is convertible after the Approval Time, in whole or in part, at the option of the holder thereof, into the number of shares of Common Stock obtained by dividing (i) the Liquidation Preference then in effect by (ii) the Conversion Price (as defined below) then in effect (the "Conversion Rate"). Initially, the Conversion Rate shall be 30.6185 (i.e., 30.6185 shares of Common Stock for each share of Series A Convertible Preferred Stock being converted). As used herein, the term "Conversion Price" initially shall be $32.66, but shall be subject to adjustment as provided herein. 5 5.2 Mandatory Conversion. At any time on or after the second anniversary of the Issue Date, the Company shall have the right (provided approval of the issuance of the underlying shares of Common Stock upon conversion of the Series A Convertible Preferred Stock has been obtained), at its option, to cause the Series A Convertible Preferred Stock, in whole but not in part, to be automatically converted into Common Stock at the Conversion Price then in effect; provided, that the Company may exercise this right only if the closing sale price of the Common Stock immediately prior to such mandatory conversion equals or exceeds: o 150% of the Conversion Price, if the conversion occurs on or after the second anniversary of the Issue Date but prior to the third anniversary of the Issue Date; o 140% of the Conversion Price, if the conversion occurs on or after the third anniversary of the Issue Date but prior to the fourth anniversary of the Issue Date; and o 135% of the Conversion Price, if the conversion occurs on or after the fourth anniversary of the Issue Date. 5.3 Validity of Common Stock to be Issued Upon Conversion. All shares of Common Stock which may be issued upon conversion of the shares of Series A Convertible Preferred Stock shall be validly issued, fully paid and nonassessable, and free from all liens and charges in respect of the issuance or delivery thereof, other than those imposed, created or granted by the holders of such shares of Series A Convertible Preferred Stock or such shares of Common Stock, as applicable. 5.4 Mechanics of Conversion. Before the Company will issue any shares of Common Stock upon conversion, a holder shall surrender the certificate or certificates therefore, duly endorsed, or deliver an appropriate indemnity agreement at the office of the Company or its transfer agent, in the event that such certificate has been lost, stolen or destroyed, for the Series A Convertible Preferred Stock and in the case of a conversion pursuant to Section 5.1 above, shall give written notice to the Company of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Company shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Convertible Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled (together with a check payable to such holder or nominee in the amount of any cash amounts payable as a result of a conversion into fractional shares of Common Stock as provided below) as aforesaid. A certificate or certificates will be issued for the remaining shares of Series A Convertible Preferred Stock in any case in which fewer than all of the shares of Series A Convertible Preferred Stock represented by a certificate are converted. Any such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series A Convertible Preferred Stock to be converted, 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. 6 5.5 Adjustment of Conversion Price. The Conversion Price shall be subject to adjustment from time to time in accordance with the following provisions: (a) Certain Definitions. For purposes of this Section 5.5: (i) The term "Additional Shares of Common Stock" shall mean all shares of Common Stock issued after the Issue Date, other than shares of Common Stock issued or issuable: (A) upon conversion of the Series A Convertible Preferred Stock; (B) as a dividend or distribution on the Series A Convertible Preferred Stock; (C) as restricted common stock (or any other form of equity award) to employees, consultants or directors pursuant to an equity incentive plan approved by the Board of Directors; (D) upon the exercise of Options (as defined in Section 5.5(a)(vii) below) or the conversion or exchange of securities outstanding as of the Issue Date or for which an adjustment to the Conversion Price has already been made; (E) in connection with the acquisition (whether by securities purchase, asset purchase, merger or otherwise) of the securities or assets of another Person by the Company approved by holders of a majority of the shares of the Series A Convertible Preferred Stock; or (F) in an underwritten public offering. (ii) "Common Stock Per Share Market Value" shall mean the price per share of Common Stock obtained by dividing (A) the Market Value by (B) by the number of shares of Common Stock outstanding (on a Fully Diluted Basis (as defined in Section 5.5(e)(ii) below)) at the time of determination; (iii) The term "Convertible Securities" shall mean any evidence of indebtedness, shares or other securities convertible into or exchangeable for Common Stock. (iv) "Fair Market Value" shall mean, with respect to a share of Common Stock on any business day: (A) if the Common Stock is not Publicly Traded at the time of such determination, the Common Stock Per Share Market Value; or (B) if the Common Stock is Publicly Traded at the time of determination, the "market price" of the Common Stock computed as the average of the closing prices on 7 such day of the Common Stock on all domestic securities exchanges on which the Common Stock is then listed, or, if there have been no sales on any such exchange on such day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day or, if on any such day the Common Stock is not so listed, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of ten business days consisting of the day as of which "market price" is being determined and the nine consecutive business days prior to such day; (v) The term "Issue Date" shall mean the date of the initial issuance of the Series A Convertible Preferred Stock to the Initial Investor. (vi) "Market Value" shall mean the price that would be paid for the Common Stock of the Company on a Fully Diluted Basis on a going-concern basis in an arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion), as determined by the Board of Directors in its reasonable discretion; (vii) The term "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (viii) "Person" shall mean any individual, partnership, limited partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, or governmental entity. (ix) "Publicly Traded" shall mean, with respect to any security, that such security is (a) listed on a domestic securities exchange, including The Nasdaq Global Market or (b) traded in the domestic over-the-counter market, which trades are reported by the National Quotation Bureau, Incorporated. (b) Reorganization; Share Exchange; Reclassification. In the event of a reorganization, share exchange, or reclassification, other than a change in par value, or from par value to no par value, or from no par value to par value, each share of Series A Convertible Preferred Stock shall, after such reorganization, share exchange or reclassification, be convertible into the kind and number of shares of stock or other securities or other property of the Company which the holder of Series A Convertible Preferred Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series A Convertible Preferred Stock immediately prior to such reorganization, share exchange, or reclassification. (c) Subdivision or Combination of Shares. In case outstanding shares of Common Stock shall be subdivided, the Conversion Price shall be appropriately reduced as of the effective date of such subdivision so that the number of shares of Common Stock issuable upon conversion of any shares of Series A Convertible Preferred Stock shall be increased in proportion to such increase of outstanding shares. In case outstanding shares of Common Stock shall be combined, the Conversion Price shall be appropriately increased as of the effective date of such combination so that the number of shares of Common Stock 8 issuable upon conversion of any shares of Series A Convertible Preferred Stock shall be decreased in proportion to such decrease of outstanding shares. (d) Stock Dividends. In case shares of Common Stock are issued as a dividend or other distribution on the Common Stock, then the Conversion Price shall be adjusted, as of the earliest of the date of such payment or other distribution, to that price determined by multiplying the Conversion Price in effect immediately prior to such payment or other distribution by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the payment of such dividend or other distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after the payment of such dividend or other distribution. In the event that the Company shall pay any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Company shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (e) Issuance of Additional Shares of Common Stock. (i) If, prior to the eighteen month anniversary of the Compliance Date, the Company issues Additional Shares of Common Stock or Convertible Securities which are convertible into Additional Shares of Common Stock without consideration, or for consideration per share, or with a per share conversion or exercise price, lower than the then current Fair Market Value of the Company's Common Stock, then in such event, the Conversion Price shall be reduced, concurrently with such issue, to an amount determined by multiplying the Conversion Price then in effect by a fraction: (A) the numerator of which shall be (x) an amount equal to the total number of shares of Common Stock outstanding immediately prior to the issuance or sale of such Additional Shares of Common Stock (the "Outstanding Common"), plus (y) the number of shares of Common Stock that the aggregate consideration received by the Company for such issuance or sale would purchase at the then current Conversion Price, and (B) the denominator of which shall be the Outstanding Common plus the Additional Shares of Common Stock. (ii) For purposes of the formula in this Section 5.5, other than the Additional Shares of Common Stock to which such calculation relates, all shares of Common Stock issuable upon the exercise of outstanding Options or issuable upon the conversion (at the Conversion Price in effect immediately before such determinations) of the Series A Convertible Preferred Stock or outstanding Convertible Securities (including Convertible Securities issued upon the exercise of outstanding Options), shall be deemed to be Outstanding Common (a "Fully Diluted Basis"). (iii) Determination of Consideration. For purposes of this Section 5.5(e), the consideration received by the Company for the issue or sale of any Additional Shares of Common Stock shall be computed as follows: 9 (A) insofar as it consists of cash, be the aggregate amount of cash received by the Company; and (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of the issue, as determined by the Board of Directors in good faith. (f) Adjustment to Conversion Price Upon Fundamental Change. (i) (A) If a holder exercises its right pursuant to this Section 5 to convert its Series A Convertible Preferred Stock upon the occurrence of a Fundamental Change pursuant to clauses (i), (ii) or (iv) of the definition thereof that occurs prior to May 25, 2017, then (x) at the effective date of the transaction constituting such Fundamental Change (the "Effective Date" ), the right to convert Series A Convertible Preferred Stock into shares of Common Stock shall be changed into a right to convert such Series A Convertible Preferred Stock into the kind and amount of cash, securities or other property of the Company or other entity (the "Transaction Consideration" ) that the holder would have received if the holder had converted such Series A Convertible Preferred Stock immediately prior to such transaction constituting a Fundamental Change and (y) in the circumstances set forth in Section 5.5(f)(i)(B), upon conversion, such holder will be entitled to receive, in addition to the Transaction Consideration in respect of the number of shares of Common Stock equal to the Conversion Rate, additional Transactional Consideration in respect of an additional number of shares of Common Stock of the Company (the "Additional Shares"), or an equivalent amount of the same form of consideration into which all or substantially all of the shares of the Company's Common Stock have been converted or exchanged in connection with the Fundamental Change (other than cash paid in lieu of fractional interests in any security or pursuant to dissenters' rights), determined as set forth in Section 5.5(f)(i)(B); provided, however, that a Fundamental Change for purposes of this Section 5.5(f)(i) will not be deemed to have occurred in the case of a merger or consolidation, if (x) at least 90% of the consideration (excluding cash payments for fractional shares and cash payments pursuant to dissenters' appraisal rights) in the merger or consolidation consists of freely tradable common stock of a United States company traded on a national securities exchange (or which will be so traded or quoted when issued or exchanged in connection with such transaction) and (y) as a result of such transaction or transactions the shares of Series A Convertible Preferred Stock become convertible solely into such common stock; and provided, further, that if holders of the Company's Common Stock receive or have the right to receive more than one form of consideration in connection with such Fundamental Change, then, for purposes of the foregoing, the forms of consideration in which the make-whole premium will be paid will be in proportion to the relative value of the different forms of consideration paid to the Company's common stockholders in connection with the Fundamental Change (and, if an election as to different forms 10 of consideration is offered to holders of the Company's Common Stock, in accordance with the election made as to such forms of consideration by the Holders of the Series A Convertible Preferred Stock being converted), all as determined in accordance with paragraph (B) below. (B) The number of Additional Shares referred to in Section 5.5(f)(i) shall be determined for the Series A Convertible Preferred Stock by reference to the table on Exhibit A, based on the price per share at which the Common Stock of the Company is being acquired (the "Acquisition Stock Price"). (C) The Acquisition Stock Prices set forth in the first row of the table on Exhibit A (i.e., column headers) will be adjusted as of each date on which the Conversion Rate of the Series A Convertible Preferred Stock is adjusted. The adjusted Acquisition Stock Prices will equal the Acquisition Stock Prices applicable immediately prior to such adjustment, multiplied by a fraction, the numerator of which is the Conversion Rate immediately prior to the adjustment giving rise to such Acquisition Stock Price adjustment and the denominator of which is the Conversion Rate as so adjusted. The initial number of Additional Shares set forth in the table on Exhibit A will be adjusted from time to time in the same manner as the Conversion Rate is adjusted from time to time in the manner provided under this Section 5. (D) Upon a Fundamental Change which takes place prior to May 25, 2017, the holder of each share of Series A Convertible Preferred Stock shall be entitled to receive upon conversion of each share, in addition to shares of Common Stock to which it is entitled based on the Conversion Rate, a number of Additional Shares per $1,000.00 of Liquidation Preference per share of the Series A Convertible Preferred Stock so converted which corresponds to the Acquisition Stock Price then in effect and date of such Fundamental Change as set forth in the table on Exhibit A. (E) The exact "Acquisition Stock Prices" and "Effective Dates" may not be set forth in the table on Exhibit A, in which case: (1) If the Acquisition Stock Price is between two Acquisition Stock Price amounts in the table on Exhibit A or the Effective Date is between two Effective Dates in the table on Exhibit A, the number of Additional Shares will be determined by a straight-line interpolation between the number of Additional Shares set forth for the higher and lower Acquisition Stock Price amounts and the two dates, as applicable, based on a 365-day year. 11 (2) If the Acquisition Sock Price is in excess of $60.00 per share (subject to adjustment), no Additional Shares will be issued upon conversion. (3) (C) If the Acquisition Stock Price is less than $30.00 (subject to adjustment), the number of Additional Shares issued on conversion will be the amount set forth in the farthest column on the left of the table which contains Additional Share numbers. (F) If the Transaction Consideration includes securities or other property other than cash, the value thereof for purposes of determining the Acquisition Stock Price shall be determined in good faith by the Board of Directors. (ii) In addition, upon a Fundamental Change, any holder of shares of the Series A Convertible Preferred Stock will have the right to require the Company to purchase such holder's Series A Convertible Preferred Stock for 100% of the Liquidation Preference. Notwithstanding the foregoing, however, the holders of the Series A Convertible Preferred Stock will not have the right to require the Company to repurchase Series A Convertible Preferred Stock upon such Fundamental Change (i) unless such repurchase complies with the terms of the Company's then existing credit facilities, debt indentures and other debt instruments and (ii) unless and until the Board of Directors has approved such Fundamental Change or elected to take a neutral position with respect to such Fundamental Change. (iii) A "Fundamental Change" is deemed to have occurred upon the occurrence of any of the following: (i) the sale, conveyance or disposition in one or a series of transactions of all or substantially all of the assets of the Company or of its significant subsidiaries to a third party, or any transaction that is subject to Rule 13e-3 of the Securities Exchange Act of 1934, as amended (ii) the consummation of a transaction by which any person or group, other than the Initial Investor or its affiliates, is or becomes the beneficial owner, directly or indirectly, of 50% or more of the securities issued by the Company having the power to vote (measured by voting power rather than number of shares) in the election of directors of the Company ("Voting Stock"), (iii) during any period of two consecutive years, the Continuing Directors (as defined below) cease for any reason to constitute a majority of the Board of Directors, or (iv) the consolidation, merger or other business combination of the Company with or into any other Person or Persons (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section 5); provided, however, that a Fundamental Change will not be deemed to have occurred in the case of clause (iv) above in the case of (a) a consolidation, merger or other business combination in which holders of the Company's Voting Stock immediately prior to the transaction continue after the transaction to hold, directly or indirectly, the same relative percentage of the Voting Stock as before any such transaction and the Voting Stock of the surviving entity or entities necessary to elect a majority of the members of the board of directors (or their equivalent if other than a 12 corporation) of such entity or entities, including pursuant to a holding company merger effected under Section 251(g) of the DGCL or any successor provision, or (b) a migratory merger effected solely for the purpose of changing the jurisdiction of incorporation of the Company. (iv) "Continuing Directors" shall mean individuals who (i) at the beginning of the relevant two-year period of determination constituted the Board of Directors, together with (ii) any new directors whose election to the Board of Directors or whose nomination for election by the stockholders of the Corporation was approved by the Initial Investor or by a vote of a majority of the directors who were either directors at the beginning of such period or approved pursuant to this clause (ii). (g) Certificate of Adjustment. In each case of an adjustment or readjustment of the Conversion Price pursuant to this Section 5.5, the Company, at its expense, shall cause its chief financial officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Series A Convertible Preferred Stock at the holder's address as shown in the Company's books. 5.6 Fractional Shares. No fractional shares of Common Stock shall be issued upon any conversion of Series A Convertible Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of shares of Series A Convertible Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance to any holder of a fractional share, then, in lieu of any fractional share to which the holder would otherwise be entitled, the Company shall pay the holder cash equal to the product of such fraction multiplied by the Common Stock's Fair Market Value as of the date of conversion. 5.7 Reservation of Stock Issuable Upon Conversion. The Board of Directors shall at all times reserve a sufficient number of authorized but unissued shares of Common Stock to be issued in satisfaction of the conversion rights, dividends and other privileges aforesaid. For the purposes of this Section 5.7, the number of shares of Common Stock then issuable upon the conversion of all outstanding shares of Series A Convertible Preferred Stock shall be computed as if all outstanding shares of Series A Convertible Preferred Stock were held by a single holder. The Company shall from time to time, in accordance with the laws of the State of Delaware, increase the authorized amount of its Common Stock if at any time the authorized amount of its Common Stock remaining unissued shall not be sufficient to permit the conversion of, or payment of dividends on, all shares of Series A Convertible Preferred Stock at the time outstanding. SECTION 6. MISCELLANEOUS 6.1 Notices. Any notice required by the provisions of the Certificate of Designation to be given to the holders of shares of the Series A Convertible Preferred Stock shall be deemed given upon the earlier of actual receipt or deposit in the United States mail, by certified or registered mail, return receipt requested, postage prepaid, or delivery by a recognized express 13 courier, fees prepaid, addressed to each holder of record at the address of such holder appearing on the books of the Company. 6.2 Payment of Taxes. The Company will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of shares of Common Stock upon conversion of shares of the Series A Convertible Preferred Stock, excluding any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which the shares of the Series A Convertible Preferred Stock so converted were registered. 6.3 No Impairment. The Company shall not avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but shall at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of the Series A Convertible Preferred Stock against impairment. 6.4 No Reissuance of Preferred Stock. No share or shares of Series A Convertible Preferred Stock acquired by the Company by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Company shall be authorized to issue. 6.5 No Preemptive Rights. No holder of Series A Convertible Preferred Stock shall have a right to purchase shares of capital stock of the Company sold or issued by the Company except to the extent that such a right may from time to time be set forth in a written agreement between the Company and any such holder of Series A Convertible Preferred Stock. [The remainder of this page is intentionally left blank.] 14 IN WITNESS WHEREOF, said corporation has caused this Certificate of Designation, Preferences and Rights to be signed by Dan Bodner, President, and attested by Peter Fante, Secretary, as of this May 24, 2007. /s/ Dan Bodner -------------------------------- Name: Dan Bodner Title: President ATTESTED: By: /s/ Peter Fante -------------------------------- Name: Peter Fante Title: Secretary [SIGNATURE PAGE FOR CERTIFICATE OF DESIGNATION] 15 EXHIBIT A Capped Make-whole table: Additonal shares per $1,000 - ----------------------------------------------------
Acquisition Stock Price --------------------------------------------------------------------------------------------------- EFFECTIVE DATE $30.00 $31 $32 $33 $34 $35 $40 $45 $50 $55 $60 - ---------------------------------------------------------------------------------------------------------------------- May 25, 2007 3.70 3.39 3.10 2.83 2.59 2.37 1.54 1.03 0.73 0.54 0.00 May 23, 2008 3.70 3.35 3.02 2.72 2.44 2.18 1.18 0.56 0.22 0.05 0.00 May 25, 2009 3.70 3.32 2.97 2.64 2.34 2.06 0.92 0.09 0.00 0.00 0.00 May 25, 2010 3.70 3.30 2.93 2.59 2.26 1.96 0.71 0.00 0.00 0.00 0.00 May 25, 2011 3.70 3.30 2.92 2.56 2.22 1.91 0.56 0.00 0.00 0.00 0.00 May 25, 2012 3.70 3.30 2.92 2.55 2.22 1.90 0.55 0.00 0.00 0.00 0.00 May 24, 2013 3.70 3.29 2.92 2.56 2.22 1.90 0.55 0.00 0.00 0.00 0.00 May 23, 2014 3.70 3.30 2.91 2.56 2.22 1.90 0.55 0.00 0.00 0.00 0.00 May 25, 2015 3.70 3.29 2.91 2.55 2.22 1.90 0.55 0.00 0.00 0.00 0.00 May 25, 2016 3.70 3.30 2.91 2.56 2.22 1.90 0.55 0.00 0.00 0.00 0.00 May 25, 2017 3.70 3.30 2.91 2.56 2.22 1.90 0.55 0.00 0.00 0.00 0.00
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