-----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, DSd7jZHPWKMBjFYOHVdguP4dGK4d2wsGe1a5ylyZ0MwRaJgzEx1nm4RdhRP1BgOX GFOQ1CaB7JPL6ZmWxUL+Xw== 0001005150-00-001668.txt : 20001218 0001005150-00-001668.hdr.sgml : 20001218 ACCESSION NUMBER: 0001005150-00-001668 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20001215 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: IXATA GROUP INC CENTRAL INDEX KEY: 0000929425 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 944453386 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-54697 FILM NUMBER: 790619 BUSINESS ADDRESS: STREET 1: 8080 DAGGETT STREET SUITE 220 CITY: SAN DIEGO STATE: CA ZIP: 92111 BUSINESS PHONE: 6196775580 MAIL ADDRESS: STREET 1: 8080 DAGGETT STREET SUITE 220 CITY: SAN DIEGO STATE: CA ZIP: 92111 FORMER COMPANY: FORMER CONFORMED NAME: SECURFONE AMERICA INC DATE OF NAME CHANGE: 19971114 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGY INC DATE OF NAME CHANGE: 19970326 FORMER COMPANY: FORMER CONFORMED NAME: MATERIAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19970313 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: NEXTGEN FUND II LLC CENTRAL INDEX KEY: 0001126610 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 541962916 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 12701 FAIR LAKES CIRCLE CITY: FAIRFAX STATE: VA ZIP: 22033 BUSINESS PHONE: 7038030544 MAIL ADDRESS: STREET 1: 12701 FAIR LAKES CIRCLE CITY: FAIRFAX STATE: VA ZIP: 22033 SC 13D 1 0001.txt SCHEDULE 13D CUSIP No. 81371G 10 S 13D PAGE 1 of 62 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- SCHEDULE 13D* (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a) Amendment No. 1 The IXATA Group, Inc. (Name of Issuer) Common Stock (Title of Class of Securities) ------------------------------------------------------------------------------ 81371G 10 S (CUSIP Number) Zimri C. Putney 12701 Fair Lakes Circle, Suite 690, Fairfax, VA 22033 (703) 803-0544 (Name, address and telephone number of person authorized to receive notices and communications) December 5, 2000 (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) - ---------------- *The remainder of this cover page shall be filled out for a Reporting Person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter the disclosures provided in a prior cover page. The information required in the remainder of this cover page shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes) CUSIP No. 81371G 10 S 13D PAGE 2 of 62 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (1) NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) NextGen Fund II, L.L.C. - -------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP ** (a) [ ] (b) [X] - -------------------------------------------------------------------------------- (3) SEC USE ONLY - -------------------------------------------------------------------------------- (4) SOURCE OF FUNDS ** NOT APPLICABLE - -------------------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION Virginia - -------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER -0- SHARES _____________________________________________________ BENEFICIALLY (8) SHARED VOTING POWER 13,112,770 OWNED BY _____________________________________________________ EACH (9) SOLE DISPOSITIVE POWER -0- REPORTING _____________________________________________________ PERSON WITH (10) SHARED DISPOSITIVE POWER 13,112,770 ----------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 13,112,770 - -------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ] - -------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48.73% - -------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON ** OO - -------------------------------------------------------------------------------- ** SEE INSTRUCTIONS BEFORE FILLING OUT! ================================================================================ (1) NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) NextGen SBS Fund II, L.L.C. - -------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP ** (a) [ ] (b) [X] - -------------------------------------------------------------------------------- (3) SEC USE ONLY CUSIP No. 81371G 10 S 13D PAGE 3 of 62 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (4) SOURCE OF FUNDS ** NOT APPLICABLE - ----------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION Virginia - -------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER -0- SHARES ----------------------------------------------------- BENEFICIALLY (8) SHARED VOTING POWER 8,741,840 OWNED BY ----------------------------------------------------- EACH (9) SOLE DISPOSITIVE POWER -0- REPORTING ----------------------------------------------------- PERSON WITH (10) SHARED DISPOSITIVE POWER 8,741,840 ----------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 8,741,840 - -------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ] - -------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 38.79% - -------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON ** OO - -------------------------------------------------------------------------------- ** SEE INSTRUCTIONS BEFORE FILLING OUT! - -------------------------------------------------------------------------------- (1) NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Zimri C. Putney - -------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP ** (a) [ ] (b) [X] - -------------------------------------------------------------------------------- (3) SEC USE ONLY - -------------------------------------------------------------------------------- (4) SOURCE OF FUNDS ** NOT APPLICABLE - ------------------------------------------------------------ (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION USA - -------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER -0- SHARES ----------------------------------------------------- CUSIP No. 81371G 10 S 13D PAGE 4 of 62 - -------------------------------------------------------------------------------- BENEFICIALLY (8) SHARED VOTING POWER 21,854,610 OWNED BY ----------------------------------------------------- EACH (9) SOLE DISPOSITIVE POWER -0- REPORTING ----------------------------------------------------- PERSON WITH (10) SHARED DISPOSITIVE POWER 21,854,610 - -------------------------------------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 21,854,610 - -------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES ** [ ] - -------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 61.31% - -------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON ** IN - -------------------------------------------------------------------------------- ** SEE INSTRUCTIONS BEFORE FILLING OUT! - -------------------------------------------------------------------------------- Explanatory Note. This Amendment No. 1 to Schedule 13D (this "Amendment") amends and restates Items 1 through 7 of the statement on Schedule 13D filed on October 23, 2000 (the "Schedule 13D") by NextGen Fund II, L.L.C., a Virginia limited liability company ("NG"), NextGen SBS Fund II, L.L.C., a Virginia limited liability company ("NGSBS") and Zimri Putney ("Mr. Putney") who is managing director of the managing member of NG and NGSBS. This Amendment should be read in conjunction with the Schedule 13D. Capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Schedule 13D. Items 1 through 7 of the Schedule 13D are hereby deleted in their entirety and replaced with the following: Item 1. Security and Issuer. This statement relates to the shares of the common stock, par value $0.001 per share (the "Common Stock"), of The IXATA Group, Inc., a Delaware corporation (the "Company"). This statement reflects (i) the recent acquisition (as described in Item 3) of shares of the Company's Series C Preferred Stock, par value $0.001 per share (the "Series C Preferred Stock"), which Series C Preferred Stock is convertible into shares of Common Stock at any time at the option of the holder thereof, (ii) the recent issuance of Warrants to purchase Series C Preferred Stock (the "Series C Warrants") and (iii) the issuance on October 13, 2000 of Warrants to purchase Common Stock (the "Common Stock Warrants") which was previously reported on the Schedule 13D. The Company's principal executive offices are located at 8989 Rio San Diego Drive, San Diego, CA 92108. Item 2. Identity and Background. (a) This statement is filed by: CUSIP No. 81371G 10 S 13D PAGE 5 of 62 - -------------------------------------------------------------------------------- (i) NextGen Fund II, L.L.C., a Virginia limited liability company, with respect to the Company securities directly owned by it; (ii) NextGen SBS Fund II, L.L.C., a Virginia limited liability company, with respect to the Company securities directly owned by it; and (iii) Zimri C. Putney, who is managing director of the managing member of NG and NGSBS, with respect to the Company securities owned by NG and NGSBS. The foregoing persons are hereinafter sometimes collectively referred to as the "Reporting Persons". (b) The address of the principal business and principal office of each of the Reporting Persons is 12701 Fair Lakes Circle, Suite 690, Fairfax, Virginia 22033. (c) The principal business of each of NG and NGSBS is serving as a private investment fund. Mr. Putney is managing director of the managing member of each of NG and NGSBS. (d) None of the Reporting Persons has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the Reporting Persons has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was, or is subject to, a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. (f) Each of NG and NGSBS is a Virginia limited liability company. Mr. Putney is a United States citizen. Item 3. Source and Amount of Funds or Other Consideration. On October 13, 2000, the Company issued to NG and NGSBS Common Stock Warrants to purchase 900,000 shares and 600,000 shares, respectively, of the Common Stock of the Company. The Company issued the Common Stock Warrants to NG and NGSBS in consideration of the execution and delivery by NG and NGSBS of guaranties of a loan to the Company from Branch Banking & Trust Co. in the original principal amount of $100,000. The Common Stock Warrants are exercisable at a price of $.03 per share and expire on October 13, 2001. A form of the Common Stock Warrant was filed as Exhibit 1 to the Schedule 13D. On December 5, 2000, NG, NGSBS and other Purchasers and the Company entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which the Company sold to NG, for $750,000 (including $224,586 in cancellation of indebtedness), 621,277 shares of the Company's Series C Preferred Stock, which shares are presently convertible into 6,212,770 shares of Company's Common Stock (subject to anti-dilution protection in the event of subsequent issuances of stock by the Company at a price less than the price of the Series C Prefered Stock, stock splits, stock dividends, recapitalizations and similar events). The Company also granted to NG a Series C Warrant to purchase 600,000 shares of Series C Preferred Stock. These Series C Warrants are exercisable at a price of $1.00 per share and expire on December 5, 2005. NG is therefore the sole beneficial owner of 13,112,770 shares of the Company's Common Stock. Under the terms of the Stock Purchase Agreement the Company sold to NGSBS, for $500,000 (including $107,580 in cancellation of indebtedness), 414,184 shares of the Company's Series C Preferred Stock, which shares are presently convertible into 4,141,840 shares of the Company's Common Stock (subject to anti-dilution protection in the event of subsequent issuances of stock by the Company at a price less than CUSIP No. 81371G 10 S 13D PAGE 6 of 62 - -------------------------------------------------------------------------------- the price of the Series C Prefered Stock, stock splits, stock dividends, recapitalizations and similar events). The Company also granted to NGSBS a Series C Warrant to purchase 400,000 shares of Series C Preferred Stock. These Series C Warrants are exercisable at a price of $1.00 per share and expire on December 5, 2005. NGSBS is therefore the sole beneficial owner of 8,741,840 shares of the Company's Common Stock. Item 4. Purpose of the Transaction. The purpose of the acquisition of the Common Stock Warrants, the Series C Warrants and the Series C Preferred Stock by the Reporting Persons was for investment and to provide financing for the Company. The Reporting Persons reserve the right to acquire, or cause to be acquired, additional securities of the Company, to dispose of, or cause to be disposed of, such securities at any time or to formulate other purposes, plans or proposals regarding the Company or any of its securities, to the extent deemed advisable in light of general investment and trading policies of the Reporting Persons, market conditions or other factors. Item 5. Interest in Securities of the Issuer. (a) NG is the sole direct beneficial owner of 13,112,770 shares of the Company's Common Stock, or 48.73% of the Company's outstanding Common Stock. NGSBS is the sole direct beneficial owner of 8,741,840 shares of the Company's Common Stock, or 38.79% of the Company's outstanding Common Stock. Mr. Putney is the indirect beneficial owner of the 21,854,610 shares of the Company's Common Stock held by NG and NGSBS, or 60.31% of the Company's outstanding Common Stock. Mr. Putney disclaims beneficial ownership of such shares. The percentage of the Company's Common Stock reported to be beneficially owned by NG, NGSBS and Mr. Putney is based on 13,791,680 shares of the Company's Common Stock outstanding as of September 30, 2000, as represented by the Company in the Stock Purchase Agreement, and is calculated in accordance with the Securities Exchange Act Rule 13d-3, which states that securities held by a person which are not outstanding but are subject to warrants or conversion privileges shall be deemed to be outstanding for the purpose of computing the percentage of outstanding securities of a class owned by such person. (b) Mr. Putney may be deemed to have sole voting and disposition power of the shares of Common Stock issuable upon exercise of the Warrants and conversion of the Series C Preferred Stock in his capacity as managing director of the managing member of each of NG and NGSBS. c) Except as described herein, none of the Reporting Persons has effected any transaction in the Common Stock during the past 60 days. (d) The members of NG have the right to participate in the receipt of dividends from, or proceeds from the sale of, any Common Stock issued to NG in accordance with their membership interests in NG. The members of NGSBS have the right to participate in the receipt of dividends from, or proceeds from the sale of, any Common Stock issued to NGSBS in accordance with their membership interests in NGSBS. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. On October 13, 2000, the Company issued to NG and NGSBS Common Stock Warrants to purchase 900,000 shares and 600,000 shares, respectively, of the Common Stock of the Company. The Company issued the Common Stock Warrants to NG and NGSBS in consideration of the execution and delivery by NG and NGSBS of guaranties of a loan to the Company from Branch Banking & Trust Co. in the original principal amount of $100,000. A form of the Common Stock Warrant was filed as Exhibit 1 to the Schedule 13D. CUSIP No. 81371G 10 S 13D PAGE 7 of 62 - -------------------------------------------------------------------------------- On December 5, 2000, NG purchased 621,277 shares of Series C Preferred Stock of the Company for $750,000, and NGSBS purchased 414,184 shares of Series C Preferred Stock of the Company for $500,000. Each share of Series C Preferred Stock is convertible into ten shares of Common Stock of the Company(subject to anti-dilution protection in the event of subsequent issuances of stock by the Company at a price less than the price of the Series C Prefered Stock, stock splits, stock dividends, recapitalizations and similar events). The Company made customary representations and warranties to NG and NGSBS in the Stock Purchase Agreement. Under the terms of the Stock Purchase Agreement, NG and NGSBS have the right to elect a majority of the Board of Directors. The Series C Warrants issued on December 5, 2000 to NG and NGSBS respectively, are exercisable for 600,000 shares and 400,000 shares of Series C Preferred the Company at a price of $1.00 per share. The Stock Purchase Agreement also allows for additional investments at a second and third closing. Upon the occurrence of certain milestones, as listed in the Stock Purchase Agreement, NG has agreed to invest $150,000 and NGSBS has agreed to invest $100,000 at the second closing. Upon the occurrence of additional milestones as set forth in the Stock Purchase Agreement, NG has agreed to invest an additional $300,000 and NGSBS has agreed to invest an additional $200,000 at the third closing: The Stock Purchase Agreement contains provisions relating to registration rights pursuant to which the Company has agreed to effect a registration of Common Stock issuable upon conversion of the Series C Preferred Stock (the "Registerable Shares") on two occasions after November 30, 2003, if requested by the holders of at least 50% of the Registrable Shares. In addition, the Company has agreed to effect registration of such shares on Form S-3, in the event that at least 35% of such Registrable Shares have requested such registration The Company has also agreed to allow the holders of such shares to participate in registrations of shares which the Company may initiate from time to time. The Company, NG, NGSBS, the Gluckman Family Trust, the Andreoli Family Trust, Montpilier Holdings, Inc. and Robert Steiner have entered into a Voting Agreement dated December 4, 2000. The Agreement provides that until NG and NGSBS cease to collectively own any voting stock, or until the Company experiences a change of control, each party will (i) vote for the designee of Montpilier, (ii) vote for the designee of the Gluckman Trust, and (iii) vote for the designees of the holders of Series C Preferred Stock at all elections of directors. NG and NGSBS also agree not to take any action to sell the Company without consent. A copy of the Voting Agreement is attached hereto as Exhibit 4. In connection with the execution and delivery of the Stock Purchase Agreement, the Company filed a Certificate of Designations, which sets forth the terms of the Series C Preferred Stock, including provisions regarding voting rights. Under the terms of the Certificate of Designations, at any time after January 1, 2005, a majority of holders of the outstanding shares of Series C Preferred may demand a redemption. A copy of the Certificate is attached hereto as Exhibit 2. Item 7. Material to Be Filed as Exhibits. 1. Stock Purchase Agreement, dated as of December 5, 2000, between the Company and the Purchasers named therein. 2. Certificate of Designations of the Company with respect to the Series C Preferred Stock. 3. Form of Series C Warrant dated December 5, 2000. 4. Voting Agreement dated December 4, 2000 by and among the Company, NG NGSBS, Montpilier Holdings, Inc., the Gluckman Family Trust, The Andreoli Family Trust and Robert A Steiner. CUSIP No. 81371G 10 S 13D PAGE 8 of 62 - -------------------------------------------------------------------------------- SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. DATED: December 15, 2000 NEXTGEN FUND II, L.L.C. NEXTGEN SBS FUND II, L.L.C. By: NextGen Capital, L.L.C. By: NextGen Capital, L.L.C. Managing Member Managing Member By: /s/ Zimri C. Putney By: /s/ Zimri C. Putney ------------------- ------------------- Zimri C. Putney Zimri C. Putney Managing Director Managing Director ZIMRI C. PUTNEY /s/ Zimri C. Putney ------------------- EX-1 2 0002.txt EXHIBIT 1 CUSIP No. 81371G 10 S 13D PAGE 9 of 62 - -------------------------------------------------------------------------------- EXHIBIT 1 SERIES C CONVERTIBLE PREFERRED STOCK AND SERIES C CONVERTIBLE PREFERRED STOCK WARRANT PURCHASE AGREEMENT This Agreement dated as of December 5, 2000 is entered into by and among The IXATA Group, Inc., a Delaware corporation (the "Company"), and the Purchasers listed on Exhibit A attached hereto (the "Purchasers"). WHEREAS, the parties hereto desire to provide for the purchase and sale of certain securities of the Company as set forth herein; NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows: 1. Authorization and Sale of Shares. (a) Authorization. The Company has duly authorized the sale and issuance of up to 2,135,461 shares of its Series C Convertible Preferred Stock, $.001 par value per share (the "Series C Preferred"), and the issuance of warrants for the purchase of an aggregate of 2,100,000 shares of the Series C Preferred, having the rights, restrictions, privileges and preferences set forth in the Certificate of Designations attached hereto as Exhibit B-1 (the "Certificate of Designations"). The Company has, or on or before the Closing (as defined in Section 2) will have, adopted and filed the Certificate of Designations with the Delaware Secretary of State. (b) Sale of Shares. Subject to the terms and conditions of this Agreement, at each Closing (as defined in Section 2), the Company will sell and issue to the Purchasers and each Purchaser will purchase the number of shares of Series C Preferred set forth opposite its name on Exhibit A attached hereto for the purchase price of $1.00 per share in cash and/or cancellation of indebtedness. The shares of Series C Preferred being sold under this Agreement are referred to as the "Shares." In addition, at the each Closing (as defined below), the Company will issue to each Purchaser a Warrant in the form attached hereto as Exhibit B-2 to purchase the number of shares of Series C Preferred, subject to adjustment, set forth opposite its name on Exhibit A attached hereto at an exercise price of $1.00 per share, subject to adjustment (collectively, the "Warrants"). (c) At any time on or before the thirtieth (30th) day following the Closing, the Company may sell up to 300,000 of the authorized shares of Series C Preferred Stock not sold at the Closing to such persons as may be approved by the Board of Directors of the Company (the "Additional Purchasers"). All such sales made at any additional closings (each an "Additional Closing") shall be made on the terms and conditions set forth in this Agreement, including without limitation, the representations and warranties by such Additional Purchasers as set forth in Section 4. This Agreement, including without limitation, the Schedule of Purchasers, may be amended by the Company without the consent of the Purchasers solely to include any Additional Purchasers. Any shares of Series C Preferred Stock sold pursuant to this Section 1(c) shall be deemed to be "Shares" for all purposes under this Agreement and any Additional Purchasers thereof shall be deemed to the "Purchasers" for all purposes under this Agreement. (d) Use of Proceeds. The Company will use the proceeds from the sale of the Shares for working capital and other general corporate purposes. (e) Separate Agreements. The Company's agreement with each of the Purchasers is a separate agreement, and the sale of the Shares and the Warrants to each of the Purchasers is a separate sale. CUSIP No. 81371G 10 S 13D PAGE 10 of 62 - -------------------------------------------------------------------------------- 2. Closing. (a) The closing of the initial sale and purchase of Shares as set forth on Exhibit A under the heading First Closing ("First Closing") is taking place simultaneously with the execution of this Agreement, at the offices of Hale and Dorr LLP in Reston, VA at 10:00 A.M. on December 4, 2000, or in such other manner as the parties may agree. At the First Closing, the Company will deliver to each Purchaser a certificate for the number of Shares then being purchased by such Purchaser, registered in the name of such Purchaser, against payment to the Company of the purchase price therefor, by wire transfer, check or other method acceptable to the Company. In addition, the Company shall issue to each Purchaser a Warrant to purchase the number of shares of Series C Preferred specified with respect to such Purchaser on Exhibit A. The date of the First Closing is hereinafter referred to as the "First Closing Date." If at the First Closing any of the conditions specified in Section 5 shall not have been fulfilled, each Purchaser shall, at his or its election, be relieved of all of his or its obligations under this Agreement without thereby waiving any other rights he or it may have by reason of such failure or such nonfulfillment. (b) The closing of the sale and purchase of the Shares as set forth on Exhibit A under the heading "Second Closing" (the "Second Closing") will take place at the offices of Hale and Dorr LLP in Reston, VA, or in such other manner as the parties may agree, within thirty (30) days after the Second Closing Conditions (as defined below) are met (the "Second Closing Date"). (c) The obligation of the Purchasers to purchase Shares at the Second Closing is conditioned upon fulfillment of the conditions set forth on Exhibit B-3 hereto (the "Second Closing Conditions"). At the Second Closing, the Company will deliver to each of the Purchasers a certificate for the number of shares then being purchased by such Purchaser, registered in the name of such Purchaser, against payment to the Company of the purchase price therefor, by wire transfer, check, or other method acceptable to the Company. In addition, the Company shall issue to each Purchaser a Warrant to purchase the number of shares of Series C Preferred specified with respect to such Purchaser on Exhibit A. If at the Second Closing any of the Second Closing Conditions shall not have been fulfilled, each of the Purchasers shall, at its election, be relieved of all of his or its obligations under this Agreement without thereby waiving any of the rights it may have by reason of such failure or such non-fulfillment. (d) The closing of the sale and purchase of Shares as set forth on Exhibit A under the heading "Third Closing" (the "Third Closing") will take place at the offices of Hale and Dorr LLP in Reston, VA, or in such other manner as the parties may agree within 60 days after the Third Closing Conditions (as defined below) are met (the "Third Closing Date"). The First Closing, the Second Closing and the Third Closing are sometimes hereinafter referred to as the "Closing," and the First Closing Date, the Second Closing Date and the Third Closing Date are sometimes hereinafter referred to as the "Closing Date" (e) The obligation of the Purchasers, as set forth in Exhibit A, to purchase Shares at the Third Closing is conditioned upon fulfillment of the conditions set forth on Exhibit B-3 hereto (the "Third Closing Conditions"). At the Third Closing, the Company will deliver to each of the Purchasers a certificate for the number of shares then being purchased by such Purchaser, registered in the name of such Purchaser, against payment to the Company of the purchase price therefor, by wire transfer, check, or other method acceptable to the Company. In addition, the Company shall issue to each Purchaser a Warrant to purchase the number of shares of Series C Preferred specified with respect to such Purchaser on Exhibit A. If at the Third Closing any of the Third Closing Conditions shall not have been fulfilled, each of the Purchasers shall, at its election, be relieved of all of his or its obligations under this Agreement without thereby waiving any of the rights it may have by reason of such failure or such non-fulfillment. CUSIP No. 81371G 10 S 13D PAGE 11 of 62 - -------------------------------------------------------------------------------- 3. Representations of the Company. Other than as disclosed in the attached disclosure schedules (the "Schedules"), the Company hereby represents and warrants to the Purchasers as follows: (a) Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to conduct its business as presently conducted and as proposed to be conducted by it and to enter into and perform this Agreement and the transactions contemplated hereby. The Company is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions where such qualification is required. The Company has furnished to the Purchasers true and complete copies of its Certificate of Incorporation and By-Laws, each as amended to date and presently in effect. (b) Capitalization. The authorized capital stock of the Company immediately prior to the Closing will consist of 100,000,000 shares of Common Stock, $.001 par value per share ("Common Stock"), of which 13,791,680 shares of Common Stock are issued and outstanding, 3,000,000 shares of Class B common stock, $0.001 par value per share, none of which are issued and outstanding and 10,000,000 shares of Preferred Stock, $.001 par value per share, 350,000 of which are designated Series A Preferred with none issued and outstanding; 510,000 of which are designated Series B Preferred with none issued and outstanding; and 4,235,461 of which shall be designated as Series C Preferred, none of which shall have been issued. All of the issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. Except as set forth in the exhibits and schedules attached hereto or provided in this Agreement, (i) no subscription, warrant, option, convertible security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding, (ii) there is not any commitment of the Company to issue any subscription, warrant, option, convertible security or other such right or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company, (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof and (iv) there is no outstanding indebtedness of the Company in excess of $5,000 in the aggregate. Except as provided in this Agreement, no person or entity is entitled to (i) any preemptive or similar right with respect to the issuance of any capital stock of the Company, or (ii) any rights with respect to the registration of any capital stock of the Company under the Securities Act of 1933, as amended (the "Securities Act"). All of the issued and outstanding shares of Common Stock have been offered, issued and sold by the Company in compliance with applicable Federal and state securities laws. To the best of the Company's knowledge, no stockholder of the Company has granted options or other rights to purchase any shares of Common Stock from such stockholder. (c) Subsidiaries. Schedule 3(c) sets forth for each subsidiary of the Company (a "Subsidiary") (a) its name and jurisdiction of incorporation, (b) the number of shares of authorized, issued and outstanding capital stock of each class of its capital stock and (c) the names and the number of shares held by each holder of such shares. Each Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct business and is in good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to so qualify would not have a material adverse effect on the business, properties or rights of such Subsidiary. Each Subsidiary has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has delivered or made available to special counsel to the Purchasers correct and complete copies of the Certificate of Incorporation and By-laws of each Subsidiary, as amended to date. All of the issued and outstanding shares of capital stock of each Subsidiary are duly authorized, validly issued, fully paid, nonassessable and are held of record and beneficially by either the Company or another Subsidiary, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), claims, security interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, CUSIP No. 81371G 10 S 13D PAGE 12 of 62 - -------------------------------------------------------------------------------- warrants, rights, agreements or commitments to which the Company or any Subsidiary is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to any Subsidiary. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of any Subsidiary. No Subsidiary is in default under or in violation of any provision of its Charter or By-Laws. The Company does not control directly or indirectly or have any direct or indirect equity participation in any corporation, partnership, trust, or other business association which is not a Subsidiary. The Company has two subsidiaries as set forth in Schedule 3 ( c). (d) Stockholder List and Agreements. Attached as Exhibit C is a true and complete list of the record holders of Common Stock of the Company prepared by the Company's Transfer Agent as of a date within five days of the date of this Agreement. Also attached as Exhibit C is a true and complete list of the holders of all other securities of the Company, showing the number of shares of Common Stock or other securities of the Company held by each stockholder as of the date of this Agreement. Except as contemplated by this Agreement, or as set forth in Schedule 3(d), there are no agreements, written or oral, between the Company and any holder of its capital stock, or, to the best knowledge of the Company, among any holders of its capital stock, relating to the acquisition, disposition or voting of the capital stock of the Company. (e) Issuance of Shares. The issuance, sale and delivery of the Shares and the Warrants, the issuance and delivery of the shares of Common Stock issuable upon conversion of the Shares and the issuance and delivery of the shares of Series C Preferred issuable upon exercise of the Warrants (the "Warrant Shares") have been duly authorized and reserved for issuance, as the case may be, by all necessary corporate action on the part of the Company, and the Shares when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, the shares of Common Stock issuable upon conversion of the Shares when issued upon such conversion and the Warrant Shares, when issued upon exercise of the Warrants against payment therefor in accordance with the provisions of the Warrant, will be duly and validly issued, fully paid and nonassessable. (f) Authority for Agreement. The execution, delivery and performance by the Company of this Agreement and the Warrants (this Agreement and the Warrants are collectively referred to herein as "Agreements") have been duly authorized by all necessary corporate action, and each of the Agreements has been duly executed and delivered by the Company. Each of the Agreements constitutes the valid and binding obligation of the Company enforceable in accordance with its terms. The execution of the Agreements and performance of the transactions contemplated thereby and compliance with their provisions by the Company will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, the Company's Certificate of Incorporation or By-Laws, each as amended to date and presently in effect, or any indenture, lease, agreement or other instrument to which the Company is a party or by which the Company, or any of its respective properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to the Company. (g) SEC Documents; Financial Statements. Since March 13, 1997, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). A complete list of the Company's SEC Documents is set forth on Exhibit D. Except as disclosed on Schedule 3(g), as of the date hereof, the SEC Documents, as they may have been subsequently amended by filings made by the Company with the SEC prior to the date hereof, complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents. None of the SEC Documents, as of the date hereof and as they may have been subsequently amended by filings made by the Company with the SEC prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required CUSIP No. 81371G 10 S 13D PAGE 13 of 62 - -------------------------------------------------------------------------------- to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Except as disclosed on Schedule 3(g), as of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Except as disclosed on Schedule 3(g), such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). The Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date hereof and to which the Company is a party or by which the Company is bound which has not been previously filed as an exhibit to its reports filed with the SEC under the 1934 Act. (h) Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the Company in connection with the execution and delivery of the Agreements, the offer, issue, sale and delivery of the Shares or the Warrants, or the other transactions to be consummated at each Closing, except (i) requisite filings with appropriate state securities authorities, which the Company hereby covenants to make on a timely basis, and (ii) such filings as shall have been made prior to and shall be effective on and as of each Closing. Based on the representations made by the Purchasers in Section 4 of this Agreement, and the making of such filings, the offer and sale of the Shares and the Warrants to the Purchasers will be in compliance with applicable Federal and state securities laws. (i) Litigation. There is no action, suit, proceeding or investigation pending, or, to the best of the Company's knowledge, any basis therefor or threat thereof, against the Company, which questions the validity of this Agreement or the right of the Company to enter into any such agreement, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition (financial or otherwise), business or prospects of the Company. (j) Absence of Liabilities. The outstanding liabilities of the Company are listed on Schedule 3(j) attached hereto. Such liabilities, excluding liabilities which extend more than 3 years from the date of this Agreement and, excluding current payables and deferred revenue, in the aggregate, do not exceed $1,000,000, whether absolute or contingent and have a maximum interest rate of 8 percent. (k) No Undisclosed Events, Liabilities, Developments or Circumstances. Except for the issuance of the Series C Preferred and Warrants contemplated by this Agreement, no event, liability, development or circumstance has occurred or exists, with respect to the Company or its respective business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by the Company of its Common Stock and which has not been publicly disclosed. (l) No General Solicitation. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities. (m) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the issuance by the Company of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act, nor CUSIP No. 81371G 10 S 13D PAGE 14 of 62 - -------------------------------------------------------------------------------- will the Company take any action or steps that would require registration of the issuance by the Company of any of the Securities under the 1933 Act or, except as set forth on Schedule 3(m), cause the offering of the Securities to be integrated with other offerings. (n) Internal Accounting Controls. The Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management's general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (o) Property and Assets. The Company has good title to all of its material properties and assets, and none of such properties or assets is subject to any mortgage, pledge, lien, security interest, lease, charge or encumbrance other than those described on Schedule 3(o) attached hereto. (p) Patents and Trademarks. Set forth on Schedule 3(p) attached hereto is a true and complete list of all patents, patent applications, trademarks, service marks, trademark and service mark applications, trade names, copyrights and licenses presently owned or held by the Company. The Company owns or possesses all of the patents, trademarks, service marks, trade names, copyrights, proprietary rights, trade secrets, and licenses or rights to the foregoing, necessary for the conduct of the Company's business as conducted. To the best of the Company's knowledge, the business proposed by the Company will not cause the Company to infringe or violate any of the patents, trademarks, service marks, trade names, copyrights, licenses, trade secrets or other proprietary rights of any other person or entity except that the possibility exists that other persons have independently developed trade secrets or technical information similar or identical to those of the Company. The Company is not aware that any employee is obligated under any contract (including any license, covenant or commitment of any nature), or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of such employee's best efforts to promote the interests of the Company or would conflict with the Company's business as proposed to be conducted. To the best of the Company's knowledge, no prior employer of any employee of the Company has any right to or interest in any inventions, improvements, discoveries or other information assigned to the Company by such employee pursuant to the nondisclosure and assignment of invention agreement (in the form attached hereto as Exhibit E) executed by such employee, or otherwise so assigned. (q) Insurance. The Company maintains valid policies of workers' compensation insurance and of insurance with respect to its properties and business of the kinds and in the amounts not less than is customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft, public liability and other risks. (r) Material Contracts and Obligations. Schedule 3(r) attached hereto sets forth a list of all written or oral material agreements of any nature to which the Company is a party or by which it is bound, including without limitation (i) each agreement which requires future expenditures by the Company in excess of $5,000, (ii) all employment and consulting agreements, employee benefit, bonus, pension, profit-sharing, stock option, stock purchase and similar plans and arrangements, and distributor and sales representative agreements, and (iii) any agreement or arrangement to which any stockholder, officer or director of the Company, or any "affiliate" or "associate" of such persons (as such terms are defined in the rules and regulations promulgated under the Securities Act), is presently a party or under which such a person receives a benefit, including without limitation any agreement or other arrangement providing for the furnishing of services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity. The Company has delivered to the Purchasers copies of such of the foregoing agreements as the Purchasers have requested. All of such agreements and contracts are valid, binding and in full force and effect. CUSIP No. 81371G 10 S 13D PAGE 15 of 62 - -------------------------------------------------------------------------------- (s) Rights Agreement. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company. (t) Compliance. The Company has, in all material respects, complied with all laws, regulations and orders applicable to its present business and has all material permits and licenses required thereby. Except as set forth in Schedule 3(t) there is no term or provision of any material mortgage, indenture, contract, agreement or instrument to which the Company is a party or by which it is bound, or, to the knowledge of the Company, of any provision of any state or Federal judgment, decree, order, statute, rule or regulation applicable to or binding upon the Company, which materially adversely affects or, so far as the Company may now foresee, in the future is reasonably likely to materially adversely affect, the business, prospects, condition, affairs or operations of the Company or any of its properties or assets. To the best of the knowledge of the Company, none of the employees of the Company is in violation of any term of any employment contract, patent or other proprietary information disclosure agreement or any other contract or agreement relating to the employment of such employee by the Company. (u) Absence of Changes. Except as disclosed in Schedule 3(u) or as disclosed in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1999, Quarterly Reports on Form 10-QSB for the period ending March 31, June 30, and September 30, 2000 or current Report on Form 8-K, since December 31, 1999, there has been no change or development that has had or could reasonably be expected to have a material adverse effect on the business prospects, condition, affairs or operations of the Company. The Company has not taken any steps, and does not currently expect to take any steps, to seek protection pursuant to any bankruptcy law nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings. Except as disclosed in Schedule 3(u) or as disclosed in the Company's Quarterly Report on Form 10-QSB for the period ending March 31, June 30, and September 30, 2000 or Current Report on Form 8-K, since December 31, 1999, the Company has not declared or paid any dividends, sold any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business or had capital expenditures, individually or in the aggregate, in excess of $100,000. (v) Employees. All employees, material consultants, or other consultants of, or vendors to, the Company whose activities require access to confidential or proprietary information of the Company have executed and delivered nondisclosure and assignment of invention agreements substantially in the form of Exhibit E attached hereto, respectively, and all of such agreements are in full force and effect. All employees at or above the director level whose responsibilities with respect to the Company are technical in nature have executed non-competition agreements substantially in the form of Exhibit F attached hereto, and all of such agreements are in full force and effect. None of the employees of the Company is represented by any labor union, and there is no labor strike or other labor trouble pending with respect to the Company (including, without limitation, any organizational drive) or, to the best knowledge of the Company, threatened. (w) Taxes. Except as set forth on Schedule 3(w), the Company has filed or has obtained presently effective extensions with respect to all Federal, state, county, local and foreign tax returns which are required to be filed by it, such returns are true and correct and all taxes shown thereon to be due have been timely paid with exceptions not material to the Company. Federal income tax returns of the Company have not been audited by the Internal Revenue Service, and no controversy with respect to taxes of any type is pending or, to the best of the Company's knowledge, threatened. The Company has never filed an election pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that the Company be taxed as an S Corporation or consent pursuant to Section 341(f) of the Code relating to collapsible corporations. (x) U.S. Real Property Holding Corporation. The Company is not now and has never been a "United States Real Property Holding Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the Regulations promulgated by the Internal Revenue Service. CUSIP No. 81371G 10 S 13D PAGE 16 of 62 - -------------------------------------------------------------------------------- (y) Books and Records. The minute books of the Company contain complete and accurate records of all material meetings and other corporate actions of its stockholders and its Board of Directors and committees thereof. The stock ledger of the Company is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company. (z) Disclosures. Neither this Agreement nor any Exhibit or Schedule hereto, nor any report, certificate, statement or instrument supplied by the Company to the Purchasers or their counsel in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any material misstatement of fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. The Company knows of no information or fact which has or would have a material adverse effect on the financial condition, business or prospects of the Company which has not been disclosed in writing to the Purchasers. 4. Representations of the Purchasers. Each Purchaser severally represents and warrants to the Company as follows: (a) Investment. Such Purchaser is acquiring the Shares and the shares of Common Stock into which the Shares may be converted and the Warrant and the Warrant 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 as contemplated by this Agreement and the Exhibits and Schedules hereto, such Purchaser has no present or contemplated agreement, undertaking, arrangement, obligation, indebtedness or commitment providing for the disposition thereof. (b) Authority. Such Purchaser has full power and authority to enter into and to perform this Agreement in accordance with its terms. Such Purchaser represents that it has not been organized, reorganized or recapitalized specifically for the purpose of investing in the Company, or, if it has been organized specifically for the purpose of investing in the Company, all of the equity owners of such corporation, partnership, trust or other entity are Accredited Investors within the definition set forth in Securities Act Rule 501(a). (c) Experience. Such Purchaser has carefully reviewed the representations concerning the Company and such contained in this Agreement, and has made detailed inquiry concerning the Company, its business and its personnel; the officers of the Company have made available to such Purchaser any and all written information which such Purchaser has requested and have answered to such Purchaser's satisfaction all inquiries made by such Purchaser; and such Purchaser has adequate net worth and means of providing for its current needs and contingencies to sustain a complete loss of its investment in the Company; such Purchaser's overall commitment to investments which are not readily marketable is not disproportionate to its net worth and such Purchaser's investment in the Shares will not cause such overall commitment to become excessive. (d) Accredited Investor. Such Purchaser is an Accredited Investor within the definition set forth in Securities Act Rule 501(a). (e) Restricted Securities. Such Purchaser understands that the Securities it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulation such Securities may be resold without registration under the Act only in certain limited circumstances. In the absence of an effective registration statement covering the Securities (or the Common Stock issued on conversion thereof) or an opinion of counsel reasonably acceptable to the Company (it being understood that Hale and Dorr LLP is acceptable) that a sale may be made pursuant to an exemption from registration under the Act, the Shares (and any Common Stock issued on conversion thereof) must be held indefinitely. In this connection, such Purchaser represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act, including CUSIP No. 81371G 10 S 13D PAGE 17 of 62 - -------------------------------------------------------------------------------- without limitation the Rule 144 condition that current information about the Company be available to the public. (f) Legend. Each certificate or other instrument representing the Shares and the Registrable Shares and shares issued in respect of the Shares shall bear a legend substantially in the following form: "The securities represented by this instrument have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such shares are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Registrable Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Securities Act. (g) Notwithstanding the foregoing, no registration or opinion of counsel shall be required by the Company for a transfer by a Purchaser to any person or entity which directly or indirectly holds an interest in the Purchaser or a partner of any purchaser, or in connection with a bona fide reorganization, if the transferee agrees in writing to be subject to the terms of this Agreement to the same extent as if he were an original Purchaser hereunder. 5. Conditions to the Obligations of the Purchasers. The obligation of each Purchaser to purchase Shares at the Closing is subject to the fulfillment, or the waiver by such Purchaser, of the following conditions on or before the Closing Date: (a) Accuracy of Representations and Warranties. The representations and warranties contained in Section 3 of this Agreement shall be true on and as of such Closing Date with the same effect as though such representations and warranties had been made on and as of that date. (b) Performance. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by the Company prior to or at the Closing. (c) Opinion of Counsel. The Purchaser shall have received an opinion from Kohrman Jackson & Krantz P.L.L., counsel for the Company, dated such Closing Date, to the following effect: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and to our knowledge has full corporate power and authority to conduct its business as presently conducted, to enter into and perform each of the Agreements and to carry out the transactions contemplated by each of the Agreements. The Company is duly qualified to do business as a foreign corporation in California, Ohio, New Jersey, Massachusetts, and the District of Columbia and is in good standing in such state(s). (ii) Except for changes contemplated by this Agreement, the authorized capital stock of the Company is as described in subsection 3(b) of this Agreement. (iii) The issuance, sale and delivery of the Shares and the Warrants by the Company, the issuance and delivery of the shares of Common Stock issuable upon conversion of the Shares or the Warrants and the issuance and delivery of the Warrant Shares have been duly authorized and reserved for issuance, as the case may be, by all necessary corporate action on the part of the Company, and the Shares and the Warrants when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, the shares of Common Stock issuable upon conversion of the Shares or the Warrants, when issued upon such CUSIP No. 81371G 10 S 13D PAGE 18 of 62 - -------------------------------------------------------------------------------- conversion, and the Warrant Shares, when issued upon exercise of the Warrants, will be duly and validly issued, fully paid and nonassessable. (iv) The execution, delivery and performance by the Company of each of the Agreements have been duly authorized by all necessary corporate action, and each of the Agreements has been duly executed and delivered by the Company. Each of the Agreements (other than subsections 8(g) and 8(h) hereof, as to which no opinion need be expressed) constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, subject as to enforcement of remedies to applicable bankruptcy, insolvency, reorganization or similar laws affecting generally the enforcement of creditors' rights and subject to a court's discretionary authority with respect to the granting of a decree ordering specific performance or other equitable remedies. The execution and delivery of each of the Agreements and the offer, issue and sale of the Shares hereunder will not conflict with, or result in any breach of any of the terms, conditions, or provisions of, or constitute a default under, the Certificate of Incorporation or By-Laws of the Company, each as amended to date and presently in effect, or any indenture, lease, agreement, or other instrument known to such counsel to which the Company is a party or by which it or any of its properties are bound, or any decree, judgment or order specifically naming the Company and known to such counsel. (v) To our knowledge, except as obtained and in effect at the Closing, no consent, approval, order or authorization of, or registration, qualification, designation, declaration, or filing with, any governmental authority (other than filings required to be made after such Closing under applicable federal and state securities laws) is required on the part of the Company in connection with the execution and delivery of the Agreements, or the offer, issue, sale and delivery of the Shares or the other transactions to be consummated at such Closing pursuant to this Agreement. (vi) Based on the representations of the Purchasers in Section 4, the offer, issuance and sale of the Shares and the Warrants are exempt from registration under the Securities Act. (vii) To such counsel's actual knowledge, except as set forth in Schedule 3(i) to this Agreement, there is no action, suit or proceeding, or governmental inquiry or investigation, pending or threatened against the Company. (d) The Irrevocable Transfer Agent Instructions, (as defined in Section 9), in the form of Exhibit G attached hereto, shall have been delivered and acknowledged in writing by the Company's transfer agent. (e) Blue Sky Filings. The Company shall have made any requisite filings with the securities commissioners of any state in which a Purchaser is located and any such approvals shall be in full force and effect on the Closing Date (other than filings required to be made after such Closing Date). (f) Certificates and Documents. The Company shall have delivered to the Purchasers: (i) The Certificate of Incorporation of the Company, as amended and in effect prior to the Closing Date, certified by the Secretary of State; (ii) Certificates, as of the most recent practicable dates, as to the corporate good standing of the Company issued by the Secretary of State of Delaware, confirming such good standing on or immediately prior to the Closing Date; (iii) By-laws of the Company as amended and in effect immediately prior to each Closing Date, certified by its Secretary or Assistant Secretary as of the Closing Date; and (iv) Resolutions of the Board of Directors of the Company, authorizing and approving all requisite matters in connection with this Agreement, CUSIP No. 81371G 10 S 13D PAGE 19 of 62 - -------------------------------------------------------------------------------- and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of the Company as of such Closing Date. (g) Board of Directors. Immediately after the Closing, the Board of Directors of the Company shall consist of Zimri Putney, Michael Wynne, Edward Groark, Fred Gluckman and Michael M. Grand. NextGen Fund II, L.L.C. and NextGen SBS Fund II, L.L.C. shall have the right to elect a majority of the Board of Directors. The parties hereto agree to promptly take any action required to implement the provisions of Article FOURTH.C.7 of the Certificate of Designations and elect as directors the persons designated pursuant thereto. No amendment shall be made to the provisions of Article FOURTH.C.7 of the Certificate of Designations (as the same may be amended from time to time), without the prior written consent of NextGen Fund II, L.L.C. and NextGen SBS Fund II, L.L.C. so long as they continue to hold, in the aggregate, at least 20% of the outstanding Series C Preferred. Meetings of the Board of Directors shall be held on a monthly basis except as approved by a majority of the directors who are not employed by the Company. The Company agrees to pay the reasonable expenses associated with Board meeting attendance by non-employee directors. (h) Warrants. The Warrants shall have been executed and delivered by the parties thereto. (i) Indebtedness. As of the date hereof, there shall be no outstanding debt of the Company other than as listed on attached Schedule 3(j). The Company shall have reduced its debt, other than liabilities which extend more than three years from the date of this Agreement and other than deferred revenue and current payables, to less than $1,000,000, with a maximum interest rate of 8%. The holders of the remaining debt will agree to terms such that the Company will not be required to repay interest or principal for at least 36 months. (j) Other Matters. All corporate and other proceedings in connection with the transactions contemplated by this Agreement, and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Purchasers, and the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. 6. Conditions to the Obligations of the Company. The obligations of the Company under subsection 1(b) of this Agreement are subject to fulfillment, on or before the applicable Closing Date, of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of each Purchaser contained in Section 4 shall be true on and as of each Closing Date with the same effect as though such representations and warranties had been made on and as of that date. 7. Covenants. (a) Certain Agreements. Without the prior approval of a majority of the Board of Directors, including the directors designated by the Purchasers, the Company shall not: (i) borrow or incur any indebtedness or liability (including by means of any equipment lease or any other type of transaction) in any year which exceeds an aggregate of $50,000 or, (ii) pay annual salary or other compensation or benefits in excess of $85,000 to any employee of the Company. (b) Financial Statements and Other Information. The Company agrees to send the following to each Purchaser so long as shares of Series C Preferred remain outstanding: (i) within two (2) days after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB (or 10-K), its Quarterly Reports on Form 10-QSB (or 10-Q), any Current Reports on Form 8-K and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, provided that if any such report is not filed with the SEC through EDGAR then the Company shall deliver a copy of such report to each Purchaser by facsimile on the same day it is filed with the SEC; (ii) on the same day as the release thereof, facsimile copies of all press CUSIP No. 81371G 10 S 13D PAGE 20 of 62 - -------------------------------------------------------------------------------- releases issued by the Company; and (iii) copies of any notices and other information made available or given to the stockholders of the Company generally, contemporaneously with the making available or giving thereof to the stockholders. (c) Other Agreements. The Company will require all persons now or hereafter employed by the Company who have access to confidential and proprietary information of the Company to enter into agreements containing nondisclosure and assignment of invention provisions substantially similar to that set forth in Exhibit E. Additionally, the Company will require all employees at or above the director level or whose responsibilities are technical in nature to enter into a one-year non-competition agreement substantially similar to that set forth in Exhibit F. Purchasers holding at least 51% of the outstanding Shares shall have the right to enforce the Company's rights under each of such agreements to the extent the Company waives its rights thereunder without the prior written consent of Purchasers holding at least 51% of the outstanding Shares. (d) Right of First Refusal. (i) The Company hereby grants to each Purchaser (the "Rightholders") a right of first refusal to purchase, on a pro rata basis, all or any part of New Securities (as defined below) which the Company may, from time to time, propose to sell and issue, subject to the terms and conditions set forth below. Each Rightholder's pro rata share, for purposes of this subsection 7(e), shall equal a fraction, the numerator of which is the number of shares of capital stock of the Company owned by such Rightholder and the denominator of which is the total number of issued and outstanding shares of capital stock of the Company, assuming full conversion of any convertible preferred stock or debt instruments at their applicable conversion rates as of the date the pro rata share is determined. (ii) "New Securities" shall mean any capital stock of the Company whether now authorized or not, and rights, options or warrants to purchase capital stock, and securities of any type whatsoever which are, or may become, convertible into capital stock; provided however, that the term "New Securities" does not include (A) the Shares issuable under this Agreement (including any amendment hereto) or the shares of Common Stock issuable upon conversion of the Series C Preferred or upon exercise of the Warrants; (B) securities offered to the public pursuant to a Registration Statement (as defined in subsection 8(a)); (C) securities issued for the acquisition of another corporation by the Company by merger, purchase of substantially all the assets of such corporation or other reorganization resulting in the ownership by the Company of not less than 51% of the voting power of such corporation; (D) not more than 7.0 million shares of Common Stock (subject to adjustment for stock dividends, stock splits and similar recapitalizations) issued to employees or consultants of the Company pursuant to the Company's stock option plans; (E) not more than 3.0 million shares of common stock issued in bona fide consideration of services provided to the Company by third parties not affiliated with the Company, or (F) securities issued as a result of any stock split, stock dividend or reclassification of Common Stock, distributable on a pro rata basis to all holders of Common Stock. (iii) In the event the Company intends to issue New Securities, it shall give each Rightholder written notice of such intention, describing the type of New Securities to be issued, the price thereof and the general terms upon which the Company proposes to effect such issuance. Each Rightholder shall have 30 days from the date of any such notice to agree to purchase all or part of its or his pro rata share of such New Securities for the price and upon the general terms and conditions specified in the Company's notice by giving written notice to the Company stating the quantity of New Securities to be so purchased. Each Rightholder shall have a right of overallotment such that if any Rightholder fails to exercise his or its right hereunder to purchase his or its total pro rata portion of New Securities, the other Rightholders may purchase such portion on a pro rata basis, by giving written notice to the Company within five days from the date that the Company provides written notice to the other Rightholders of the amount of New Securities with respect to which such nonpurchasing Rightholder has failed to exercise its or his right hereunder. CUSIP No. 81371G 10 S 13D PAGE 21 of 62 - -------------------------------------------------------------------------------- (iv) In the event any Rightholder fails to exercise the foregoing right of first refusal with respect to any New Securities within such 30-day period, the Company may within 120 days thereafter sell any or all of such New Securities not agreed to be purchased by the Rightholders, at a price and upon general terms no more favorable to the purchasers thereof than specified in the notice given to each Rightholder pursuant to paragraph (iii) above. In the event the Company has not sold such New Securities within such 120-day period, the Company shall not thereafter issue or sell any New Securities without first offering such New Securities to the Rightholders in the manner provided above. (v) For purposes of this subsection 7(e), "Rightholder" shall include the general partners, officers or other affiliates of a Purchaser, and a Purchaser may apportion its pro rata share among itself and such general partners, officers and other affiliates in such proportions as it deems appropriate so long as such general partner, officers or other affiliates are accredited investors within the definition set forth in Securities Act Rule 501(a) and such apportionment does not invalidate any Federal or State securities exemption; provided that the pro rata share ownership of a Rightholder shall be determined solely on the basis of the number of shares of capital stock of the Company owned by such Rightholder and shall not be increased by the share holdings of any affiliate of such Rightholder. (e) International Investment and Trade in Services Survey Act. The Company shall use its best efforts to file on a timely basis all reports required to be filed by it under 22 U.S.C. Section 3104, or any similar statute, relating to a foreign person's direct or indirect investment in the Company. (f) Listing. The Company shall as soon as practicable secure the listing of all of the shares of Common Stock, including the Registrable Shares, upon the Nasdaq Small Cap or National Stock Market and shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Registrable Shares from time to time issuable under the terms of the Agreements and the Certificate of Incorporation. (g) Negative Covenants. Notwithstanding any other provision of this Agreement to the contrary, so long as at least 50% of the shares of Series C Preferred originally purchased by NextGen Fund II, L.L.C. and NextGen SBS Fund II, L.L.C. remain outstanding, without the prior written consent of the holders of at least a majority of the outstanding shares of Series C Preferred, there shall not occur: (i) (A) the sale of all or substantially of the assets of the Company (B) the sale of more than 50% of the outstanding equity of the Company in a non-public sale; (C) the sale of capital stock of the Company in a public offering; (D) any merger, unit exchange, consolidation or other reorganization or business combination of the Company if, immediately after such transaction, either (1) persons who are directors of the Company immediately prior to such transaction do not constitute at lease a majority of the directors of the surviving entity immediately after such transaction, or (2) persons who hold a majority of the voting equity of the surviving entity immediately after such transaction are not persons who held a majority of the voting equity of the Company immediately prior to such transaction; (ii) any acquisition by the Company of any other entity's assets or equity, where such acquisitions exceeds $25,000 in the aggregate; (iii) any amendment of the Company's Certificate of Incorporation or the Bylaws including any adoption of a certificate of designation of preferred stock; CUSIP No. 81371G 10 S 13D PAGE 22 of 62 - -------------------------------------------------------------------------------- (iv) except for the Shares sold under this Agreement or redeemed pursuant to the Certificate of Designations, authorization, creation, issuance, payment of a dividend or distribution or, reclassification, repurchase or redemption of any stock or other security of the Company, or issuance, grant or authorization of any option, warrant or other right respecting any stock or other security of the Company, provided, that such consent shall not be required, subject to Section 7(g) above, for the issuance of any option or right under any stock option or stock purchase plan duly established by the Company, or for the purchase of any Common Stock upon the exercise of an option or right issued under such a plan; (v) dissolution, liquidation or suspension of all of the Company's business, or filing of any petition, or institution of any proceeding, or the Company being subject to any petition or proceeding filed against it that is not dismissed within thirty (30) days after filing, under the Federal Bankruptcy Code or under any state law relating to insolvency, receivership, reorganization or debt adjustment; or (vi) any increase in the number of shares authorized for issuance under the Company's 2000 Stock Option Plan. (h) Filing of Form 8-K. Promptly following the First Closing, the Company shall file a Current Report on Form 8-K with the SEC describing the terms of the transactions contemplated by the Agreements and including as exhibits to such Current Report on Form 8-K this Agreement and the Certificate of Designations, in the form required by the 1934 Act. (i) Meeting of Shareholders. In the event that designees of the Purchasers do not at any time comprise a majority of the directors of the Corporation, the Company shall, at the request of the Purchasers, convene a meeting of shareholders for the election of directors as soon as possible. 8. Registration Rights. (a) Certain Definitions. As used in this Section 8 and elsewhere in this Agreement, the following terms shall have the following respective meanings: "Commission" means the Securities and Exchange Commission, or any other Federal agency at the time administering the Securities Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Registration Statement" means a registration statement filed by the Company with the Commission for a public offering and sale of securities of the Company (other than a registration statement on Form S-8 or Form S-4, or their successors, or any other form for a limited purpose, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation). "Registration Expenses" means the expenses described in subsection 8(d). "Registrable Shares" means (i) the shares of Common Stock issued or issuable upon conversion of the Series C Preferred or upon exercise or conversion of the Warrants, any other shares of Common Stock of the Company issued in respect of such shares (because of stock splits, stock dividends, reclassifications, recapitalizations, or similar events); provided, however, that shares of Common Stock which are Registrable Shares shall cease to be Registrable Shares upon any sale pursuant to a Registration Statement, Section 4(1) of the Securities Act or Rule 144 under the Securities Act, or any sale in CUSIP No. 81371G 10 S 13D PAGE 23 of 62 - -------------------------------------------------------------------------------- any manner to a person or entity which, by virtue of Section 12 of this Agreement, is not entitled to the rights provided by this Section 8. Wherever reference is made in this Agreement to a request or consent of holders of a certain percentage of Registrable Shares, the determination of such percentage shall include shares of Common Stock issuable upon conversion of the Shares even if such conversion has not yet been effected. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect. "Shares" shall have the meaning specified in subsection 1(b). "Shareholders" means (i) the Purchaser and any persons or entities to whom the rights granted under this Section 8 are transferred by any Purchaser or their respective successors or assigns pursuant to Section 10 hereof. (b) Required Registrations. (i) At any time after TBD November 30, 2003, a Shareholder or Shareholders holding in the aggregate at least 50% of the Registrable Shares may request, in writing, that the Company effect the registration on Form S-1 or Form S-2, if applicable (or any successor form), of Registrable Shares owned by such Shareholder or Shareholders having an aggregate offering price of at least $3,000,000 (based on the then current public market price or fair value). If the holders initiating the registration intend to distribute the Registrable Shares by means of an underwriting, they shall so advise the Company in their request. In the event such registration is underwritten, the right of other Shareholders to participate shall be conditioned on such Shareholders' participation in such underwriting. Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all Shareholders. Such Shareholders shall have the right, by giving written notice to the Company within 30 days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Shareholders may request in such notice of election, subject to the approval of the underwriter managing the offering. Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration, on Form S-1 or Form S-2, if applicable (or any successor form), of all Registrable Shares which the Company has been requested to so register. (ii) At any time after the Company becomes eligible to file a Registration Statement on Form S-3 (or any successor form relating to secondary offerings), a Shareholder or Shareholders holding in the aggregate at least 35% of the Registrable Shares may request the Company, in writing, to effect the registration on Form S-3 (or such successor form), of Registrable Shares having an aggregate offering price of at least $500,000 (based on the current public market price). Upon receipt of any such request, the Company shall promptly give written notice of such proposed registration to all Shareholders. Such Shareholders shall have the right, by giving written notice to the Company within 30 days after the Company provides its notice, to elect to have included in such registration such of their Registrable Shares as such Shareholders may request in such notice of election. Thereupon, the Company shall, as expeditiously as possible, use its best efforts to effect the registration on Form S-3, or such successor form, of all Registrable Shares which the Company has been requested to register. (iii) The Company shall not be required to effect more than two registrations pursuant to paragraph (i) but may be required to effect an unlimited number of, registrations pursuant to paragraph (ii) above. In addition, the Company shall not be required to effect any registration (other than on Form S-3 or any successor form relating to secondary offerings) within six months after the effective date of any other Registration Statement of the Company. CUSIP No. 81371G 10 S 13D PAGE 24 of 62 - -------------------------------------------------------------------------------- (iv) Incidental Registration. Whenever the Company proposes to file a Registration Statement (other than pursuant to subsection 8(b)) at any time and from time to time, it will, prior to such filing, give written notice to all Shareholders of its intention to do so and, upon the written request of a Shareholder or Shareholders given within 20 days after the Company provides such notice (which request shall state the intended method of disposition of such Registrable Shares), the Company shall use its best efforts to cause all Registrable Shares which the Company has been requested by such Shareholder or Shareholders to register to be registered under the Securities Act to the extent necessary to permit their sale or other disposition in accordance with the intended methods of distribution specified in the request of such Shareholder or Shareholders; provided, however, that if the offering is underwritten and the managing underwriter(s) advise the Company that, in their opinion, the inclusion of the Registrable Shares will adversely impact the offering, then the Company will not be required to include the Registrable Shares. (c) Registration Procedures. If and whenever the Company is required by the provisions of this Agreement to use its best efforts to effect the registration of any of the Registrable Shares under the Securities Act, the Company shall: (i) file with the Commission a Registration Statement with respect to such Registrable Shares and use its best efforts to cause that Registration Statement to become and remain effective; (ii) as expeditiously as possible prepare and file with the Commission any amendments and supplements to the Registration Statement and the prospectus included in the Registration Statement as may be necessary to keep the Registration Statement effective for a period of not less than 120 days from the effective date; (iii) as expeditiously as possible furnish to each selling Shareholder such reasonable numbers of copies of the prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as the selling Shareholder may reasonably request in order to facilitate the public sale or other disposition of the Registrable Shares owned by the selling Shareholder; and If the Company has delivered preliminary or final prospectuses to the selling Shareholders and after having done so the prospectus is amended to comply with the requirements of the Securities Act, the Company shall promptly notify the selling Shareholders and, if requested, the selling Shareholders shall immediately cease making offers of Registrable Shares and return all prospectuses to the Company. The Company shall promptly provide the selling Shareholders with revised prospectuses and, following receipt of the revised prospectuses, the selling Shareholders shall be free to resume making offers of the Registrable Shares. (iv) Allocation of Expenses. The Company will pay all Registration Expenses of all registrations under this Agreement; provided, however, that if a registration is withdrawn at the request of the Shareholders requesting such registration (other than as a result of material adverse information concerning the business or financial condition of the Company which is made known to the Shareholders after the date on which such registration was requested) and if the requesting Shareholders elect not to have such registration counted as a registration requested under subsection 8(b), the requesting Shareholders shall pay the Registration Expenses of such registration pro rata in accordance with the number of their Registrable Shares included in such registration. For purposes of this Section, the term "Registration Expenses" shall mean all expenses incurred by the Company in complying with this Section 8, including, without limitation, all registration and filing fees, exchange listing fees, printing expenses, fees and disbursements of counsel for the Company and the reasonable fees and expenses of one counsel selected by the selling Shareholders to represent the selling Shareholders, state Blue Sky fees and expens as expeditiously as possible use its best efforts to register or qualify the Registrable Shares covered by the Registration Statement CUSIP No. 81371G 10 S 13D PAGE 25 of 62 - -------------------------------------------------------------------------------- under the securities or Blue Sky laws of such states as the selling Shareholders shall reasonably request, and do any and all other acts and things that may be necessary or desirable to enable the selling Shareholders to consummate the public sale or other disposition in such states of the Registrable Shares owned by the selling Shareholder; provided, however, that the Company shall not be required in connection with this paragraph (iv) to qualify as a foreign corporation or execute a general consent to service of process in any jurisdiction. (d) es, and the expense of any special audits incident to or required by any such registration, but excluding underwriting discounts, selling commissions and the fees and expenses of selling Shareholders' own counsel (other than the counsel selected to represent all selling Shareholders). (e) Indemnification. (i) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, the Company will indemnify and hold harmless the seller of such Registrable Shares, each underwriter of such Registrable Shares, and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act or the Exchange Act against any losses, claims, damages or liabilities, joint or several, to which such seller, underwriter or controlling person may become subject under the Securities Act, the Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to such Registration Statement, or arise out of or are based upon the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Company will reimburse such seller, underwriter and each such controlling person for any legal or any other expenses reasonably incurred by such seller, underwriter or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any untrue statement or omission made in such Registration Statement, preliminary prospectus or prospectus, or any such amendment or supplement, in reliance upon and in conformity with information furnished to the Company, in writing, by or on behalf of any such seller, underwriter or controlling person specifically for use in the preparation thereof. (ii) In the event of any registration of any of the Registrable Shares under the Securities Act pursuant to this Agreement, each seller of Registrable Shares, severally and not jointly, will indemnify and hold harmless the Company, each of its directors and officers, each underwriter (if any), and each other seller (if any) and each person, if any, who controls the Company or any such underwriter within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities, joint or several, to which the Company, such directors and officers, underwriter or controlling person may become subject under the Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Shares were registered under the Securities Act, any preliminary prospectus or final prospectus contained in the Registration Statement, or any amendment or supplement to the Registration Statement, or arise out of or are based upon any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of such seller, specifically for use in connection with the preparation of such Registration Statement, prospectus, amendment or supplement; provided, however, that the obligations of such Shareholders hereunder shall be limited to an amount equal to the proceeds to each Shareholder of Registrable Shares sold as contemplated herein. CUSIP No. 81371G 10 S 13D PAGE 26 of 62 - -------------------------------------------------------------------------------- (iii) Each party entitled to indemnification under this subsection 8(e) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom; provided, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld); and, provided, further, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 8. The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall pay such expense if representation of such Indemnified Party by the counsel retained by the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnified Party and any other party represented by such counsel in such proceeding. No Indemnifying Party, in the defense of any such claim or litigation shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation, and no Indemnified Party shall consent to entry of any judgment or settle such claim or litigation without the prior written consent of the Indemnifying Party. (f) Indemnification with Respect to Underwritten Offering. In the event that Registrable Shares are sold pursuant to a Registration Statement in an underwritten offering pursuant to subsection 8(b)(i), the Company agrees to enter into an underwriting agreement containing customary representations and warranties with respect to the business and operations of an issuer of the securities being registered and customary covenants and agreements to be performed by such issuer, including without limitation customary provisions with respect to indemnification by the Company of the underwriters of such offering. (g) Information by Holder. Each holder of Registrable Shares included in any registration shall furnish to the Company such information regarding such holder and the distribution proposed by such holder as the Company may request in writing and as shall be required in connection with any registration, qualification or compliance referred to in this Section 8. (h) "Stand-Off" Agreement. Each Shareholder, if requested by the Company and an underwriter of Common Stock or other securities of the Company, shall agree not to sell or otherwise transfer or dispose of any Registrable Shares or other securities of the Company held by such Shareholder for a specified period of time (not to exceed 180 days) following the effective date of a Registration Statement; provided, that: (i) such agreement shall only apply to the first two such Registration Statements covering Common Stock of the Company to be sold on its behalf to the public in an underwritten offering; and (ii) all Shareholders holding not less than the number of shares of Common Stock held by such Shareholder (including shares of Common Stock issuable upon the conversion of Shares, or other convertible securities, or upon the exercise of options, warrants or rights), and all officers and directors of the Company enter into similar agreements. Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the Registrable Shares or other securities subject to the foregoing restriction until the end of the stand-off period. (i) Limitations on Subsequent Registration Rights. The Company shall not, without the prior written consent of Shareholders holding at least a majority of the Registrable Shares, enter into any agreement (other than this Agreement) with any CUSIP No. 81371G 10 S 13D PAGE 27 of 62 - -------------------------------------------------------------------------------- holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (i) to include securities of the Company in any registration filed under subsection 8(b) or (ii) to make a demand registration which could result in such registration statement being declared effective prior to the third anniversary hereof. (j) Rule 144 Requirements. The Company agrees to: (i) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (ii) use its best efforts to file with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (iii) furnish to any holder of Registrable Shares upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company as such holder may reasonably request to avail itself of any similar rule or regulation of the Commission allowing it to sell any such securities without registration. (k) Selection of Underwriter. In the case of any registration effected pursuant to subsection 8(b), in which the Company is not selling securities, the requesting Shareholders shall have the right with the approval of the Board of Directors of the Company, which approval shall not be unreasonably withheld, to designate the managing underwriter in any underwritten offering. The Company shall have the right to designate the managing underwriter in all other underwritten offerings. 9. Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent in the form attached hereto as Exhibit G (the "Irrevocable Transfer Agent Instructions"), and any subsequent transfer agent, to issue certificates, registered in the name of each Purchaser or its respective nominee(s), for the Common Stock in such amounts as specified from time to time by each Purchaser to the Company upon conversion of the Shares or exercise of the Warrants. If a Purchaser provides the Company with an opinion of counsel, in a generally acceptable form (it being stipulated that an opinion of Hale and Dorr LLP shall be acceptable), to the effect that a public sale, assignment or transfer of Securities may be made without registration under the 1933 Act or the Purchaser provides the Company with reasonable assurances (including, if requested by the Company, delivering such reasonable assurances to the Company's counsel in connection with such counsel rendering an opinion on the validity of a sale by such Purchaser pursuant to Rule 144) that the Securities can be sold pursuant to Rule 144 without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold, the Company shall permit the transfer, and, in the case of the Common Stock, promptly instruct its transfer agent to issue one or more certificates in such name and in such denominations as specified by such Purchaser and without any restrictive legend. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Purchaser by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 9 will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section 9, that the Purchasers shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss. 10. Indemnification. In consideration of each Purchaser's execution and delivery of the Agreements and acquiring the Shares thereunder and in addition to all of the Company's other obligations under the Agreements and the Certificate of Designation, the Company shall defend, protect, indemnify and hold harmless each Purchaser and each other holder of the Shares and all of their stockholders, officers, directors, employees and direct or indirect investors and any of the CUSIP No. 81371G 10 S 13D PAGE 28 of 62 - -------------------------------------------------------------------------------- foregoing persons' agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the "Indemnitees") from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Agreements or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Agreements or any other certificate, instrument or document contemplated hereby or thereby, (c) any cause of action, suit or claim brought or made against such Indemnitee (other than a cause of action, suit or claim which is (x) brought or made by the Company and (y) is not a shareholder derivative suit) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Agreements or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Shares or (iii) the status of such Purchaser or holder of the Shares as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. 11. Successors and Assigns. Except as provided in Section 12, the provisions of this Agreement shall be binding upon, and inure to the benefit of, the respective successors, assigns, heirs, executors and administrators of the parties hereto. 12. Transfers of Certain Rights. (a) Transfer. The rights granted to a Purchaser under subsections 7(c) and 7(g) and Section 8 may be transferred by such Purchaser to any person or entity acquiring at least 20% of the outstanding Shares or Registrable Shares (as adjusted for stock splits, stock dividends and similar recapitalizations); provided, however, that the Company is given written notice by the transferee at the time of such transfer stating the name and address of the transferee and identifying the securities with respect to which such rights are being assigned and the transfer is in compliance with the restrictions described in ss.4(e) above. (b) Transferees. Any transferee (other than a Purchaser) to whom rights under subsection 7(c), subsection 7(g) or Section 8 are transferred shall, as a condition to such transfer, deliver to the Company a written instrument by which such transferee agrees to be bound by the obligations imposed upon Purchaser under subsection 7(g) and Section 8, as the case may be, to the same extent as if such transferee were a Purchaser hereunder. (c) Subsequent Transferees. A transferee to whom rights are transferred pursuant to this Section 12 may not again transfer such rights to any other person or entity, other than as provided in (a) or (b) above. (d) Equityholders. Notwithstanding anything to the contrary herein, any Purchaser may transfer rights granted to such Purchaser under subsection 7(b), subsection 7(e) or Section 8 to any equityholder thereof to whom Registrable Shares are transferred and in turn to the respective partners, shareholders or members of any of such equityholders provided such transferee is an accredited investor within the definition set forth in Securities Act Rule 501(A), and such transferee delivers to the Company an opinion of counsel as to the transfer of such security under applicable state and federal securities laws (as described in Section 8(b)(i) above) and a written instrument in accordance with subparagraph (b) above which contains a representation that the transfer is exempt from registration under the Securities Act and designates a person or entity affiliated with the Purchaser (the "Designated Notice Party") to receive notice hereunder on behalf of the transferee. In the event of such transfer, such equityholder shall be deemed a Purchaser for purposes CUSIP No. 81371G 10 S 13D PAGE 29 of 62 - -------------------------------------------------------------------------------- of this Section 12 and may again transfer such rights to any other person or entity which acquires Registrable Shares from such equityholder, in accordance with, and subject to, the provisions of subparagraphs (a), (b) and (c) above. 13. Survival of Representations and Warranties. All agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby. 14. Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand or mailed by first class certified or registered mail, return receipt requested, postage prepaid: If to the Company at IXATA Group, Inc., 8989 Rio San Diego Drive, Suite 160, San Diego, CA 92108, Attention: Paul Silverman, with a copy to Kohrman Jackson & Krantz, 1375 East 9th Street, 20th Floor, Cleveland, OH 44114, Attention: Christopher J. Hubbert. If to a Purchaser, at his or its address set forth on Exhibit A attached hereto, to the Designated Notice Party for a Purchaser, if any, or at such other address or addresses as may have been furnished to the Company in writing by such Purchaser. Notices provided in accordance with this Section 13 shall be deemed delivered upon personal delivery or 72 hours after deposit in the U.S. Mail. CUSIP No. 81371G 10 S 13D PAGE 30 of 62 - -------------------------------------------------------------------------------- 15. Brokers. The Company and each Purchaser (i) represents and warrants to the other parties hereto that other than a mutually agreed payment to BB&T for settlement for incurred expenses and services rendered, it has retained no finder or broker in connection with the transactions contemplated by this Agreement, and (ii) will indemnify and save the other parties harmless from and against any and all claims, liabilities or obligations with respect to brokerage or finders' fees or commissions, or consulting fees in connection with the transactions contemplated by this Agreement asserted by any person on the basis of any statement or representation alleged to have been made by such indemnifying party. 16. Expenses. The Company shall pay the fees and expenses of counsel for the Purchasers in connection with the transactions contemplated hereby, whether or not such transaction closes. The Purchasers shall use their best efforts to limit such amounts to $18,000. 17. Entire Agreement. This Agreement embodies the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 18. Amendments and Waivers. Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of at least a majority of the Registrable Shares. 19. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 20. Headings. The headings of the sections, subsections, and paragraphs of this Agreement have been added for convenience only and shall not be deemed to be a part of this Agreement. 21. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision. 22. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. 23. Attorney's Fees. In the event of any action to enforce the terms of this Agreement, the prevailing party in such action shall be entitled to recover from the defaulting party its reasonable attorney's fees and costs. 24. Publicity. the Company and each Purchaser shall have the right to approve before issuance, any press releases or any other public statements with respect to the transactions contemplated hereby, such consent not to be unreasonably withheld. [Signatures on following page] CUSIP No. 81371G 10 S 13D PAGE 31 of 62 - -------------------------------------------------------------------------------- IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the day and year first above written. COMPANY: IXATA GROUP, INC. By: /s/ Paul Silverman ------------------------------ Name: Paul Silverman Title: Chief Executive Officer PURCHASERS: NEXTGEN FUND II, L.L.C. By: NEXTGEN CAPITAL L.L.C. Managing Member By: /s/ Zimri Putney ------------------------------ Zimri Putney Managing Director NEXTGEN SBS FUND II, L.L.C. By: NEXTGEN CAPITAL, L.L.C. Managing Member By: /s/Zimri Putney ------------------------ Zimri Putney Managing Director /s/Michael Wynne ------------------------ Michael Wynne CUSIP No. 81371G 10 S 13D PAGE 32 of 62 - -------------------------------------------------------------------------------- EXHIBIT A PURCHASERS
FIRST CLOSING ------------- NAME SHARES PURCHASE PRICE NUMBER OF WARRANTS - ---- ------ -------------- ------------------ NextGen Fund II, L.L.C. 621,277 $ 750,000 600,000 12701 Fair Lakes Circle Suite 690 Fairfax, VA 22033 NextGen SBS Fund II, L.L.C. 414,184 $ 500,000 400,000 12701 Fair Lakes Circle, Suite 690 Fairfax, VA 22033 Michael Wynne 50,000 $ 50,000 50,000 TBD 300,000 $ 300,000 300,000 SECOND CLOSING -------------- NAME SHARES PURCHASE PRICE NUMBER OF WARRANTS - ---- ------ -------------- ------------------ NextGen Fund II, L.L.C. 150,000 $150,000 150,000 12701 Fair Lakes Circle Suite 690 Fairfax, VA 22033 NextGen SBS Fund II, L.L.C. 100,000 $100,000 100,000 12701 Fair Lakes Circle Suite 690 Fairfax, VA 22033 THIRD CLOSING ------------- NAME SHARES PURCHASE PRICE NUMBER OF WARRANTS - ---- ------ -------------- ------------------ NextGen Fund II, L.L.C. 300,000 $300,000 300,000 12701 Fair Lakes Circle Suite 690 Fairfax, VA 22033 NextGen SBS Fund II, L.L.C. 200,000 $200,000 200,000 12701 Fair Lakes Circle Suite 690 Fairfax, VA 22033
CUSIP No. 81371G 10 S 13D PAGE 33 of 62 - -------------------------------------------------------------------------------- EXHIBIT B EXHIBIT B-1 Certificate of Designations (Insert) CUSIP No. 81371G 10 S 13D PAGE 34 of 62 - -------------------------------------------------------------------------------- EXHIBIT B-2 Form of Warrant (Insert) CUSIP No. 81371G 10 S 13D PAGE 35 of 62 - -------------------------------------------------------------------------------- EXHIBIT B-3 Second and Third Closing Conditions Second Closing The Second Closing by the Purchaser will occur within 30 days after the following milestones have been completed by the Company and verified to the satisfaction of the Purchasers: 1. The Company shall meet or exceed the monthly billings and ensure cost management as required to meet the cash flow projections from November 2000 through February 2000 as set forth below, or an earlier period as determined by the Company's Board of Directors;
The IXATA Group Cash Flow Forecast November 13, 2000 NOV-00 DEC-00 JAN-01 PROJECTED PROJECTED PROJECTED Starting balance $(10,870) $558,173 $439,173 Projected Inflows Investment - Equity $ 700,000 $ -- $ -- A/R $ 193,043 $175,000 $150,000 Total Inflows $ 893,043 $175,000 $150,000 Projected Outflows Operating Expenses Payroll $ 145,000 $145,000 $145,000 Other Payroll (401k, Commis., Cons.) $ 10,000 $ 10,000 $ 8,000 Travel & Entertainment $ 3,000 $ 3,000 $ 3,000 Rent (paid through Sept 1) $ 14,000 $ 14,000 $ 14,000 Consulting $ 3,000 $ 3,000 $ 3,000 Legal & Accting $ 10,000 $ 10,000 $ 10,000 Network & Computer $ 4,000 $ 4,000 $ 4,000 Telecommunications $ 10,000 $ 10,000 $ 5,000 Advertising/Promo $ -- $ -- $ 2,000 Insurance $ 5,000 $ 5,000 $ 5,000 Other $ 10,000 $ 10,000 $ 10,000 --------- -------- -------- Operating Expenses $ 214,000 $214,000 $209,000 Investing Server Purchase $ -- $ -- $100,000 EQ Lease $ -- $ -- $ -- --------- -------- -------- Total Investing $ -- $ -- $100,000 Other Outflows BB&T Line $ -- $100,000 $ -- Accrual Repayment TNF $ -- $ 40,000 $ 5,000 Accr Sal $ -- $ -- $ 3,000 KJK $ -- 25,000 $ 5,000 Accrued A/F Paydown $ -- $ 25,000 $ 25,000 $ -- $ -- $ -- --------- -------- -------- Total Other Outflows $ -- $190,000 $ 38,000 Total Outflows $ 214,000 $404,000 $347,000 - -------------------------------------------------------------------------------- Balance-End of Period $ 668,173 $439,173 $242,173 - -------------------------------------------------------------------------------- NOV-00 DEC-00 JAN-01 FEB-01 PROJECTED PROJECTED PROJECTED PROJECTED - -------------------------------------------------------------------------------- Billings $175,000 $150,000 $ 52,880 $ 52,880 - --------------------------------------------------------------------------------
CUSIP No. 81371G 10 S 13D PAGE 36 of 62 - -------------------------------------------------------------------------------- 2. The Company shall have demonstrated adequate prospects for achieving growth of forecasted year 2001 revenue by 100 percent vis-a-vis calendar year 2000 revenue; and 3. The Company shall have demonstrated prospects for future growth through the successful completion of beta tests on the consortium product and other new offerings. Third Closing The Third Closing by the Purchaser will occur within 60 days after the following milestones have been completed by the Company and verified to the satisfaction of the Purchasers: 1. The Company shall meet or exceed the following financial milestones set forth below for the period January 1, 2001 through June 30, 2001, or an earlier period as determined by the Company's Board of Directors; o Total Billings: $502,360 o Total Operating Expenses: $1.266 million 2. The Company shall have continued to demonstrate adequate prospects for achieving growth of forecasted year 2001 revenue by 100 percent vis-a-vis calendar year 2000 revenue. EX-2 3 0003.txt EXHIBIT 2 CUSIP No. 81371G 10 S 13D PAGE 37 of 62 - -------------------------------------------------------------------------------- EXHIBIT 2 Certificate of Designations of the Preferred Stock of THE IXATA GROUP, INC. To be Designated Series C Convertible Preferred Stock The IXATA Group, Inc., a Delaware corporation (the "Corporation"), pursuant to authority conferred on the Board of Directors of the Corporation by the Certificate of Incorporation and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, certifies that the Board of Directors of the Corporation, at a meeting duly called and held, at which a quorum was present and acting throughout, duly adopted the following resolution: RESOLVED: That, pursuant to the authority expressly granted to and vested in the Board of Directors of the Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be and hereby is established, consisting of four million two hundred thirty-five thousand four hundred and sixty-one (4,235,461) shares, to be designated "Series C Convertible Preferred Stock" (hereinafter "Series C Preferred"); that the Board of Directors be and hereby is authorized to issue such shares of Series C Preferred from time to time and for such consideration and on such terms as the Board of Directors shall determine; and that, subject to the limitations provided by law and by the Certificate of Incorporation, the powers, designations, preferences and relative, participating, optional or other special rights of, and the qualifications, limitations or restrictions upon, the Series C Preferred shall be as follows: 1. Dividend Provisions. The Corporation shall not declare or pay any distributions on shares of Common Stock, until the holders of the Series C Preferred then outstanding shall have first received, or simultaneously receive, out of any assets legally available therefor (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation), a distribution on each outstanding share of Series C Preferred in an amount at least equal to the product of (i) the per share amount, if any, of the dividends or other distributions to be declared, paid or set aside for the Common Stock, multiplied by (ii) the number of whole shares of Common Stock into which such share of Series C Preferred is then convertible. Such dividends shall not be cumulative. 2. Liquidation. (a) Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, each holder of Series C Preferred shall be entitled to receive in respect of each share of Series C Preferred then held by such holder, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount equal to the greater of (i) the purchase price for such shares (the "Liquidation Preference") (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) plus an amount equal to eight percent (8%) of the Liquidation Preference per annum (compounded annually) from the original issue date of such shares, or (ii) the amount that would have been payable to such holder pursuant to Section 2(b) below if immediately prior to such distribution all shares of Series C Preferred had been converted to Common Stock at the then CUSIP No. 81371G 10 S 13D PAGE 38 of 62 - -------------------------------------------------------------------------------- effective conversion rate pursuant to Section 5 below. If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series C Preferred shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) Remaining Assets. Upon the completion of the distribution required by Section 2(a) above, the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each such holder. (c) Certain Acquisitions. (i) Deemed Liquidation. For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to occur if, with the written consent of the holders of at least 66% of the Series C Preferred, the Corporation shall sell, convey, or otherwise dispose of or encumber, other than for capital leases, all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of, provided that this Section 2(c)(i) shall not apply to (i) a merger effected exclusively for the purpose of changing the domicile of the Corporation, (ii) to an issuance of Common Stock or Preferred Stock resulting in such a change in voting power which is consented to in writing by the holders of at least a majority of the then outstanding shares of Series C Preferred or, (iii) a merger in which the Corporation is the surviving entity and its Common Stock is not exchanged for any securities or property. Upon the occurrence of a deemed liquidation in accordance with this Section 2(c), the holders of Series C Preferred shall surrender the shares to the Company, and such shares shall no longer be deemed to be outstanding. (ii) Valuation of Consideration. In the event of a deemed liquidation as described in Section 2(c)(i) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (I) If traded on a securities exchange or the Nasdaq Stock Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty-day period ending three (3) days prior to the closing; (II) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty-day period ending three (3) days prior to the closing; and (III) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Series C Preferred. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the CUSIP No. 81371G 10 S 13D PAGE 39 of 62 - -------------------------------------------------------------------------------- holders of at least a majority of the voting power of all then outstanding shares of Series C Preferred. (iii) Notice of Transaction. The Corporation shall give each holder of record of Series C Preferred written notice of any impending transaction listed above in Section 2(c)(i) not later than ten (10) days prior to the stockholders' meeting called to approve such transaction, or ten (10) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than ten (10) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Series C Preferred that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Series C Preferred. (iv) Effect of Noncompliance. In the event the requirements of this Section 2(c) are not complied with, the Corporation shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series C Preferred shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2(c)(iii) hereof. 3. Redemption. (a) At any time after January 1, 2005, provided at least forty-five (45) days written notice has been given to the Corporation by the holders of not less than a majority of the then outstanding shares of Series C Preferred that the Series C Preferred be redeemed, the Corporation shall, from funds legally available therefor, redeem all outstanding shares of Series C Preferred in two equal annual installments. The Corporation shall effect such redemption of the Series C Preferred as of the date specified in the notice or otherwise specified herein (the "Redemption Date") by paying in respect of each such share to be redeemed an amount equal to the greater of (i) the sum of (A) the Liquidation Preference (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) plus (B) an amount equal to eight percent (8%) of the Liquidation Preference per annum (compounded annually) from the original issue date of such share until the applicable Redemption Date, or (ii) the Fair Market Value (as determined pursuant to subsections (d) and (e) below) of such shares (the price determined pursuant to clauses (i) or (ii), as the case may be, is referred to herein as the "Redemption Price"), in exchange for each share of Series C Preferred to be redeemed (as adjusted for any stock dividends, combinations or splits with respect to such shares). (b) At least fifteen (15) but no more than thirty (30) days prior to the Redemption Date, written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of the shares of Series C Preferred to be redeemed, at the address last shown on the records of the Corporation for such holder, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Except as provided in subsection (c), on or after the Redemption Date, each holder of shares of Preferred Stock to be redeemed shall surrender to the Corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. In the event less than all the CUSIP No. 81371G 10 S 13D PAGE 40 of 62 - -------------------------------------------------------------------------------- shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (c) From and after the applicable Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series C Preferred designated for redemption in the Redemption Notice for redemption as of the Redemption Date as holders of shares of Series C Preferred (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of the Corporation legally available for redemption of shares of Series C Preferred on any Redemption Date are insufficient to redeem the total number of shares of Series C Preferred to be redeemed on such date, the holders of a majority of the outstanding shares of Series C Preferred shall be entitled to cause a Sale of the Company, in accordance with Section 4 below. In addition, those funds which are legally available will be used to redeem the maximum possible number of such shares ratably among the holders of such shares to be redeemed based upon their holdings of shares of Series C Preferred. The shares of Series C Preferred not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series C Preferred, such funds will immediately be used to redeem the balance of the shares which the Corporation has become obliged to redeem on any Redemption Date but which it has not redeemed. (d) The Fair Market Value of the shares of Series C Preferred shall be determined by assuming conversion of the Series C Preferred into Common Stock at the Conversion Price (as defined in Section 5 below), and then valuing the Common Stock as follows: If the Common Stock is listed on a national securities exchange, the Nasdaq National Market or another nationally recognized exchange or trading system, the Fair Market Value per share of Common Stock shall be deemed to be the average last reported sale prices per share of Common Stock thereon over the thirty-day period prior to the Exercise Date; or, if no such price is reported on such date, such price on the next preceding business day. (i) If the Common Stock is not listed on a national securities exchange, the Nasdaq National Market or another nationally recognized exchange or trading system, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the holders of Series C Preferred, the Board of Directors (or a representative thereof) shall promptly notify the holders of Series C Preferred of the Fair Market Value per share of Common Stock. Notwithstanding the foregoing, if the Board of Directors has not made such a determination within the three-month period prior to the Redemption Date, then (A) the Fair Market Value per share of Common Stock shall be the amount next determined by the Board of Directors to represent the Fair Market Value per share of Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company), (B) the Board of Directors shall make a determination within 15 days of a request by the holders of Series C Preferred that it do so, and (C) the Redemption shall be delayed until such determination is made. 4. Sale of Company. (a) Third Party Transaction. Notwithstanding anything to the contrary contained herein, at any time after January 1, 2005, if the holders of a majority of the then outstanding shares of Series C Preferred request a redemption and the Corporation is unable to redeem all outstanding shares of Series C Preferred for which redemption is requested, any holder or holders of a majority of the outstanding shares of Series C Preferred shall have the right to seek a Sale of the Corporation (as defined below) and produce a third party or parties to acquire, subject to any requisite approvals of the Corporation's stockholders, (i) all of the issued and outstanding capital stock of the Corporation (whether by merger, CUSIP No. 81371G 10 S 13D PAGE 41 of 62 - -------------------------------------------------------------------------------- consolidation or sale or transfer of stock) or (ii) all or substantially all of the Corporation's assets on a consolidated basis (any such acquisition is referred to as a "Third Party Transaction"); provided, however, that if any of the Proposing Stockholders (as defined below) or any Significant Holder (as defined below) of any such Proposing Stockholders shall be a Significant Holder of the Independent Third Party (as defined below), such Sale of the Corporation to the Independent Third Party shall also require the approval of a Majority of the Qualified Directors (as defined below) and no Sale Notice (as defined below) may be given until such approval is obtained. The holder or holders proposing shall notify the Corporation prior to commencing any actions in connection with such transaction. (b) Conditions to Obligation. Any Third Party Transaction shall be subject to the satisfaction of the following conditions: (i) upon consummation of the Third Party Transaction, all holders of Common Stock shall receive the same form and amount of consideration per share of Common Stock (including for this purpose amounts allocated to noncompetition, consulting and other arrangements), or if the holders of Common Stock are given an option as to the form and consideration to be received, all holders shall be given the same option and (ii) the purchase agreement for such Third Party Transaction shall not provide for any indemnification by a Stockholder in excess of the amount of consideration to be received by such Stockholder upon the consummation of the Third Party Transaction. (c) Definitions. For purposes of this Section 4, the following definitions apply: (i) "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 5% of the Corporation's Common Stock on a fully-diluted basis (a "5% Owner"), who is not controlling, controlled by or under common control with any such 5% Owner and who is not the spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for the benefit of such 5% Owner and/or such other Persons. (ii) "Majority of the Qualified Directors" shall mean a majority of those directors of the Corporation who (x) do not own, directly or indirectly, more than 1% of the outstanding voting or equity securities of the Independent Third Party (a "Conflicting Interest") and (y) were not appointed as a director of the Corporation by a shareholder of the Corporation which (A) holds a Conflicting Interest or (B) has a Significant Holder that holds a Conflicting Interest. (iii) "Sale of the Corporation" means the sale of the Corporation to an Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (I) capital stock of the Corporation possessing the voting power under normal circumstances to elect a majority of the Corporation's board of directors (whether by merger, consolidation or sale or transfer of the Corporation's capital stock) or (II) all or substantially all of the Corporation's assets determined on a consolidated basis. (iv) "Significant Holder" of a Person that owns, directly or indirectly, 5% or more of the voting securities or 5% or more of the equity securities of such Person. CUSIP No. 81371G 10 S 13D PAGE 42 of 62 - -------------------------------------------------------------------------------- 5. Optional Conversion. The holders of Series C Preferred shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of each series of Series C Preferred shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1.00, by the Conversion Price (as defined below) in effect at the time of conversion. The Conversion Price for the Series C Preferred shall initially be $.10. Such initial Conversion Price, and the rate at which shares of Series C Preferred may be converted into shares of Common Stock, shall be subject to adjustment as provided below. In the event of a notice of redemption of any shares of Series C Preferred pursuant to Section 3 hereof, the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the third full day preceding the date fixed for redemption, unless the redemption price is not paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation of the Corporation, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series C Preferred. (b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series C Preferred. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (c) Mechanics of Conversion. (i) In order for a holder of Series C Preferred to convert shares of Series C Preferred into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C Preferred, at the office of the transfer agent for the Series C Preferred (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of the Series C Preferred represented by such certificate or certificates. Such notice shall state such holder's name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be the conversion date ("Conversion Date"), and the shares of Common Stock issuable upon conversion of the shares represented by such certificate shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Date, issue and deliver at such office to such holder of Series C Preferred, or to his or its nominees, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled, together with cash in lieu of any fraction of a share. The certificate will bear an appropriate legend setting forth any restrictions applicable to the shares. (ii) The Corporation shall at all times when the Series C Preferred shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series C Preferred, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series C Preferred. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series C Preferred, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly CUSIP No. 81371G 10 S 13D PAGE 43 of 62 - -------------------------------------------------------------------------------- and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. (iii) Upon any such conversion, no adjustment to the Conversion Price shall be made for any declared but unpaid dividends on the Series C Preferred surrendered for conversion or on the Common Stock delivered upon conversion. (iv) All shares of Series C Preferred which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor and payment of any dividends declared but unpaid thereon. Any shares of Series C Preferred so converted shall be retired and cancelled and shall not be reissued, and the Corporation (without the need for stockholder action) may from time to time take such appropriate action as may be necessary to reduce the authorized number of shares of Series C Preferred accordingly. (v) The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Series C Preferred pursuant to this Section 5. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series C Preferred so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. (d) Adjustments to Conversion Price for Diluting Issues: (i) Special Definitions. For purposes of this Section 5, the following definitions shall apply: (A) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (B) " Original Issue Date" shall mean the date on which a share of Series C Preferred was first issued. (C) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options. (D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Subsection 5(d)(iii) below, deemed to be issued) by the Corporation after the Original Issue Date, other than: (I) shares of Common Stock issued or issuable upon conversion or exchange of any Convertible Securities or exercise of any Options outstanding on the Original Issue Date; (II) shares of Common Stock issued or issuable as a dividend or distribution on Series C Preferred; (III) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that is covered by Subsection 5(e), 5(f) or 5(g) below; (IV) up to ten million shares of Common Stock (or Options with respect thereto) (subject in either case to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), issued or issuable to employees or directors of, or consultants to, the Corporation or its subsidiaries pursuant to a plan or arrangement approved by the Board of Directors of the Corporation (provided that any Options for such shares that expire or terminate unexercised shall not be counted toward such maximum number); or CUSIP No. 81371G 10 S 13D PAGE 44 of 62 - -------------------------------------------------------------------------------- (V) shares of Common Stock equal to, in the aggretate, less than 1% of the outstanding shares of Common Stock. (ii) No Adjustment of Conversion Price. No adjustment in the number of shares of Common Stock into which the Series C Preferred is convertible shall be made, by adjustment in the applicable Conversion Price thereof: (a) unless the consideration per share (determined pursuant to Subsection 5(d)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the applicable Conversion Price in effect immediately prior to the issue of such Additional Shares, or (b) if prior to such issuance, the Corporation receives written notice from the holders of at least 51% of the then outstanding shares of Series C Preferred agreeing that no such adjustment shall be made as the result of the issuance of Additional Shares of Common Stock. (iii) Issue of Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at any time or from time to time after the Original Issue Date shall issue any Options (excluding Options covered by Subsection 5(d)(i)(D)(IV) above) or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Subsection 5(d)(v) hereof) of such Additional Shares of Common Stock would be less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) No further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) If such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, then upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) Upon the expiration or termination of any such unexercised Option or unconverted Convertible Security, the Conversion Price shall be readjusted to such Conversion Price as would have been obtained had the adjustments made upon the issuance of such Options or Convertible Securities been made upon the basis of the issuance of only the number of Additional Shares of Common Stock, if any, theretofore actually delivered upon the exercise of such options or upon the conversion of such Convertible Securities; (D) In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Conversion Price then in effect shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment which was made upon the issuance of such Option or Convertible Security not exercised, converted or exchanged prior to such change been made upon the basis of such change; and CUSIP No. 81371G 10 S 13D PAGE 45 of 62 - -------------------------------------------------------------------------------- (E) No readjustment pursuant to clause (B) or (D) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (i) the Conversion Price on the original adjustment date, or (ii) the Conversion Price that would have resulted from any issuances of Additional Shares of Common Stock between the original adjustment date and such readjustment date. In the event the Corporation, after the Original Issue Date, amends the terms of any such Options or Convertible Securities (whether such Options or Convertible Securities were outstanding on the Original Issue Date or were issued after such Original Issue Date), then such Options or Convertible Securities, as so amended, shall be deemed to have been issued after the Original Issue Date and the provisions of this Subsection 5(d)(iii) shall apply. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 5(d)(iii), but excluding shares issued as a dividend or distribution as provided in Subsection 5(f) or upon a stock split or combination as provided in Subsection 5(e)), without consideration or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, such Conversion Price shall be reduced, concurrently with such issue, to the consideration per share received by the Corporation for the issue of the Additional Shares of Common Stock (determined pursuant to Subsection 5(d)(v)). (v) Determination of Consideration. For purposes of this Subsection 5(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property: Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Subsection 5(d)(iii), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by CUSIP No. 81371G 10 S 13D PAGE 46 of 62 - -------------------------------------------------------------------------------- (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (e) Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Conversion Price for such series then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (f) Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time, or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price then in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction: (i) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (ii) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions; and provided further, however, that no such adjustment shall be made if the holders of Series C Preferred simultaneously receive (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series C Preferred had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of Series C Preferred which are convertible, as of the date of such event, into such number of shares of Common Stock as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution. (g) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than shares of Common Stock) or in cash or other property (other than cash out of earnings or earned surplus, determined in accordance with generally accepted accounting principles), then and in each such event provision shall be made so that the holders of Series C Preferred shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had the Series C Preferred been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during CUSIP No. 81371G 10 S 13D PAGE 47 of 62 - -------------------------------------------------------------------------------- such period, giving application to all adjustments called for during such period under this paragraph with respect to the rights of the holders of the Series C Preferred; and provided further, however, that no such adjustment shall be made if the holders of Series C Preferred simultaneously receive a dividend or other distribution of such securities in an amount equal to the amount of such securities as they would have received if all outstanding shares of Series C Preferred had been converted into Common Stock on the date of such event. (h) Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2(c), if there shall occur any reorganization, recapitalization, consolidation or merger involving the Corporation in which the Common Stock is converted into or exchanged for securities, cash or other property (other than a transaction covered by paragraphs (e), (f) or (g) of this Section 5), then, following any such reorganization, recapitalization, consolidation or merger, each share of Series C Preferred shall be convertible into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series C Preferred immediately prior to such reorganization, recapitalization, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in this Section 5 set forth with respect to the rights and interest thereafter of the holders of the Series C Preferred, to the end that the provisions set forth in this Section 5 (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series C Preferred. (i) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Preferred against impairment. (j) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series C Preferred a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred, furnish or cause to be furnished to such holder a certificate setting forth (i) the Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series C Preferred. (k) Notice of Record Date. In the event: (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the (i) the Corporation shall take a record of the holders of its Common Stock (or other stock or securities at the time issuable upon conversion of the Series C Preferred) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for a purchase any shares of stock of any class or any other securities, or to receive any other right; or (ii) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, any consolidation or merger of the Corporation with or into another corporation (other than a consolidation or merger in which the Corporation is the surviving entity and its Common Stock is not converted into or exchanged for any other securities or property), or any transfer of all or substantially all of the assets of the Corporation; or CUSIP No. 81371G 10 S 13D PAGE 48 of 62 - -------------------------------------------------------------------------------- (iii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, then, and in each such case, the Corporation will mail or cause to be mailed to the holders of the Series C Preferred a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time issuable upon the conversion of the Series C Preferred) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least 30 days prior to the record date or effective date for the event specified in such notice. 6. Voting Rights; Directors. (a) Except as otherwise provided herein, including subsection (b) below, or by law, the holder of each share of Series C Preferred shall have the right to the number of votes as is equal to the number of shares of Common Stock into which such Series C Preferred could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of the Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Series C Preferred held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). (b) NextGen Fund II, L.L.C. and NextGen SBS Fund II, L.L.C. (the "Funds") shall be entitled to elect a majority of the Board of Directors of the Corporation, subject to the following: (i) If the Second Closing (as defined in the Series C Convertible Preferred Stock and Series C Convertible Preferred Stock Warrant Purchase Agreement dated as of December 4, 2000, by and among the Corporation and the purchasers listed on Exhibit A attached thereto) has not occurred on or before April 1, 2001, the Funds shall cause one of their appointed directors, as soon as practicable, to resign by sending an executed letter of resignation to the Company. Before April 2, 2001, there will be no more than five members of the Corporation's Board of Directors. (ii) If the number of shares of Series C Preferred beneficially owned by the Funds falls below 750,000 but remains above 499,999, the Funds shall cause one of their appointed directors, as soon as practicable, to resign by sending an executed letter of resignation to the Company. (iii) If the number of shares of Series C Preferred beneficially owned by the Funds falls below 500,000 but remains above 174,999, the Funds shall cause, in the aggregate, two of their appointed directors, as soon as practicable, to resign by sending executed letters of resignation to the Company. (iv) If the number of shares of Series C Preferred beneficially owned by the Funds falls below 175,000, the Funds shall cause, as soon as practicable, all of their appointed directors to resign by sending an executed letter of resignation to the Company. CUSIP No. 81371G 10 S 13D PAGE 49 of 62 - -------------------------------------------------------------------------------- A vacancy in a directorship caused by a resignation required by subparagraphs (i) through (iv) above may be filled solely by the remaining members of the Board of Directors of the Corporation not appointed by the Funds. A vacancy in a directorship for which the original director was appointed by the Funds (other than a vacancy caused by a resignation required by subparagraphs (i) through (iv) above) shall be filled solely by the Funds. No holder of Common Stock, in its capacity as such, may vote to remove any director elected exclusively by the Funds pursuant to this Section 6(b). IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be executed as of December 1, 2000. THE IXATA GROUP, INC. Attest: /s/ Paul Silverman /s/ Andrew Kent ------------------ --------------- CUSIP No. 81371G 10 S 13D PAGE 50 of 62 - -------------------------------------------------------------------------------- CONSENT OF REGISTERED AGENT I hereby consent to my appointment as Registered Agent of the Corporation in the foregoing Certificate of Designation effective December 1, 2000, regardless of the actual date of my execution of this Consent. -------------------------- EX-3 4 0004.txt EXHIBIT 3 CUSIP No. 81371G 10 S 13D PAGE 51 of 62 - -------------------------------------------------------------------------------- EXHIBIT 3 THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). THE WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED, ASSIGNED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH WARRANT UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THIS WARRANT AND THE SHARES OF PREFERRED STOCK OR COMMON STOCK ISSUED UPON ITS EXERCISE OR CONVERSION ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT. Warrant No. Number of Shares: Date of Issuance: December 5, 2000 (subject to adjustment as set forth herein) THE IXATA GROUP, INC. Series C Preferred Stock Purchase Warrant (Void after December 5, 2005) The IXATA Group, Inc., a Delaware corporation (the "Company"), for value received, hereby certifies that _______________ or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time on or after the date of issuance and on or before December 5, 2005, at not later than 5:00 P.M. (Eastern Time) _____________ (______) shares of Series C Convertible Preferred Stock of the Company ("Series C Preferred"), at a purchase price per share (the "Purchase Price") of $1.00. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price," respectively. This Warrant is issued pursuant to a Series C Convertible Preferred Stock and Series C Convertible Preferred Stock Warrant Purchase Agreement of even date herewith among the Company and the Purchasers named therein (the "Agreement"), and the terms of this Warrant are subject to the terms of the Agreement. 1. Exercise. (a) Except as set forth in subsection 1(b) below, this Warrant may be exercised by the Registered Holder in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit I duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) The Registered Holder may, at its option, elect to pay some or all of the Purchase Price payable upon an exercise of this Warrant by canceling a portion of this Warrant exercisable for such number of shares of the Company's common stock, $0.001 par value (the `Common Stock"), as is then issuable upon conversion of the Series C Preferred (as to which this Warrant is exercisable) determined by dividing (i) the total Purchase Price payable in respect of the number of shares of Series C Preferred being purchased upon such exercise by (ii) the excess of the Fair Market Value per share of Common Stock as of the effective date of exercise, as determined pursuant to Section 1(c) below (the "Exercise Date") over the Purchase Price per share. If the Registered Holder wishes to exercise this Warrant pursuant to this CUSIP No. 81371G 10 S 13D PAGE 52 of 62 - -------------------------------------------------------------------------------- method of payment with respect to the maximum number of shares of Common Stock so purchasable pursuant to this method, then the number of shares of Common Stock so purchasable shall be equal to the total number of shares of Common Stock, minus the product obtained by multiplying (x) the total number of shares of Common Stock purchasable by (y) a fraction, the numerator of which shall be the Purchase Price per share and the denominator of which shall be the Fair Market Value per share of Common Stock as of the Exercise Date. The Fair Market Value per share of Common Stock shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the Nasdaq National Market or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the average last reported sale prices per share of Common Stock thereon over the thirty-day period the Exercise Date; or, if no such price is reported on such date, such price on the next preceding business day. (ii) If the Common Stock is not listed on a national securities exchange, the Nasdaq National Market or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the Registered Holder, the Board of Directors (or a representative thereof) shall promptly notify the Registered Holder of the Fair Market Value per share of Common Stock. Notwithstanding the foregoing, if the Board of Directors has not made such a determination within the three-month period prior to the Exercise Date, then (A) the Fair Market Value per share of Common Stock shall be the amount next determined by the Board of Directors to represent the Fair Market Value per share of Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company), (B) the Board of Directors shall make a determination within 15 days of a request by the Registered Holder that it do so, and (C) the exercise of this Warrant pursuant to this subsection 1(b) shall be delayed until such determination is made. References in this Warrant to "Warrant Shares" shall include shares of Common Stock purchasable under this subsection (b). (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of this Warrant in whole or in part the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes and subject to compliance with all applicable federal and state securities laws) may direct: (i) a certificate or certificates for the number of full Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in subsection 1(a) above. CUSIP No. 81371G 10 S 13D PAGE 53 of 62 - -------------------------------------------------------------------------------- 2. Adjustments. (a) Purchase Price. The Purchase Price shall be equal to the Conversion Price (as adjusted), as defined in the Certificate of Designates of the Series C Convertible Preferred Stock of the Company. (b) Mergers, etc. If there shall occur any capital reorganization or reclassification of the Company's Series C Preferred or Common Stock (other than a change in par value or a subdivision or combination that results in an adjustment to the Purchase as provided for in subsection 2(a) above), including without limitation any mandatory conversion of the Series C Preferred, or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, then, as part of any such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger or sale, as the case may be, such Registered Holder had held the number of the Company's Series C Preferred or Common Stock which were then purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (c) Adjustment in Number of Warrant Shares. When any adjustment is required to be made in the Purchase Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (d) Certificate of Adjustment. When any adjustment is required to be made pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following such adjustment. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the Fair Market Value per share of Common Stock, as determined pursuant to subsection 1(b) above. 4. Requirements for Transfer. (a) This Warrant, the Warrant Shares and any shares of Common Stock issued upon conversion of the Warrant Shares or of this Warrant (collectively, the "Securities") shall not be sold or transferred unless either (i) they first shall have been registered under the Act, or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. (b) Each certificate representing Warrant Shares shall bear a legend substantially in the following form: "The securities represented by this certificate have not been registered CUSIP No. 81371G 10 S 13D PAGE 54 of 62 - -------------------------------------------------------------------------------- under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act, upon compliance with all requirements of the transfer agent for such shares. 5. No Impairment. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. Notices of Record Date, etc. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or (b) any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant at its last known address as shown on the records of the Company a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. Exchange of Warrants. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new CUSIP No. 81371G 10 S 13D PAGE 55 of 62 - -------------------------------------------------------------------------------- Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. Transfers, etc. (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its or his address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of Exhibit II hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 11. Mailing of Notices, etc. All notices and other communications from the Company to the Registered Holder of this Warrant shall be mailed by first-class certified or registered mail, postage prepaid to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection herewith to the Company shall be mailed by first class certified or registered mail, postage prepaid to the Company at its principal office set forth below. If the Company should at any time change its facsimile number or the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the Company's facsimile number and the location of its principal office at the particular time shall be as so specified in such notice. 12. No Rights as Stockholder. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 13. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement is sought. 14. Headings. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. CUSIP No. 81371G 10 S 13D PAGE 56 of 62 - -------------------------------------------------------------------------------- 15. Governing Law. This Warrant will be governed by and construed in accordance with the laws of the State of Delaware. THE IXATA GROUP, INC. 8989 Rio San Diego Drive, Suite 160 San Diego, CA 92108 By: ________________________________ Name: Title: ATTEST: ________________________________ Christopher J. Hubbert Assistant Secretary CUSIP No. 81371G 10 S 13D PAGE 57 of 62 - -------------------------------------------------------------------------------- EXHIBIT I PURCHASE FORM To:_________________ Dated:______________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ), hereby irrevocably (check one) ___ (i) elects to purchase _____ shares of the _________ Stock covered by such Warrant and herewith makes payment of $____________, representing the full purchase price for such shares at the price per share provided for in such Warrant, or __ (ii) authorizes the Company to convert ______________ of the shares of the _________ Stock covered hereby into the number of shares of Common Stock issuable pursuant to subsection 1(b) of the Warrant. Signature:_________________________ Address:___________________________ ___________________________ CUSIP No. 81371G 10 S 13D PAGE 58 of 62 - -------------------------------------------------------------------------------- EXHIBIT II ASSIGNMENT FORM FOR VALUE RECEIVED, ________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. ) with respect to the number of shares of stock covered thereby set forth below, unto: Name of Assignee Address No. of Shares Dated:____________________ Signature:____________________ Dated:____________________ Witness:__________________ EX-4 5 0005.txt EXHIBIT 4 CUSIP No. 81371G 10 S 13D PAGE 59 of 62 - -------------------------------------------------------------------------------- EXHIBIT 4 VOTING AGREEMENT THIS VOTING AGREEMENT ("Agreement") is made and entered into as of December 4, 2000, by and among The IXATA Group, Inc., a Delaware corporation (the "Company"), NextGen Fund II, L.L.C., NextGen SBS Fund II, L.L.C. (collectively, "NextGen"), Montpilier Holdings, Inc. ("Montpilier"), The Gluckman Family Trust dated August 3, 1989 (the "Gluckman Trust"), The Andreoli Family Trust dated April 11, 1996 (the "Andreoli Trust"), and Robert A. Steiner, individually. NextGen, Montpilier, the Gluckman Trust, the Andreoli Trust and Mr. Steiner are sometimes referred to in this Agreement collectively as the "Shareholders." RECITALS: A. This Agreement is being executed and delivered in connection with the purchase by NextGen of shares of the Company's preferred stock pursuant to that certain Series C Convertible Preferred Stock and Series C Convertible Preferred Stock Warrant Purchase Agreement, of even date herewith, by and among the Company, NextGen and the other purchasers listed on Exhibit A of that agreement (the "Purchase Agreement"). B. The Shareholders believe that it is in their mutual best interest (i) that qualified persons serve the Company as members of its Board of Directors (the "Board of Directors") to provide advice as to the Company's management, policies, administration and development and (ii) to make provision for the voting of any class of capital stock of the Company entitled to vote (the "Voting Stock") held by any Shareholder. NOW, THEREFORE, in consideration of the foregoing, of the mutual promises set forth below and in the Purchase Agreement, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. SCOPE AND TERM OF AGREEMENT. 1.1 Scope of Agreement. This Agreement shall govern (i) the voting of all shares of Voting Stock of which each Shareholder or any affiliates thereof is now or in the future becomes the legal or beneficial owner, including, without limitation, any shares of Voting Stock acquired upon the exercise of any stock options or warrants issued by the Company, and (ii) all action taken by the Shareholders with respect to the appointment or election of directors of the Company by the holders of the Company's common stock. For purposes of this Agreement, (i) the term "beneficial owner" has the meaning assigned to it in Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, and the regulations promulgated thereunder; and (ii) the term "affiliate" means any person or entity that controls, is controlled by or is under common control with such person or entity, or any immediate family member of such person. 1.2 Term of Agreement. This Agreement will terminate upon the first to occur of: (i) the mutual written agreement of the Shareholders to terminate this Agreement; (ii) NextGen ceases to collectively beneficially own any Voting Stock; or (iii) the sale of all or substantially all of the Company, by merger, sale of assets or otherwise. CUSIP No. 81371G 10 S 13D PAGE 60 of 62 - -------------------------------------------------------------------------------- 2. VOTING AGREEMENTS. 2.1 Composition of the Board of Directors. Notwithstanding anything to the contrary in the certificate of incorporation or by-laws of the Company as in effect from time to time, and subject to applicable law, each Shareholder agrees to take, or cause any persons or entities under its control to take, all necessary or desirable actions within its control (whether as a director, member of a committee of the Board of Directors or officer of the Company and including, without limitation, voting all shares of Voting Stock under his, her or its direction or control and, to the extent permitted by the certificate of incorporation or by-laws of the Company, each as then in effect, executing and delivering any written consents of stockholders and calling special stockholders' meetings) to ensure that: (a) so long as Montpilier or its affiliates beneficially own at least 50% of the number of shares of the Voting Stock beneficially owned by Montpilier on the date of this Agreement, the designee of Montpilier (presently Michael M. Grand) is a director of the Company; (b) so long as the Gluckman Trust or its affiliates beneficially own at least 50% of the number of shares of Voting Stock beneficially owned by the Gluckman Trust on the date of this Agreement, the designee of the Gluckman Trust (presently Fred Gluckman) is a director of the Company; and (c) the designees of NextGen pursuant toss.6(b) of the Company's Certificate of Designations of Series C Convertible Preferred Stock (presently Zimri C. Putney, Michael W. Wynne and Edward C. Groark), subject to the director resignation provisions contained therein, are directors of the Company. 2.2 Removal of Directors. Each Shareholder agrees not to vote to remove any director designated by any other Shareholder pursuant to ss.2.1 above, except for bad faith or willful misconduct. 2.3 Sale of the Company. For a period of 18 months from the date of this Agreement, NextGen agrees not to vote, or take any other action, in favor of the sale of all or substantially all of the Company, by merger, sale of assets or securities, or otherwise, in any single transaction or series of related transactions, without first obtaining the written consent of: (a) Montpilier, so long as Montpilier or its affiliates beneficially own at least 50% of the number of shares of the Voting Stock beneficially owned by Montpilier on the date of this Agreement; (b) The Gluckman Trust, so long as the Gluckman Trust or its affiliates beneficially own at least 50% of the number of shares of the Voting Stock beneficially owned by the Gluckman Trust on the date of this Agreement; (c) The Andreoli Trust, so long as the Andreoli Trust or its affiliates beneficially own at least 50% of the number of shares of the Voting Stock beneficially owned by the Andreoli Trust on the date of this Agreement; and (d) Mr. Steiner, so long as Mr. Steiner or his affiliates beneficially own at least 50% of the number of shares of the Voting Stock beneficially owned by Mr. Steiner on the date of this Agreement. 2.4 Agreement of the Company. The Company agrees that it will not give effect to any vote cast or other action taken by any Shareholder with respect to any matter submitted to a vote of the stockholders of the Company unless such vote or action is in accordance with the terms of this Agreement. CUSIP No. 81371G 10 S 13D PAGE 61 of 62 - -------------------------------------------------------------------------------- 3. REMEDIES. 3.1 Specific Performance. The parties agree that the failure of any party to observe the obligations provided by this Agreement will result in irreparable damage to the non-defaulting parties and that any non-defaulting party may seek specific performance of such obligations in any federal or state court permitted by ss. 3.2 below. 3.2 Submission to Jurisdiction; Consent to Service of Process; Venue. Each of the parties agrees and consents to the jurisdiction of the Chancery Court of the State of Delaware or the United States District Court for the State of Delaware, and waives any objection based on venue or forum non conveniens with respect to any action instituted, and agrees that any dispute concerning this Agreement or any of the transactions described in this Agreement may be heard only in the courts described above. 4. MISCELLANEOUS PROVISIONS. 4.1 Amendment. No change in, modification of or amendment to this Agreement will be valid unless it is in writing and signed by each party to this Agreement. 4.2 Waiver. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but only if such waiver is evidenced by a writing signed by that party. No failure on the part of any party hereto to exercise, and no delay in exercising any right, power or remedy created under this Agreement, will operate as a waiver thereof, nor will any single or partial exercise of any right, power or remedy by any such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. No waiver by any party hereto of any breach of or default in any term or condition of this Agreement will constitute a waiver of or assent to any succeeding breach of or default in the same or any other term or condition hereof. 4.3 Assignment. No party to this Agreement may assign any of his, her or its rights or obligations under this Agreement to any person or entity without the written consent of all of the other parties. 4.4 Governing Law. The validity and effect of this Agreement will be governed by and construed and enforced in accordance with the laws of the State of Delaware. 4.5 Partial Invalidity and Severability. All rights and restrictions contained in this Agreement may be exercised and will be applicable and binding only to the extent that they do not violate any applicable laws and are intended to be limited to the extent necessary to render this Agreement legal, valid and enforceable. If any term or part of this Agreement is held to be illegal, invalid or unenforceable by a court of competent jurisdiction, it is the intention of the parties that the remaining terms or partial terms will constitute their agreement with respect to the subject matter of this Agreement and all remaining terms or partial terms will remain in full force and effect. To the extent legally permissible, any illegal, invalid or unenforceable provision of this Agreement will be replaced by a valid provision that will implement the commercial purpose of the illegal, invalid or unenforceable provision. 4.6 Integration. This Agreement and the Purchase Agreement set forth all of the promises, agreements, conditions and understandings among the parties hereto with respect to the subject matter hereof and thereof, and supersede and are intended to be an integration of any and all prior agreements or understandings with respect thereto. CUSIP No. 81371G 10 S 13D PAGE 62 of 62 - -------------------------------------------------------------------------------- 4.7 Execution in Counterparts. This Agreement may be executed by any one or more of the parties in any number of counterparts, each of which will be deemed to be an original, but all such counterparts will together constitute one and the same instrument. 4.8 No Revocation. The voting agreements contained herein are coupled with an interest and may not be revoked, except by an amendment, modification or termination effected in accordance with ss.ss. 1.2 or 4.1 above. Nothing in this ss. 4.8 shall be construed as limiting the provisions of ss.ss. 1.2 or 4.1 above. IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date first set forth above. THE IXATA GROUP, INC. By: /s/ Paul Silverman -------------------------------- Its: Chief Executive Officer -------------------------------- NEXTGEN FUND II, L.L.C. By: /s/ Zimri Putney -------------------------------- Its: Managing Director -------------------------------- NEXTGEN SBS FUND II, L.L.C. By: /s/Zimri Putney -------------------------------- Its: Managing Director -------------------------------- MONTPILIER HOLDINGS, INC. /s/ Michael M. Grand ------------------------------------ By Michael M. Grand, President THE GLUCKMAN FAMILY TRUST Dated August 3, 1989 /s/ Fred Gluckman ------------------------------------ By Fred Gluckman, Trustee THE ANDREOLI FAMILY TRUST DATED APRIL 11, 1996 /S/ELLEN ANDREOLI ------------------------------------ By Ellen Andreoli, Trustee /s/Robert Steiner ------------------------------------ Robert A. Steiner, individually -----END PRIVACY-ENHANCED MESSAGE-----