-----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, QV9XVzBgzlWYsdTje57gV2/Y95zoYmH6mEHyCVSrWDfAAgEBk0TNdwFITeT/gy1j dGMTgZFtDEGe6zMHXpKzOg== /in/edgar/work/0000950134-00-009830/0000950134-00-009830.txt : 20001116 0000950134-00-009830.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950134-00-009830 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USDATA CORP CENTRAL INDEX KEY: 0000943895 STANDARD INDUSTRIAL CLASSIFICATION: [7372 ] IRS NUMBER: 752405152 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25936 FILM NUMBER: 769078 BUSINESS ADDRESS: STREET 1: 2435 NORTH CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 9726809700 10-Q 1 d81940e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2000 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q (Mark One) X Quarterly Report pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934 For the quarterly period ended September 30, 2000 - --- Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from to . ---------- ---------- Commission file number 0-25936 USDATA CORPORATION (Exact Name of Registrant as Specified in Its Charter) DELAWARE 75-2405152 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 2435 N. Central Expressway, Richardson, TX 75080 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (972) 680-9700 ---------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No --- --- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of October 31, 2000 Number of Shares Class Outstanding Common Stock, Par Value $.01 Per Share 14,007,182 shares 2 USDATA CORPORATION AND SUBSIDIARIES FORM 10-Q THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 TABLE OF CONTENTS
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2000 and December 31, 1999 3 Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) for the Three and Nine Months Ended September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2000 and 1999 5 Notes to Unaudited Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 20 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 20 Signatures 21
2 3 USDATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 4,548 $ 2,962 Accounts receivable, net of allowance for doubtful accounts of $483 and $453, respectively 3,329 6,626 Other current assets 1,013 727 ---------- ---------- Total current assets 8,890 10,315 ---------- ---------- Property and equipment, net 3,897 2,162 Computer software development costs, net 8,442 6,645 Software held for resale, net 923 1,079 Cost in excess of fair value of tangible net assets purchased, net 3,966 4,742 Intangible and other assets 1,733 1,924 ---------- ---------- Total assets $ 27,851 $ 26,867 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 2,038 $ 1,746 Deferred revenue 1,364 2,170 Accrued compensation and benefits 2,251 2,226 Stockholder notes payable -- -- Current portion of long-term debt 122 62 Other accrued liabilities 1,222 1,021 ---------- ---------- Total current liabilities 6,997 7,225 ---------- ---------- Long-term debt, less current portion 543 388 ---------- ---------- Total liabilities 7,540 7,613 ---------- ---------- Commitments and contingencies Preferred stock, $.01 par value, 2,200,000 shares authorized: Series A cumulative convertible redeemable preferred stock; 100,000 shares authorized; 50,000 shares issued and outstanding in 1999 -- 5,167 Redeemable convertible preferred stock, Series A-1 and Series A-2, $.01 par value, with a redemption and liquidation value of $2.50 per share in 2000; 16,000,000 shares authorized for Series A-1 and 16,000,000 shares for Series A-2; 5,300,000 shares issued and outstanding for each series of preferred stock 26,612 -- Stockholders' equity (deficit): Preferred stock, $.01 par value, 2,200,000 shares authorized: Series A cumulative convertible preferred stock; 100,000 shares authorized; 50,000 shares issued and outstanding in 2000 5,491 -- Common stock, $.01 par value, 40,000,000 shares authorized; 16,324,189 issued in 2000 and 15,625,951 issued in 1999 163 156 Additional paid-in capital 24,293 21,952 Deferred compensation (466) (1,278) Retained earnings(accumulated deficit) (26,871) 2,523 Treasury stock at cost, 2,318,007 shares in 2000 and 2,452,316 shares in 1999 (7,964) (8,434) Accumulated other comprehensive loss (947) (832) ---------- ---------- Total stockholders' equity (deficit) (6,301) 14,087 ---------- ---------- Total liabilities and stockholders' equity (deficit) $ 27,851 $ 26,867 ========== ==========
See accompanying notes to condensed consolidated financial statements. 3 4 USDATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues: Product license $ 3,266 $ 5,415 $ 9,401 $ 16,562 Services 1,224 1,304 3,058 2,929 ---------- ---------- ---------- ---------- Total revenues 4,490 6,719 12,459 19,491 ---------- ---------- ---------- ---------- Operating expenses: Selling and product materials 7,049 4,398 22,315 12,139 Product development 2,891 613 7,897 1,838 General and administrative 3,094 1,615 8,010 4,482 Severance and other charges 237 -- 1,014 -- Non-cash stock compensation 146 264 812 264 Amortization of intangible assets 359 240 1,078 240 Purchased in process research and development -- 476 -- 476 ---------- ---------- ---------- ---------- Total operating expenses 13,776 7,606 41,126 19,439 ---------- ---------- ---------- ---------- Income (loss) from operations (9,286) (887) (28,667) 52 Other income (expense), net (33) 33 (291) 68 ---------- ---------- ---------- ---------- Income (loss) before income taxes and preferred (9,319) (854) (28,958) 120 stock dividends of subsidiary Income tax provision -- -- -- (100) Preferred stock dividends of subsidiary (112) -- (112) -- ---------- ---------- ---------- ---------- Net income (loss) (9,431) (854) (29,070) 20 Dividends on preferred stock (108) (63) (324) (63) ---------- ---------- ---------- ---------- Net income (loss) applicable to common stockholders $ (9,539) $ (917) $ (29,394) $ (43) ========== ========== ========== ========== Comprehensive income (loss): Net income (loss) $ (9,431) $ (854) $ (29,070) $ 20 Foreign currency translation adjustment 10 33 (115) (33) ---------- ---------- ---------- ---------- Comprehensive income (loss) $ (9,421) $ (821) $ (29,185) $ (13) ========== ========== ========== ========== Net income (loss) per common share: ========== ========== ========== ========== Basic and diluted $ (0.69) $ (0.08) $ (2.21) $ (0.00) ========== ========== ========== ========== Weighted average shares outstanding: Basic and diluted 13,734 12,098 13,300 11,590 ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements. 4 5 USDATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------- 2000 1999 -------- -------- Cash flows from operating activities: Net income (loss) $(29,070) $ 20 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 3,176 1,132 Non-cash stock compensation 812 264 Purchased in process research and development -- 476 Non-cash interest expense 313 -- Preferred stock dividends of subsidiary 112 -- Changes in assets and liabilities: Accounts receivable, net 3,297 1,781 Other assets, net (408) (216) Accounts payable and other accrued liabilities 798 (466) Accrued compensation and benefits 339 (266) Deferred revenue (806) (963) -------- -------- Net cash provided by (used in) operating activities (21,437) 1,762 -------- -------- Cash flows from investing activities: Capital expenditures (3,093) (340) Acquisition -- (6,450) Capitalized software development costs (2,383) (1,270) -------- -------- Net cash used in investing activities (5,476) (8,060) -------- -------- Cash flows from financing activities: Proceeds from stock warrant exercise 2,109 -- Proceeds from stock option exercises 383 -- Proceeds from issuance of common stock -- 5,009 Proceeds from issuance of preferred stock 6,937 5,000 Proceeds from issuance of demand notes payable 19,250 -- Payments on long-term debt (65) (15) -------- -------- Net cash provided by financing activities 28,614 9,994 -------- -------- Translation adjustments and effect of exchange rate changes on cash (115) (33) -------- -------- Net increase in cash and cash equivalents 1,586 3,663 Cash and cash equivalents, beginning of period 2,962 1,980 -------- -------- Cash and cash equivalents, end of period $ 4,548 $ 5,643 ======== ========
See accompanying notes to condensed consolidated financial statements. 5 6 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed consolidated financial statements of USDATA Corporation and its subsidiaries (the "Company") for the three and nine month periods ended September 30, 2000 and 1999 have been prepared in accordance with generally accepted accounting principles. Significant accounting policies followed by the Company were disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. In the opinion of the Company's management, the accompanying consolidated financial statements contain the adjustments, consisting of normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company at September 30, 2000 and the consolidated results of its operations and comprehensive loss, and cash flows for the periods ended September 30, 2000 and 1999. Operating results for the three and nine months ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. 2. STOCKHOLDER NOTES PAYABLE On February 8, 2000 and March 24, 2000, the Company, through its subsidiary eMake Corporation ("eMake"), entered into two convertible promissory note agreements with a subsidiary of Safeguard Scientifics, Inc. ("Safeguard"), the Company's primary stockholder, for $2.5 million each, totaling $5.0 million in borrowings. The promissory notes had an interest rate of 12% per annum and were due in full on February 8, 2001 and March 24, 2001, respectively. If the notes payable were paid in full at maturity, interest would be forgiven. The notes were paid in full on September 12, 2000, as described below, and accrued interest of $322 thousand was forgiven. On April 26, 2000, a subsidiary of Safeguard provided $5.0 million in financing to the Company in exchange for a demand note due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The note had an interest rate based on a specified bank prime rate plus one percent. On June 29, 2000; July 13, 2000 and July 28, 2000, a subsidiary of Safeguard provided $1.5 million, $1.75 million and $2.5 million, respectively, in financings to the Company's subsidiary eMake in exchange for three demand notes each due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The notes had an interest rate based on a specified bank prime rate plus one percent. On August 14, 2000, SCP Private Equity Partners II, L.P. ("SCP") provided $6.0 million in financing to the Company's subsidiary eMake in exchange for a demand note due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The note had an interest rate based on a specified bank prime rate plus one percent. Concurrently, the Company repaid the $2.5 million demand note dated July 28, 2000 plus accrued interest of $13 thousand with proceeds from this demand note payable. On September 12, 2000, the Company and eMake secured $26.5 million in financing from Safeguard and SCP through the issuance of preferred stock (See "Note 3"). In connection with this transaction, the company received $6,936,754 in cash and Safeguard and SCP cancelled the then outstanding notes payable balance due them of $19,250,000 plus accrued interest of $313,246. 3. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS TO PURCHASE PREFERRED STOCK On August 7, 2000, the Company and eMake executed a Securities Purchase Agreement to provide $26.5 million in financing in the form of eMake preferred stock. The transaction was approved 6 7 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- by the Company's stockholders on September 11, 2000 and the transaction was completed on September 12, 2000. In this transaction, on September 12, 2000, SCP and Safeguard purchased through a private placement 5,300,000 shares each, for a total of 10,600,000 shares, of eMake Corporation Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock (collectively referred to as the "Series A Preferred") and warrants to purchase up to an additional 5,300,000 shares each of eMake Corporation Series A-1 and Series A-2 preferred stock, respectively. The aggregate purchase price of $26,500,000 was comprised of $7,250,000 in cash and cancellation of $19,250,000 of the notes payable described in Note 2. The Company received $6,936,754 in cash, net of $313,246 due for accrued interest on the outstanding notes payable. REDEEMABLE CONVERTIBLE PREFERRED STOCK The Series A Preferred Stock has a par value of $.01 per share and a liquidation preference of $2.50 per share plus cumulative dividends. The holders of at least two-thirds of the outstanding shares of the Series A preferred stock can require eMake to redeem all the shares at $2.50 per share at any time after September 12, 2005. Dividends on the eMake Series A Preferred Stock are cumulative and payable at a rate of $.05 per share per calendar quarter and in preference to any dividends on eMake's common stock. The dividends are payable, with respect to the eMake Series A-1 Preferred Stock, in additional shares of eMake Series A-1 preferred stock and with respect to the eMake Series A-2 Preferred Stock, in additional shares of eMake Series A-2 preferred stock. The eMake Series A-1 Preferred Stock is convertible into shares of eMake Corporation Class A common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B preferred stock at the rate of one USDATA preferred share for each 40 shares of eMake Series A-1 preferred share owned. The eMake Series A-2 Preferred Stock is convertible into shares of eMake Corporation Class B common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B preferred stock at the rate of one USDATA preferred share for each 40 shares of eMake Series A-2 preferred share owned. WARRANTS TO PURCHASE SERIES A-1 AND A-2 PREFERRED STOCK The eMake Series A-1 and eMake Series A-2 preferred stock warrants issued to SCP and Safeguard, respectively, grant to the holders the right to purchase up to an additional 5,300,000 shares of eMake Series A-1 convertible preferred stock and up to an additional 5,300,000 shares of eMake Series A-2 convertible preferred stock at an exercise price of $.01 per share. The amount of eMake Series A Preferred Stock that can be acquired upon exercise is based on the number of users licensed to use eMake's software from a server or client workstation as of June 30, 2001 and varies from zero to a total of 5,300,000 shares of eMake Series A-1 Preferred Stock and 5,300,000 shares of eMake Series A-2 Preferred Stock. The warrants are exercisable anytime after June 30, 2001 through the earliest of the following events: (a) June 1, 2006; (b) the commencement of the liquidation or winding up of the business of eMake; (c) the sale of all or substantially all of the assets and properties of eMake; (d) a merger, consolidation or other similar transaction involving eMake in which eMake is not the surviving entity or eMake is the surviving entity but after which the holders of the outstanding voting securities of eMake before the transaction hold less than 50% of eMake's outstanding voting securities after the transaction; (e) the sale by eMake of its securities in a public offering; (f) a decrease in the ownership percentage of USDATA's voting securities of eMake to the extent that eMake would cease to be a consolidated subsidiary of the Company; or (g) the exercise by SCP or Safeguard of its right to exchange the last outstanding Series A share for shares of USDATA's Series B preferred stock. These warrants expire on June 30, 2006. 7 8 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- 4. STOCKHOLDERS' EQUITY PREFERRED STOCK The board of directors is authorized, subject to certain limitations and without stockholder approval, to issue up to 2.2 million shares of preferred stock in one or more series and fix the rights and preferences of each series. In 1999, the board of directors designated 100,000 shares of authorized preferred stock as Series A convertible preferred stock, of which 50,000 shares are issued and outstanding in 2000. In September 2000, the Company executed an amendment to the Certificate of Designation for the Company's Preferred Stock which changed the terms of the Series A preferred stock and designated 800,000 shares of authorized but unissued preferred stock as Series B convertible preferred stock. The amended terms included that none of the Series A preferred stock or Series B preferred stock are redeemable and that the cumulative dividends are no longer interest bearing. The Series B preferred stock is convertible into the Company's common stock at a conversion rate of $6.09. 5. LOSS PER SHARE Net loss per share of common stock is presented in accordance with the provisions of SFAS No. 128, Earnings Per Share. Under SFAS No. 128, basic income (loss) per share excludes dilution for potentially dilutive securities and is computed by dividing income or (loss) applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted income (loss) per share when their inclusion would be antidilutive. Options to acquire a total of 1,760,290 shares have been excluded from the computation of diluted loss per share for the three and nine months ended September 30, 2000, as their inclusion would be antidilutive.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- (in thousands, except per share data) 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net loss applicable to common stockholders $ (9,539) $ (917) $ (29,394) $ (43) ========== ========== ========== ========== Weighted average common shares outstanding 13,734 12,098 13,300 11,590 Effect of dilutive securities: Common stock options and warrants -- -- -- -- ---------- ---------- ---------- ---------- Weighted average common shares and common share equivalents (if dilutive) outstanding 13,734 12,098 13,300 11,590 ========== ========== ========== ========== Net loss per common share: Basic and diluted $ (0.69) $ (0.08) $ (2.21) $ (0.00) ========== ========== ========== ==========
6. SEVERANCE AND OTHER CHARGES In June 2000, the Company implemented a reduction in its workforce of approximately 6% and recorded a one-time charge of $777 thousand, primarily consisting of employee severance and related benefits. Other charges included in the $777 thousand are $85 thousand for vacated office space and $73 thousand for legal and other related costs. Severance costs were determined based upon employees' years of service as well as level within the organization. The reduction in workforce included 16 employees, primarily from the selling group. Of the total amount expensed in the second quarter, approximately $549 thousand was paid through September 30, 2000. All affected employees were terminated as of June 30, 2000. 8 9 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- In addition, $144 thousand in non-cash charges were recorded related to releasing shares from escrow, in accordance with the Smart Shop Software, Inc. purchase agreement, which were held as collateral for certain employment-related performance requirements. The $144 thousand is included in non-cash compensation in the Company's 2000 Condensed Consolidated Statement of Operations. In August 2000, the Company's subsidiary, eMake, implemented a reduction in its workforce of approximately 32% and recorded a one-time charge of $237 thousand, primarily consisting of employee severance and related benefits of $150 thousand. Other charges included $44 thousand in estimated lease termination costs to close two office facilities, which represents the estimated amounts to be paid to terminate the lease contracts before the end of their term, and $43 thousand in legal and other related costs. Severance costs were determined based upon employees' years of service as well as level within the organization. This reduction in workforce included 35 employees, primarily from the selling group. Of the total amount expensed in the third quarter, approximately $151 thousand was paid through September 30, 2000. All affected employees were terminated as of September 30, 2000. 7. SEGMENT INFORMATION The Company defines its operating segments based on two distinct operating units - the USDATA Products Division, which includes its FactoryLink and Xfactory product lines, and the Company's eMake Corporation subsidiary, which develops and distributes Internet applications that deliver integrated production solutions and real-time visibility across the supply chain. The Company uses revenues and income (loss) from operations, which consists of revenues less operating expenses, to measure segment operations. The following summarizes information related to the Company's segments. All significant intersegment activity has been eliminated. Assets are the owned or allocated assets used by each operating segment. 9 10 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - --------------------------------------------------------------------------------
Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ----------------------------- (in thousands) 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues: USDATA Products Division $ 4,275 $ 6,074 $ 11,582 $ 18,846 eMake Corporation 215 645 877 645 ---------- ---------- ---------- ---------- $ 4,490 $ 6,719 $ 12,459 $ 19,491 ========== ========== ========== ========== Income (loss) from operations: USDATA Products Division $ (3,438) $ 1,130 $ (10,584) $ 2,069 eMake Corporation (5,848) (2,017) (18,083) (2,017) ---------- ---------- ---------- ---------- (9,286) (887) (28,667) 52 Other income (expense), net (33) 33 (291) 68 ---------- ---------- ---------- ---------- Income (loss) from operations before income taxes and preferred stock dividends of subsidiary $ (9,319) $ (854) $ (28,958) $ 120 ========== ========== ========== ========== Depreciation and amortization: USDATA Products Division $ 994 $ 235 $ 1,560 $ 750 eMake Corporation 650 382 1,616 382 ---------- ---------- ---------- ---------- $ 1,644 $ 617 $ 3,176 $ 1,132 ========== ========== ========== ========== Total assets: USDATA Products Division $ 19,735 $ 19,377 eMake Corporation 8,116 7,885 ---------- ---------- $ 27,851 $ 27,262 ========== ==========
8. SUBSEQUENT EVENTS During the fourth quarter of 2000, the Company is in the process of implementing a restructuring plan designed to significantly reduce the Company's and eMake's cost structure by reducing its workforce and other operating expenses. The Company estimates the restructuring charge to be recorded in the fourth quarter of 2000 to be in the range of $2 million to $3.5 million. In conjunction with this restructuring, the Company is in the process of re-evaluating eMake's business model. Based on the findings of this re-evaluation and approval by the Company's Board of Directors, a business model could be developed for the eMake business that effectively abandons certain activities of eMake that required significant operating and capital expenditures over the past 12 months. Specifically, the Company has recorded goodwill and intangible assets of $4.0 million, net, and $1.5 million, net, related to its 1999 Smart Shop acquisition that may be deemed impaired if the Smart Shop element of eMake is significantly curtailed as a result of the revised business model. In addition, the Company has recorded $1.2 million, net, and $365 thousand, net, in capitalized website development costs and capitalized software costs that could also be deemed impaired if the eMake portal project is significantly changed or curtailed as a result of the revised business model. The Company expects to complete its reevaluation of the eMake business model before December 31, 2000. 10 11 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- OVERVIEW USDATA Corporation (the "Company") is a global supplier of real-time component-based production software and Internet-based production applications, eBusiness and supply chain portals. These products and services are designed to help customers manage their business in real time, reduce operating costs, shorten cycle times, and improve quality in their manufacturing operations. Now in its 25th year, the Company has a strong global presence with more than 45,000 installs located in more than 60 countries throughout the world, offices in the U.S. and Europe and a global network of distribution and support partners. The Company conducts its operations in two operating units, the USDATA Products Division, and the Company's eMake Corporation subsidiary. Each unit has its own sales, marketing, customer support and service, product development and selected general management and administrative functions. Certain general and administrative functions (such as corporate management, accounting, human resources and information technology) provide services to both units with the costs of these shared services allocated between the two units. USDATA Products Division The USDATA Products Division ("USDATA") is a global supplier of component-based production software that is designed to help customers reduce operating costs, shorten cycle times and improve product quality in their manufacturing operations. USDATA's software enables manufacturers to access more accurate and timely information - whether they are on the plant floor, in the office, or around the globe. USDATA's solutions span a wide range of manufacturing processes, from monitoring equipment to tracking product flow, and are designed to integrate seamlessly with customers' existing manufacturing and business software. This combination of product breadth and ease of integration is intended to provide a total plant solution that defines new levels of manufacturing performance and gives customers a distinct competitive advantage. Revenues have been generated primarily from licenses of USDATA's FactoryLink and Xfactory software and secondarily from technical support and service agreements, training classes and product related services. The support and service agreements are generally one-year, renewable contracts entitling a customer to certain software upgrades and technical support. Support and service revenue for the three and nine months ended September 30, 2000 represented approximately 13% and 15%, respectively, compared to 13% and 11%, respectively, for the same periods in 1999. Included in the FactoryLink family of products are versions 6.5 and 6.6, real-time information Windows NT and Windows 98/95 platforms, supporting powerful client access environments and technologies and providing Year 2000 ("Y2K") readiness. In addition, USDATA offers FactoryLink WebClient, which provides the ability to view and control any FactoryLink server running Microsoft Windows NT using a simple web browser. In late June 2000, USDATA released FactoryLink 7, a multi-user, real-time SCADA (Supervisory Control and Data Acquisition) product, developed to run on the Windows 2000 and Windows NT operating systems. FactoryLink 7 was designed specifically to give businesses access to a solution with the lowest total cost of integration, installation, and support. Xfactory is a manufacturing execution software ("MES") product that incorporates Microsoft's newest technologies and is built on Microsoft's Distributed Internet Applications ("DNA") architecture. Xfactory enables manufacturing plants to more easily and quickly automate their production processes and is the first visual object modeling MES. The Xfactory software product enables customers to develop versatile and flexible MES applications for production management, product tracking, product scheduling and genealogy tracking for manufacturing and production processes. 11 12 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- In December 1999, USDATA released Xfactory version 1.4, which gives manufacturers of all sizes the ability to track and improve production processes "on the fly." Version 1.4 is intended to deliver unparalleled performance and reliability for even the most demanding large-scale production processes. In the latter part of 1999, the Company introduced the USDATA Connector product. USDATA Connector links the plant floor to the supply chain and higher-level business systems. USDATA Connector is designed to enable disparate systems throughout the enterprise to operate as one and, in conjunction with the Company's production suite of software, to provide visibility to the status of the customers order at any point in the manufacturing process. In this regard, USDATA Connector assists manufacturers in achieving a real-time supply chain allowing them to better meet changing customer needs and increasing market demands. Also in late 1999, the Company introduced USDATA Analysis, the newest module in Xfactory. USDATA Analysis turns production data into valuable information available from any web browser. This product is the result of USDATA's intuitive production modeling environment coupled with the capabilities of TopTier Software's hyper-relational technology. USDATA Analysis integrates the supply and demand chains by providing visibility to issues surrounding the requirements of the shop floor and resource planning. As a result, the module is intended to provide improved information to the supply chain, tighter inventory control and increased profitability. USDATA focuses its sales efforts through selected distributors capable of providing the level of support and expertise required in the real-time manufacturing and process control application market. The division currently has four channel support locations in the United States and six internationally to support its sales efforts through its network of distributors. eMake Corporation eMake Corporation ("eMake") was created to reinvent the way manufacturers do business, by providing Internet-based, real-time production applications, eBusiness and supply chain portals. eMake's services enables customers to more efficiently manage their business in real time, using Internet technologies to tap into a community of ideas, information and applications uniquely tailored to fit the needs of the discrete make-to-order manufacturer. eMake was formed in July 1999 by combining the Company's acquired Smart Shop Software operations with a team of USDATA personnel with expertise in real time production and Internet technologies. eMake's services are uniquely designed for make-to-order manufacturers responding to changing orders, demanding customers, shorter production cycles and increasing technology needs. eMake's services are intended to provide a cost-effective, easy-to-implement business and production solution with secure, real-time visibility through the Internet to customers, suppliers and partners. In mid-April 2000, eMake launched the first components of a suite of Internet applications that include integrated product solutions and real-time visibility across the supply chain. eMake's strategy is to leverage its extensive manufacturing knowledge through Internet applications to help companies maximize their back office production and create the eMake portal for front office visibility into the production operations of the supply chain. eMake's focus is on horizontal make-to-order solutions for smaller to medium sized manufacturers with less than $50 million in annual revenue. eMake has focused its sales efforts through the Internet, a direct sales force, and telemarketing. 12 13 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Subsequent to the end of the third quarter 2000 the Company is in the process of implementing a restructuring plan designed to significantly reduce the Company's and eMake's cost structure by reducing its workforce. See further discussion in the Liquidity and Capital Resources section. RESULTS OF OPERATIONS The following table presents selected financial information relating to the financial condition and results of operations of the Company and should be read in conjunction with the consolidated financial statements and notes included herein. The table sets forth, for the periods indicated, the Company's statement of operations as a percentage of revenues.
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 2000 1999 2000 1999 ---- ---- ---- ---- Revenues: Product license 73% 81% 75% 85% Services 27% 19% 25% 15% ---- --- ---- --- Total revenues 100% 100% 100% 100% ---- --- ---- --- Operating expenses: Selling and product materials 157% 65% 179% 62% Product development 64% 9% 63% 10% General and administrative 69% 24% 64% 23% Severance and other charges 5% 0% 8% 0% Non-cash compensation 3% 4% 7% 1% Amortization of intangible assets 8% 4% 9% 1% Purchased in process research and development 0% 7% 0% 3% ---- --- ---- --- Total operating expenses 306% 113% 330% 100% ---- --- ---- --- Income (loss) from operations (206)% (13)% (230)% 0% Other income (expense), net (1)% 0% (2)% 0% ---- --- ---- --- Income (loss) from operations before income taxes and preferred stock dividends of subsidiary (207)% (13)% (232)% (0)% Income tax provision 0% 0% 0% (1)% Minority interest (2)% 0% (1)% 0% ---- --- ---- --- Net income (loss) (209)% (13)% (233)% (1)% Dividends on preferred stock (2)% (1)% (3)% (0)% ---- --- ---- --- Net income (loss) applicable to common stockholders (211)% (14)% (236)% (1)% ==== === ==== ===
Comparison of Three Months Ended September 30, 2000 and 1999 Total revenues for the quarter ended September 30, 2000, were $4.5 million, a decrease of $2.2 million or 33% compared to the same period in 1999. The decrease was primarily a result of $2.1 million in lower software licensing revenues. The Company believes that the decrease in software licensing revenues was primarily due to a temporary industry-wide decline in new software purchases. Although licensing revenues for the third quarter 2000 improved slightly over second quarter 2000, it is substantially lower than licensing revenues in the third quarter of 1999. While the Company anticipates an improvement in USDATA revenues going forward, these market dynamics could affect buying decisions for at least another two quarters, making revenues and operating results more difficult to forecast. Selling and product materials expenses increased $2.6 million from $4.4 million for the quarter ended September 30, 1999 to $7.0 million for the same period in 2000. The increase was a result of an increase in eMake's selling and product materials expenses of $2.6 million, increasing from $1.0 million in the third quarter of 1999 to $3.6 million for the same period in 2000. 13 14 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- The increase is due to the incremental costs associated with expanding and launching eMake during 2000. Selling and product materials expenses as a percentage of revenues increased to 157% for the quarter ended September 30, 2000 from 65% for the same period in 1999 primarily resulting from the increase in selling expenses from eMake in addition to the decrease in revenues. Product development expenses, which consisted primarily of labor costs, increased $2.3 million from $0.6 million for the quarter ended September 30, 1999 to $2.9 million for the same period in 2000. Compared to the third quarter 1999, the Company increased its engineering development activities related to the FactoryLink and Xfactory product lines. The Company capitalized $0.6 million of software development expenses for the quarter ended September 30, 2000, primarily related to the next major release of FactoryLink. For the quarter ended September 30, 1999, the Company capitalized $0.8 million of development expenses primarily related to the latest release of FactoryLink, which was released in late June 2000. In addition, eMake's product development expenses increased $0.5 million from $0.2 million for the quarter ended September 30, 1999 to $0.7 million for the same period in 2000. General and administrative expenses increased $1.5 million from $1.6 million for the quarter ended September 30, 1999 to $3.1 million for the same period in 2000. The increase is primarily due to an increase in eMake's general and administrative expenses of $0.6 million as well as incremental consulting fees associated with refining the Company's longer-term business plan. During the second quarter 2000, the Company appointed both a Chief Operating Officer for the USDATA Products Division and a Chief Executive Officer for its eMake subsidiary. These newly staffed positions contributed to the increase in general and administrative expenses during the third quarter 2000. General and administrative expenses as a percentage of revenues increased to 69% for the quarter ended September 30, 2000 from 24% for the same period in 1999, primarily due to the decrease in revenues in the third quarter of 2000 combined with the fixed cost nature of a majority of general and administrative costs. In August 2000, the Company's subsidiary eMake implemented a reduction in its workforce of approximately 32% and recorded a charge of $0.2 million, primarily consisting of employee severance and related benefits. Of the total amount of severance expensed in the second quarter, approximately $0.1 million was paid through September 30, 2000. At September 30, 2000, accrued severance costs totaled $20 thousand which are expected to be paid in full by December 2000. Other charges included $44 thousand in estimated lease termination costs to close two office facilities, which represents the estimated amounts to be paid to terminate the lease contracts before the end of their term, and $43 thousand in legal and other related costs. In connection with the acquisition of Smart Shop Software in 1999, the Company recorded $0.5 million in charges for the quarter ended September 30, 2000 and 1999 related to non-cash compensation and amortization of acquired intangible assets. In addition, during 1999 the Company recorded a $476 thousand charge to write off acquired in process research and development costs. The Company experienced a loss from operations of $9.3 million for the quarter ended September 30, 2000 compared to a loss from operations of $0.9 million for the same period in 1999. The increase in loss from operations was primarily the result of a decrease in revenues of $2.2 million, severance and other charges of $0.2 million and eMake related costs associated with developing technology, building the infrastructure, start-up, market development and operating costs. 14 15 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Comparison of Nine Months Ended September 30, 2000 and 1999 Total revenues for the nine months ended September 30, 2000, were $12.5 million, a decrease of $7.0 million or 36% compared to the same period in 1999. The decrease was primarily a result of $7.1 million in lower software licensing revenues, offset by a $0.1 million increase in technical support services. The Company believes that the decrease in software licensing revenues was primarily due to a temporary industry-wide decline in new purchases experienced in the first nine months of 2000. Additionally, while FactoryLink 7 was released on June 30, 2000, it was substantially later than originally planned and has adversely affected revenues during 2000. While the Company anticipates an improvement in USDATA revenues going forward, these market dynamics could affect buying decisions for at least another two quarters, making revenues and operating results more difficult to forecast. Selling and product materials expenses increased $10.2 million from $12.1 million for the nine months ended September 30, 1999 to $22.3 million for the same period in 2000. The increase was a result of eMake's selling and product materials expenses of $10.6 million, partially offset by a decrease in USDATA's selling and product materials expenses of $0.4 million. The Company attributes USDATA's decrease to its own cost reduction efforts. Selling and product materials expenses as a percentage of revenues increased to 179% for the nine months ended September 30, 2000 from 62% for the same period in 1999 primarily resulting from the increase in selling expenses from eMake. Product development expenses, which consisted primarily of labor costs, increased $6.1 million from $1.8 million for the nine months ended September 30, 1999 to $7.9 million for the same period in 2000. Compared to the nine months ended September 30, 1999, the Company increased its engineering development activities related to the FactoryLink, Xfactory and eMake product lines. The Company capitalized $2.4 million and $1.3 million of software development costs for the nine months ended September 30, 2000 and 1999, primarily related to the next major version of the FactoryLink product line and development efforts related to eMake during 2000. General and administrative expenses increased $3.5 million from $4.5 million for the nine months ended September 30, 1999 to $8.0 million for the same period in 2000. The increase is primarily due to eMake's general and administrative expenses of $2.5 million as well as incremental consulting fees associated with refining the Company's longer-term business plan. During the second quarter 2000, the Company appointed both a Chief Operating Officer for the USDATA Products Division and a Chief Executive Officer for its eMake subsidiary. These newly staffed positions contributed to the increase in general and administrative expenses for the nine months ended September 30, 2000. General and administrative expenses as a percentage of revenues increased to 64% for the nine months ended September 30, 2000 from 23% for the same period in 1999, primarily due to the decrease in revenues for the nine months ended September 30, 2000 combined with the fixed cost nature of a majority of general and administrative costs. In June 2000, the Company implemented a reduction in its workforce of approximately 6% and recorded a charge of $0.8 million, primarily consisting of employee severance and related benefits. Of the total amount of severance expensed in the second quarter, approximately $0.5 million was paid through September 30, 2000. Other charges included $85 thousand for vacated office space and $73 thousand in legal and other related costs. In August 2000, the Company's subsidiary eMake implemented a reduction in its workforce of approximately 32% and recorded a charge of $0.2 million, primarily consisting of employee severance and related benefits. Of the total amount of severance expensed in the second quarter, approximately $0.1 million was paid through September 30, 2000. Other charges included $44 thousand in estimated lease termination costs to close two office facilities, which represents the estimated amounts to be paid to terminate the lease contracts before the end of their term, and $43 thousand in legal and other related costs. 15 16 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- In connection with the acquisition of Smart Shop Software in 1999, the Company recorded $1.9 million in charges for the nine months ended September 30, 2000 related to non-cash compensation and amortization of acquired intangible assets compared to $0.5 million for the same period in 1999. In addition, during 1999 the Company recorded a $476 thousand charge to write off acquired in process research and development costs. As a result of the factors discussed above, the Company recorded net loss from operations of $28.7 million for the nine months ended September 30, 2000, compared to income from operations of $52 thousand for the same period in 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used $21.4 million of cash for the nine months ended September 30, 2000 compared to providing $1.8 million for the same period in 1999, primarily due to a loss from operations in the nine months ended September 30, 2000, partially offset by improved collections on accounts receivable in 2000 and an increase in accounts payable and other accrued liabilities from 1999. Cash used in investing activities was $5.5 million for the nine months ended September 30, 2000 resulting from capital expenditures of $3.1 million and software development costs of $2.4 million. The capital expenditures were primarily attributable to $2.2 million in costs for computer equipment and software development related to the Internet applications for eMake and $.9 million in computers, software and equipment for USDATA. On February 8, 2000 and March 24, 2000, the Company, through its subsidiary eMake Corporation ("eMake"), entered into two convertible promissory note agreements with a subsidiary of Safeguard Scientifics, Inc. ("Safeguard"), the Company's primary stockholder, for $2.5 million each, totaling $5.0 million in borrowings. The promissory notes had an interest rate of 12% per annum and were due in full on February 8, 2001 and March 24, 2001, respectively. If the notes payable were paid in full at maturity, interest would be forgiven. The notes were paid in full on September 12, 2000, as described below, and accrued interest of $322 thousand was forgiven. On April 26, 2000, a subsidiary of Safeguard provided $5.0 million in financing to the Company in exchange for a demand note due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The note had an interest rate based on a specified bank prime rate plus one percent. On June 29, 2000; July 13, 2000 and July 28, 2000, a subsidiary of Safeguard provided $1.5 million, $1.75 million and $2.5 million, respectively, in financings to the Company's subsidiary eMake in exchange for three demand notes each due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The notes had an interest rate based on a specified bank prime rate plus one percent. On August 7, 2000, the Company and eMake executed a Securities Purchase Agreement to provide $26.5 million in financing in the form of eMake preferred stock. The transaction was approved by the Company's stockholders on September 11, 2000 and the transaction was completed on September 12, 2000. On August 14, 2000, SCP Private Equity Partners II, L.P. ("SCP") provided $6.0 million in financing to the Company's subsidiary eMake in exchange for a demand note due the earlier of one year from the date of the note or 60 days following the date of demand for payment. The note had an interest 16 17 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- rate based on a specified bank prime rate plus one percent. Concurrently, the Company repaid the $2.5 million demand note dated July 28, 2000 plus accrued interest of $13 thousand with proceeds from this demand note payable. On September 12, 2000, SCP and Safeguard purchased through a private placement 5,300,000 shares each, for a total of 10,600,000 shares, of eMake Corporation Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock (collectively referred to as the "Series A Preferred") and warrants to purchase up to an additional 5,300,000 shares each of eMake Corporation Series A-1 and Series A-2 preferred stock, respectively. The aggregate purchase price of $26,500,000 was comprised of $7,250,000 in cash and cancellation of $19,250,000 of the notes payable described above. The Company received $6,936,754 in cash, net of $313,246 due for accrued interest. The eMake Series A Preferred Stock has a par value of $.01 per share and a liquidation preference of $2.50 per share plus cumulative dividends. The holders of at least two-thirds of the outstanding shares of the eMake Series A preferred stock can require eMake to redeem all the shares at $2.50 per share at any time after September 12, 2005. Dividends on the eMake Series A Preferred Stock are cumulative and payable at a rate of $.05 per share per calendar quarter and in preference to any dividends on eMake's common stock. The dividends are payable, with respect to the eMake Series A-1 Preferred Stock, in additional shares of eMake Series A-1 preferred stock and with respect to the eMake Series A-2 Preferred Stock, in additional shares of eMake Series A-2 preferred stock. The eMake Series A-1 Preferred Stock is convertible into shares of eMake Corporation Class A common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B preferred stock at the rate of one USDATA preferred share for each 40 shares of eMake Series A-1 preferred share owned. The eMake Series A-2 Preferred Stock is convertible into shares of eMake Corporation Class B common stock at a conversion rate of $2.50 per share of common stock or into shares of the Company's Series B preferred stock at the rate of one USDATA preferred share for each 40 shares of eMake Series A-2 preferred share owned. The eMake Series A-1 and eMake Series A-2 preferred stock warrants issued to SCP and Safeguard, respectively, grant to the holders the right to purchase up to an additional 5,300,000 shares of eMake Series A-1 convertible preferred stock and up to an additional 5,300,000 shares of eMake Series A-2 convertible preferred stock at an exercise price of $.01 per share. The amount of Series A Preferred Stock that can be acquired upon exercise is based on the number of users licensed to use eMake's software from a server or client workstation as of June 30, 2001 and varies from zero to a total of 5,300,000 shares of eMake Series A-1 Preferred Stock and 5,300,000 shares of eMake Series A-2 Preferred Stock. The warrants are exercisable anytime after June 30, 2001 through the earliest of the following events: (a) June 1, 2006; (b) the commencement of the liquidation or winding up of the business of eMake; (c) the sale of all or substantially all of the assets and properties of eMake; (d) a merger, consolidation or other similar transaction involving eMake in which eMake is not the surviving entity or eMake is the surviving entity but after which the holders of the outstanding voting securities of eMake before the transaction hold less than 50% of eMake's outstanding voting securities after the transaction; (e) the sale by eMake of its securities in a public offering; (f) a decrease in the ownership percentage of USDATA's voting securities of eMake below the percentage required under generally accepted accounting principles to include eMake in USDATA's consolidated financial statements; or (g) the exercise by SCP or Safeguard of its right to exchange the last outstanding Series A share for shares of USDATA's Series B preferred stock. These warrants expire on June 30, 2006. The development and launch of eMake, in addition to the lower revenues and increased expenses of the USDATA Products Division, has significantly increased the Company's operating expenses and cash requirements. In order for the Company to continue its current plan to operate both the USDATA Products Division and eMake subsidiary, additional public or private debt or equity financing will be required. The Company is in process of seeking additional financing to provide the cash required under its restructuring plan. However, no assurance can be given that such debt or equity 17 18 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- financing will be available to the Company on terms and conditions acceptable to the Company, if at all. If necessary, the Company can delay certain operations and capital expenditures until adequate financing is obtained. If such delays occur, the Company's future operations could be significantly curtailed. As a result of the loss from operations and resulting negative cash flow, the Company is in the process of implementing a restructuring plan designed to reduce the Company's and eMake's cost structure by reducing its workforce and other operating expenses. The Company estimates the restructuring charge to be recorded in the fourth quarter of 2000 to be in the range of $2 million to $3.5 million. In conjunction with this restructuring, the Company is in the process of re-evaluating eMake's business model. Based on the findings of this re-evaluation and approval by the Company's Board of Directors, a business model could be developed for the eMake business that effectively abandons certain activities of eMake that required significant operating and capital expenditures over the past 12 months. Specifically the Company has recorded goodwill and intangible assets of $4.0 million, net, and $1.5 million, net, related to its 1999 Smart Shop acquisition that may be deemed impaired if the Smart Shop element of eMake is significantly curtailed as a result of the revised business model. In addition, the Company has recorded $1.2 million, net, and $365 thousand, net, in capitalized website development costs and capitalized software costs that could also be deemed impaired if the eMake portal project is significantly changed or curtailed as a result of the revised business model. The Company expects to complete its reevaluation of the eMake business model before December 31, 2000. YEAR 2000 The Company has not encountered any material problems in its critical systems or products subsequent to December 31, 1999 related to the Year 2000 ("Y2K") issue and has not encountered any material problems with its third party vendors and suppliers. The Company will continue to monitor new issues or concerns relative to Y2K. Although the Company to date has not experienced any significant problems associated with Y2K, the Company cannot be certain that unexpected Y2K compliance problems of its products, computer systems or the systems of its vendors, customers and service providers, will not occur. Any such problems could have a material adverse effect on the Company's business, financial condition or operating results. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board released Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 137, which is effective for fiscal years beginning after June 15, 2000. Earlier application for certain provisions of this standard is permitted. SFAS 133 establishes accounting and reporting standards for derivative instruments. The Statement requires that an entity recognize all derivatives as either assets or liabilities in the financial statements and measure those instruments at fair value, and it defines the accounting for changes in the fair value of the derivatives depending on the intended use of the derivative. SFAS 133 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows. In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying generally accepted accounting principles to revenue transactions and accounting for deferred costs in the financial statements. The Company is required to adopt the provisions of SAB 101 in the quarter ending December 31, 2000. Based on our current revenue recognition policies, SAB 101 is not expected to materially impact our financial position, results of operations, or cash flows. 18 19 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- FORWARD LOOKING STATEMENTS This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 regarding revenues, margins, operating expenses, earnings, growth rates and certain business trends that are subject to risks and uncertainties that could cause actual results to differ materially from the results described herein. Specifically, the ability to grow product and service revenues may not continue and the Company may not be successful in developing new products, product enhancements or services on a timely basis or in a manner that satisfies customers needs or achieves market acceptance. Other factors that could cause actual results to differ materially are: competitive pricing and supply, market acceptance and success for service offerings similar to eMake, short-term interest rate fluctuations, general economic conditions, employee turnover, possible future litigation, the impact of Y2K and the related uncertainties may have on future revenue and earnings as well as the risks and uncertainties set forth from time to time in the Company's other public reports and filings and public statements. Recipients of this document are cautioned to consider these risks and uncertainties and to not place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. 19 20 USDATA CORPORATION AND SUBSIDIARIES ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's exposure to market risk associated with changes in interest rates relates to its variable rate bank note payable of $233,000. Interest rate risk is estimated as the potential impact on the Company's results of operations or financial position due to a hypothetical change of 50 basis points in quoted market prices. This hypothetical change would not have a material effect on the Company's results of operations and financial position. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (filed as part of this report). Number Description 3.1 Certificate of Incorporation, as amended 10.1 Demand Note dated July 13, 2000 10.2 Demand Note dated July 28, 2000 10.3 Demand Note dated August 14, 2000 10.4 Securities Purchase Agreement, dated as of August 4, 2000, by and among eMake Corporation, USDATA Corporation, Safeguard 2000 Capital, L.P. and SCP Private Equity Partners II, L.P. 10.5 Amended and Restated Investors' Rights Agreement, dated as of September 12, 2000, by and among USDATA Corporation, Safeguard Delaware, Inc., Safeguard 2000 Capital, L.P., SCP Private Equity Partners II, L.P. and Safeguard Scientifics, Inc. 10.6 Exchange Agreement, dated as of September 12, 2000, by and between USDATA Corporation and SCP Private Equity Partners II, L.P. 27 Financial Data Schedule (EDGAR Version only) (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Registrant during the three months ended September 30, 2000. 20 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. USDATA CORPORATION Date: November 14, 2000 /s/ Robert A. Merry --------------------------------------- Robert A. Merry President, Chief Executive Officer and Director Date: November 14, 2000 /s/ Robert L. Drury --------------------------------------- Robert L. Drury Vice President Finance, Chief Financial Officer Treasurer and Secretary (Principal Financial and Accounting Officer) 21 22 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Certificate of Incorporation, as amended 10.1 Demand Note dated July 13, 2000 10.2 Demand Note dated July 28, 2000 10.3 Demand Note dated August 14, 2000 10.4 Securities Purchase Agreement, dated as of August 4, 2000, by and among eMake Corporation, USDATA Corporation, Safeguard 2000 Capital, L.P. and SCP Private Equity Partners II, L.P. 10.5 Amended and Restated Investors' Rights Agreement, dated as of September 12, 2000, by and among USDATA Corporation, Safeguard Delaware, Inc., Safeguard 2000 Capital, L.P., SCP Private Equity Partners II, L.P. and Safeguard Scientifics, Inc. 10.6 Exchange Agreement, dated as of September 12, 2000, by and between USDATA Corporation and SCP Private Equity Partners II, L.P. 27 Financial Data Schedule (EDGAR Version only)
EX-3.1 2 d81940ex3-1.txt CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF USDATA CORPORATION CERTIFICATE OF DESIGNATION FOR SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK USDATA Corporation (the "Corporation"), a corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "DGCL"), does hereby certify that: FIRST: The name of the Corporation is USDATA Corporation. The Corporation was originally incorporated on December 6, 1991, pursuant to the DGCL, and filed a Certificate of Designation for Series A Preferred Stock (the "Certificate of Designation") pursuant to Section 151 of the DGCL on August 10, 1999. SECOND: The Certificate of Designation hereby is amended to read in its entirety as follows: WHEREAS, the Corporation's Certificate of Incorporation authorizes a class of stock designated Preferred Stock (the "Preferred Stock"), comprised of 2,200,000 shares, par value $0.01 per share, provides that such Preferred Stock may be issued from time to time in one or more series, and vests authority in the Board of Directors of the Corporation to fix or alter the rights, preferences, restrictions and other terms and conditions of any wholly unissued series of Preferred Stock; WHEREAS, by resolution of the Board of Directors of the Corporation dated August 4, 1999, the Corporation designated 100,000 shares of Preferred Stock as "Series A Preferred Stock"; and WHEREAS, the Corporation desires to amend the terms of the Series A Preferred Stock and to designate 800,000 shares of Preferred Stock as "Series B Preferred Stock"; and NOW, THEREFORE, BE IT: RESOLVED, that, subject to receiving the requisite consent of the stockholders of the Corporation, the Board of Directors of the Corporation does hereby amend the voting powers, preferences and relative participation, optional and other special rights and qualifications, limitations and restrictions of the Series A Preferred Stock as set forth herein; and be it FURTHER RESOLVED, that, the Board of Directors of the Corporation does hereby designate 800,000 shares of authorized but unissued Preferred Stock as Series B Preferred Stock, and does hereby designate the voting powers, preferences and relative participation, optional or other special rights and qualifications, limitations or restrictions of the Series B Preferred Stock as set forth herein; and be it: FURTHER RESOLVED, that the foregoing amendment to the Certificate of Designation be submitted to the stockholders of the Corporation for their approval at a special meeting of the stockholders of the Corporation; and be it 2 FURTHER RESOLVED, that, subject to receiving the requisite consent of the stockholders of the Corporation, the Chief Executive Officer, Chief Financial Officer, President, any Vice President or the Secretary of the Corporation, individually or collectively, be, and such officers hereby are, authorized and directed to execute, acknowledge, attest, record and file with the Secretary of State of the State of Delaware an Amended Certificate of Designation relating to the Series A Preferred Stock and the Series B Preferred Stock and to take all other actions that such officers deem appropriate to effectuate such Certificate of Designation and the intent of these resolutions. 1. Rank. The Series A Preferred Stock and Series B Preferred Stock shall, with respect to dividend rights, rights on liquidation, dissolution and winding up and redemption rights, rank senior to all other classes and series of stock of the Corporation, now or hereafter authorized, issued or outstanding (collectively, "Junior Securities"), including, without limitation, the Corporation's Common Stock, par value $0.01 per share ("Common Stock"), and all series of the Corporation's Preferred Stock other than those whose terms specifically provide that such series will rank on a parity with the Series A Preferred Stock and Series B Preferred Stock (collectively, "Parity Securities"). All Parity Securities shall rank on parity with each other with respect to dividend rights, rights on liquidation, dissolution and winding up and redemption rights. 2. Dividends. a. The holders of the Series A Preferred Stock shall be entitled to receive cumulative dividends at the rate of $8.00 per share per annum (as adjusted for any stock dividends, combinations, splits or similar events) whether or not earned or declared. Such dividends shall be payable, at the election of the Corporation, in additional shares of Series A Preferred Stock (valued at $100.00 per share, as adjusted for any stock dividends, combinations, splits or similar events) or in cash, (i) when, as and if declared by the Board of Directors of the Corporation or (ii) upon conversion of all of the Series A Preferred Stock to Common Stock pursuant to Section 6 below. b. The holders of the Series B Preferred Stock shall be entitled to receive cumulative dividends at the rate of $8.00 per share per annum (as adjusted for any stock dividends, combinations, splits or similar events) whether or not earned or declared. Such dividends shall be payable in additional shares of Series B Preferred Stock (valued at $100.00 per share, as adjusted for any stock dividends, combinations, splits or similar events), (i) when, as and if declared by the Board of Directors of the Corporation or (ii) upon conversion of all of the Series B Preferred Stock to Common Stock pursuant to Section 6 below. c. No dividends or distributions of any sort (other than a dividend payable solely in the Common Stock of the Corporation) shall be declared or paid by the Corporation on any Junior Securities of the Corporation so long as any accrued dividends on the Series A Preferred Stock, the Series B Preferred Stock or any other Parity Securities remain unpaid. d. So long as shares of Series A Preferred Stock, Series B Preferred Stock or any other Parity Securities are outstanding, the Corporation shall not declare or pay any distribution on any shares of its Junior Securities except as otherwise provided in this Section 2.d. In the event that the Corporation shall declare a dividend or distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, or options or rights to purchase any such securities or evidences of indebtedness or other assets (including cash), to the holders of the Common Stock of the Corporation, then the holders of the Series A Preferred Stock and the Series B Preferred Stock shall be entitled, on a pari passu basis with the holders of all other Parity Securities, to a proportionate share of any 2 3 such dividend or distribution as though the holders of the Series A Preferred Stock, the Series B Preferred Stock and all other Parity Securities were the holders of the number of shares of Common Stock of the Corporation into which their respective shares of Series A Preferred Stock, Series B Preferred Stock and Parity Securities are convertible as of the record date fixed for the determination of the holders of the Common Stock of the Corporation entitled to receive such dividend or distribution. e. All numbers relating to calculation of cumulative dividends or the payment of dividends on the Series A Preferred Stock or Series B Preferred Stock in kind shall be subject to equitable adjustment in the event of any stock dividend, stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the capital structure of the Series A Preferred Stock or Series B Preferred Stock, as applicable. 3. Liquidation Preference. a. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series A Preferred Stock and Series B Preferred Stock shall be entitled, on a pari passu basis with the holders of all other Parity Securities, to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock or any other Junior Securities of the Corporation, by reason of their ownership thereof, an amount equal to $100.00 (as adjusted for any stock dividends, combinations, splits or similar events) plus all accrued but unpaid dividends thereon (the "Liquidation Amount") for each share of Series A Preferred Stock and Series B Preferred Stock then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock, the Series B Preferred Stock and the liquidation amounts required to be distributed to the holders of all other Parity Securities shall be insufficient to permit the payment to such holders of the full amounts required, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock, the Series B Preferred Stock and all other Parity Securities in proportion to the aggregate amount each such holder is otherwise entitled to receive. The holders of Series A Preferred Stock and Series B Preferred Stock shall have the right to convert such shares into Common Stock, in accordance with Section 6 hereof, at any time prior to or in connection with any liquidation, dissolution or winding up of the Corporation. b. After payment to the holders of the Series A Preferred Stock, the Series B Preferred Stock and all other Parity Securities of the amounts set forth in Section 3.a. above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, to the Corporation's stockholders shall be distributed among the holders of the Junior Securities other than Common Stock to the extent of the respective liquidation values of such Junior Securities. After payment to the holders of any Junior Securities other than Common Stock of the respective liquidation values of such Junior Securities, the entire remaining assets and funds of the Corporation legally available for distribution, if any, to the Corporation's stockholders shall be distributed among the holders of the Common Stock, the Series A Preferred Stock, the Series B Preferred Stock and all other Parity Securities in proportion to the shares of Common Stock then held by them and the shares of Common Stock which they then have the right to acquire upon conversion of the shares of Series A Preferred Stock, Series B Preferred Stock and other Parity Securities then held by them; provided, however, that, in connection with any such distribution, the holders of the Series A Preferred Stock and the Series B Preferred Stock shall be entitled to receive a maximum $500.00 (as adjusted for any stock split, stock dividend, combination, reorganization, recapitalization, reclassification or other similar event), including the Liquidation Amount and any other amounts distributed to the holders of the Series A Preferred Stock and the Series B Preferred 3 4 Stock pursuant to this Section 3.b., for each outstanding share of Series A Preferred Stock and Series B Preferred Stock held by them. c. For purposes of this Section 3, (i) any acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued or paid, or caused to be issued or paid, by the acquiring entity or its subsidiary (other than a mere reincorporation transaction) or (ii) a sale, lease or conveyance of all or substantially all of the assets of the Corporation (upon such written direction, each event described in (i) and (ii), a "Corporate Transaction"), shall be treated as a liquidation, dissolution or winding up of the Corporation and shall entitle the holders of Series A Preferred Stock, Series B Preferred Stock and all other Parity Securities to receive at the closing of such Corporate Transaction in cash, securities or other property (valued as provided in Section 3.d. below) the amounts specified in Sections 3.a. and 3.b. above. The provisions of this Section 3 shall not apply to any reorganization, merger or consolidation involving (1) only a change in the state of incorporation of the Corporation, (2) a merger of the Corporation with or into a wholly-owned subsidiary of the Corporation that is incorporated in the United States of America, or (3) an acquisition by merger, reorganization or consolidation of another corporation (a) in which the Corporation is substantively the surviving corporation, the Corporation continues to operate thereafter as a going concern and the Corporation is not the target in such acquisition, and (b) that (i) is approved by the Board of Directors of the Corporation, (ii) does not result in the holders of the Corporation's Common Stock and Preferred Stock immediately prior thereto holding less than 50% of the outstanding voting securities of the surviving corporation immediately thereafter and (iii) does not involve a recapitalization of the Series A Preferred Stock, the Series B Preferred Stock or any other Parity Securities. d. Whenever the distribution provided for in this Section 3 shall be payable in securities or property other than cash, the value of such distribution shall be the fair market value of such securities or other property as determined in good faith by the Board of Directors. The Liquidation Amount shall in all events be paid in cash; provided, however, that if the Liquidation Amount is otherwise payable in connection with a consolidation or merger of the Corporation, or sale of substantially all of the capital stock of the Corporation, then each holder of the Series A Preferred Stock, the Series B Preferred Stock and any other Parity Securities shall receive payments with respect to such shares in the same form of consideration as is payable with respect to the Common Stock. In the event of any business combination or acquisition involving the Corporation which is intended to be treated as a "pooling of interests" for accounting purposes under Accounting Principles Board Opinion No. 16, the acquisition consideration (including any shares of capital stock or other securities to be delivered or exchanged by the acquiring corporation) shall be reallocated among the holders of Series A Preferred Stock, Series B Preferred Stock and any other Parity Securities in an appropriate manner to give economic effect to the essential intent and purposes of Sections 3.a, 3.b. and 3.c. 4. Redemption. None of the Series A Preferred Stock, the Series B Preferred Stock or any other Parity Securities shall be redeemable. 5. Voting Rights. Each holder of shares of Series A Preferred Stock and Series B Preferred Stock shall (a) be entitled to the number of votes equal to the number of whole shares of Common Stock into which such shares of Series A Preferred Stock or Series B Preferred Stock, as applicable could be converted, (b) have voting rights and powers equal to the voting rights and powers of such Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class), and (c) 4 5 be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and the Delaware General Corporation Law. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series A Preferred Stock and Series B Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). Each holder of Common Stock shall be entitled to one vote for each share of Common Stock held. Except as otherwise expressly provided herein or in the Certificate of Incorporation, the holders of shares of Series A Preferred Stock, Series B Preferred Stock and Common Stock shall vote together (or render written consents in lieu of a vote) as a single class on all matters submitted to the stockholders of the Corporation. 6. Conversion. The holders of the Series A Preferred Stock and the Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $100.00 plus all accrued but unpaid dividends thereon by the conversion price applicable to such share (the "Series A Conversion Price"), determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The Series A Conversion Price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series A Preferred Stock initially shall be $4.65 per share of Common Stock. Such initial Series A Conversion Price shall be adjusted as hereinafter provided. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $100.00 plus all accrued but unpaid dividends thereon by the conversion price applicable to such share (the "Series B Conversion Price"), determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The Series B Conversion Price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series B Preferred Stock initially shall be $6.09 per share of Common Stock. Such initial Series B Conversion Price shall be adjusted as hereinafter provided. The Series A Conversion Price and the Series B Conversion Price sometimes are referred to herein collectively as the "Conversion Price." b. Mechanics of Conversion. Before any holder of Series A Preferred Stock or Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock or Series B Preferred Stock, as applicable, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock or Series B Preferred Stock to be converted, as applicable, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 5 6 c. Adjustments to Conversion Price for Certain Diluting Issues. (i) Special Definitions. For purposes of this Section 6.c., the following definitions apply: (1) "Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below), other than rights, options or warrants relating to Employee Stock (defined below). (2) "Measurement Date" shall mean, with respect to the Series A Preferred Stock, August 6, 1999, and with respect to the Series B Preferred Stock, June 30, 2000. (3) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock, Series A Preferred Stock and Series B Preferred Stock) or other securities convertible into or exchangeable for Common Stock (other than Options). (4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 6.c.(iv), deemed to be issued) by the Corporation after the applicable Measurement Date, other than shares of Common Stock issued (or deemed issued): (A) upon conversion of shares of Series A Preferred Stock and Series B Preferred Stock; (B) to outside directors, officers, employees and consultants pursuant to the Corporation's 1994 Equity Compensation Plan or Employee Stock Purchase Plan or other employee stock plan (the "Employee Stock"), provided that (i) the issuance of such shares is or has been approved by a majority of the members of the Board of Directors or any duly constituted committee thereof and (ii) the number of shares of Employee Stock does not exceed an aggregate of 2,700,000 shares (as adjusted for any stock dividends, combinations, splits or similar events) regardless of whether issued by the Corporation prior to the date hereof; (C) as a dividend or distribution on Series A Preferred Stock and Series B Preferred Stock; or (D) for which adjustment of the Series A Conversion Price or the Series B Conversion Price is made pursuant to Section 6.d. (ii) No Adjustment of Series A Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Series A Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 6.c.(vi) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Series A Conversion Price in effect on the date of, and immediately prior to such issue. In computing each adjusted Series A Conversion Price, the result shall be rounded to five decimal places, and such adjustment shall be made separately in each instance, and in the event the adjustment therefrom results in a change of the Series A Conversion Price of less than $0.01, no adjustment to the then Series A Conversion Price shall be made, but the amount of said adjustment calculated thereby shall be carried forward to successive occasions until such adjustments in the aggregate equal or exceed $0.01. 6 7 (iii) No Adjustment of Series B Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Series B Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section 6.c.(vi) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Series B Conversion Price in effect on the date of, and immediately prior to such issue. In computing each adjusted Series B Conversion Price, the result shall be rounded to five decimal places, and such adjustment shall be made separately in each instance, and in the event the adjustment therefrom results in a change of the Series B Conversion Price of less than $0.01, no adjustment to the then Series B Conversion Price shall be made, but the amount of said adjustment calculated thereby shall be carried forward to successive occasions until such adjustments in the aggregate equal or exceed $0.01. (iv) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the applicable Measurement Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, except, in both cases, where Common Stock to be issued upon conversion or exercise of such securities would not constitute Additional Shares of Common Stock, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (1) no further adjustments in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Series A Conversion Price or the Series B Conversion Price shall affect Common Stock previously issued upon conversion of the Series A Preferred Stock or the Series B Preferred Stock, as applicable); and (3) no readjustment pursuant to clause (1) or (2) above shall have the effect of increasing the Series A Conversion Price or the Series B Conversion Price to an amount which exceeds the lower of (a) the Series A Conversion Price or the Series B Conversion Price, as applicable, on the original adjustment date, or (b) the Series A Conversion Price or the Series B Conversion Price, as applicable, that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (v) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. 7 8 (1) In the event the Corporation, at any time after the Measurement Date, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 6.c.(iv)) without consideration or for a consideration per share less than the Series A Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Series A Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Series A Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Series A Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series A Preferred Stock, Series B Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock and any outstanding Options or other Convertible Securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. The provisions of this paragraph may be waived in any instance (without the necessity of convening any meeting of stockholders of the Corporation) upon the written approval of the holders of a majority of the outstanding shares of Series A Preferred Stock. (2) In the event that, at any time prior to the third anniversary of the applicable Measurement Date, the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 6.c.(iv)) without consideration or for a consideration per share less than the Series B Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Series B Conversion Price shall be reduced, concurrently with such issue, to a price equal to the price per share paid for such Additional Shares of Common Stock. The provisions of this paragraph may be waived in any instance (without the necessity of convening any meeting of stockholders of the Corporation) upon the written approval of the holders of a majority of the outstanding shares of Series B Preferred Stock. (3) In the event, at any time on or after the third anniversary of the applicable Measurement Date, the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section 6.c.(iv)) without consideration or for a consideration per share less than the Series B Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the Series B Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Series B Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Series B Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series A Preferred Stock, Series B Preferred Stock and all Convertible Securities had been fully converted into shares of Common Stock and any outstanding Options or other Convertible Securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. The provisions of this paragraph may be waived in any 8 9 instance (without the necessity of convening any meeting of stockholders of the Corporation) upon the written approval of the holders of a majority of the outstanding shares of Series B Preferred Stock. (vi) Determination of Consideration. For purposes of this Section 6.c., the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property: Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received in exchange for the Additional Shares of Common Stock, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 6.c.(iv), relating to Options and Convertible Securities shall be determined by dividing: (D) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (E) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. d. Adjustments to Conversion Price for Stock Dividends and for Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the applicable Measurement Date shall effect a (i) subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock dividend, stock split, reclassification or otherwise), or (ii) combination or consolidation of the outstanding shares of Common Stock into a lesser number of shares of Common Stock (by reclassification or otherwise), then the Series A Conversion Price and the Series B Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that the Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have subdivided the outstanding shares of Common Stock 9 10 by an amount of shares equal to the maximum number of shares issuable through such dividend and/or upon exercise of such rights to acquire Common Stock. e. Adjustments to Conversion Price for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series A Preferred Stock and Series B Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than as provided for in Section 6.d. above or in connection with a Corporate Transaction), the Series A Conversion Price and the Series B Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series A Preferred Stock and Series B Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series A Preferred Stock and Series B Preferred Stock immediately before that change. f. No Impairment. The Corporation shall not, by amendment of its Certificate of Incorporation or the Certificate of Incorporation of any Subsidiary (as hereinafter defined) through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation or any Subsidiary, but shall at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock and Series B Preferred Stock against impairment. g. Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 6, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock and Series B Preferred Stock a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock or Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series A Preferred Stock or Series B Preferred Stock, as applicable. h. Notices of Record Date. In the event that the Corporation shall propose at any time to effect any reclassification or recapitalization, to merge or consolidate with or into any other entity, or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up, then, in connection with each such event, the Corporation shall send to the holders of Series A Preferred Stock and Series B Preferred Stock: (1) at least 20 days prior written notice of the date on which a record shall be taken for such event and specifying the date on which such event shall occur; and (2) at least 20 days prior written notice of the record date for determining rights to vote, if any, in respect of such event. i. Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of shares of Series A Preferred Stock and Series B Preferred Stock pursuant 10 11 hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. j. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock and Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock and Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series A Preferred Stock and Series B Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Certificate of Incorporation. k. Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series A Preferred Stock or Series B Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock or Series B Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors). l. Notices. Any notice required by the provisions of this Section 6 to be given to the holders of shares of Series A Preferred Stock or Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the Corporation. m. Series A Option to Convert to Securities of Subsidiary. At the option of any holder of Series A Preferred Stock, such holder shall have the right (but not the obligation) to convert in the manner provided in this Section 6.m any share of Series A Preferred Stock then held by it into fully paid and nonassessable shares of the common stock ("Subsidiary Common Stock") of any direct or indirect subsidiary of the Corporation more than 50% of the outstanding voting securities of which are owned directly or indirectly by the Corporation (each, a "Subsidiary"); provided, however, that a holder may not exercise such right to convert Series A Preferred Stock into common stock of eMake Corporation ("eMake"), a Delaware corporation, or its wholly owned subsidiaries, unless a Trigger Event (as hereafter defined) has occurred. For purposes of this Section, a "Trigger Event" shall be the first to occur of the following events: (a) June 1, 2006; (b) the commencement of the liquidation or winding up of the business of eMake; (c) the sale of all or substantially all of the assets and properties of eMake; (d) a merger, consolidation or other similar transaction involving eMake, in which eMake is not the surviving entity or a merger, consolidation or other similar transaction involving eMake where eMake is the surviving entity but after which the holders of the outstanding voting securities of eMake before the transaction hold less than 50% of eMake's outstanding voting securities after the transaction; (e) the sale by eMake of its securities in a public offering pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended; or (f) a decrease in the ownership percentage of the Corporation in the voting securities of eMake below the percentage required under generally accepted accounting principles to include such 11 12 Subsidiary in eMake's consolidated financial statements. Such right may be exercised by delivery to the Corporation of the certificates representing the shares of Series A Preferred Stock to be converted together with written notice of such exercise specifying the applicable Subsidiary. The number of shares of Subsidiary Common Stock into which any share of Series A Preferred Stock is convertible under Section 6.m shall be equal to the quotient obtained by dividing the Liquidation Amount therefor by the Fair Market Value of a share of Subsidiary Common Stock. As used herein, the term "Fair Market Value" shall mean as of any date and with respect to a share of Subsidiary Common Stock, the price per share which the Corporation could obtain from a willing buyer for shares of Subsidiary Common Stock as determined by mutual agreement of the Corporation and the holder of the Series A Preferred Stock exercising its conversion rights hereunder. If such holder and the Corporation are unable to agree on such fair market value, such holder and the Corporation shall each select an independent and nationally-recognized investment banking firm and such selected firms shall select another such firm to appraise the fair market value of the Subsidiary Common Stock and to perform the computations involved. The determination of such investment banking firm shall be binding upon the Corporation and such holder. All expenses of such investment banking firm shall be borne equally by the Corporation and such holder. In all cases, the determination of fair market value shall be made without consideration of the lack of a liquid public market for the Subsidiary Common Stock and without consideration of any "control premium" or any discount for holding less than a majority or controlling interest of the outstanding Subsidiary Common Stock. The Corporation shall take, and shall cause the related Subsidiary to take, all actions necessary to issue any shares of Subsidiary Common Stock issuable under this Section 6.m and to cause such shares to be duly authorized, validly issued, fully paid and nonassessable, including, without limitation, amending such Subsidiary's Certificate of Incorporation to increase the number of shares of Subsidiary Common Stock issuable thereunder, if necessary, and pay, on the holders behalf, any consideration required to accomplish the foregoing. Shares of Subsidiary Common Stock delivered hereunder may be newly-issued shares or outstanding shares then held by the Corporation. The Corporation shall notify each holder of shares of Series A Preferred Stock of any sale of Subsidiary Common Stock or securities exchangeable or convertible into Subsidiary Common Stock as reasonably as is practical in advance of such issuance, but in no event at least ten business days prior thereto. Any such notice shall be in writing and shall describe the securities to be issued and sold by such Subsidiary and the consideration to be received by it in connection therewith. 7. Series A Restrictions and Limitations. So long as any shares of Series A Preferred Stock remain outstanding, in addition to any other vote required by the Delaware General Corporation Law, the vote or written consent or written agreement of the holders of at least a majority of the then outstanding shares of the Series A Preferred Stock, voting as a separate class, shall be required in order to: (i) alter, amend or modify the rights, preferences or privileges of the Series A Preferred Stock; (ii) increase the authorized number of shares of the Series A Preferred Stock or issue any additional shares of Series A Preferred Stock other than shares issued in payment of dividends on the outstanding shares of Series A Preferred Stock pursuant to Section 2.a. above; (iii) authorize or issue, or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to or on a parity with the Series A Preferred Stock as to dividend rights, liquidation preferences or redemption rights; 12 13 (iv) redeem, purchase or otherwise acquire any Parity Securities or Junior Securities (or pay into a sinking fund for such purpose); provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock at the original purchase price from employees, officers, directors or other persons performing services for this Corporation; (v) allow any Subsidiary other than eMake Corporation to authorize or issue any shares of capital stock other than a single class of common stock. 8. Series B Restrictions and Limitations. So long as any shares of Series B Preferred Stock remain outstanding, in addition to any other vote required by the Delaware General Corporation Law, the vote or written consent or written agreement of the holders of at least two-thirds of the then outstanding shares of the Series B Preferred Stock, voting as a separate class, shall be required in order to: (i) alter, amend or modify the rights, preferences or privileges of the Series B Preferred Stock; (ii) increase the authorized number of shares of the Series B Preferred Stock or issue any additional shares of Series B Preferred Stock other than shares issued in payment of dividends on the outstanding shares of Series B Preferred Stock pursuant to Section 2.b above; (iii) authorize or issue, or obligate itself to issue, any other equity security (including any security convertible into or exercisable for any equity security) senior to or on a parity with the Series B Preferred Stock as to dividend rights, liquidation preferences or redemption rights; (iv) redeem, purchase or otherwise acquire any Parity Securities or Junior Securities (or pay into a sinking fund for such purpose); provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock at the original purchase price from employees, officers, directors or other persons performing services for this Corporation; 9. No Reissuance. No share or shares of Series A Preferred Stock or Series B Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and restored to the status of undesignated Preferred Stock. THIRD: The foregoing amendment of the Corporation's Certificate of Designation was approved by the holders of the requisite number of shares of capital stock of the Corporation in accordance with Section 228 of the DGCL. FOURTH: The foregoing amendment of the Corporation's Certificate of Designation was duly adopted in accordance with the provisions of Section 242 of the DGCL. * * * [Signature page follows.] 13 14 IN WITNESS WHEREOF, this Certificate of Amendment to the Certificate of Designation for Series A Preferred Stock and Series B Preferred Stock has been signed by the Chief Financial Officer of the Corporation this 11th day of September, 2000. /s/ ROBERT L. DRURY --------------------------------------- Robert L. Drury, Chief Financial Officer 14 15 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF USDATA CORPORATION It is hereby certified that: 1. The name of the corporation (the "Corporation") is USDATA Corporation. 2. This amendment to the Corporation's Certificate of Incorporation hereby amends Article IV hereof as follows: Paragraph 1 of Article IV shall be amended to read as follows: "ARTICLE IV: The Corporation shall be authorized to issue 42,200,000 shares which are divided into two classes consisting of (a) 40,000,000 shares of Common Stock, par value $.01 per share, and (b) 2,200,000 shares of Preferred Stock, par value $.01 per share." The remainder of Article IV is not amended and shall remain unchanged in its entirety. 3. The amendment of the Certificate of Incorporation herein certified has been duly adopted by the Board of Directors and the Stockholders of the Corporation in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. [Remainder of page intentionally left blank; signature on following page.] 16 The effective time of the amendment herein certified shall be September 11, 2000. Signed on September 11, 2000. By: /s/ ROBERT L. DRURY ----------------------------------------- Robert L. Drury, Chief Financial Officer & Secretary 2 17 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION USDATA CORPORATION, a corporation organized and existing under the laws of the State of Delaware, DOES HEREBY CERTIFY: The amendment to the Company's Certificate of Incorporation set forth in the following resolution approved by the Company's Board of Directors and Stockholders was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware: RESOLVED, that Article IV of the Company's Certificate of Incorporation be amended to read in its entirety as follows: ARTICLE IV: The Corporation shall be authorized to issue 24,200,000 shares which is divided into two classes consisting of (a) 22,000,000 shares of Common Stock, par value $.01 per share, and (b) 2,200,000 shares of Preferred Stock, par value $.01 per share. The following is a statement of the designations, preferences, voting powers, qualifications, special or relative rights and privileges in respect of the authorized capital stock of the Corporation. I. PREFERRED STOCK The Preferred Stock may be issued from time to time in one or more classes or series. The Board of Directors of the corporation shall have authority to the fullest extent permitted under the General Corporation Law of Delaware to adopt by resolution from time to time one or more Certificates of Designation providing for the designation of one or more classes or series of Preferred Stock and the voting powers, whether full or limited or no voting powers, and such designations, preferences and relative participating, optional, or other special rights and qualifications, limitations or restrictions thereof, and to fix or alter the number of shares comprising any such class or series, subject to any requirements of the Delaware Corporation Law and this Certificate of Incorporation, as amended from time to time. The authority of the Board of Directors with respect to each such class or series shall include, without limitation of the foregoing, the right to determine and fix the following preferences and powers, which may vary as between different classes or series of Preferred stock" 18 (a) the distinctive designation of such class or series and the number of shares to constitute such class or series; (b) the rate at which dividends on the shares of such class or series shall be declared and paid, or set aside for payment, whether dividends at the rate so determined shall be cumulative or accruing, and whether the shares of such class or series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so, on what terms; (c) the right or obligation, if any, of the Corporation to redeem shares of the particular class or series of Preferred Stock and, if redeemable, the price, terms and manner of such redemption; (d) the special and relative rights and preferences, if any, and the amount or amounts per share, which the shares of such class or series of Preferred Stock shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; (e) the terms and conditions, if any, upon which shares of such class or series shall be convertible into, or exchangeable for, shares of capital stock of any other class or series, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (f) the obligation, if any, of the Corporation to retire, redeem or purchase shares of such class or series pursuant to a sinking fund or fund of a similar nature or otherwise, and the terms and conditions of such obligation; (g) voting rights, if any, including special voting rights with respect to the election of directors and matters adversely affecting any class or series of Preferred Stock; (h) limitations, if any, on the issuance of additional shares of such class or series or any shares of any other class or series of Preferred Stock; and (i) such other preferences, powers, qualifications, special or relative rights and privileges thereof as the Board of Directors of the Corporation, by the vote of the members of the Board of Directors then in office acting in accordance with this Certificate of Incorporation, or any Preferred Stock, may deem advisable and are not inconsistent with law, the provisions of this Certificate of Incorporation or the provisions of any such Certificate of Designation. 19 II. COMMON STOCK 1. PRIORITY. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations or restrictions of the Common Stock are expressly made subject to and subordinate to those that may be fixed with respect to the Preferred Stock. 2. VOTING RIGHT. Each holder of record of Common Stock shall be entitled to one vote for each share of Common Stock standing in his name on the books of the Corporation. Except as otherwise required by law, this Certificate of Incorporation, and any Certificate of Designation with respect to any Preferred Stock, the holders of Common Stock and Preferred Stock shall vote together as a single class on all matters submitted to stockholders for a vote. Cumulative voting of shares of Common Stock is prohibited. 3. DIVIDENDS. Subject to provisions of law, this Certificate of Incorporation and any Certificate of Designation with respect to any Preferred Stock, the holders of Common Stock shall be entitled to receive dividends out of funds legally available therefor at such times and in such amounts as the Board of Directors may determine in their sole discretion. 4. LIQUIDATION. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, after the payment or provision for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of the Preferred Stock are entitled with respect to the distribution of assets in liquidation, the holders of Common Stock shall be entitled to share ratably in the remaining assets of the Corporation available for distribution, subject to any rights of holders of Preferred Stock to participate with the holders of Common Stock in any such distribution of remaining assets. IN WITNESS WHEREOF, said USDATA Corporation has caused this certificate to be signed by William G. Moore Jr., its President and Chief Executive Officer, and attested by P. Michael Sullivan, its Secretary, this 23rd day of March, 1995. USDATA CORPORATION /s/ WILLIAM G. MOORE, JR. -------------------------------------------- William G. Moore, Jr. President and Chief Executive Officer Attest: /s/ P. MICHAEL SULLIVAN - ------------------------------ P. Michael Sullivan, Secretary 20 CERTIFICATE OF INCORPORATION OF USDATA CORPORATION ARTICLE I: The name of the corporation is USDATA Corporation (the "Corporation"). ARTICLE II: The address of the registered office of the corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. ARTICLE III: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV: The total number of shares of stock which the Corporation shall have authority to issue is 8,000,000 shares of common stock, par value $0.01 per share ("Common Stock"). In the event of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation or upon any distribution of the assets of the Corporation, the holders of the Common Stock shall be entitled to receive all assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders, ratably in proportion to the number of shares of Common Stock held by each. Each holder of Common Stock shall have one vote in respect of each share of Common Stock held by such holder on each matter voted upon by the stockholders. Cumulative voting of shares of Common Stock is prohibited. ARTICLE V: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, amend or repeal the Bylaws of the Corporation which does not divest the stockholders of the power, nor limit their power to adopt, amend or repeal the Bylaws. The number of directors that shall constitute the whole Board of Directors of the Corporation shall be as from time to time fixed by, or in the manner provided in, the Bylaws of the Corporation. The election of directors need not be by written ballot. In addition to the authority and powers conferred upon the directors by statute or by this Certificate of Incorporation, the directors are hereby authorized and empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject to the provisions of the General Corporation Law of the State of Delaware, this Certificate of Incorporation and any Bylaws adopted by the stockholders of the Corporation provided, however, that no Bylaws hereafter adopted by the stockholders of the Corporation 21 shall invalidate any prior act of the directors that would have been valid if such Bylaws had not been adopted. ARTICLE VI: No director of the Corporation shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director involving any act or omission of any such director; provided, however, that the foregoing provision shall not eliminate or limit the liability of a director (a) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the General Corporation Law of the State of Delaware, as the same exists or hereafter may be amended, or (d) for any transaction from which the director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after the date of filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended General Corporation Law of the State of Delaware. Any repeal or modification of this Article VI by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the Corporation existing at the time of such repeal or modification. ARTICLE VII: The Corporation expressly elects not to be governed by Section 203 of the General Corporation law of the State of Delaware, as the same exists or hereafter may be amended. ARTICLE VIII: the name and mailing address of the incorporator are as follows:
Name Mailing Address ---- --------------- Charles N. Bell 1551 Glenville Drive Richardson, Texas 75081
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation as of December 2, 1991. /s/ CHARLES N. BELL ------------------------------ Charles N. Bell EX-10.1 3 d81940ex10-1.txt DEMAND NOTE DATED JULY 13, 2000 1 EXHIBIT 10.1 DEMAND NOTE (EMAKE CORPORATION) $1,750,000 July 13, 2000 In consideration of the loan (hereinafter referred to as a "Loan") Safeguard 2000 Capital, L.P., a Delaware limited partnership (the "Lender"), has made to eMake Corporation, a Delaware corporation (the "Borrower"), and for value received, the Borrower hereby promises to pay to the order of the Lender or its assigns, at the Lender's office located at 103 Springer Building, 3411 Silverside Road, Wilmington, DE 19810, or at such other place in the continental United States as the Lender may designate in writing, in lawful money of the United States, and in immediately available funds, the principal sum of one million seven hundred fifty thousand dollars ($1,750,000). The unpaid principal balance of the Note shall be paid on the date which is 60 days after the date of demand for payment by the Lender, or the date which is one year from the date hereof, whichever first occurs. The Borrower hereby further promises to pay to the order of the Lender or its assigns interest on the outstanding principal amount from the date hereof, at an annual rate equal to the announced prime rate of the pnc Bank, N.A. (the "Prime Rate") plus one percent (1%). Such interest rate shall be changed when and as the Prime Rate changes. In addition, the Borrower shall pay on demand interest on any overdue payment of principal and interest (to the extent legally enforceable) at the fluctuating Prime Rate plus three percent (3%). Interest shall be payable when the unpaid principal balance of the Note is paid. All payments made on this Note (including, without limitation, prepayments) shall be applied, at the option of the Lender, first to late charges and collection costs, if any, then to accrued interest and then to principal. Interest payable hereunder shall be calculated for actual days elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due and payable upon maturity of this Note. After maturity or in the event of default, interest shall continue to accrue on the Note at the rate set forth above and shall be payable on demand of the Lender. The outstanding principal amount of this Note may be prepaid by the Borrower upon notice to the Lender in whole at any time or in part from time to time without any prepayment penalty or premium; provided, that upon such payment any interest due to the date of such prepayment on such prepaid amount shall also be paid. 2 Notwithstanding anything in this Note, the interest rate charged hereon shall not exceed the maximum rate allowable by applicable law. If any stated interest rate herein exceeds the maximum allowable rate, then the interest rate shall be reduced to the maximum allowable rate, and any excess payment of interest made by the Borrower at any time shall be applied to the unpaid balance of any outstanding principal of this Note. An event of default hereunder shall consist of: (i) a default in the payment by the Borrower to the Lender of principal or interest under this Note as and when the same shall become due and payable; or (ii) an event of default by the Borrower under any other obligation, instrument, note or agreement for borrowed money, beyond any applicable notice and/or grace period; or (iii) institution of any proceeding by or against the Borrower under any present or future bankruptcy or insolvency statute or similar law and, if involuntary, if the same are not stayed or dismissed within sixty (60) days, or the Borrower's assignment for the benefit of creditors or the appointment of a receiver, trustee, conservator or other judicial representative for the Borrower or the Borrower's property or the Borrower's being adjudicated a bankrupt or insolvent; or (iv) the admission in writing by Borrower of its inability to pay its debts as they become due. Upon the occurrence of any event of default, interest shall accrue on the outstanding balance of this Note at the Prime Rate plus three percent (3%), the entire unpaid principal amount of this Note and all unpaid interest accrued thereon shall, at the sole option of the Lender, without notice, become immediately due and payable, and the Lender shall thereupon have all the rights and remedies provided hereunder or now or hereafter available at law or in equity. Any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, exceeds $100,000 ("Summary Proceeding"), arising out of or relating to this Note, or the breach, termination or validity thereof, shall be litigated exclusively in the Superior Court of the State of Delaware (the "Delaware Superior Court") as a summary proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules (the "Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably and unconditionally (i) submits to the jurisdiction of the Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and agrees not to plead or to make, any objection to the venue of any Summary Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead or to make, any claim that any Summary Proceeding brought in the Delaware Superior Court has been brought in an improper or otherwise inconvenient forum, (v) waives, and agrees not to plead or to make, any claim that the Delaware Superior Court lacks personal jurisdiction over it, (vi) waives its right to remove any Summary Proceeding to the federal courts except where such courts are vested with sole and exclusive jurisdiction by statute and (vii) understands and agrees 3 that it shall not seek a jury trial or punitive damages in any Summary Proceeding based upon or arising out of or otherwise related to this Note and waives any and all rights to any such jury trial or to seek punitive damages. In the event any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, does not exceed $100,000 (a "Proceeding"), arising out of or relating to this Note or the breach, termination or validity thereof is brought, the parties to such Proceeding agree to make application to the Delaware Superior Court to proceed under the Summary Proceeding Rules. Until such time as such application is rejected, such Proceeding shall be treated as a Summary Proceeding and all of the foregoing provisions of this Section relating to Summary Proceedings shall apply to such Proceeding. If a Summary Proceeding is not available to resolve any dispute hereunder, the controversy or claim shall be settled by arbitration conducted on a confidential basis, under the U.S. Arbitration Act, if applicable, and the then current Commercial Arbitration Rules of the American Arbitration Association (the "Association") strictly in accordance with the terms of this Note and the substantive law of the State of Delaware. The arbitration shall be conducted at the Association's regional office located closest to the Lender's principal place of business by three arbitrators, at least one of whom shall be knowledgeable in general business matters and one of whom shall be an attorney. Judgment upon the arbitrators' award may be entered and enforced in any court of competent jurisdiction. Neither party shall institute a proceeding hereunder unless at least 60 days prior thereto such party shall have given written notice to the other party of its intent to do so. Neither party shall be precluded hereby from securing equitable remedies in courts of any jurisdiction, including, but not limited to, temporary restraining orders and preliminary injunctions to protect its rights and interests but such remedies shall not be sought as a means to avoid or stay arbitration or a Summary Proceeding. The Borrower hereby waives presentment, demand, protest and notice of dishonor and protest, and also waives all other exemptions; and agrees that extension or extensions of the time of payment of this Note or any installment or part thereof may be made before, at or after maturity by agreement by the Lender. Upon default hereunder the Lender shall have the right to offset the amount owed by the Borrower against any amounts owed by the Lender in any capacity to the Borrower, whether or not due, and the Lender shall be deemed to have exercised such right of offset and to have made a charge against any such account or amounts immediately upon the occurrence of an event of default hereunder even though such charge is made or entered on the books of the Lender subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs and expenses, including, without limitation, attorneys' fees and legal expenses, that may be incurred by the Lender in connection with the enforcement of this Note. Notices required to be given hereunder shall be deemed validly given (i) three business days after sent, postage prepaid, by certified mail, return receipt requested, (ii) one business day after sent, charges paid by the sender, by Federal Express Next Day Delivery or other guaranteed delivery service, (iii) when sent by facsimile transmission, or (iv) when delivered by hand: 4 If to the Lender: Safeguard 2000 Capital, L.P. C/o Safeguard Delaware, Inc., General Partner 103 Springer Building P.O. Box 7048 Wilmington, DE 19803 Attn: Treasurer Fax: 302-478-3667 With a required copy to: Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, PA 19087 Attn: Chief Financial Officer Fax: 610-293-0601 If to the Borrower: eMake Corporation 2435 North Central Expressway Richardson TX 75080-2722 Attn: Robert L. Drury, Vice President or to such other address, or in care of such other person, as the holder or the Borrower shall hereafter specify to the other from time to time by due notice. Any failure by the Lender to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time. No amendment to or modification of this Note shall be binding upon the Lender unless in writing and signed by it. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall apply to and bind the successors of the Borrower and shall inure to the benefit of the Lender, its successors and assigns. The Note shall be governed by and interpreted in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the Borrower, by its duly authorized officer intending to be legally bound hereby, has duly executed this Demand Note as of the date first written above. eMAKE CORPORATION By: /s/ ROBERT L. DRURY -------------------------------- Robert L. Drury, Vice President EX-10.2 4 d81940ex10-2.txt DEMAND NOTE DATED JULY 28, 2000 1 EXHIBIT 10.2 DEMAND NOTE (eMAKE CORPORATION) $2,500,000 July 28, 2000 In consideration of the loan (hereinafter referred to as a "Loan"), Safeguard Delaware, Inc. a Delaware corporation (the "Lender"), has made to eMake Corporation, a Delaware corporation (the "Borrower"), and for value received, the Borrower hereby promises to pay to the order of the Lender or its assigns, at the Lender's office located at 103 Springer Building, 3411 Silverside Road, Wilmington, DE 19810, or at such other place in the continental United States as the Lender may designate in writing, in lawful money of the United States, and in immediately available funds, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS ($2,500,000). The unpaid principal balance of the Note shall be paid on the date which is 60 days after the date of demand for payment by the Lender, or the date which is one year from the date hereof, whichever first occurs. The Borrower hereby further promises to pay to the order of the Lender or its assigns interest on the outstanding principal amount from the date hereof, at an annual rate equal to the announced prime rate of the pnc Bank, N.A. (the "Prime Rate") plus one percent (1%). Such interest rate shall be changed when and as the Prime Rate changes. In addition, the Borrower shall pay on demand interest on any overdue payment of principal and interest (to the extent legally enforceable) at the fluctuating Prime Rate plus three percent (3%). Interest shall be payable when the unpaid principal balance of the Note is paid. All payments made on this Note (including, without limitation, prepayments) shall be applied, at the option of the Lender, first to late charges and collection costs, if any, then to accrued interest and then to principal. Interest payable hereunder shall be calculated for actual days elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due and payable upon maturity of this Note. After maturity or in the event of default, interest shall continue to accrue on the Note at the rate set forth above and shall be payable on demand of the Lender. The outstanding principal amount of this Note may be prepaid by the Borrower upon notice to the Lender in whole at any time or in part from time to time without any prepayment penalty or premium; provided, that upon such payment any interest due to the date of such prepayment on such prepaid amount shall also be paid. 2 Notwithstanding anything in this Note, the interest rate charged hereon shall not exceed the maximum rate allowable by applicable law. If any stated interest rate herein exceeds the maximum allowable rate, then the interest rate shall be reduced to the maximum allowable rate, and any excess payment of interest made by the Borrower at any time shall be applied to the unpaid balance of any outstanding principal of this Note. An event of default hereunder shall consist of: (i) a default in the payment by the Borrower to the Lender of principal or interest under this Note as and when the same shall become due and payable; or (ii) an event of default by the Borrower under any other obligation, instrument, note or agreement for borrowed money, beyond any applicable notice and/or grace period; or (iii) institution of any proceeding by or against the Borrower under any present or future bankruptcy or insolvency statute or similar law and, if involuntary, if the same are not stayed or dismissed within sixty (60) days, or the Borrower's assignment for the benefit of creditors or the appointment of a receiver, trustee, conservator or other judicial representative for the Borrower or the Borrower's property or the Borrower's being adjudicated a bankrupt or insolvent; or (iv) the admission in writing by Borrower of its inability to pay its debts as they become due. Upon the occurrence of any event of default, interest shall accrue on the outstanding balance of this Note at the Prime Rate plus three percent (3%), the entire unpaid principal amount of this Note and all unpaid interest accrued thereon shall, at the sole option of the Lender, without notice, become immediately due and payable, and the Lender shall thereupon have all the rights and remedies provided hereunder or now or hereafter available at law or in equity. Any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, exceeds $100,000 ("Summary Proceeding"), arising out of or relating to this Note, or the breach, termination or validity thereof, shall be litigated exclusively in the Superior Court of the State of Delaware (the "Delaware Superior Court") as a summary proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules (the "Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably and unconditionally (i) submits to the jurisdiction of the Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and agrees not to plead or to make, any objection to the venue of any Summary Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead or to make, any claim that any Summary Proceeding brought in the Delaware Superior Court has been brought in an improper or otherwise inconvenient forum, (v) waives, and agrees not to plead or to make, any claim that the Delaware Superior Court lacks personal jurisdiction over it, (vi) waives its right to remove any Summary Proceeding to the federal courts except where such courts are vested with sole and exclusive jurisdiction by statute and (vii) understands and agrees 3 that it shall not seek a jury trial or punitive damages in any Summary Proceeding based upon or arising out of or otherwise related to this Note and waives any and all rights to any such jury trial or to seek punitive damages. In the event any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, does not exceed $100,000 (a "Proceeding"), arising out of or relating to this Note or the breach, termination or validity thereof is brought, the parties to such Proceeding agree to make application to the Delaware Superior Court to proceed under the Summary Proceeding Rules. Until such time as such application is rejected, such Proceeding shall be treated as a Summary Proceeding and all of the foregoing provisions of this Section relating to Summary Proceedings shall apply to such Proceeding. If a Summary Proceeding is not available to resolve any dispute hereunder, the controversy or claim shall be settled by arbitration conducted on a confidential basis, under the U.S. Arbitration Act, if applicable, and the then current Commercial Arbitration Rules of the American Arbitration Association (the "Association") strictly in accordance with the terms of this Note and the substantive law of the State of Delaware. The arbitration shall be conducted at the Association's regional office located closest to the Lender's principal place of business by three arbitrators, at least one of whom shall be knowledgeable in general business matters and one of whom shall be an attorney. Judgment upon the arbitrators' award may be entered and enforced in any court of competent jurisdiction. Neither party shall institute a proceeding hereunder unless at least 60 days prior thereto such party shall have given written notice to the other party of its intent to do so. Neither party shall be precluded hereby from securing equitable remedies in courts of any jurisdiction, including, but not limited to, temporary restraining orders and preliminary injunctions to protect its rights and interests but such remedies shall not be sought as a means to avoid or stay arbitration or a Summary Proceeding. The Borrower hereby waives presentment, demand, protest and notice of dishonor and protest, and also waives all other exemptions; and agrees that extension or extensions of the time of payment of this Note or any installment or part thereof may be made before, at or after maturity by agreement by the Lender. Upon default hereunder the Lender shall have the right to offset the amount owed by the Borrower against any amounts owed by the Lender in any capacity to the Borrower, whether or not due, and the Lender shall be deemed to have exercised such right of offset and to have made a charge against any such account or amounts immediately upon the occurrence of an event of default hereunder even though such charge is made or entered on the books of the Lender subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs and expenses, including, without limitation, attorneys' fees and legal expenses, that may be incurred by the Lender in connection with the enforcement of this Note. Notices required to be given hereunder shall be deemed validly given (i) three business days after sent, postage prepaid, by certified mail, return receipt requested, (ii) one business day after sent, charges paid by the sender, by Federal Express Next Day Delivery or other guaranteed delivery service, (iii) when sent by facsimile transmission or (iv) when delivered by hand: 4 If to the Lender: Safeguard 2000 Capital, L.P. 103 Springer Building P.O. Box 7048 Wilmington, DE 19803 Attn: Treasurer Fax: 302-478-3667 With a required copy to: Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, PA 19087 Attn: Chief Financial Officer Fax: 610-293-0601 If to the Borrower: eMake Corporation 2435 North Central Expressway Richardson, TX 75080-2722 Attn: Robert L. Drury, Vice President or to such other address, or in care of such other person, as the holder or the Borrower shall hereafter specify to the other from time to time by due notice. Any failure by the Lender to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time. No amendment to or modification of this Note shall be binding upon the Lender unless in writing and signed by it. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall apply to and bind the successors of the Borrower and shall inure to the benefit of the Lender, its successors and assigns. The Note shall be governed by and interpreted in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the Borrower, by its duly authorized officer intending to be legally bound hereby, has duly executed this Demand Note as of the date first written above. eMAKE CORPORATION By: /s/ ROBERT L. DRURY -------------------------------- Robert L. Drury, Vice President EX-10.3 5 d81940ex10-3.txt DEMAND NOTE DATED AUGUST 14, 2000 1 EXHIBIT 10.3 DEMAND NOTE (eMAKE CORPORATION) $6,000,000 August 14, 2000 In consideration of the loan (hereinafter referred to as a "Loan") SCP Private Equity Partners II, L.P., a Delaware limited partnership (the "Lender"), has made to eMake Corporation, a Delaware corporation (the "Borrower"), and for value received, the Borrower hereby promises to pay to the order of the Lender or its assigns, at the Lender's office located at 435 Devon Park Drive, Building 300, Wayne, PA 19087, or at such other place in the continental United States as the Lender may designate in writing, in lawful money of the United States, and in immediately available funds, the principal sum of SIX million dollars ($6,000,000). The unpaid principal balance of the Note shall be paid on the date which is 60 days after the date of demand for payment by the Lender, or the date which is one year from the date hereof, whichever first occurs. The parties intend that this Note will be cancelled in exchange for the Borrower's Series A Preferred Stock as contemplated by that certain Securities Purchase Agreement dated August 4, 2000, among the Lender, the Borrower, USDATA Corporation and Safeguard 2000 Capital, L.P. The Borrower hereby further promises to pay to the order of the Lender or its assigns interest on the outstanding principal amount from the date hereof, at an annual rate equal to the announced prime rate of the pnc Bank, N.A. (the "Prime Rate") plus one percent (1%). Such interest rate shall be changed when and as the Prime Rate changes. In addition, the Borrower shall pay on demand interest on any overdue payment of principal and interest (to the extent legally enforceable) at the fluctuating Prime Rate plus three percent (3%). Interest shall be payable when the unpaid principal balance of the Note is paid. All payments made on this Note (including, without limitation, prepayments) shall be applied, at the option of the Lender, first to late charges and collection costs, if any, then to accrued interest and then to principal. Interest payable hereunder shall be calculated for actual days elapsed on the basis of a 360-day year. Accrued and unpaid interest shall be due and payable upon maturity of this Note. After maturity or in the event of default, interest shall continue to accrue on the Note at the rate set forth above and shall be payable on demand of the Lender. The outstanding principal amount of this Note may be prepaid by the Borrower upon notice to the Lender in whole at any time or in part from time to time without any prepayment penalty or premium; provided, that upon such payment any interest due to the date of such prepayment on such prepaid amount shall also be paid. 2 Notwithstanding anything in this Note, the interest rate charged hereon shall not exceed the maximum rate allowable by applicable law. If any stated interest rate herein exceeds the maximum allowable rate, then the interest rate shall be reduced to the maximum allowable rate, and any excess payment of interest made by the Borrower at any time shall be applied to the unpaid balance of any outstanding principal of this Note. An event of default hereunder shall consist of: (i) a default in the payment by the Borrower to the Lender of principal or interest under this Note as and when the same shall become due and payable; or (ii) an event of default by the Borrower under any other obligation, instrument, note or agreement for borrowed money, beyond any applicable notice and/or grace period; or (iii) institution of any proceeding by or against the Borrower under any present or future bankruptcy or insolvency statute or similar law and, if involuntary, if the same are not stayed or dismissed within sixty (60) days, or the Borrower's assignment for the benefit of creditors or the appointment of a receiver, trustee, conservator or other judicial representative for the Borrower or the Borrower's property or the Borrower's being adjudicated a bankrupt or insolvent; or (iv) the admission in writing by Borrower of its inability to pay its debts as they become due. Upon the occurrence of any event of default, interest shall accrue on the outstanding balance of this Note at the Prime Rate plus three percent (3%), the entire unpaid principal amount of this Note and all unpaid interest accrued thereon shall, at the sole option of the Lender, without notice, become immediately due and payable, and the Lender shall thereupon have all the rights and remedies provided hereunder or now or hereafter available at law or in equity. Any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, exceeds $100,000 ("Summary Proceeding"), arising out of or relating to this Note, or the breach, termination or validity thereof, shall be litigated exclusively in the Superior Court of the State of Delaware (the "Delaware Superior Court") as a summary proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules (the "Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably and unconditionally (i) submits to the jurisdiction of the Delaware Superior Court for any Summary Proceeding, (ii) agrees not to commence any Summary Proceeding except in the Delaware Superior Court, (iii) waives, and agrees not to plead or to make, any objection to the venue of any Summary Proceeding in the Delaware Superior Court, (iv) waives, and agrees not to plead or to make, any claim that any Summary Proceeding brought in the Delaware Superior Court has been brought in an improper or otherwise inconvenient forum, (v) waives, and agrees not to plead or to make, any claim that the Delaware Superior Court lacks personal jurisdiction over it, (vi) waives its right to remove any Summary Proceeding to the federal courts except where such courts are vested with sole and exclusive jurisdiction by statute and (vii) understands and agrees 3 that it shall not seek a jury trial or punitive damages in any Summary Proceeding based upon or arising out of or otherwise related to this Note and waives any and all rights to any such jury trial or to seek punitive damages. In the event any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, does not exceed $100,000 (a "Proceeding"), arising out of or relating to this Note or the breach, termination or validity thereof is brought, the parties to such Proceeding agree to make application to the Delaware Superior Court to proceed under the Summary Proceeding Rules. Until such time as such application is rejected, such Proceeding shall be treated as a Summary Proceeding and all of the foregoing provisions of this Section relating to Summary Proceedings shall apply to such Proceeding. If a Summary Proceeding is not available to resolve any dispute hereunder, the controversy or claim shall be settled by arbitration conducted on a confidential basis, under the U.S. Arbitration Act, if applicable, and the then current Commercial Arbitration Rules of the American Arbitration Association (the "Association") strictly in accordance with the terms of this Note and the substantive law of the State of Delaware. The arbitration shall be conducted at the Association's regional office located closest to the Lender's principal place of business by three arbitrators, at least one of whom shall be knowledgeable in general business matters and one of whom shall be an attorney. Judgment upon the arbitrators' award may be entered and enforced in any court of competent jurisdiction. Neither party shall institute a proceeding hereunder unless at least 60 days prior thereto such party shall have given written notice to the other party of its intent to do so. Neither party shall be precluded hereby from securing equitable remedies in courts of any jurisdiction, including, but not limited to, temporary restraining orders and preliminary injunctions to protect its rights and interests but such remedies shall not be sought as a means to avoid or stay arbitration or a Summary Proceeding. The Borrower hereby waives presentment, demand, protest and notice of dishonor and protest, and also waives all other exemptions; and agrees that extension or extensions of the time of payment of this Note or any installment or part thereof may be made before, at or after maturity by agreement by the Lender. Upon default hereunder the Lender shall have the right to offset the amount owed by the Borrower against any amounts owed by the Lender in any capacity to the Borrower, whether or not due, and the Lender shall be deemed to have exercised such right of offset and to have made a charge against any such account or amounts immediately upon the occurrence of an event of default hereunder even though such charge is made or entered on the books of the Lender subsequent thereto. The Borrower shall pay to the Lender, upon demand, all costs and expenses, including, without limitation, attorneys' fees and legal expenses, that may be incurred by the Lender in connection with the enforcement of this Note. Notices required to be given hereunder shall be deemed validly given (i) three business days after sent, postage prepaid, by certified mail, return receipt requested, (ii) one business day after sent, charges paid by the sender, by Federal Express Next Day Delivery or other guaranteed delivery service, (iii) when sent by facsimile transmission, or (iv) when delivered by hand: 4 If to the Lender: SCP Private Equity Partners II, L.P. 435 Devon Park Drive 300 Building Wayne, PA 19087 Attn: General Partner Fax: 610-975-9546 If to the Borrower: eMake Corporation 2435 North Central Expressway Richardson TX 75080-2722 Attn: Robert L. Drury, Vice President or to such other address, or in care of such other person, as the holder or the Borrower shall hereafter specify to the other from time to time by due notice. Any failure by the Lender to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time. No amendment to or modification of this Note shall be binding upon the Lender unless in writing and signed by it. Any provision hereof found to be illegal, invalid or unenforceable for any reason whatsoever shall not affect the validity, legality or enforceability of the remainder hereof. This Note shall apply to and bind the successors of the Borrower and shall inure to the benefit of the Lender, its successors and assigns. The Note shall be governed by and interpreted in accordance with the laws of the State of Delaware. IN WITNESS WHEREOF, the Borrower, by its duly authorized officer intending to be legally bound hereby, has duly executed this Demand Note as of the date first written above. eMAKE CORPORATION By: /s/ ROBERT L. DRURY -------------------------------- Robert L. Drury, Vice President EX-10.4 6 d81940ex10-4.txt SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.4 eMAKE CORPORATION/USDATA CORPORATION SECURITIES PURCHASE AGREEMENT August 4, 2000 2 TABLE OF CONTENTS
Page ---- 1. Purchase and Sale....................................................1 1.1 Sale and Issuance of Securities.............................1 1.2 Closing.....................................................2 1.3 Consideration...............................................2 2. Representations and Warranties regarding the Company.................3 2.1 Organization, Good Standing and Qualification...............3 2.2 Capitalization and Voting Rights............................3 2.3 Subsidiaries................................................4 2.4 Authorization...............................................4 2.5 Valid Issuance of Stock.....................................4 2.6 Governmental Consents.......................................5 2.7 Offering....................................................5 2.8 Litigation..................................................5 2.9 Nondisclosure and Inventions Agreements.....................6 2.10 Patents and Trademarks......................................6 2.11 Compliance with Certain Matters.............................8 2.12 Agreements; Action..........................................8 2.13 Related-Party Transactions..................................9 2.14 Permits.....................................................9 2.15 Environmental and Safety Laws..............................10 2.16 Manufacturing and Marketing Rights.........................10 2.17 Disclosure.................................................10 2.18 Registration Rights........................................10 2.19 Corporate Documents........................................10 2.20 Title to Property and Assets...............................10 2.21 Employee Benefit Plans.....................................10 2.22 Tax Returns, Payments and Elections........................10 2.23 Insurance..................................................11 2.24 Minute Books...............................................11 2.25 Labor Agreements and Actions...............................11 2.26 Damage; Loss...............................................12 2.27 Liens; Claims..............................................12 2.28 Real Property Holding Company..............................12 2.29 Transfer of Assets.........................................12 3. Representations and Warranties regarding the Parent.................12 3.1 Organization, Good Standing and Qualification..............12 3.2 SEC Reports; Financial Statements..........................12 3.3 Capitalization and Voting Rights...........................13
i 3 3.4 Authorization..............................................14 3.5 Valid Issuance of Preferred and Common Stock...............14 3.6 Governmental Consents......................................14 3.7 Offering...................................................14 3.8 Compliance with Certain Matters............................15 4. Representations and Warranties of the Investors.....................15 4.1 Authorization..............................................15 4.2 Purchase Entirely for Own Account..........................15 4.3 Disclosure of Information..................................16 4.4 Investment Experience......................................16 4.5 Accredited Investor........................................16 4.6 Restricted Securities......................................16 4.7 Further Limitations on Disposition.........................16 4.8 Legends....................................................17 5. Conditions of Investors' Obligations at Closing.....................17 5.1 Representations and Warranties.............................17 5.2 Performance................................................18 5.3 Compliance Certificate.....................................18 5.4 Qualifications.............................................18 5.5 Proceedings and Documents..................................18 5.6 Investors' Rights Agreement................................18 5.7 Stock Certificates; Warrants...............................18 5.8 Adoption of Plan...........................................18 5.9 Confidentiality Agreements.................................18 5.10 Board of Directors.........................................18 5.11 Co-Sale Agreement..........................................18 5.12 Parent Investors' Rights Agreement.........................18 5.13 Exchange Agreements........................................19 5.14 Legal Opinion..............................................19 5.15 Stockholder Approval.......................................19 5.16 NASD Matters...............................................19 5.17 Assignment of Trademarks...................................19 5.18 Assignment of Contracts....................................19 5.19 Contribution Agreement.....................................19 6. Conditions of the Company's and the Parent's Obligations at Closing..........................................................19 6.1 Representations and Warranties.............................19 6.2 Performance................................................19 6.3 Proceedings and Documents..................................19 6.4 Payment of Purchase Price; Delivery of Certificate.........20 6.5 Qualifications.............................................20 6.6 Stockholder Approval.......................................20
ii 4 7. Miscellaneous.......................................................20 7.1 Survival of Warranties.....................................20 7.2 Use of Proceeds............................................20 7.3 Successors and Assigns.....................................20 7.4 Governing Law..............................................20 7.5 Counterparts...............................................21 7.6 Titles and Subtitles.......................................21 7.7 Notices....................................................21 7.8 Finder's Fee...............................................21 7.9 Expenses...................................................21 7.10 Dispute Resolution.........................................22 7.11 Amendments and Waivers.....................................23 7.12 Severability...............................................23 7.13 No Amendment of Parent Preferred Stock Terms...............23 7.14 Publicity..................................................24 7.15 Stockholders' Meeting and NASD Matters.....................24 7.16 Termination................................................25 7.17 Entire Agreement...........................................25
SCHEDULE A Disclosure Schedule EXHIBIT A Amended and Restated Certificate of Incorporation of eMake Corporation EXHIBIT B Amended and Restated Certificate of Designation for Series A Preferred Stock and Series B Preferred Stock EXHIBIT C SCP Warrant EXHIBIT D Safeguard Warrant EXHIBIT E SCP Exchange Agreement EXHIBIT F Safeguard Exchange Agreement EXHIBIT G Investors' Rights Agreement EXHIBIT H Co-Sale and First Refusal Agreement EXHIBIT I Form of Noncompetition, Nondisclosure and Inventions Agreement EXHIBIT J Amended and Restated Investors' Rights Agreement EXHIBIT K Opinion of Counsel iii 5 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT is made as of the 4th day of August, 2000, by and among eMake Corporation, a Delaware corporation (the "Company"), USDATA Corporation, a Delaware corporation (the "Parent"), Safeguard 2000 Capital, L.P. ("Safeguard") and SCP Private Equity Partners II, L.P. ("SCP", and together with Safeguard, the "Investors"). THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale. 1.1 Sale and Issuance of Securities. (a) The Company shall adopt and file with the Secretary of State of Delaware, on or before the Closing (as defined below), an Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate"), and the Parent shall adopt and file with the Secretary of State of Delaware, on or before the Closing, an Amended and Restated Certificate of Designation for Series A Preferred Stock and Series B Preferred Stock in the form attached hereto as Exhibit B (the "Restated Designation"). (b) Subject to the terms and conditions of this Agreement, SCP agrees to purchase at the Closing, and the Company agrees to sell and issue to SCP at the Closing, (i) 5,300,000 shares of the Company's Series A-1 Preferred Stock, par value $0.01 per share (the "Series A-1 Preferred Stock"), and (ii) a warrant (the "SCP Warrant") to purchase up to 5,300,000 shares of the Company's Series A-1 Preferred Stock at an initial exercise price of $0.01 per share, for an aggregate purchase price of $13,250,000. The rights, privileges and preferences of the Series A-1 Preferred Stock shall be as stated in the Restated Certificate, and the SCP Warrant shall be substantially in the form attached hereto as Exhibit C. (c) Subject to the terms and conditions of this Agreement, Safeguard agrees to purchase at the Closing, and the Company agrees to sell and issue to Safeguard at the Closing, 5,300,000 shares of the Company's Series A-2 Preferred Stock, par value $0.01 per share (the "Series A-2 Preferred Stock," and together with the Series A-1 Preferred Stock, the "Series A Preferred Stock"), and (ii) a warrant (the "Safeguard Warrant," and together with the SCP Warrant, the "Warrants") to purchase up to 5,300,000 shares of the Company's Series A-2 Preferred Stock at an initial exercise price of $0.01 per share, for an aggregate purchase price of $13,250,000. The rights, privileges and preferences of the Series A-2 Preferred Stock shall be as stated in the Restated Certificate, and the Safeguard Warrant shall be substantially in the form attached hereto as Exhibit D. As used herein, the term "Purchased Securities" means the shares of Series A Preferred Stock and the Warrants issued and sold hereunder. (d) Subject to the terms and conditions of this Agreement, at the Closing, the Parent shall enter into separate exchange agreements (the "Exchange Agreements") with each Investor agreeing to exchange shares of the Parent's Series B Convertible Stock, par value $0.01 per share (the "Parent Preferred Stock"), for shares of Series A Preferred Stock of the Company held by such Investor. The rights, privileges and preferences of the Parent Preferred Stock shall 6 be as set forth in the Restated Designation, and the Exchange Agreements shall be substantially in the form attached hereto as Exhibits E and F, as appropriate. 1.2 Closing. The purchase, sale and issuance of the Purchased Securities shall take place at the offices of Brobeck, Phleger & Harrison LLP, 301 Congress Avenue, Suite 1200, Austin, Texas 78701 at 10:00 a.m. as soon as practical, but in no event later than, the second business day, after the date of the approval by the stockholders of the Parent at a meeting duly called and held of (a) the issuance by the Parent of shares of its Common Stock, par value $0.01 per share (the "Parent Common Stock"), issuable upon the conversion of the Parent Preferred Stock issuable under the Exchange Agreements and (b) the amendment of the Parent's Certificate of Incorporation pursuant to the Restated Designation, or at such other place and time as the Company, the Parent and the Investors mutually agree upon (which time is designated as the "Closing," and the date upon which the Closing occurs is the "Closing Date"). 1.3 Consideration. At the Closing, the Company shall deliver (a) to SCP, certificates representing the Purchased Securities being sold to SCP hereunder pursuant to Section 1.1(b) against (i) payment of $2,500,000, plus any accrued interest thereon throughout the Closing Date, by SCP to Safeguard in satisfaction of the Company's obligation to Safeguard pursuant to that certain Demand Note, dated July 28, 2000 (the "SCP Note"), executed by the Company and payable to the order of Safeguard in the amount of $2,500,000, (ii) the payment by SCP to Safeguard of an amount equal to all accrued but unpaid interest on the USDATA Note, the eMake Notes and the eMake Demand Notes (all as hereinafter defined) in satisfaction of the obligations of the Company and the Parent to pay such interest and (iii) payment of $13,250,000 less that amount paid to Safeguard pursuant to the immediately preceding clauses (i) and (ii) by wire transfer to the Company, and (b) to Safeguard, certificates representing the Purchased Securities being sold to Safeguard hereunder pursuant to Section 1.1(c) against (i) cancellation by Safeguard of the principal amount owed under the two Promissory Notes (the "eMake Notes"), dated February 8, 2000 and March 24, 2000, respectively, executed by the Company payable to the order of Safeguard in the amount of $2,500,000 each, (ii) cancellation by Safeguard of the principal amount owed under the Promissory Note (the "USDATA Note"), dated April 26, 2000, executed by the Parent payable to the order of Safeguard Delaware, Inc. in the amount of $5,000,000 (after giving effect to the assignment of the USDATA Note from Safeguard Delaware, Inc. to Safeguard at or prior to the Closing) and (iii) cancellation by Safeguard of the principal amount owed under the two Demand Notes (the "eMake Demand Notes"), dated June 29, 2000 and July 13, 2000, respectively, executed by the Company payable to the order of Safeguard in the amount of $1,500,000 and $1,750,000, respectively. All amounts paid by SCP to Safeguard on behalf of the Company pursuant to the preceding sentence shall be deemed to have been paid by the Company to Safeguard to discharge its obligation to Safeguard described as being satisfied in the previous sentence. In addition, the amount paid by SCP to Safeguard on behalf of the Parent pursuant to the first sentence of this Section 1.3 shall be deemed to have been paid first to the Company, then by the Company to the Parent to discharge indebtedness owed by the Company to the Parent in such amount and then by the Parent to Safeguard to discharge accrued but unpaid interest on the USDATA Note. The cancellation of the principal amount of the USDATA Note pursuant to the first sentence of this Section 1.3 shall be deemed a payment by the Company of indebtedness owed by the Company to the Parent in such amount. 2 7 2. Representations and Warranties regarding the Company. Each of the Company and the Parent hereby jointly and severally represents and warrants to the Investors that, except as set forth on the Disclosure Schedule attached hereto as Schedule A (the "Disclosure Schedule") furnished to the Investors, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. Each of the Company and eMake Solutions, Inc., an Delaware corporation (the "Subsidiary"), is a corporation duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. Each of the Company and the Subsidiary is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business, properties, results of operation or financial condition. 2.2 Capitalization and Voting Rights (a) As of the date hereof, the authorized capital of the Company consists of 1,000 shares of common stock, par value $0.01 per share, all of which are issued and outstanding and are owned beneficially and of record by the Parent free and clear of any liens, security interests, encumbrances and other adverse claims. (b) As of the Closing Date, the authorized capital of the Company will consist of: (i) 32,000,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of which 16,000,000 shares have been designated as Series A-1 Preferred Stock and 16,000,000 shares have been designated as Series A-2 Preferred Stock, none of which currently are issued or outstanding. (ii) 86,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock"), of which 70,000,000 shares have been designated as "Class A Common Stock" (the "Class A Common Stock"), 15,400,000 of which are issued and outstanding, and 16,000,000 shares of which have been designated as "Class B Common Stock" (the "Class B Common Stock," and together with the Class A Common Stock, the "Common Stock"), none of which currently are issued or outstanding. All such issued and outstanding shares of Class A Common Stock are owned beneficially and of record by the Parent free and clear of any liens, security interests, encumbrances and other adverse claims. (c) The authorized capital of the Subsidiary consists of 1,000 shares of Common Stock, par value $0.01 per share, all of which are issued and outstanding and are owned beneficially and of record by the Company free and clear of any liens, security interests, encumbrances and other adverse claims. (d) All outstanding shares of capital stock of the Company and the Subsidiary have been duly and validly authorized and issued, are fully paid and nonassessable and were issued in accordance with the registration or qualification provisions of the Securities Act 3 8 of 1933, as amended (the "Securities Act"), and any relevant state securities laws or pursuant to valid exemptions therefrom. (e) Except for (i) the Series A Preferred Stock issuable upon exercise of the Warrants, (ii) the conversion privileges of the Series A Preferred Stock issued or issuable hereunder and under the Warrants, (iii) the conversion privileges of the Class B Common Stock issuable upon conversion of the Series A-2 Preferred Stock, (iv) conversion privileges of the Series A Preferred Stock of the Parent, (v) the subscription rights provided for in the Restated Designation and (vi) the rights provided for in the Investors' Rights Agreement to be entered into in connection herewith and attached hereto as Exhibit G (the "Investors' Rights Agreement"), there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company or the Subsidiary of any shares of their capital stock. In addition, the Company has reserved an additional 4,600,000 shares of its Class A Common Stock for purchase upon exercise of options granted or to be granted in the future under its 2000 Equity Compensation Plan (hereinafter, the "Plan"). Neither the Company nor the Subsidiary is a party or subject to any agreement or understanding, and, to the Company's knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Company or the Subsidiary. 2.3 Subsidiaries. Except for its interest in the Subsidiary, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. The Subsidiary does not presently own or control, directly or indirectly, any interest in any other corporation, association or other business entity. Neither the Company nor the Subsidiary is a participant in any joint venture, partnership, or similar arrangement. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Warrants, the Investors' Rights Agreement and the Co-Sale and First Refusal Agreement to be entered into by the Company in connection herewith and attached hereto as Exhibit H (the "Co-Sale Agreement"), the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance) and delivery of the Purchased Securities being sold hereunder, the Series A Preferred Stock issuable upon exercise of the Warrants, the Common Stock issuable upon conversion of the Series A Preferred Stock and the Class A Common Stock issuable upon conversion of the Class B Common Stock, has been taken, and this Agreement, the Warrants, the Investors' Rights Agreement and the Co-Sale Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (c) to the extent the indemnification provisions contained in the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 2.5 Valid Issuance of Stock. The shares of Series A Preferred Stock that are being issued to the Investors hereunder, when issued, sold and delivered in accordance with the 4 9 terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Co-Sale Agreement and the Investors' Rights Agreement and under applicable state and federal securities laws. The Series A Preferred Stock issuable upon exercise of the Warrants has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Warrants, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfers other than restrictions on transfers under this Agreement, the Co-Sale Agreement and the Investors' Rights Agreement and under applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series A Preferred Stock purchased under this Agreement or issuable upon the exercise of the Warrants has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Co-Sale Agreement and the Investors' Rights Agreement and under applicable state and federal securities laws. The Class A Common Stock issuable upon conversion of the Class B Common Stock issuable upon conversion of the Series A-2 Preferred Stock issued or issuable hereunder or under the Safeguard Warrant has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement, the Co-Sale Agreement and the Investors' Rights Agreement and under applicable state and federal securities laws. 2.6 Governmental Consents. Other than those that have been duly obtained or made and that remain in full force and effect and those described in Schedule 2.6 (which shall have been duly obtained or made and shall remain in full force and effect as of the Closing Date), no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company or the Subsidiary is required in connection with the consummation of the transactions contemplated by this Agreement, the Warrants, the Investors' Rights Agreement or the Co-Sale Agreement. 2.7 Offering. Subject in part to the truth and accuracy of the Investors' representations set forth in Section 4 of this Agreement, the offer, sale and issuance of the Securities as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and applicable state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. The issuance of shares of Series A Preferred Stock upon the exercise of the Warrants, the issuance of shares of Common Stock upon the conversion of shares of Series A Preferred Stock and the issuance of shares of Class A Common Stock upon conversion of shares of Class B Common Stock will be exempt from the registration requirement of the Securities Act and applicable state securities laws. 2.8 Litigation. There is no action, suit, proceeding or investigation pending or, to the best of the Company's and the Parent's knowledge, currently threatened against the Company or the Subsidiary that questions the validity of this Agreement, the Warrants, the Investors' Rights Agreement or the Co-Sale Agreement or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that 5 10 might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company or the Subsidiary, financially or otherwise, or any change in the current equity ownership of the Company or the Subsidiary. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or, to the best of the Company's and the Parent's knowledge, threatened involving the prior employment of any of the Company's or the Subsidiary's employees or consultants, their use in connection with the Company's or the Subsidiary's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. Neither the Company nor the Subsidiary is a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company or the Subsidiary currently pending or that the Company or the Subsidiary intends to initiate. 2.9 Nondisclosure and Inventions Agreements. Except as described in the Disclosure Schedule, each employee, officer and consultant of the Company or the Subsidiary has executed a Nondisclosure and Inventions Agreement in the form attached as Exhibit I hereto. The Company and the Parent, after reasonable investigation, are not aware that any of the Company's or the Subsidiary's key employees, officers or consultants are in violation of the agreements specified in this Section 2.9, and the Company and the Parent will use their reasonable efforts to prevent any such violation. 2.10 Patents and Trademarks. The Disclosure Schedule contains a complete and accurate list of all (i) patented or registered Intellectual Property Rights (as defined below) owned or used by the Company or the Subsidiary, (ii) pending patent applications and applications for registrations of other Intellectual Property Rights filed by the Company or the Subsidiary and (iii) unregistered trade names and corporate names owned or used by the Company or the Subsidiary. The Disclosure Schedule also contains a complete and accurate list of all licenses and other rights granted by the Company or the Subsidiary to any third party with respect to any Intellectual Property Rights and all licenses and other rights granted by any third party to the Company or the Subsidiary with respect to any Intellectual Property Rights, in each case identifying the subject Intellectual Property Rights but not including licenses arising from the purchase of standard "off the shelf" products. The Company or the Subsidiary owns all right, title and interest in and to all of the Intellectual Property Rights listed on the Disclosure Schedule free and clear of all liens, encumbrances or claims of others except liens, encumbrances and claims of others with respect to third-party licenses. Except as set forth on the Disclosure Schedule, the Company or the Subsidiary owns all right, title and interest to, or has the right to use pursuant to a valid license, all Intellectual Property Rights, as they currently exist, necessary for the operation of the business of the Company and the Subsidiary as presently conducted and as presently proposed to be conducted, free and clear of all liens, encumbrances or claims of others except liens, encumbrances and claims of others with respect to third-party licenses. The Company and the Subsidiary have taken all necessary and desirable actions to maintain and protect the Intellectual Property Rights that each of them own. To the best of the Company's and the Parent's knowledge, the owners of any Intellectual Property Rights licensed to the Company or the Subsidiary have taken all necessary and desirable actions to maintain and protect the Intellectual Property Rights that are subject to such licenses. There have been no claims made against the Company or the Subsidiary asserting the invalidity, misuse or unenforceability of any of such Intellectual Property Rights, and to the best of the Company's knowledge, there are no 6 11 valid grounds for the same. Neither the Company nor the Subsidiary has received any notices of, and the Company and the Parent are not aware of any facts which indicate a likelihood of, any infringement or misappropriation by, or conflict with, any third party with respect to such Intellectual Property Rights (including, without limitation, any demand or request that the Company or the Subsidiary license any rights from a third party). To the best of the Company's and the Parent's knowledge, the conduct of the Company's and the Subsidiary's business has not infringed, misappropriated or conflicted with and does not infringe, misappropriate or conflict with any Intellectual Property Rights of others, nor to the best of the Company's and the Parent's belief would any future conduct as presently contemplated infringe, misappropriate or conflict with any Intellectual Property Rights of others. To the best of the Company's and the Parent's knowledge, the Intellectual Property Rights owned by or licensed to the Company or the Subsidiary have not been infringed upon, or misappropriated by or conflict with others. The transactions contemplated by this Agreement will have no material adverse effect on the Company's or the Subsidiary's right, title and interest in and to the Intellectual Property Rights listed on the Disclosure Schedule. To the best of the Company's and the Parent's knowledge, none of its or the Subsidiary's employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or the Subsidiary or that would conflict with the Company's or the Subsidiary's business as presently conducted and to the best of the Company's and the Parent's belief as presently proposed to be conducted. Neither the execution of this Agreement nor the transactions contemplated by this Agreement nor the carrying on of the Company's or the Subsidiary's business by the employees of the Company and the Subsidiary, nor the conduct of the Company's or the Subsidiary's business as presently conducted or presently proposed to be conducted, will, the best of the Company's and Parent's knowledge based upon a review by the Company and the Parent of contracts and agreements relating to the employment of the Company's employees and any third-party notices relating thereto (it being represented, however, that neither the Parent or Company have any knowledge with respect thereto from other sources), conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. Neither the Company nor the Parent believes it is or will be necessary for the Company or the Subsidiary to utilize any inventions of any of the Company's or the Subsidiary's employees (or people it currently intends to hire) made prior to their employment by the Parent, the Company or the Subsidiary, as applicable. For purposes of this Agreement, "Intellectual Property Rights" means all (i) patents, patent applications, patent disclosures and inventions, (ii) trademarks, service marks, trade dress, trade names, logos and corporate names and registrations and applications for registration thereof together will all of the goodwill associated therewith, (iii) copyrights (registered and unregistered) and copyrightable works and registrations and applications for registration thereof, (iv) mask works and registrations and applications for registration thereof, (v) computer software, data, data bases and documentation thereof, (vi) trade secrets and other confidential information (including, without limitation, ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, financial and marketing plans and customer and supplier lists and 7 12 information), (vii) other intellectual property rights and (viii) copies and tangible embodiments thereof (in whatever form or medium). 2.11 Compliance with Certain Matters. Neither the Company nor the Subsidiary is in violation or default under or in breach of any material provision of its Certificate of Incorporation or Bylaws, any material agreement, instrument, contract, document, judgment, order, writ or decree to which it is a party or by which it is bound or any federal or state statute, rule or regulation applicable to it. The execution, delivery and performance of this Agreement, the Warrants, the Investors' Rights Agreement and the Co-Sale Agreement and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such material provision, agreement, instrument, contract, document, judgment, order, writ, decree, statute, rule or regulation or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the Subsidiary or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company or the Subsidiary, their business or operations or any of their assets or properties. 2.12 Agreements; Action. (a) The Disclosure Schedule lists all material agreements, understandings, instruments and contracts, whether written or oral, to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary or its assets and properties are bound. (b) Except for agreements explicitly contemplated hereby, existing employment agreements set forth in the Disclosure Schedule and matters set forth in the Disclosure Schedule relating to the contribution of Subsidiary's assets to the Company from the Parent, the Investors' Rights Agreement and Co-Sale Agreement, there are no agreements, understandings or proposed transactions between the Company or the Subsidiary and any of its officers, directors, affiliates or any affiliate thereof. (c) Except as set forth in this Agreement or as described in the Disclosure Schedule, there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company or the Subsidiary is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments to, the Company or the Subsidiary in excess of $25,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or the Subsidiary, other than licenses arising from the purchase of "off the shelf" or other standard products, (iii) provisions restricting or affecting the development, manufacture or distribution of the Company's or the Subsidiary's products or services, (iv) a warranty with respect to its services rendered or its products sold or leased other than in the ordinary course of business, or (v) indemnification by the Company or the Subsidiary with respect to infringements of proprietary rights. (d) Neither the Company nor the Subsidiary has (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) except for the eMake Notes and the eMake Demand Notes, incurred any indebtedness for money borrowed or any other liabilities individually in excess of $10,000 or, in 8 13 the case of indebtedness and/or liabilities individually less than $10,000, in excess of $50,000 in the aggregate, (iii) made any loans or advances to any person, other than advances for travel expenses and other customary employment-related advances made in the ordinary course of business, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (e) For the purposes of subsections (c) and (d) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities either the Company or the Parent has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections. (f) All of the contracts, agreements and instruments set forth on the Disclosure Schedule pursuant to this Section 2.12 are valid, binding and enforceable in accordance with their respective terms and there has been no material change to or amendment to a material contract by which the Company or the Subsidiaries or any of their respective assets or properties is bound or subject. Each of the Company and the Subsidiary has performed all material obligations required to be performed by it and is not in material default under or in material breach of nor in receipt of any claim of default or breach under any contract, agreement or instrument and neither the Company nor the Subsidiary have any present expectation or intention of not fully performing all such obligations. No event has occurred which with the passage of time or the giving of notice or both would result in a material default, breach or event of noncompliance by the Company or the Subsidiary under any contract, agreement or instrument. None of the Company, the Subsidiary or the Parent has knowledge of any breach or anticipated breach by the other parties to any contract, agreement, instrument or commitment. (g) Neither the Company nor the Subsidiary is a party to or is bound by any contract, agreement or instrument or subject to any restriction under its Certificate of Incorporation that materially adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. 2.13 Related-Party Transactions. No employee, consultant, officer, or director of the Company or the Subsidiary, or member of his or her immediate family is indebted to the Company or the Subsidiary, nor is the Company or the Subsidiary indebted (or committed to make loans or extend or guarantee credit) to any of them except for compensation, wages and benefits and travel and customary expenses. Except for employment agreements, benefit plans, insurance policies and similar matters, no employee, consultant, officer, or director of the Company or the Subsidiary, or member of the immediate family of any officer or director of the Company or the Subsidiary is directly or indirectly interested in any material contract with the Company or the Subsidiary. 2.14 Permits. Each of the Company and the Subsidiary has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect its business, properties, prospects, or financial condition, and the Company and the Parent believe that each of the Company and the Subsidiary can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted. Neither the Company nor the 9 14 Subsidiary is in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.15 Environmental and Safety Laws. To the Company's and the Parent's knowledge, neither the Company nor the Subsidiary is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the Company's and the Parent's knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.16 Manufacturing and Marketing Rights. Except in the ordinary course of business, neither the Company nor the Subsidiary has granted rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects its exclusive right to develop, manufacture, assemble, distribute, market or sell its products. 2.17 Disclosure. The Company and the Parent have fully provided the Investors with all the information that the Investors have requested for deciding whether to purchase the Securities and to consummate the transactions contemplated by this Agreement. None of this Agreement, the Warrants, the Investors' Rights Agreement, the Co-Sale Agreement, any other statements or certificates made or delivered in connection herewith or therewith or any other information supplied by the Company or the Parent with respect to the transactions contemplated hereby, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.18 Registration Rights. Except as provided in the Parent Investors' Rights Agreement, as defined below, and the Investors' Rights Agreement, neither the Company nor the Subsidiary has granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.19 Corporate Documents. The Company's Restated Certificate is in the form attached hereto as Exhibit A and the Company's Bylaws and the Subsidiary's Certificate of Incorporation and Bylaws are in the form previously provided to the Investors. 2.20 Title to Property and Assets. Each of the Company and the Subsidiary owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair its ownership or use of such property or assets. With respect to the property and assets it leases, each of the Company and the Subsidiary is in compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances. 2.21 Employee Benefit Plans. Neither the Company nor the Subsidiary has ever had any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974. 2.22 Tax Returns, Payments and Elections. Each of the Company and the Subsidiary has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. Each of the Company and the Subsidiary has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the 10 15 Disclosure Schedule. Neither the Company nor the Subsidiary has elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on it, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets. 2.23 Insurance. Each of the Company and the Subsidiary has in full force and effect or will obtain in a reasonable amount of time after the Closings, fire and casualty insurance policies, with extended coverage in amounts customary for companies similarly situated. Each of the Company and the Subsidiary has in full force and effect or will obtain in a reasonable amount of time after the Closings, products liability and errors and omissions insurance in amounts customary for companies similarly situated. 2.24 Minute Books. The minute books of the Company and the Subsidiary made available to the Investors contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.25 Labor Agreements and Actions. Neither the Company nor the Subsidiary is bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the Company's and the Parent's knowledge, requested or sought to represent any of its employees, consultants, representatives or agents. There is no strike or other labor dispute involving the Company or the Subsidiary pending, or to the Company's and the Parent's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company or the Subsidiary (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving the employees or consultants of the Company or the Subsidiary. The Company is not aware that any officer or key employee or key consultant, or that any group of key employees or key consultants, intends to terminate their employment or consulting relationship with the Company or the Subsidiary, nor does the Company or the Subsidiary have a present intention to terminate the employment or consulting relationship of any of the foregoing nor has there been any material change in any compensation arrangement or agreement with any employee or consultant. With the exception of those officers and employees that have executed employment contracts with the Company as listed in the Disclosure Schedule, the employment of each officer and employee of the Company and the Subsidiary is terminable at the will of the Company or the Subsidiary and without any required severance payment, other than payments under the severance policy described on Schedule 2.25 attached hereto. The consulting relationship of each consultant of the Company or the Subsidiary is terminable at the will of the Company or the Subsidiary, as applicable, and without any required severance payment. To the knowledge of the Company, each of the Company and the Subsidiary have complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. 11 16 2.26 Damage; Loss. The Company has not experienced any damage, destruction or loss, whether or not covered by insurance, that would materially and adversely affect the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted). 2.27 Liens; Claims. There has not been any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is material to its assets, properties, financial condition, operating results or business (as such business is presently conducted and as it is proposed to be conducted). 2.28 Real Property Holding Company. Neither the Company nor the Subsidiary is a real property holding company within the meaning of Section 897 of the Code. 2.29 Transfer of Assets. All of the assets of Smart Shop Software, Inc., an Idaho corporation, have been transferred to the Subsidiary without any restrictions or limitations thereon or the need for any approvals or consents thereto and all material contracts previously entered into by the Parent or United States Data Corporation on behalf of the Company or the Subsidiary and all material assets held by the Parent or United States Data Corporation relating to the business conducted or proposed to be conducted by the Company and the Subsidiary have been or will have been assigned prior to the Closing Date to either the Company or the Subsidiary. 3. Representations and Warranties regarding the Parent. Each of the Company and the Parent hereby jointly and severally represents and warrants to the Investors that, except as set forth on the Disclosure Schedule, which exceptions shall be deemed to be representations and warranties as if made hereunder: 3.1 Organization, Good Standing and Qualification. Each of the Parent and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its formation and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted, except where such failure would not have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Parent or its subsidiaries (as such business is presently conducted and as it is proposed to be conducted). Each of the Parent and each of its subsidiaries is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business, properties, results of operation or financial condition. 3.2 SEC Reports; Financial Statements. The Parent Common Stock is registered under Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Parent is in compliance with its reporting and filing obligations under the Exchange Act. The Parent has made available to the Investors (a) its annual reports to stockholders and its Annual Reports on Form 10-K for its last two fiscal years and (b) all of its Quarterly Reports on Form 10-Q and each other report, registration statement or definitive proxy statement filed with the Securities and Exchange Commission (the "SEC") since the beginning of such two fiscal years (collectively, the "SEC Reports"). The SEC Reports (other than 12 17 Quarterly Reports on Form 10-Q filed prior to the latest Annual Report on Form 10-K filed by the Parent) do not (as of their respective dates) contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The audited and unaudited financial statements of the Parent included in the SEC Reports (the "Financial Statements") have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as stated in such Financial Statements or the notes thereto) and fairly present the financial position of the Parent and its consolidated subsidiaries as of the dates thereof and the results of their operations and changes in financial position for the periods then ended. Except as disclosed by the Parent in the SEC Reports, since the end of the most recent of such fiscal years, there has been no material adverse change in the business, properties, financial condition or results of operations of the Parent and its subsidiaries taken together, and there is no existing condition, event or series of events which reasonably would be expected to have a material adverse effect on the business, properties, financial condition or results of operations of the Parent and its subsidiaries taken together, or the ability of the Parent to perform its obligations under this Agreement, the Co-Sale Agreement, the Exchange Agreements or the Amended and Restated Investors' Rights Agreement to be executed and delivered in connection herewith in the form attached hereto as Exhibit J (the "Parent Investors' Rights Agreement"). 3.3 Capitalization and Voting Rights (a) As of the Closing Date, the authorized capital of the Parent will consist of: (i) 2,200,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of which 100,000 shares have been designated as "Series A Convertible Preferred Stock," of which 50,000 currently are issued or outstanding, and of which 800,000 shares have been designated as "Series B Convertible Preferred Stock," of which none are currently issued or outstanding. (ii) 40,000,000 shares of Parent Common Stock, of which, as of the date of the last Quarterly Report on Form 10-Q or Annual Report on Form 10-K filed by the Parent, 13,968,265 shares are issued and outstanding (as of June 30, 2000). (b) All outstanding shares of capital stock of the Parent's subsidiaries are owned beneficially and of record by the Parent, free and clear of any liens, security interests, encumbrances or other adverse claims. Except as described in the Disclosure Schedule, the Parent and its subsidiaries do not presently own or control, directly or indirectly, any interest in any other corporation, association or other business entity. Neither the Parent nor its subsidiaries are participants in any joint venture, partnership, or similar arrangement. (c) All outstanding shares of capital stock of the Parent and its subsidiaries have been duly and validly authorized and issued, are fully paid and nonassessable and were issued in accordance with the registration or qualification provisions of the Securities Act, and any relevant state securities laws or pursuant to valid exemptions therefrom. 13 18 (d) Except as disclosed in the SEC Reports and except for the rights provided for in the Parent Investors' Rights Agreement, this Agreement and the Exchange Agreements, there are not any outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Parent or any of its subsidiaries of any shares of their capital stock. 3.4 Authorization. Except for the vote of the stockholders of the Parent (which shall have been obtained and remain in full force as of the Closing Date), all corporate action on the part of the Parent, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Parent Investors' Rights Agreement, the Co-Sale Agreement and the Exchange Agreements, the performance of all obligations of the Parent hereunder and thereunder, and the authorization, issuance (or reservation for issuance) and delivery of the Parent Preferred Stock issuable under the Exchange Agreements and the Parent Common Stock issuable upon conversion of the Parent Preferred Stock issuable under the Exchange Agreements has been taken as of the Closing Date, and this Agreement, the Parent Investors' Rights Agreement, the Co-Sale Agreement and the Exchange Agreements constitute valid and legally binding obligations of the Parent, enforceable in accordance with their respective terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (c) to the extent the indemnification provisions contained in the Parent Investors' Rights Agreement may be limited by applicable federal or state securities laws. 3.5 Valid Issuance of Preferred and Common Stock. The Parent Preferred Stock issuable to the Investors under the Exchange Agreements, when issued and delivered in accordance with the terms of the Exchange Agreements for the consideration expressed therein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Parent Investors' Rights Agreement and under applicable state and federal securities laws. The Parent Common Stock issuable upon conversion of the Parent Preferred Stock issuable under the Exchange Agreements will have been as of the Closing Date duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Designation, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Parent Investors' Rights Agreement and under applicable state and federal securities laws. 3.6 Governmental Consents. Other than filings which are required under applicable securities laws, which filings, if any, will be made within the applicable periods required act and by such laws, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority, including the NASD (as defined below), on the part of the Parent is required in connection with the consummation of the transactions contemplated by this Agreement, the Investors' Rights Agreement, the Co-Sale Agreement and the Exchange Agreements. 3.7 Offering. Subject in part to the truth and accuracy of the Investors' representations set forth in Section 4 of this Agreement, the issuance of the Parent Preferred 14 19 Stock as contemplated by the Exchange Agreements and the issuance of the Parent Common Stock issuable upon the conversion of the Parent Preferred Stock will be exempt from the registration requirements of the Securities Act, and neither the Parent nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption. 3.8 Compliance with Certain Matters. Neither the Parent nor any of its subsidiaries is in violation or default under or in breach of any material provision of its Certificate of Incorporation or Bylaws, any material agreement, instrument, contract, document, judgment, order, writ or decree to which it is a party or by which it is bound or any federal or state statute, rule or regulation applicable to it. The execution, delivery and performance of this Agreement, the Parent Investors' Rights Agreement, the Co-Sale Agreement and the Exchange Agreements and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such material provision, agreement, instrument, contract, document, judgment, order, writ, decree, statute, rule or regulation or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Parent or any of its subsidiaries or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Parent or any of its subsidiaries, their business or operations or any of their assets or properties. 4. Representations and Warranties of the Investors. Each Investor hereby severally represents and warrants to the Company and the Parent that: 4.1 Authorization. The Investor has full power and authority to enter into this Agreement, the Investors' Rights Agreement, the Parent Investors' Rights Agreement, the Exchange Agreements and the Co-Sale Agreement, and each of them constitutes the valid and legally binding obligation of the Investor enforceable against the Investor in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors' rights generally, (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (c) to the extent the indemnification provisions contained in the Parent Investors' Rights Agreement and the Investors' Rights Agreement may be limited by applicable federal or state securities laws. 4.2 Purchase Entirely for Own Account. The Securities to be purchased by the Investor hereunder, the Series A Preferred Stock issuable upon exercise of the Warrant to be issued to the Investor hereunder, the Common Stock issuable upon conversion of the Series A Preferred Stock issued or issuable to the Investor hereunder or under the Warrant issued to the Investor hereunder, the Class A Common Stock issuable upon conversion of the Class B Common Stock, the Parent Preferred Stock issuable to the Investor upon exercise of the Exchange Agreement with the Investor and the Parent Common Stock issuable upon the conversion of the Parent Preferred Stock issuable to the Investor pursuant to the Exchange Agreement with the Investor, are being acquired for investment for the Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third 15 20 person, with respect to any of the Securities to be purchased by the Investor hereunder, the Series A Preferred Stock issuable upon exercise of the Warrant to be issued to the Investor hereunder, the Common Stock issuable upon conversion of the Series A Preferred Stock issued or issuable to the Investor hereunder or under the Warrant issued to the Investor hereunder, the Class A Common Stock issuable upon conversion of the Class B Common Stock, the Parent Preferred Stock issuable to the Investor upon exercise of the Exchange Agreement with the Investor and the Parent Common Stock issuable upon the conversion of the Parent Preferred Stock issuable to the Investor pursuant to the Exchange Agreement with the Investor. 4.3 Disclosure of Information. The Investor has received all the information it considers necessary or appropriate for deciding whether to purchase the Securities. The Investor further represents that it has had an opportunity to ask questions and receive answers from the Company and the Parent regarding the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of the Company and the Parent. The foregoing, however, does not limit or modify the representations and warranties in Sections 2 and 3 of this Agreement or the right of the Investor to rely thereon. 4.4 Investment Experience. The Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. The Investor also represents it has not been organized for the purpose of acquiring the Securities. 4.5 Accredited Investor. The Investor is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, as presently in effect. 4.6 Restricted Securities. The Investor 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 and the Parent in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act, only in certain limited circumstances. In this connection, the Investor represents that it is familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 4.7 Further Limitations on Disposition. Without in any way limiting the representations set forth above, the Investor further agrees not to make any disposition of all or any portion of the Securities to be purchased by the Investor hereunder, the Series A Preferred Stock issuable upon exercise of the Warrant to be issued to the Investor hereunder, the Common Stock issuable upon conversion of the Series A Preferred Stock issued or issuable to the Investor hereunder or under the Warrant to be issued to the Investor hereunder, the Class A Common Stock issuable upon conversion of the Class B Common Stock, the Parent Preferred Stock issuable to the Investor upon exercise of the Exchange Agreement with the Investor and the Parent Common Stock issuable upon the conversion of the Parent Preferred Stock issuable to the Investor pursuant to the Exchange Agreement with the Investor unless and until the transferee 16 21 has agreed in writing for the benefit of the Company and the Parent to be bound by this Section 4 and the applicable provisions of the Investors' Rights Agreement and the Parent Investors' Rights Agreement and: (a) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (b) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition and, if requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances or unless required by a transfer agent. Notwithstanding the provisions of subsections (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor that is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder. 4.8 Legends. It is understood that the certificates evidencing the Securities, the Series A Preferred Stock issuable upon exercise of the Warrants, the Common Stock issuable upon conversion of the Series A Preferred Stock, the Class A Common Stock issuable upon conversion of the Class B Common Stock, the Parent Preferred Stock and the Parent Common Stock issuable upon conversion of the Parent Preferred Stock may bear one or all of the following legends: (a) "These securities have not been registered under the Securities Act of 1933, as amended. They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the issuer thereof that such registration is not required or unless sold pursuant to Rule 144 of such Act." (b) Any legend required by the securities laws of any applicable jurisdictions. (c) Any legend required by the Investors' Rights Agreement, the Parent Investors' Rights Agreement or other applicable agreement. 5. Conditions of Investors' Obligations at Closing. The obligations of the Investors under Sections 1.1 and 1.2 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions: 5.1 Representations and Warranties. The representations and warranties of the Company and the Parent contained in Sections 2 and 3 shall be true in all material respects on 17 22 and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing, unless another date is specified therein. 5.2 Performance. The Company and the Parent shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by each of them on or before the Closing. 5.3 Compliance Certificate. The Chief Financial Officer of each of the Company and the Parent shall deliver to the Investors at the Closing certificates on behalf of the Company and the Parent, respectively, stating that the conditions specified in Sections 5.1 and 5.2 have been fulfilled. 5.4 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities and the other transactions contemplated by this Agreement shall be duly obtained and effective as of the Closing. 5.5 Proceedings and Documents. All corporate approvals, stockholder approvals and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors and their special counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.6 Investors' Rights Agreement. The Company and the Investors shall have entered into the Investors' Rights Agreement. 5.7 Stock Certificates; Warrants. The Company shall have delivered to the Investors executed certificates representing the Series A Preferred Stock and the Warrants to be purchased at the Closing. 5.8 Adoption of Plan. The Company shall have adopted the Plan by all requisite corporate action, and, as of the date hereof, the Plan shall not authorize the issuance of more than 4,600,000 shares of Class A Common Stock. 5.9 Confidentiality Agreements. Each employee, officer and consultant of the Company or the Subsidiary shall have entered into the applicable confidentiality agreement as specified in Section 2.9 hereof. 5.10 Board of Directors. The directors of the Company shall be as set forth in the Co-Sale Agreement. 5.11 Co-Sale Agreement. The Company, the Parent and the Investors shall have entered into the Co-Sale Agreement. 5.12 Parent Investors' Rights Agreement. The Parent, Safeguard Delaware, Inc., the Investors and Safeguard Scientifics, Inc. shall have entered into the Parent Investors' Rights Agreement. 18 23 5.13 Exchange Agreements. The Parent and the Investors shall have entered into the Exchange Agreements. 5.14 Legal Opinion. The Investors shall have received an opinion of Jenkens & Gilchrist, P.C., counsel to the Company and the Parent, in the form attached hereto as Exhibit K. 5.15 Stockholder Approval. The Parent shall have called and convened a meeting of its stockholders pursuant to Section 7.15, and at such meeting, the stockholders of the Parent shall have duly approved (i) the issuance by the parent of the Parent Common Stock issuable upon conversion of the Parent Preferred Stock, and (ii) the amendment of the Parent's Certificate of Incorporation pursuant to the Restated Designation and the amendment of the Parent's Certificate of Incorporation to increase the authorized Common Stock of the Parent to 40,000,000 shares. 5.16 NASD Matters. The Parent shall have given or made all notices to or filings with the National Association of Securities Dealers, Inc. (the "NASD"), and shall have complied with all rules and regulations of the NASD, required in connection with the transactions contemplated hereby. 5.17 Assignment of Trademarks. The Parent and the Company shall have taken all actions necessary for the purpose of assigning all trademarks set forth on subsection (i) of Schedule 2.10 to the Company (including without limitation an assignment of the pending registrations of such trademarks with the Patent and Trademark Office). 5.18 Assignment of Contracts. The Parent and the Company shall have taken all actions necessary for the purpose of assigning all contracts set forth on Schedule 2.12 to the Subsidiary, including obtaining all third-party consents necessary to complete such assignments. 5.19 Contribution Agreement. The Parent, the Company and any of their affiliates shall have entered into a form of contribution agreement that is reasonably acceptable to counsel for the Investors, effecting the transfer and assignment to the Company of all assets, contracts or any other rights related to or necessary for the business of the Company as presently conducted or proposed to be conducted. 6. Conditions of the Company's and the Parent's Obligations at Closing. The obligations of the Company and the Parent to the Investors under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by the Investors: 6.1 Representations and Warranties. The representations and warranties of the Investors contained in Section 4 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 6.2 Performance. The Investors shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 6.3 Proceedings and Documents. All corporate approvals, stockholder approvals and other proceedings in connection with the transactions contemplated at the Closing 19 24 and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company's and the Parent's counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 6.4 Payment of Purchase Price; Delivery of Certificate. The Investors shall have delivered to the Company the purchase price payable at the Closing pursuant to Section 1.3. 6.5 Qualifications. All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful issuance and sale of the Securities and the other transactions contemplated by this Agreement shall be duly obtained and effective as of the Closing. 6.6 Stockholder Approval. The stockholders of the Parent shall have duly approved (i) the issuance by the parent of the Parent Common Stock issuable upon conversion of the Parent Preferred Stock, and (ii) the amendment of the Parent's Certificate of Incorporation pursuant to the Restated Designation. 7. Miscellaneous. 7.1 Survival of Warranties. The warranties, representations and covenants of the Company, the Parent and the Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of two years, and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors, the Parent or the Company; provided, however, that there shall be no limitation period for those matters addressed in Section 2.2(a) or (b) hereof. 7.2 Use of Proceeds. The Company shall use the proceeds from the sale of the Securities to the Investors hereunder for general corporate purposes. 7.3 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Securities, any Series A Preferred Stock issuable upon exercise of the Warrants, any Common Stock issuable upon conversion of the Series A Preferred Stock, any Class A Common Stock issuable upon conversion of the Class B Common Stock, any Parent Preferred Stock issuable under the Exchange Agreements or any Parent Common Stock issuable upon conversion of the Parent Preferred Stock). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 7.4 Governing Law. The construction, validity and interpretation of this Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 20 25 7.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 7.6 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 7.7 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial overnight courier (with confirmation of receipt) or sent via facsimile (with confirmation of receipt), (a) in case of the Company, to the Company at 2345 North Central Expressway, Richardson, Texas 75080 (Fax: (972) 669-9557), Attention: President, (b) in case of the Parent, to the Parent at 2345 North Central Expressway, Richardson, Texas 75080 (Fax: (972) 669-9557), Attention: President, (c) in the case of Safeguard Scientifics, Inc., to Safeguard Scientifics, Inc. at 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087, (Fax: (610) 293-0601), Attention: Chief Financial Officer, and (d) in the case of SCP Private Equity Partners II, L.P., to SCP Private Equity Partners II, L.P. at 435 Devon Park Drive, Building 300, Wayne, Pennsylvania 19087, (Fax: (610) 293-0601), Attention: General Partner (or at such other address for a party as shall be specified by like notice). Notice given by facsimile shall be confirmed by appropriate answer back and shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All notices by facsimile shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which notice is to be given to it by giving notice as provided above of such change of address. 7.8 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Investor severally agrees to indemnify and to hold harmless the Company and the Parent from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible. The Company and the Parent jointly and severally agree to indemnify and hold harmless the Investors from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or the Parent or any of their respective officers, employees, consultants or representatives is responsible. 7.9 Expenses. Irrespective of whether the Closing is effected, the parties shall pay all costs and expenses that they incur with respect to the negotiation, execution, delivery and performance of this Agreement and any schedules or exhibits hereto. 21 26 7.10 Dispute Resolution. (a) If any dispute arising out of or relating to this Agreement, any Warrant, the Investors' Rights Agreement, the Co-Sale Agreement or any Exchange Agreement, or any other agreement executed in connection herewith or the breach, termination or validity thereof (a "Dispute") is not settled promptly in the ordinary course of business, the parties shall seek to resolve any such Dispute between them, first, by negotiating promptly with each other in good faith in face-to-face negotiations. These face-to-face negotiations shall be conducted by the respective designated senior management representative of each party. If the parties are unable to resolve the Dispute between them through these face-to-face negotiations, within 20 business days (or such period as the parties shall otherwise agree) following the date of notification (the "Notice Date") by one party to the others of the existence of such Dispute, then any such Dispute shall be resolved in the following manner. (b) The parties shall endeavor to resolve any such Dispute by mediation under the CPR Mediation Procedures for Business Disputes. Unless otherwise agreed, the parties will select a mediator from the CPR Panels of Neutrals and shall notify CPR to initiate the selection process. (c) Any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, exceeds $100,000 ("Summary Proceeding"), arising out of or relating to a Dispute which has not been resolved by mediation as provided herein within 90 days of the Notice Date, shall be litigated exclusively in the Superior Court of the State of Delaware (the "Delaware Superior Court") as a summary proceeding pursuant to Rules 124-131 of the Delaware Superior Court, or any successor rules (the "Summary Proceeding Rules"). Each of the parties hereto hereby irrevocably and unconditionally (A) submits to the jurisdiction of the Delaware Superior Court for any Summary Proceeding, (B) agrees not to commence any Summary Proceeding except in the Delaware Superior Court, (C) waives, and agrees not to plead or to make, any objection to the venue of any Summary Proceeding in the Delaware Superior Court, (D) waives, and agrees not to plead or to make any claim that any Summary Proceeding brought in the Delaware Superior Court has been brought in an improper or otherwise inconvenient forum, (E) waives, and agrees not to plead or to make, any claim that the Delaware Superior Court lacks personal jurisdiction over it, (F) waives its right to remove any Summary Proceeding to the federal courts except where such courts are vested with sole and exclusive jurisdiction by statute, and (G) understands and agrees that it shall not seek a jury trial or punitive damages in any Summary Proceeding based upon or arising out of a Dispute, and waives any and all rights to any such jury trial or to seek punitive damages. (d) In the event any action, suit or proceeding where the amount in controversy as to at least one party, exclusive of interest and costs, does not exceed $100,000 (a "Proceeding"), arising out of or relating to a Dispute is brought, the parties to such Proceeding agree to make application to the Delaware Superior Court to proceed under the Summary Proceeding Rules. Until such time as such application is rejected, such Proceeding shall be treated as a Summary Proceeding and all of the foregoing provisions of Section 7.10(c) relating to Summary Proceedings shall apply to such Proceeding. 22 27 (e) If a Summary Proceeding is not available to resolve any Dispute hereunder, the controversy or claim shall be settled by arbitration conducted on a confidential basis, under the U.S. Arbitration Act, if applicable, and the then current Commercial Arbitration Rules of the American Arbitration Association (the "Association") strictly in accordance with the terms of this Agreement and the substantive law of the State of Delaware including law in respect of any statute of limitations. The arbitration shall be conducted at the Association's regional office located in Philadelphia, Pennsylvania by three arbitrators, at least one of whom shall be knowledgeable in the industry in which the Company is engaged in business, one of whom shall be an attorney and one of whom shall be a member of a "Big Five" accounting firm familiar with the industry in which the Company is engaged in business. Absent mutual agreement of the parties, the arbitrators specified in the preceding sentence shall be appointed pursuant to the Commercial Arbitration Rules of the Association. The arbitrators are not empowered to award damages in excess of compensatory damages and each party hereby irrevocably waives any right to recover damages in excess of compensatory damages with respect to any such Dispute. Judgment upon the arbitrators' award may be entered and enforced in any court of competent jurisdiction. (f) No party shall be precluded hereby from securing equitable remedies in courts of any jurisdiction, including, but not limited to, temporary restraining orders and preliminary injunctions to protect its rights and interests but shall not be sought as a means to avoid or stay arbitration or Summary Proceeding. (g) Each party is required to continue to perform its obligations under this contract pending final resolution of any Dispute, unless to do so would be impossible or impracticable under the circumstances. 7.11 Amendments and Waivers. 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), only with the written consent of the Company, the Parent and the holders of at least two-thirds of the Parent Common Stock issued or issuable upon conversion of the Parent Preferred Stock issued or issuable under the Exchange Agreements. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, any securities into or for which such Securities are convertible or exchangeable, each future holder of all such securities, the Parent and the Company. 7.12 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 7.13 No Amendment of Parent Preferred Stock Terms. As long as either Exchange Agreement remains in effect, the Parent shall not take any action specified in Sections 7(i) or 8(i) of the Restated Designation without the prior consent of the holders of at least two-thirds of the Parent Preferred Stock issued or issuable under the Exchange Agreements. 23 28 7.14 Publicity. None of the Company, the Parent or the Investors shall take any action, or permit any of its employees, consultants, officers, directors or stockholders to take any action, which may result in the public disclosure of the transactions effected hereby or the identity of the Investors, except pursuant to the Parent's filing obligations under applicable securities laws or unless otherwise required by law. Other than with respect to filing obligations under applicable securities laws, if the Company or the Parent determines that it is required by law to disclose these transactions or the identity of the Investors, it shall, at a reasonable time before making any such disclosure, consult with the Investors regarding such disclosure and seek confidential treatment of this Agreement and all schedules and exhibits hereto. 7.15 Stockholders' Meeting and NASD Matters. (a) As promptly as practicable after the execution of this Agreement, the Parent shall prepare and shall file with the Securities and Exchange Commission (the "SEC") a proxy statement relating to the special meeting of the Parent's stockholders (the "Stockholders' Meeting") to be held to consider the approval of the matters required by Section 5.15 (together with any amendments or supplements thereto, the "Proxy Statement"). The Proxy Statement shall be in form and substance satisfactory to the Investors. Copies of the Proxy Statement shall be provided to the Nasdaq National Market (the "NNM") in accordance with its rules. The Parent shall notify the Investors of the receipt of any comments from the SEC on the Proxy Statement and of any requests by the SEC for any amendments or supplements thereto or for additional information and shall provide to the Investors promptly copies of all correspondence between the Parent or any of its representatives and advisors and the SEC. The Parent shall cause the Proxy Statement to comply as to form and substance in all material respects with the applicable requirements of (i) the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) the rules and regulations of the NNM. The Parent shall mail the Proxy Statement to its stockholders as promptly as practicable after the SEC either informs the Parent that it will not review the Proxy Statement or all comments or requests for information by the SEC with respect thereto have been resolved. (b) The Proxy Statement shall include the recommendation of the board of directors of the Parent to the Parent's stockholders that they vote in favor of approval of the matters required by Section 5.15. (c) The Proxy Statement shall, at the time filed with the SEC or other regulatory agency and, in addition, at the date it or any amendments or supplements thereto are mailed to stockholders of the Parent, at the time of the Stockholders' Meeting and at the Closing, not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. If at any time prior to the Closing any event or circumstance is discovered by the Parent that should be set forth in an amendment or a supplement to the Proxy Statement, the Parent shall promptly inform the Investors. All documents that the Parent is responsible for filing with the SEC in connection with the transactions contemplated hereby will comply as to form in all material respects with the applicable requirements of the rules and regulations of the Exchange Act. 24 29 (d) The Parent shall call and hold the Stockholders' Meeting as promptly as practicable after the date hereof for the purpose of voting upon the approval of the matters required by Section 5.15 pursuant to the Proxy Statement. Except as otherwise contemplated by this Agreement, the Parent shall use all reasonable efforts to solicit from its stockholders proxies in favor of the approval of the matters required by Section 5.15 pursuant to the Proxy Statement and shall take all other action necessary or advisable to secure the vote or consent of stockholders required by the Delaware General Corporation Law. (e) The Parent shall take all actions necessary to comply with the rules and regulations of the NNM in connection with the consummation of the transactions contemplated by this Agreement. 7.16 Termination. If the approval of the stockholders of the Parent required by Section 5.16 has not been obtained or the Closing has not occurred on or prior to October 31, 2000, either Investor may terminate this Agreement effective immediately by sending written notice thereof to the Company, the Parent and the other Investor, whereupon no party hereto shall have any liability to any other party hereto other than any liability arising out of the breach of this Agreement by such party prior to the termination. Notwithstanding the foregoing, Sections 7.1, 7.4, 7.8, 7.9, 7.10 and 7.14 hereof shall survive any termination of this Agreement. 7.17 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. [Signature Page Follows] 25 30 IN WITNESS WHEREOF, the parties have executed this Securities Purchase Agreement as of the date first above written. COMPANY: eMAKE CORPORATION By: /s/ Robert L. Drury ----------------------------------- Robert L. Drury, Chief Financial Officer PARENT: USDATA CORPORATION By: /s/ Robert L. Drury ----------------------------------- Robert L. Drury, Chief Financial Officer INVESTORS: SAFEGUARD 2000 CAPITAL, L.P. By: Safeguard Delaware, Inc., its General Partner By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC, its Manager By: /s/ ----------------------------------- Name: --------------------------------- Title: -------------------------------- [SIGNATURE PAGE-SECURITIES PURCHASE AGREEMENT] 31 SCHEDULE A DISCLOSURE SCHEDULE 32 EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EMAKE CORPORATION [ATTACHED] 33 EXHIBIT B AMENDED AND RESTATED CERTIFICATE OF DESIGNATION FOR SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK [ATTACHED] 34 EXHIBIT C SCP WARRANT [ATTACHED] 35 EXHIBIT D SAFEGUARD WARRANT [ATTACHED] 36 EXHIBIT E SCP EXCHANGE AGREEMENT [ATTACHED] 37 EXHIBIT F SAFEGUARD EXCHANGE AGREEMENT [ATTACHED] 38 EXHIBIT G INVESTORS' RIGHTS AGREEMENT [ATTACHED] 39 EXHIBIT H CO-SALE AND RIGHT OF FIRST REFUSAL AGREEMENT [ATTACHED] 40 EXHIBIT I FORM OF NONCOMPETITION, NONDISCLOSURE AND INVENTIONS AGREEMENT [ATTACHED] 41 EXHIBIT J AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT [ATTACHED] 42 EXHIBIT K OPINION OF COUNSEL [ATTACHED] EX-10.5 7 d81940ex10-5.txt AMENDED/RESTATED INVESTORS' RIGHTS AGREEMENT 1 EXHIBIT 10.5 AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amended and Restated Investors' Rights Agreement (this "Agreement") is made as of this 12th day of September, 2000, by and among USDATA Corporation, a Delaware corporation (the "Company"), the Investors listed on Schedule A hereto (each, an "Investor" and collectively, the "Investors") and, for the limited purpose of agreeing to Sections 2, 3 and 5 hereof, Safeguard Scientifics, Inc. ("Safeguard"). This Agreement shall become effective as of the Closing (as defined therein) of the transactions contemplated by that certain Securities Purchase Agreement dated as of even date herewith (the "Purchase Agreement") by and among the Company, eMake Corporation and the Investors named therein. RECITALS WHEREAS, the Company and the Investor named therein are parties to the Stock Purchase Agreement (the "Original Purchase Agreement"), dated August 6, 1999; WHEREAS, the Company, the Investor named therein and Safeguard are parties to the Investors' Rights Agreement (the "Original Agreement"), dated August 6, 1999; WHEREAS, the execution of this Agreement and the amendment and restatement of the Original Agreement pursuant hereto is a condition precedent to the Closing of the Purchase Agreement; and WHEREAS, in order to induce the Investors named therein to enter into the Purchase Agreement and to consummate the transactions contemplated thereby, the Company, the Investors and Safeguard hereby agree that this Agreement shall amend, restate and supercede the Original Agreement and shall govern the rights of the Investors to cause the Company to register shares of Common Stock and certain other matters as set forth herein; AGREEMENT NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. REGISTRATION RIGHTS. The Company covenants and agrees as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) the term "Act" means the Securities Act of 1933, as amended; (b) the term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 hereof; 2 (c) the term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended; (d) the terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document; (e) the term "Registrable Securities" means (i) the Common Stock issued and sold to the Safeguard Delaware, Inc. pursuant to the Original Purchase Agreement, the Common Stock issuable or issued upon conversion of the Series A Preferred Stock issued and sold to Safeguard Delaware, Inc. pursuant to the Original Purchase Agreement and the Common Stock issued or issuable upon conversion of the Series B Preferred Stock issuable or issued under the Exchange Agreements (as defined in the Purchase Agreement), and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the securities referenced under (i) above; (f) the term "Common Stock" means shares of the Company's Common Stock, par value $0.01 per share; (g) the term "Series A Preferred Stock" means shares of the Company's Series A Convertible Preferred Stock, par value $0.01 per share; (h) the term "Series B Preferred Stock" means shares of the Company's Series B Convertible Preferred Stock, par value $0.01 per share; (i) the number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities; (j) the term "SEC" shall mean the Securities and Exchange Commission; (k) the term "Shelf Registration Period" shall have the meaning set forth in Section 1.2(b) hereof; and (l) the term "Shelf Registration Statement" shall mean a "shelf" registration statement of the Company pursuant to the provisions of Section 1.2 hereof which covers all of the Registrable Securities on Form S-3 or on another appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case, including the prospectus contained therein, all exhibits thereto and all documents incorporated or deemed to be incorporated by reference therein. 2 3 1.2 SHELF REGISTRATION. (a) Upon the request of the Holders of 25% of the Registrable Securities then outstanding, the Company shall prepare and, not later than 30 days following such request, shall file with the SEC a Shelf Registration Statement with respect to resales of the Registrable Securities from time to time in accordance with the methods of distribution elected by the Holders of the Registrable Securities and set forth in such Shelf Registration Statement and thereafter shall use its best efforts to cause such Shelf Registration Statement to be declared effective under the Act prior to 45 days following the filing of the Shelf Registration Statement with the SEC. The Company shall supplement or amend the Shelf Registration Statement if required by the rules, regulations or instructions applicable to the registration form used by the Company for the Shelf Registration Statement, if required by the Act, the 1934 Act or the SEC. (b) The Company shall keep the Shelf Registration Statement continuously effective under the Act in order to permit the prospectus forming a part thereof to be usable by all Holders until the earliest of (i) the fifth anniversary of the date hereof, (ii) the date as of which all Registrable Securities have been transferred pursuant to Rule 144 under the Securities Act (or any similar provision then in force), and (iii) such date as of which all Registrable Securities have been sold pursuant to the Shelf Registration Statement (in any such case, such period being called the "Shelf Registration Period"). The Company shall: (i) subject to Section 1.2(c), prepare and file with the SEC such amendments and post-effective amendments to the Shelf Registration Statement as may be necessary to keep the Shelf Registration Statement continuously effective for the Shelf Registration Period; (ii) subject to Section 1.2(c), cause the related prospectus to be supplemented by any required supplement, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) under the Act; and (iii) comply in all material respects with the provisions of the Act with respect to the disposition of all securities covered by the Shelf Registration Statement during the applicable period in accordance with the intended methods of disposition by the sellers thereof set forth in such Shelf Registration Statement as so amended or such prospectus as so supplemented. (c) The Company may suspend the use of the prospectus forming a part of the Shelf Registration Statement for two periods not to exceed an aggregate of 60 days in any twelve-month period for valid business reasons, to be determined by the Company in its reasonable judgment (not including avoidance of the Company's obligations hereunder), including, without limitation, the acquisition or divestiture of assets, public filings with the SEC, pending corporate developments and similar events. The Company shall provide written notice to the Holders of any such suspension. 1.3 COMPANY REGISTRATION. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on Form S-4 (or its successor) relating to an offering of shares in connection with any acquisition of any entity or business, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities or exercise of warrants which are also being registered) and the Registrable Securities have not theretofore been included in a Shelf 3 4 Registration Statement pursuant to Section 1.2 that remains effective, the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within 20 days after mailing of such notice by the Company, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. The obligations of the Company under this Section 1.3 with respect to any particular offering may be waived at any time upon the written consent of Holders a majority of the outstanding Registrable Securities. The right of any Holder to request inclusion of Registrable Securities held by it in any registration pursuant to this Section 1.3 shall terminate if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder are eligible to be sold under Rule 144 under the Act during any 90-day period. In any event, such right shall terminate on the fifth anniversary of the date hereof. 1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, in a reasonable amount of time and as promptly as possible: (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and in the case of a registration under Section 1.3 or 1.14 hereof, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to 120 days or, if earlier, until the distribution contemplated in such registration statement has been completed; provided, however, that such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions in which it is not, at the time, so qualified or otherwise subject itself to general taxation in any such states or jurisdictions; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing 4 5 underwriter of such offering, it being understood and agreed that each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; (f) notify each Holder of Registrable Securities covered by such registration statement in writing at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; (h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (i) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of any such registration statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for offer or sale in any jurisdiction at the earliest possible time; and (j) cooperate in all necessary respects with (A) counsel in preparation of the customary legal opinions and (B) accountants in preparation of the customary comfort letters. 1.5 FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 EXPENSES OF SHELF REGISTRATION. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements, which shall not exceed $25,000, of one counsel for the selling Holders (to be selected by the Holders holding a majority of the Registrable Securities) shall be borne and paid by the Company. 1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.13), including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements, which shall not exceed $25,000, of one counsel for the selling Holders (to be selected by the holders of a majority of the Registrable Securities to be 5 6 registered), but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8 UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock under Section 1.3, the Company shall not be required to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering. The securities so included shall be apportioned (a) first to Holders selling Registrable Securities pro rata according to the total amount of Registrable Securities entitled to be included therein owned by each selling Holder and (b) second, to the extent determined by the underwriters to be compatible with the offering, to other stockholders. 1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.10 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) to the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, promptly following delivery of an invoice for such amounts incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(a) shall not apply to: (x) amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company 6 7 (which consent shall not be unreasonably withheld); (y) any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; (z) any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon such Holder's or underwriter's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto; (b) to the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from the offering received by such Holder; (c) promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, 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 such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10; 7 8 (d) if the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. In no event shall any contribution by a Holder under this subsection 1.10(d) exceed the gross proceeds from the offering received by such Holder. In no event shall a person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) be entitled to contribution from any person or entity who was not guilty of fraudulent misrepresentation; (e) notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control; and (f) the obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.11 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934.(a) The Company shall cause its Common Stock to continue to be registered under Sections 12(b) or 12(g) of the 1934 Act, shall comply in all respects with its reporting and filing obligations under the 1934 Act, and shall not take any action or file any document (whether or not permitted by the 1934 Act or the rules thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the 1934 Act. The Company shall take all action necessary to continue the listing or trading of its Common Stock on any national securities exchange or the Automated Quotation System of the National Association of Securities Dealers on which Common Stock is listed or traded, and shall comply in all material respects with its reporting, filing and other obligations under the bylaws or rules of such exchange or association. The Company will furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Act and the 1934 Act or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 under the Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents as are filed by the Company under the 1934 Act, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 8 9 1.12 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to (a) any partner or retired partner of any holder which is a partnership, (b) any family member or trust for the benefit of any individual holder, or (c) any transferee or assignee who, after such assignment or transfer, holds at least 15% of the then outstanding Registrable Securities, provided: (i) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (ii) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement; and (iii) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 1.13 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to interfere with or otherwise limit a Holder's registration rights under this Agreement. 1.14 REQUEST FOR REGISTRATION. (a) If the Company shall at any time during the Shelf Registration Period be ineligible to use Form S-3 or Form S-3 shall be for any reason unavailable to register the Registrable Securities under the rules and regulation of the SEC, and the duration of such ineligibility or unavailability exceeds or is expected to exceed 60 days, the Holders shall have the right by a written request from the Holders of a majority of the Registrable Securities then outstanding to the Company, to require the Company to file a registration statement under the Act covering the resales of at least 25% of the Registrable Securities then outstanding (or a lesser percent if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $10,000,000), but in no event will the aggregate value of the shares to be registered under such registration statement be less than $500,000. Upon its receipt of such a written request, the Company shall given written notice of such request to all Holders within ten days thereof. The Company shall file as soon as practicable, and in any event within 90 days of the receipt of such request, a registration statement under the Act covering resales of all Registrable Securities which Holders request to be registered, subject to the limitations of subsection 1.14(b). (b) If the Holders initiating the registration request hereunder (the "Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 1.14(a) and the Company shall include such information in the written notice referred to in subsection 1.14(a). The managing underwriter shall be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing 9 10 to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.14, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder. (c) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.14(a) after the Company has effected two registrations pursuant to this Section 1.14(a) and such registrations have been declared or ordered effective; provided, however, that a registration will not count as a registration pursuant to this Section 1.14(a) unless the Holders requesting registration are able to register the offering and sale of at least 50% of the shares of Registrable Securities that they have requested be included in such registration. 2. RIGHTS OFFERING. 2.1 RIGHTS. (a) As used herein, the term "Subsidiary" shall mean, with respect to the Company, any direct or indirect subsidiary of the Company more than 50% of the outstanding voting securities of which are owned directly or indirectly by the Company. The Company shall, upon receipt of a Rights Offering Notice (as defined below), cause the Subsidiary designated as the "Relevant Subsidiary" in connection therewith (the "Relevant Subsidiary"), to grant to the holders of the common stock of Safeguard rights (the "Rights") to purchase from such Relevant Subsidiary such number of shares of such Relevant Subsidiary's common stock as determined by Safeguard up to a maximum of 40% of the sum of (i) all issued shares of common stock of such Relevant Subsidiary, and (ii) all shares of common stock of such Relevant Subsidiary subject to issuance pursuant to options, warrants or other agreements, plans, instruments or understandings, all as of the effective date of the registration statement relating to such Rights (the "Rights Registration Statement"). The Rights shall be issued in an offering (the "Rights Offering") pursuant to the Rights Registration Statement, shall be exercisable for a period of no greater than 45 days after the commencement of the Rights Offering and shall be transferable by the holder thereof during that period. The Company shall cause the Relevant Subsidiary to engage an investment banking firm selected by the Company, subject to the reasonable approval of Safeguard, which firm shall underwrite, on a standby, firm commitment basis, any portion of the offered common stock of the Relevant Subsidiary not purchased through the exercise of Rights. The Company shall also engage legal counsel selected by Safeguard, subject to the reasonable approval of a majority of the Board of Directors of the Company, which counsel shall represent the Relevant Subsidiary in connection with the conduct of the Rights Offering. The exercise price of the Rights shall be determined by negotiation among the Relevant Subsidiary, the underwriters and the selling stockholders, if any. Prior to the commencement of the Rights Offering, the Company shall use its best efforts to cause (and shall cause the Relevant Subsidiary 10 11 to use its best efforts to cause) any holder of more than 1% of the Relevant Subsidiary's common stock (or rights to acquire more than 1% of the Relevant Subsidiary's common stock) and the Relevant Subsidiary's officers and directors to execute and deliver to the underwriter of the Rights Offering a market stand-off agreement. Such market stand-off agreement shall provide that, during the period of duration specified by the Relevant Subsidiary and the underwriter of common stock or other securities of the Relevant Subsidiary following the effective date of the Rights Registration Statement, such persons shall not, to the extent requested by the Relevant Subsidiary and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Relevant Subsidiary held by them at any time during such period except common stock included in such Rights Registration Statement. (b) Safeguard may initiate a Rights Offering with respect to any Subsidiary by giving written notice to the Company (a "Rights Offering Notice") at any time during the Rights Exclusivity Period (as hereinafter defined) at such time as the total market value of such Subsidiary is at least $35,000,000, which determination shall be made in good faith, upon request by Safeguard from time to time, by the Board with the assistance and advice of such experts or consultants as the Board may choose to retain, if any. The obligations of the Company pursuant to this Section 2.1 shall commence on the date hereof and expire on August 6, 2004 (such period, the "Rights Exclusivity Period"), unless a registration statement relating to a Rights Offering has been filed with the SEC by such date, in which case the Rights covered by such Registration Statement shall not expire until 150 days after the date such filing was made. (c) The Company agrees that it will not (i) sell or otherwise transfer any of the capital stock of any Subsidiary owned by it, (ii) permit any Subsidiary to merge or consolidate with any other person or entity other than the Company or another Subsidiary or sell, lease or otherwise transfer any substantial portion of any Subsidiary's assets, or (iii) permit any Subsidiary to undertake any registration of any of its securities under the Act or the 1934 Act other than pursuant to this Section 2.1, in any case, prior to the earlier of the expiration of the Rights Exclusivity Period or the completion of a Rights Offering with respect to such Subsidiary, except with the consent of Safeguard; provided, however, that this subsection shall not apply to the registration rights provided under that certain Investors' Rights Agreement, dated as of the date hereof, by and among eMake Corporation and the other parties thereto. (d) Upon closing of a Rights Offering with respect to any Subsidiary, Safeguard's right to require such Subsidiary to conduct any further Rights Offerings under this Section 2 and any Directed Shares Offering under Section 3 below shall terminate. 2.2 SPLIT. After Safeguard has notified the Company of its intention to commence a Rights Offering, the Company shall, prior to the filing of the Rights Registration Statement with respect thereto as provided hereinafter (or at such earlier date as agreed to by the Company and Safeguard), take all such actions as shall be necessary to cause the Relevant Subsidiary to cause a split of its authorized common stock in such ratio as Safeguard shall determine. All references to share amounts in this Agreement other than as specifically noted shall be deemed to refer to share amounts prior to such split. 11 12 2.3 REGISTRATION STATEMENT. Upon notice by Safeguard to the Company of its intention to commence a Rights Offering, the Company shall cause the Relevant Subsidiary to promptly prepare a Rights Registration Statement to register under the Act, the Rights and the shares of the common stock of the Relevant Subsidiary to be acquired upon exercise of the Rights (the "Rights Shares"). The Company covenants that such Rights Registration Statement and the prospectus included therein shall be in form reasonably satisfactory to Safeguard, shall comply in all material respects with the Act and the rules and regulations of the SEC promulgated thereunder, shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and shall conform with the provisions of Section 1.4 hereof. 2.4 REGISTRATION PROCESS. The Company shall use its best efforts to cause the Relevant Subsidiary to cause the Rights Registration Statement to be filed with the SEC and to become effective as promptly as practicable in accordance with Section 1.4 hereof. The Company shall cause the Relevant Subsidiary to prepare and file with the SEC, promptly upon Safeguard's request, any amendments or supplements to the Rights Registration Statement or the related prospectus that, in Safeguard's opinion, may be necessary or advisable in connection with the Rights Offering, subject to the reasonable approval of the Relevant Subsidiary and its counsel. The Company shall not permit the Relevant Subsidiary to file any amendment or supplement to the Rights Registration Statement or the related prospectus unless (A) it has furnished Safeguard with a copy of such amendment or supplement a reasonable time prior to filing and (B) Safeguard has not reasonably objected to such amendment or supplement by notice to the Company within 10 days of receipt of such copy. The Company shall not issue (and shall not permit the Relevant Subsidiary to issue) any advertisement, press release, mailing or other solicitation material of which Safeguard reasonably disapproves by prompt written notice to the Company after receiving reasonable notice thereof. The Company shall cause the Relevant Subsidiary to comply with the Act and the rules and regulations thereunder in connection with the Rights Offering and, until the termination of the Rights Offering, the Company shall cause the Relevant Subsidiary to use its best efforts to qualify the Rights Shares under the securities laws of all jurisdictions in which qualification is required and there are holders of Safeguard common stock and to continue such qualifications in effect during the exercise period of the Rights. At the time of mailing the prospectus relating to the Rights Offering and at the time of the closing of the Rights Offering, Safeguard shall be entitled to receive (A) from the Company and the Relevant Subsidiary such certificates and documents evidencing compliance with such representations and warranties of the Company and the Relevant Subsidiary as Safeguard shall reasonably request of the Company, and (B) from the counsel and independent accountants of the Company and the Relevant Subsidiary such opinions and documents as Safeguard may reasonably request thereof as if it were applicable to the Rights Offering. 2.5 USE OF PROCEEDS. The Company shall cause the Relevant Subsidiary to apply all proceeds of the Rights Offering first to the payment of the expenses of the Rights Offering and thereafter to general working capital purposes or such other purposes as shall be described in the related prospectus and agreed to by Safeguard. 12 13 2.6 REGISTRATION SERVICES. (a) Services. Safeguard shall diligently and in a timely fashion assist the Company and the Relevant Subsidiary in structuring the Rights Offering, in preparing the necessary registration statement and related disclosure documentation, in clearing the Rights Offering with the SEC and applicable state securities authorities and shall provide such other services and assistance in connection with the Rights Offering as the Company or the Relevant Subsidiary shall reasonably request. Nothing contained herein shall require Safeguard to provide to the Company or the Relevant Subsidiary any services or assistance which, if rendered by Safeguard, would require Safeguard to register as a broker-dealer under Section 15 of the Exchange Act or any state securities laws, or as an investment adviser under the Investment Advisor Act of 1940, as amended. (b) Working Group. The Company shall cause the counsel, auditors, employees, officers and consultants of the Company and the Relevant Subsidiary to render such assistance in consummating the Rights Offering, at the expense of the Company, as is customary in the consummation by a company of its initial public offering. In addition, in rendering services under this Section 2.6, Safeguard may engage special legal counsel, one or more rights, registrar and transfer agents, and such other consultants as Safeguard may deem necessary or desirable in connection with the Rights Offering, subject to the reasonable approval of the Company, the expenses of which shall be paid by the Company and which are not included in the reimbursement described in Subsection 2.6(c) below. In addition, Safeguard may require the Relevant Subsidiary to engage a registered broker-dealer of Safeguard's designation, subject to the reasonable approval of the Company, to provide such services in connection with the Rights Offering as Safeguard may deem reasonably necessary or desirable, including without limitation, to effect or underwrite the offering of the Rights or the Rights Shares in states in which applicable state laws require that a registered broker-dealer effect such offering. (c) Expenses. The Company shall bear all reasonable costs and expenses of the Rights Offering, including, but not limited to, the Relevant Subsidiary's printing, legal and accounting fees and expenses, SEC and NASD filing fees and "Blue Sky" fees and expenses; provided, however, that the Company shall have no obligation to pay or otherwise bear any portion of the underwriters' discounts attributable to the Rights Shares not being offered and sold by the Relevant Subsidiary, or the fees and expenses of counsel for the selling holders of Rights Shares in connection with the registration of the Rights Shares if other than counsel to the Relevant Subsidiary. The Company shall reimburse Safeguard for its internal expenses incurred under this Section 2 by payment of $50,000 on a nonaccountable basis, such payment to be made on the earlier of the closing of the Rights Offering or 90 days after the Registration Statement is filed. 2.7 INDEMNIFICATION. In connection with the Rights Offering: (a) to the extent permitted by law, the Company will indemnify and hold harmless Safeguard, any underwriter (as defined in the Act) for Safeguard and each person, if any, who controls Safeguard or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, 13 14 damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company or the Relevant Subsidiary of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to Safeguard and each underwriter or controlling person, promptly following delivery of an invoice for such amounts incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 2.7(a) shall not apply to: (x) amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld); (y) any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by Safeguard or the underwriter or controlling person; (z) any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon Safeguard's or the underwriter's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto; (b) to the extent permitted by law, Safeguard will indemnify and hold harmless the Relevant Subsidiary, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Relevant Subsidiary within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by Safeguard expressly for use in connection with such registration; and Safeguard will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 2.7(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of Safeguard, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 2.7(b) exceed the gross public offering price of all such securities offered by Safeguard and sold pursuant to such registration statement; (c) promptly after receipt by an indemnified party under this Section 2.7(c) of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.7, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the 14 15 indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, 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 such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.7, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.7; (d) if the indemnification provided for in this Section 2.7 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. In no event shall any contribution by Safeguard under this subsection 2.7(d) exceed the gross public offering price of all such securities offered by Safeguard and sold pursuant to such registration statement. In no event shall a person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) be entitled to contribution from any person or entity who was not guilty of fraudulent misrepresentation; (e) notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control; and (f) the obligations of the Company and Safeguard under this Section 2.7 shall survive the completion of the Rights Offering. 3. SAFEGUARD SUBSCRIPTION OFFERING. 3.1 DIRECTED SHARES REGISTRATION. Safeguard shall have the right to require the Company to cause any Subsidiary to file a registration statement on Form S-1 for the registration of shares of the Subsidiary's common stock pursuant to this Section 3 at such time as the total market value of such Subsidiary is at least $35,000,000 (the "Safeguard Subscription 15 16 Offering"). Such registration statement shall register common stock (i) sufficient in number to satisfy the Directed Shares requirement described below and (ii) with an aggregate offering price, prior to underwriting discounts and commissions, of at least $10,000,000. In connection with such Safeguard Subscription Offering, the Company shall cause the applicable Subsidiary to adjust its authorized shares as requested by Safeguard in order to facilitate distribution of Directed Shares to its stockholders. The Company shall cause the applicable Subsidiary to engage (i) an underwriter or underwriters selected by Safeguard, subject to the approval of a majority of the Board of Directors of the Company, and (ii) legal counsel selected by Safeguard, subject to the reasonable approval of a majority of the Board of Directors of the Company, which counsel shall represent the applicable Subsidiary in connection with the conduct of the Safeguard Subscription Offering. 3.2 DIRECTED SHARES SUBSCRIPTION PROGRAM. In connection with the Safeguard Subscription Offering, the Company shall cause the applicable Subsidiary to: (a) provide in the related underwriting agreement a right for Safeguard to designate persons (the "Safeguard Designees") who may purchase from the underwriter(s) shares of the Relevant Subsidiary's common stock (the "Directed Shares") at the public offering price of such Subsidiary's common stock in the Safeguard Subscription Offering (the "IPO Price"); and (b) use its best efforts to cause such Subsidiary to cause the underwriters of the Safeguard Subscription Offering to allow the Safeguard Designees to purchase at the IPO Price that number of Directed Shares equal to 20% of the shares of common stock offered by such Subsidiary in such Safeguard Subscription Offering. Upon closing of the Safeguard Subscription Offering with respect to any Subsidiary and sale of the number of shares set forth in this Section 3.2(b), Safeguard's right to require the Company to cause such Subsidiary to conduct a Rights Offering pursuant to Section 2 above shall terminate. The Company shall reimburse Safeguard for its internal expenses incurred under this Section 3 by payment of $50,000 on a nonaccountable basis, such payment to be made on the earlier of the closing of the Safeguard Subscription Offering or 90 days after the Registration Statement is filed. 4. BOARD NOMINATIONS. As long as SCP Private Equity Partners II, L.P. ("SCP") owns at least 5% of the outstanding Common Stock of the Company (on an as-converted basis), SCP shall have the right to propose one director for election to the Board of Directors of the Company and the Company shall take all steps necessary to nominate such proposed director for election to the Company's Board of Directors at its annual meeting of stockholders. 5. MISCELLANEOUS. 5.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 16 17 5.2 GOVERNING LAW. The construction, validity and interpretation of this Agreement will be governed by the internal laws of the State of Delaware without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 5.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 5.5 NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial overnight courier (with confirmation of receipt) or sent via facsimile (with confirmation of receipt) (i) if to the Company, at USDATA Corporation, 2435 North Central Expressway, Richardson, Texas 75080 (fax: (972) 669-9557), Attention: Robert L. Drury, (ii) if to any Investor, at the address beneath such Investor's name on Schedule A attached hereto, (iii) if to Safeguard, at Safeguard Scientifics, Inc., 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087 (fax: (610) 293-0601), or (iv) if to an Investor, at the address set forth under such Investor's name under on Schedule A hereto. Notice given by facsimile shall be confirmed by appropriate answer back and shall be effective upon actual receipt if received during the recipient's normal business hours, or at the beginning of the recipient's next business day after receipt if not received during the recipient's normal business hours. All notices by facsimile shall be confirmed promptly after transmission in writing by certified mail or personal delivery. Any party may change any address to which notice is to be given to it by giving notice as provided above of such change of address. 5.6 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 5.7 AMENDMENTS AND WAIVERS. Any term other than Sections 2, 3 and 4 and the next sentence of this Agreement may be amended and the observance of any term other than Sections 2, 3 and 4 and the next sentence of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the shares of Registrable Securities then outstanding. Sections 2 and 3 and this sentence of this Agreement may be amended and the observance of any term of Sections 2 and 3 and this sentence of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Safeguard. Section 4 of this Agreement may be amended and the observance of any term of Section 4 of this Agreement may be waived (either 17 18 generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and SCP. 5.8 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 5.9 AGGREGATION OF STOCK. All shares of securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 5.10 ENTIRE AGREEMENT. This Agreement (including the Schedules and Exhibits hereto) amends, supercedes and replaces the Original Agreement (including the Schedules and Exhibits thereto) in its entirety, and constitutes the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. [Signature page follows.] 18 19 IN WITNESS WHEREOF, the parties have executed this Investors' Rights Agreement as of the date first above written. COMPANY: USDATA CORPORATION By: /s/ Robert L. Drury ------------------------------------------- Name: Robert L. Drury ----------------------------------------- Title: CFO ---------------------------------------- INVESTORS: SAFEGUARD DELAWARE, INC. By: /s/ ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- SAFEGUARD 2000 CAPITAL, L.P. By: Safeguard Delaware, Inc., its General Partner By: /s/ ------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- SCP PRIVATE EQUITY PARTNERS II, L.P. By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC, its Manager By: /s/ Winston Churchill ------------------------------------------- Name: Winston Churchill ----------------------------------------- Title: Manager ---------------------------------------- [SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENTS] 20 OTHER PARTY: SAFEGUARD SCIENTIFICS, INC. (solely for the limited purpose of agreeing to Sections 2, 3 and 5 hereof) By: /s/ -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- [SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENTS] 21 SCHEDULE A Investors Safeguard Delaware, Inc. c/o Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, Pennsylvania 19087 Fax: (610) 293-0601 ATTN: Chief Financial Officer Safeguard 2000 Capital, L.P., c/o Safeguard Scientifics, Inc. 800 The Safeguard Building 435 Devon Park Drive Wayne, Pennsylvania 19087 Fax: (610) 293-0601 ATTN: Chief Financial Officer SCP Private Equity Partners II, L.P., Building 300 435 Devon Park Drive Wayne, Pennsylvania 19087 Fax: (610) 293-0601 ATTN: General Partner EX-10.6 8 d81940ex10-6.txt EXCHANGE AGREEMENT 1 EXHIBIT 10.6 NEITHER THE EXCHANGE RIGHT GRANTED HEREIN NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE OF SUCH EXCHANGE RIGHT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NO TRANSFER OF SUCH EXCHANGE RIGHT OR OF THE SECURITIES ISSUABLE UPON EXERCISE OF SUCH EXCHANGE RIGHT SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER HEREOF SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS. EXCHANGE AGREEMENT This Exchange Agreement (this "Exchange Agreement") is entered into on this 12th day of September, 2000, by and between USDATA Corporation, a Delaware corporation (the "Company"), and SCP Private Equity Partners II, L.P. ("SCP," and together with each of its assignees and transferees, individually, a "Holder" and, collectively, the "Holders"). Subject to the terms and conditions set forth herein, including, without limitation, Section 3 hereof, the Company hereby grants to the Holder the right to exchange (the "Exchange Right") shares of the Series A-1 Convertible Preferred Stock, par value $0.01 per share (the "eMake Preferred Stock"), of eMake Corporation, a Delaware corporation ("eMake"), owned by the Holder for fully paid and non-assessable shares of the Company's Series B Convertible Preferred Stock, par value $0.01 per share (the "Company Preferred Stock"). 1. Exercise of Exchange Right. 1.1 Exchange Rate. Subject to adjustment as provided in Section 3 hereof, 0.025 of a share of Company Preferred Stock (the "Exchange Rate") shall be issuable hereunder (the "Exchange Shares") for each share of eMake Preferred Stock owned by the Holder tendered for exchange pursuant to the Exchange Right. 1.2 Exerciseability. The Exchange Right shall be exercisable, in whole or in part, from time to time and at any time on and after the date hereof until 5:00 p.m., eastern time, on the Expiration Date (as hereinafter defined), in accordance with Section 1.3 hereof. As used herein, the term "Expiration Date" means the earlier of (i) June 30, 2006, or (ii) the date on which the Holder no longer owns any shares of eMake Preferred Stock (or other securities obtained as a result of changes or reclassifications of eMake Preferred Stock pursuant to Section 3.1.5 hereof). 2 1.3 Exercise. Upon tender of a duly executed Notice of Exercise in the form of Annex A attached hereto, together with the original certificate(s) representing the shares of eMake Preferred Stock being exchanged for the Exchange Shares to be acquired, at the Company's principal executive offices presently located at 2345 North Central Expressway, Richardson, Texas, 75080, Attention: President, or at such other address as the Company shall have advised the Holder in writing (the "Designated Office"), the Holder shall be entitled to receive a certificate or certificates for the Exchange Shares so acquired. The Company agrees that the Exchange Shares shall be deemed to have been issued to the Holder as of the close of business on the date on which the Company receives a duly executed Notice of Exercise covering such Exchange Shares and the related certificates representing the shares of eMake Preferred Stock being exchanged therefor as described above. 2. Transfer; Issuance of Stock Certificates; Restrictive Legends. 2.1 Transfer. Subject to compliance with the restrictions on transfer set forth in this Section 2, the Exchange Right granted hereunder with respect to any shares of eMake Preferred Stock may be transferred or assigned to any transferee or assignee of such shares of eMake Preferred Stock, upon delivery to the Company of a written assignment with respect thereto in the form of Annex B attached hereto duly executed by the Holder or its agent or attorney. Upon such delivery, the Company shall execute and deliver a new Exchange Agreement or Exchange Agreements in the name of the assignee or assignees. An Exchange Right, if properly assigned in compliance with the provisions hereof, may be exercised by the new Holder for the acquisition of Exchange Shares without having a new Exchange Agreement issued. Prior to due presentment for registration of transfer thereof, the Company may deem and treat the registered Holder of the Exchange Right as the absolute owner hereof (notwithstanding any notations of ownership or writing thereon made by anyone other than a duly authorized officer of the Company) for all purposes and shall not be affected by any notice to the contrary. All Exchange Agreements issued upon any assignment of the Exchange Right shall be the valid obligations of the Company, evidencing the same rights, and entitled to the same benefits as this Exchange Agreement with respect to the portion of the Exchange Right transferred or assigned, upon registration of transfer or exchange. 2.2 Stock Certificates. Certificates for the Exchange Shares shall be delivered to the Holder within a reasonable time after the Exchange Right shall have been exercised pursuant to Section 1. The issuance of certificates for Exchange Shares upon the exercise of the Exchange Right shall be made without charge to the Holder hereof including, without limitation, any documentary, stamp or similar tax that may be payable in respect thereof; provided, however, that the Company shall not be required to pay any income tax to which the Holder hereof may be subject in connection with the issuance of this Exchange Agreement or the Exchange Shares; and provided further, that if Exchange Shares are to be delivered in a name other than the name of the Holder hereof representing any Exchange Right being exercised, then no such delivery shall be made unless the person requiring the same has paid to the Company the amount of transfer taxes or charges incident thereto, if any. 2 3 2.3 Restrictive Legends. (a) Except as otherwise provided in this Section 2, each certificate for Exchange Shares initially issued upon the exercise of the Exchange Right, and each certificate for Exchange Shares issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW. NO TRANSFER OF THE SHARES REPRESENTED BY THIS CERTIFICATE OR ISSUED UPON CONVERSION OF SUCH SHARES SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE HOLDER SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH PROPOSED TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." (b) Except as otherwise provided in this Section 2, each Exchange Agreement shall be stamped or otherwise imprinted with a legend in substantially the following form: "NEITHER THE EXCHANGE RIGHT GRANTED HEREIN NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE OF SUCH EXCHANGE RIGHT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NO TRANSFER OF SUCH EXCHANGE RIGHT OR OF THE SECURITIES ISSUABLE UPON EXERCISE OF SUCH EXCHANGE RIGHT SHALL BE VALID OR EFFECTIVE UNLESS (A) SUCH TRANSFER IS MADE PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAWS OR (B) THE HOLDER HEREOF SHALL DELIVER TO THE COMPANY AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." 3 4 Notwithstanding the foregoing, the legend requirements of this Section 2.3 shall terminate as to any particular Exchange Agreement or Exchange Share when the Company shall have received from the Holder thereof an opinion of counsel in form and substance reasonably acceptable to the Company that such legend is not required in order to ensure compliance with the Securities Act and applicable state securities laws. Whenever the restrictions imposed by this Section 2.3 shall terminate, the holder hereof or of Exchange Shares, as the case may be, shall be entitled to receive from the Company without cost to such holder a new Exchange Agreement or certificate for Exchange Shares of like tenor, as the case may be, without such restrictive legend. 3. Adjustment of Exchange Rate; Nature of Securities Issuable Upon Exercise of Exchange Right. 3.1 Exchange Rate; Adjustment of Number of Shares. The Exchange Rate set forth in Section 1 hereof shall be subject to adjustment from time to time as hereinafter provided. 3.1.1 Merger, Sale of Assets, etc. If at any time while the Exchange Right, or any portion thereof, is outstanding and unexpired there shall be a reorganization (other than a combination, reclassification, exchange, or subdivision of shares as provided in Sections 3.1.2 and 3.1.3), merger or consolidation of the Company with or into another corporation in which the Company is not the surviving entity, or a merger in which the Company is the surviving entity but the shares of the Company's capital stock outstanding immediately prior to the merger are converted by virtue of the merger into other property, whether in the form of securities, cash, or otherwise, or a sale or transfer of the Company's properties and assets as, or substantially as, an entirety to any other person, then, as a part of such reorganization, merger, consolidation, sale or transfer, lawful provision shall be made so that the holder of this Exchange Agreement shall thereafter be entitled to receive upon exercise of the Exchange Right, during the period specified herein and upon delivery of the shares of eMake Preferred Stock being exchanged pursuant hereto, the number of shares of stock or other securities or cash or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the shares deliverable upon exercise of the Exchange Right would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if the Exchange Right had been exercised immediately before such reorganization, consolidation, merger, sale or transfer, all subject to further adjustment as provided in this Section 3. The foregoing provisions of this Section 3.1.1 shall similarly apply to successive reorganizations, consolidations, mergers, sales and transfers and to the stock and securities of any other corporation that are at the time receivable upon the exercise of the Exchange Right. If the per share consideration payable to the Holder hereof for shares in connection with any such transaction is in a form other than cash or securities, then the value of such consideration shall be determined in good faith by the Company's Board of Directors. In all events, appropriate adjustment shall be made in the application of the provisions of this Exchange Agreement with respect to the rights and interests of the Holder hereof after the transaction, to the end that the provisions of this Exchange Agreement shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable after that event upon exercise of the Exchange Right. 3.1.2 Reclassification, etc. If the Company, at any time while the Exchange Right, or any portion thereof, remains outstanding and unexpired, shall, by the 4 5 reclassification or exchange of securities or otherwise, change any of the securities issuable upon exercise of the Exchange Right into the same or a different number of securities of any other class or classes, this Exchange Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities issuable upon exercise of the Exchange Right immediately prior to such reclassification, exchange, or other change and the Exchange Rate therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 3. 3.1.3 Stock Splits, Stock Dividends and Reverse Stock Splits. In case at any time the Company shall split or subdivide the outstanding shares of Company Preferred Stock into a greater number of shares, or shall declare and pay any stock dividend with respect to its outstanding stock that has the effect of increasing the number of outstanding shares of Company Preferred Stock, the Exchange Rate in effect immediately prior to such subdivision or stock dividend shall be proportionately increased, and conversely, in case at any time the Company shall combine its outstanding shares of Company Preferred Stock into a smaller number of shares, the Exchange Rate in effect immediately prior to such combination shall be proportionately reduced. 3.1.4 Adjustments for Dividends in Stock or Other Securities of Property. If while the Exchange Right, or any portion hereof, remains outstanding and unexpired the holders of Company Preferred Stock shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Company by way of dividend, then and in each case, this Exchange Agreement shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of the Exchange Right, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property of the Company that such holder would hold on the date of such exercise had it been the holder of record of the security receivable upon exercise of the Exchange Right on the date hereof and had thereafter, during the period from the date hereof to and including the date of such exercise, retained such shares and/or all other additional stock available by it as aforesaid during such period, giving effect to all adjustments called for during such period by the provisions of this Section 3. 3.1.5 eMake Reclassification, etc. If eMake, at any time while the Exchange Right, or any portion thereof, remains outstanding and unexpired, shall, by the reclassification or exchange of securities or otherwise, change the eMake Preferred Stock into the same or a different number of securities of any other class or classes, this Exchange Agreement shall thereafter represent the right to exchange the securities into or for which the eMake Preferred Stock is reclassified, exchanged or changed and the Exchange Rate therefor shall be appropriately adjusted, all subject to further adjustment as provided in this Section 3. 3.1.6 eMake Stock Splits, Stock Dividends and Reverse Stock Splits. In case at any time eMake shall split or subdivide the outstanding shares of eMake Preferred Stock into a greater number of shares, or shall declare and pay any stock dividend with respect to its outstanding stock that has the effect of increasing the number of outstanding shares of eMake Preferred Stock, the Exchange Rate in effect immediately prior to such subdivision or stock dividend shall be proportionately reduced, and conversely, in case at any time eMake shall 5 6 combine its outstanding shares of eMake Preferred Stock into a smaller number of shares, the Exchange Rate in effect immediately prior to such combination shall be proportionately increased. 3.1.7 Adjustments for Dividends in eMake Stock or Other Securities of Property. If while the Exchange Right, or any portion hereof, remains outstanding and unexpired, the holders of eMake Preferred Stock shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of eMake by way of dividend, then and in each case, upon exercise of the Exchange Right, in addition to the number of shares of eMake Preferred Stock deliverable hereunder, the Holder shall also deliver to the Company such other or additional stock or other securities or property of eMake that such Holder received with respect to the eMake Preferred Stock being exchanged during such period, giving effect to all adjustments called for during such period by the provisions of this Section 3. 3.2 Timing of Exchange Rate Adjustment. No adjustment of the Exchange Rate shall be made unless such adjustment would require an increase or decrease of at least 0.0001 in such rate; provided, however, that any adjustments which by reason of this Section 3.2 are not required to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustments so carried forward, shall require an increase or decrease of at least 0.0001 in the Exchange Rate then in effect hereunder. 3.3 Adjustment Certificate. In each case of an adjustment in the Exchange Rate, the Company shall compute and prepare a certificate setting forth such adjustment and showing in detail the facts upon which such adjustment is based, including a statement of (i) the number of Company Preferred Stock outstanding or deemed to be outstanding, (ii) the adjusted Exchange Rate and (iii) the number of Exchange Shares issuable upon exercise of this Exchange Right. The Company will forthwith mail a copy of each such certificate to the holder hereof. 4. Registration; Exchange and Replacement of Exchange Agreement; Reservation of Shares. The Company shall keep at the Designated Office a register in which the Company shall provide for the registration, transfer and exchange of the Exchange Right. The Company shall not at any time, except upon the dissolution, liquidation or winding-up of the Company, close such register so as to result in preventing or delaying the exercise or transfer of the Exchange Right. The Company may deem and treat the person in whose name the Exchange Right is registered as the holder and owner hereof for all purposes and shall not be affected by any notice to the contrary, until registration of any transfer as provided in this Section 4. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Exchange Agreement and (in case of loss, theft or destruction) of indemnity satisfactory to it, and (in the case of mutilation) upon surrender and cancellation of this Exchange Agreement, the Company will (in the absence of notice to the Company that the Exchange Agreement has been acquired by a bona fide purchaser) make and deliver a new 6 7 Exchange Agreement of like tenor, in lieu of this Exchange Agreement without requiring the posting of any bond or the giving of any security. The Company shall at all times reserve and keep available out of its authorized shares of Company Preferred Stock, solely for the purpose of issuance upon the exercise of the Exchange Right, such number of shares of Company Preferred Stock as shall be issuable upon the exercise hereof. The Company covenants and agrees that, upon exercise of the Exchange Right and receipt of the shares of eMake Preferred Stock therefor, all Exchange Shares issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable. 5. Fractional Shares. The Company shall not be required to issue fractions of shares, upon exercise of the Exchange Right or otherwise, or to distribute certificates that evidence fractional shares. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the current market value of such fractional share as may be prescribed by the Board of Directors of the Company. 6. Holders Not Deemed Stockholders. No holder of the Exchange Right shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Exchange Shares that may at any time be issuable upon exercise of the Exchange Right for any purpose whatsoever, nor shall anything contained herein be construed to confer upon any Holder of the Exchange Right, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issue or reclassification of stock, change of par value or change of stock to no par value, consolidation, merger or conveyance or otherwise), or to receive notice of meetings, or to receive dividends or subscription rights, until such holder shall have exercised the Exchange Right and been issued Exchange Shares in accordance with the provisions hereof. 7. Notices. All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered personally, or mailed by registered or certified mail, return receipt requested, or telecopied or telexed and confirmed in writing and delivered personally or mailed by registered or certified mail, return receipt requested (a) if to the holder of the Exchange Right, to the address of such Holder as shown on the books of the Company, or (b) if to the Company, to the address set forth in Section 1.3 of this Exchange Agreement; or at such other address as the Holder or the Company may hereafter have advised the other. 8. Successors. All the covenants, agreements, representations and warranties contained in this Exchange Agreement shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors, assigns and transferees. 9. Law Governing. This Exchange Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of Delaware (not including the choice of law rules thereof) regardless of the jurisdiction of creation or domicile of the Company or its successors or of the holder at any time hereof. 7 8 10. Entire Agreement; Amendments and Waivers. This Exchange Agreement sets forth the entire understanding of the parties with respect to the transactions contemplated hereby. The failure of any party to seek redress for the violation or to insist upon the strict performance of any term of this Exchange Agreement shall not constitute a waiver of such term and such party shall be entitled to enforce such term without regard to such forbearance. This Exchange Agreement may be amended, and any breach of or compliance with any covenant, agreement, warranty or representation may be waived, only if the Company has obtained the written consent or written waiver of the Holder, and then such consent or waiver shall be effective only in the specific instance and for the specific purpose for which given. 11. Severability; Headings. If any term of this Exchange Agreement as applied to any person or to any circumstance is prohibited, void, invalid or unenforceable in any jurisdiction, such term shall, as to such jurisdiction, be ineffective to the extent of such prohibition or invalidity without in any way affecting any other term of this Exchange Agreement or affecting the validity or enforceability of this Exchange Agreement or of such provision in any other jurisdiction. The Section headings in this Exchange Agreement have been inserted for purposes of convenience only and shall have no substantive effect. [Signature page follows.] 8 9 IN WITNESS WHEREOF, the Company and the Holder have caused this Exchange Agreement to be duly executed as of the date first written above. USDATA CORPORATION By: /s/ Robert L. Drury ----------------------------------------- Name: Robert L. Drury ------------------------------------ Title: CFO ----------------------------------- SCP PRIVATE EQUITY PARTNERS II, L.P.: By: SCP Private Equity II General Partner, L.P., its General Partner By: SCP Private Equity II LLC, its Manager By: /s/ ----------------------------------------- Name: ------------------------------------ Title: ----------------------------------- [Signature Page - Stock Exchange Agreement] 10 ANNEX A NOTICE OF EXERCISE (TO BE EXECUTED UPON PARTIAL OR FULL EXERCISE OF THE EXCHANGE RIGHT DESCRIBED IN THE WITHIN EXCHANGE AGREEMENT) The undersigned hereby irrevocably elects to exercise the right to acquire __________ shares of Series B Convertible Preferred Stock of USDATA Corporation covered by the within Exchange Agreement according to the conditions hereof, herewith surrenders the original stock certificate(s) representing ______________ shares of eMake Corporation Series A-1 Convertible Preferred Stock, and requests that a certificate for such number of shares of USDATA Corporation Series B Convertible Preferred Stock be issued in the name of, and delivered to _______________________, whose address is set forth below. Dated: ---------------- ------------------------------------------------- Signature must conform to name of holder as specified on the face of the Exchange Agreement) ------------------------------------------------- ------------------------------------------------- (Address) 11 ANNEX B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned has sold, assigned and transferred unto the Assignee named below ____ shares of the Series B Preferred Stock covered by the within Exchange Agreement and hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Exchange Agreement, including the Exchange Right, with respect to such shares of Series B Convertible Preferred Stock set forth below:
No. of Shares of Series B Name and Address of Assignee Preferred Stock - ---------------------------- -------------------------
and does hereby irrevocably constitute and appoint _______________________ attorney-in-fact to register such transfer onto the books of USDATA Corporation maintained for the purpose, with full power of substitution in the premises. Dated: Print Name: ------------------------ --------------------------------- Signature: ---------------------------------- Witness: ------------------------------------ NOTICE: THE SIGNATURE ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THIS EXCHANGE AGREEMENT IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. EX-27 9 d81940ex27.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S SEPTEMBER 30, 2000 CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,548 0 3,812 483 291 8,890 10,428 6,531 27,851 6,997 543 0 0 163 (6,464) 27,851 12,459 12,459 0 41,126 291 0 0 (29,070) 0 (29,070) 0 0 0 (29,070) (2.21) (2.21)
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