-----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, LpyE/AQ5hN0P0Wl98amUWmKbN3i0fjOpQ9zpOusrSHaB62tks6ew9W0nmqICcbmT pg0X1Td5OUJ9cB2ZHeqyrA== 0000950134-01-501749.txt : 20010516 0000950134-01-501749.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950134-01-501749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USDATA CORP CENTRAL INDEX KEY: 0000943895 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [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: 1634377 BUSINESS ADDRESS: STREET 1: 2435 NORTH CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 9726809700 10-Q 1 d87226e10-q.txt FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 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 March 31, 2001 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 May 7, 2001 Number of Shares Class Outstanding Common Stock, Par Value $.01 Per Share 14,075,055 shares 2 USDATA CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED MARCH 31, 2001 TABLE OF CONTENTS
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures about Market Risk 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 USDATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ ASSETS (unaudited) (audited) Current assets: Cash and cash equivalents $ 1,365 $ 673 Accounts receivable, net of allowance for doubtful accounts of $241 and $224, respectively 2,774 4,073 Other current assets 626 678 -------- -------- Total current assets 4,765 5,424 -------- -------- Property and equipment, net 1,860 2,216 Computer software development costs, net 7,404 7,848 Software held for resale, net 724 824 Other assets 19 42 -------- -------- Total assets $ 14,772 $ 16,354 ======== ======== LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 1,318 $ 1,711 Deferred revenue 1,236 1,218 Accrued compensation and benefits 438 808 Current portion of long-term debt 1,370 1,165 Other accrued liabilities 1,791 2,555 Net liabilities of discontinued operation 1,245 2,413 -------- -------- Total current liabilities 7,398 9,870 -------- -------- Long-term debt, less current portion 529 554 -------- -------- Total liabilities 7,927 10,424 -------- -------- Commitments and contingencies Redeemable convertible preferred stock, Series A-1 and Series A-2, $.01 par value, with a redemption and liquidation value of $2.56 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 -- 27,142 Stockholders' equity (deficit): Series A cumulative convertible preferred stock, $.01 par value; liquidation preference $100; 100,000 shares authorized; 50,000 shares issued and outstanding in 2001 and 2000 5,668 5,568 Series B cumulative convertible preferred stock; $.01 par value; liquidation preference $100; 800,000 shares authorized; 265,000 shares issued and outstanding in 2001 27,672 -- Series C-1 cumulative convertible preferred stock; $.01 par value; liquidation preference $80; 125,000 shares authorized; 37,500 shares issued and outstanding in 2001 3,000 -- Series C-2 preferred stock warrant 6,000 -- Common stock, $.01 par value, 40,000,000 shares authorized; 16,324,189 issued in 2001 and 2000 163 163 Additional paid-in capital 15,492 23,892 Accumulated deficit (42,449) (41,910) Treasury stock at cost, 2,249,134 shares in 2001 and 2,317,008 shares in 2000 (7,724) (7,961) Accumulated other comprehensive loss (977) (964) -------- -------- Total stockholders' equity (deficit) 6,845 (21,212) -------- -------- Total liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) $ 14,772 $ 16,354 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 4 USDATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------- 2001 2000 -------- -------- Revenues: Product license $ 2,982 $ 2,862 Services 486 683 -------- -------- Total revenues 3,468 3,545 -------- -------- Operating expenses: Selling and product materials 2,284 3,568 Product development 490 1,392 General and administrative 1,172 1,185 -------- -------- Total operating expenses 3,946 6,145 -------- -------- Loss from operations (478) (2,600) Interest expense (61) (58) Other income, net -- 32 -------- -------- Loss from continuing operations (539) (2,626) Discontinued operations: Loss from discontinued operations -- (4,438) -------- -------- Net loss (539) (7,064) Dividends on preferred stock, preferred stock warrants and beneficial conversion (8,130) (108) -------- -------- Net loss applicable to common stockholders $ (8,669) $ (7,172) ======== ======== Net loss per common share: Basic and Diluted Loss from continuing operations $ (0.62) $ (0.21) Loss from discontinued operations -- (0.35) -------- -------- Net loss per common share $ (0.62) $ (0.56) ======== ======== Comprehensive loss: Net loss $ (539) $ (7,064) Foreign currency translation adjustment (13) (69) -------- -------- Comprehensive loss $ (552) $ (7,133) ======== ======== Weighted average shares outstanding: Basic and diluted 14,070 12,789 ======== ========
See accompanying notes to condensed consolidated financial statements. 4 5 USDATA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 2001 2000 ------- ------- Cash flows from operating activities: Net loss $ (539) $(7,064) Adjustments to reconcile net loss to net cash used in operating activities: Loss from discontinued operations -- 4,438 Depreciation and amortization 898 279 Changes in operating assets and liabilities: Accounts receivable, net 1,299 3,373 Other assets, net 78 (459) Accounts payable and other accrued liabilities (937) 104 Accrued compensation and benefits (370) (868) Deferred revenue 18 152 ------- ------- Net cash provided by (used in) continuing operations 447 (45) Net cash used in discontinued operations (1,168) (3,015) ------- ------- Net cash used in operating activities (721) (3,060) ------- ------- Cash flows from investing activities: Capital expenditures (60) (366) Capitalized software development costs (151) (1,420) Refund of leasehold improvement costs 209 -- ------- ------- Net cash used in continuing operations (2) (1,786) Net cash used in discontinued operations -- (1,526) ------- ------- Net cash used in investing activities (2) (3,312) ------- ------- Cash flows from financing activities: Proceeds from stock option exercises -- 283 Proceeds from issuance of common stock 33 270 Proceeds from issuance of preferred stock, net 1,434 -- Borrowing of revolver debt 842 -- Other borrowings 114 -- Proceeds from note payable -- 5,000 Payments on long-term debt (1,008) (15) ------- ------- Net cash provided by financing activities 1,415 5,538 ------- ------- Net increase (decrease) in cash and cash equivalents 692 (834) Cash and cash equivalents, beginning of period 673 2,962 ------- ------- Cash and cash equivalents, end of period $ 1,365 $ 2,128 ======= =======
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 consolidated financial statements of USDATA Corporation and its subsidiaries (the "Company") for the three-month periods ended March 31, 2001 and 2000 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, 2000. 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 March 31, 2001 and the consolidated results of its operations and comprehensive loss, and cash flows for the periods ended March 31, 2001 and 2000. Operating results for the three months ended March 31, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. 2. CONVERTIBLE PREFERRED STOCK AND PREFERRED STOCK WARRANT On March 30, 2001, the Company secured an equity infusion of $1.5 million from SCP Private Equity Partners, L.P. ("SCP") through the issuance of 37,500 shares of Series C-1 Preferred Stock of the Company and a warrant to purchase up to 75,000 shares of Series C-2 Preferred Stock. In addition, SCP has committed to purchase an additional 37,500 shares of Series C-1 Preferred ("Option Stock") at the purchase price of $40 per share or $1.5 million. The Company may exercise its right to sell the Option Stock on or before the expiration of nine months after March 30, 2001 ("Closing Date"), but not before two months after the Closing Date, and the Company must be in compliance with specified monthly targets as defined in the Series C Preferred Stock Agreement. As an additional condition to this equity financing, SCP and Safeguard 2000 Capital, L.P. both agreed to not exercise their right to convert any eMake Corporation Series A-1 and A-2 Preferred Stock, respectively into USDATA Corporation Series B convertible Preferred Stock acquired through the exercise of the warrants issued by eMake Corporation in September 2000. SCP and Safeguard 2000 Capital, L.P. hold warrants exercisable for 5,300,000 and 5,300,000 shares, respectively, of eMake Corporation Series A-1 and A-2 Preferred Stock which would be convertible into a total of 265,000 shares of USDATA Corporation Series B convertible Preferred Stock. In conjunction with the Series C-1 and C-2 Preferred Stock purchase, the Company executed a Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock which designated 125,000 shares of authorized preferred stock as Series C-1 Preferred Stock and designated 125,000 shares of authorized but unissued preferred stock as Series C-2 Preferred Stock. As of March 31, 2001, 37,500 shares of Series C-1 Preferred stock are issued and outstanding. SERIES C-1 CONVERTIBLE PREFERRED STOCK The Series C-1 Preferred Stock has a par value of $.01 per share and a liquidation preference of $80 per share plus cumulative dividends and interest. The preferred stock is convertible into the Company's common stock at a conversion rate of 100 shares of common stock for each share of preferred stock and the cumulative dividends are payable at $4.00 per share per annum in the form of additional shares of Series C-1 Preferred. The Series C-1 Preferred Stock ranks senior to all other classes and series of the Company's capital stock with respect to dividend rights, rights on liquidation, dissolution and winding up. The excess of the liquidation preference over the purchase price of the preferred stock has been reflected as a $1.5 million dividend on preferred stock, increasing the loss applicable to common stockholders for the first quarter of 2001 and decreasing additional paid-in capital. WARRANT TO PURCHASE SERIES C-2 PREFERRED STOCK The Series C-2 Preferred Stock warrant issued to SCP by the Company grants SCP the right to purchase up to 75,000 shares of the Company's Series C-2 Preferred Stock at a purchase price of $40 per share. The Series C-2 Preferred Stock has a par value of $.01 per share and a liquidation preference of $120 per share plus cumulative dividends and interest and is convertible into the Company's common stock 6 7 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- at a conversion rate of 100 shares of common stock for each share of preferred stock. The right to purchase the shares of Series C-2 Preferred Stock under the warrant are exercisable on any business day on or before March 30, 2011, with the exception of 50,500 shares, which may not be exercisable until the earlier of stockholder approval of the transactions under the warrant or May 31, 2001. On exercise, the warrant provides the holder a liquidation preference of three times the exercise price per share. The excess of the warrant liquidation preference over the exercise price of $6.0 million has been reflected as additional return to the Series C-1 preferred stockholder, increasing loss applicable to common stockholders for the first quarter 2001 and decreasing additional paid-in capital. SERIES B CONVERTIBLE PREFERRED STOCK On January 31, 2001, SCP elected to exercise its right to acquire 132,500 shares of Series B Convertible Preferred Stock of the Company in exchange for 5,300,000 shares of Series A-1 Redeemable Convertible Preferred Stock of eMake Corporation. In addition, a subsidiary of Safeguard Scientifics, Inc. elected to exercise its right to acquire 132,500 shares of Series B Convertible Preferred Stock of the Company in exchange for 5,300,000 shares of Series A-2 Redeemable Convertible Preferred Stock of eMake Corporation. 3. 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 1,307,282 common shares and options and warrants to acquire 2,459,000 common shares have been excluded from the computation of diluted loss per share for the three months ended March 31, 2001 and 2000, respectively, as their inclusion would be antidilutive. 4. AMENDMENT TO REVOLVING CREDIT FACILITY At March 31, 2001, the Company was not in compliance with one of its debt covenants under its revolving credit facility and subsequently received a waiver from the lending bank for this covenant. As of May 3, 2001, the credit facility has been amended to increase this covenant for the quarter ended March 31, 2001 and for the remainder of the agreement ending January 31, 2002. 5. SEVERANCE AND OTHER RESTRUCTURING ACCRUALS The following table summarizes by category the accrued liability balances at March 31, 2001 related to the Company's 2000 restructuring plans. 7 8 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - --------------------------------------------------------------------------------
Amount Amount Accrued at Cash Accrued at (in thousands) 12/31/00 Payments 3/31/01 --------- -------- --------- Employee severance and other employee-related costs $ 410 $ (284) $ 126 Early lease termination and facility shutdown costs 141 (99) 42 Lease costs associated with vacated office space 988 (333) 655 Legal and other related costs 68 (17) 51 ------- ------- ------- $ 1,607 $ (733) $ 874 ======= ======= =======
The severance and restructuring accrued liabilities are included in accrued compensation and benefits and other accrued liabilities in the accompanying condensed consolidated balance sheets. Additionally, in connection with the 2000 restructuring plans related to eMake Corporation, the Company paid $454 thousand for severance and other employee-related costs, $58 thousand in early lease termination and facility shutdown costs and $56 thousand in lease costs associated with vacated office space. The accrued liability balance at March 31, 2001 totals $365 thousand and is included in net liabilities of discontinued operation. 6. 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. 138, which is effective for the Company beginning January 1, 2000. 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. The Company adopted the provisions of SFAS 133 effective January 1, 2001, and the adoption did not have any impact on the Company's consolidated results of operations, financial position or cash flows as the Company does not have any derivative instruments. 7. SUBSEQUENT EVENT In December 2000, the Company engaged an exclusive agent to assist the Company in the subleasing of approximately 40,000 rentable square feet of excess office space associated with the restructuring reported in the fourth quarter of 2000 in exchange for a broker fee of 5.65% on that portion of the lease obligation from which the Company is released. On April 17, 2001, the Company entered into a sublease agreement to sublease approximately 14,802 square feet of excess office space. The sublease commences on May 10, 2001 and expires on August 31, 2010. The base rental and other operating costs were negotiated at the same rate the Company is obligated to pay under its Master Lease Agreement. The Company shall receive monthly rental payments of approximately $27 thousand through August 31, 2010. The broker fee associated with this sublease is approximately $161 thousand and is due in two separate installments in June 2001 and September 2001. 8 9 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 application software tools for automation and application software products for manufacturing. 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. The Company has a strong global presence with more than 45,000 installs located in more than 60 countries throughout the world, channel support locations worldwide and a global network of distribution and support partners. The Company'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. The Company's solutions span a wide range of manufacturing processes, from monitoring equipment to tracking product flow, and are designed to integrate with customers' existing manufacturing and business software. This combination of product breadth and ease of integration is intended to provide a total plant solution intended to improve manufacturing performance and give customers a competitive advantage. Revenues have been generated primarily from licenses of the Company'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. Revenue from services represented approximately 14% and 19% of revenues during the three months ended March 31, 2001 and 2000, respectively. FactoryLink, is a process and control solution used to develop custom supervisory control and data acquisition ("SCADA") and human machine interfaces ("HMI") for the supervision and control of a broad range of automated processes. FactoryLink is a horizontal application tool set used by system integrators and end customers to build automation and control applications for a wide variety of industrial markets such as electronics assembly, semiconductor, automotive, building automation, food and beverage, pharmaceuticals, metals, mining, cement, oil and gas, electricity generation, transmission and distribution, and water and waste water transport. It allows customers to collect and monitor data from disparate process control systems and acts as hub for real-time information that may be used by various decision makers interested in the real-time status of the production process. In 2000, the Company released its latest version, FactoryLink 7, which is designed to have a lower total cost of ownership than other SCADA/HMI products on the market. Xfactory is a manufacturing production execution software product that enables customers to leverage their existing business and planning systems with enterprise-wide, open systems solutions for production management. In mid-2000, the Company introduced the Xfactory Production Suite software enabling production, execution and tracking for eManufacturing integration with business and supply chain systems. The Xfactory Production Suite consists of four modules: 1) Connector for information exchange with business systems; 2) Tracker for production tracking of customer orders and products; 3) Analyzer for performance monitoring, genealogy, and data analysis; and 4) FactoryLink for data acquisition and process management. The Company 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 channel support locations in the United States and Europe. The Company's 9 10 distributors have sales locations throughout North and South America, Europe, the Far East and the Middle East. 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.
MARCH 31, ------------------ 2001 2000 ---- ---- Revenues: Product license 86% 81% Services 14% 19% ---- ---- Total revenues 100% 100% ---- ---- Operating expenses: Selling and product materials 66% 101% Product development 14% 39% General and administrative 34% 33% ---- ---- Total operating expenses 114% 173% ---- ---- Loss from operations (14)% (73)% Interest expense (2)% (2)% Other income, net 0% 1% ---- ---- Loss from continuing operations (16)% (74)% Discontinued operation: Loss from discontinued operations 0% (125)% ---- ---- Net loss (16)% (199)% Dividends on preferred stock, preferred stock warrant and beneficial conversion (234)% (3)% ---- ---- Net loss applicable to common stockholders (250)% (202)% ==== ====
Total revenues for the quarter ended March 31, 2001 were $3.5 million compared to $3.5 million for the same period in 2000. Product licensing revenue increased $0.1 million offset by a decrease in services revenue. The increase in product licensing revenue was primarily related to Factorylink 7, which was released on June 30, 2000. While the Company anticipates an improvement in revenues going forward, continued economic uncertainty could affect buying decisions making revenues and operating results more difficult to forecast. Selling and product materials expenses decreased $1.3 million from $3.6 million for the quarter ended March 31, 2000 to $2.3 million for the same period in 2001. The decrease was a result of decreased sales, marketing and technical support services totaling $1.9 million attributed to the Company's own cost reduction efforts, offset by a $0.6 million increase in capitalized software amortization due to the release of Factorylink 7. Selling and product materials expenses as a percentage of revenues decreased to 66% for the quarter ended March 31, 2001 from 101% for the same period in 2000. Product development expenses, which consisted primarily of labor costs, decreased $0.9 million from $1.4 million for the quarter ended March 31, 2000 to $0.5 million for the same period in 2001, net of amounts capitalizable. The decrease in 2001 is primarily related to decreased engineering development activities related to the FactoryLink and Xfactory product lines in addition to the Company's own cost reduction efforts. The Company capitalized $0.1 million and $1.4 million of development costs in the quarters ended March 31, 2001 and March 31, 2000, respectively, primarily related to the next major version of the FactoryLink product line. 10 11 General and administrative expenses of $1.2 million for the quarter ended March 31, 2001 are comparable to general and administrative expenses of $1.2 million for the same period in 2000. General and administrative expenses as a percentage of revenues increased slightly to 34% for the quarter ended March 31, 2001 from 33% for the same period in 2000. As a result of the factors discussed above, the Company recorded a net loss from continuing operations of $0.5 million for the quarter ended March 31, 2001, compared to a loss from continuing operations of $2.6 million for the same period in 2000. In February 2001, management of the Company determined that the market adoption rate of the technology around the Company's subsidiary eMake Corporation ("eMake") was not progressing in a manner to support the necessary resources needed to continue eMake's newly developed operating plan. As a result, the Company's Board of Directors approved a plan to terminate the operations of eMake as part of a strategy to commit the Company's resources to its core business. For the quarter ended March 31, 2000, the condensed consolidated financial statements have been restated to present eMake as a discontinued operation. The Company's loss from discontinued operations for the quarter ended March 31, 2000 was $4.4 million. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities used $0.7 million of cash for the quarter ended March 31, 2001 compared to $3.1 million for the same period in 2000. The net cash used in operating activities for the first quarter of 2001 is primarily due to a loss from operations of $0.5 million and a decrease in accounts payable, partially offset by collections on accounts receivable in 2001. Cash used in investing activities for the quarter ended March 31, 2001 resulted from software development costs of $0.15 million, offset by other investing activities of $0.2 million and capital expenditures of $0.06 million. Cash provided by financing activities of $1.4 million is due to $1.4 million in proceeds from the issuance of the Company's Series C-1 Preferred Stock, net of issuance costs (discussed below), borrowings from the Company's revolving line of credit and other borrowings of $1.0 million, offset by payments on long-term debt of $1.0 million, including repayments on the revolving line of credit. On March 30, 2001, the Company secured an equity infusion of $1.5 million from SCP Private Equity Partners, L.P. ("SCP") through the issuance of 37,500 shares of Series C-1 Preferred Stock of the Company and a warrant to purchase up to 75,000 shares of Series C-2 Preferred Stock. In addition, SCP has committed to purchase an additional 37,500 shares of Series C-1 Preferred ("Option Stock") at the purchase price of $40 per share or $1.5 million. The Company may exercise its right to sell the Option Stock on or before the expiration of nine months after March 30, 2001 ("Closing Date"), but not before two months after the Closing Date, and the Company must be in compliance with specified monthly targets as defined in the Series C Preferred Stock Agreement. As an additional condition to this equity financing, SCP and Safeguard 2000 Capital, L.P. both agreed to not exercise their right to convert any eMake Corporation Series A-1 and A-2 Preferred Stock, respectively, into USDATA Corporation Series B convertible Preferred Stock acquired through the exercise of the warrants issued by eMake Corporation in September 2000. SCP and Safeguard 2000 Capital, L.P. hold warrants exercisable for 5,300,000 and 5,300,000 shares, respectively, of eMake Corporation Series A-1 and A-2 Preferred Stock which would be convertible into a total of 265,000 shares of USDATA Corporation Series B convertible Preferred Stock. The Series C-2 Preferred Stock warrant issued to SCP by the Company grants SCP the right to purchase up to 75,000 shares of the Company's Series C-2 Preferred Stock at a purchase price of $40 per share. The Series C-2 Preferred Stock has a par value of $.01 per share and a liquidation preference of $120 per share plus cumulative dividends and interest and is convertible into the Company's common stock at a conversion rate of 100 shares of common stock for each share of preferred stock. The right to purchase the shares of Series C-2 Preferred Stock under the warrant are exercisable on any business day on or before March 30, 2011, with the exception of 50,500 shares, which may not be exercisable until the earlier of stockholder approval of the transactions under the warrant or May 31, 2001. On exercise, the warrant provides the holder a liquidation preference of three times the exercise price per share. The excess of the warrant liquidation preference over the exercise price of $6.0 million has been reflected as additional return 11 12 to the Series C-1 preferred stockholder, increasing loss applicable to common stockholders for the first quarter 2001 and decreasing additional paid-in capital. The Company's working capital requirements are funded through internally generated funds, its $3.0 million revolving credit facility through January 15, 2002 and up to $3.0 million in equity financing from SCP (see description above). The revolving credit facility bears interest at prime plus 1.5%, or 10% at March 31, 2001, and has a commitment fee of 1.5% per annum on the total $3.0 million. At March 31, 2001, $783,000 was drawn under the credit facility and approximately $850,000 was available. Availability under the credit facility is subject to a borrowing base calculation, which varies each month depending on billings and cash collections. In addition to the $1.5 million equity infusion received on March 30, 2001, SCP has committed to purchase an additional 37,500 shares of Series C-1 Preferred Stock at the purchase price of $40 per share or $1.5 million, subject to certain financing conditions. The Company currently anticipates that internally generated cash, the credit facility and the equity financing will be sufficient to satisfy its operating cash needs for the foreseeable future, however, based on the conditional financing arrangements, there can be no assurance that the Company will be able to obtain sufficient funding on terms acceptable to the Company, if at all. 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, short-term interest rate fluctuations, general economic conditions, employee turnover, possible future litigation and the related uncertainties 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. 12 13 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 $192,000 and its revolving line of credit of $783,000. 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 4.1 Series C Preferred Stock Purchase Agreement, dated as of March 30, 2001, by and among USDATA Corporation and SCP Private Equity Partners, II, L.P. 4.2 Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock 4.3 Warrant, dated March 30, 2001, issued in the name of SCP Private Equity Partners, II, L.P. 4.4 Second Amended and Restated Investors' Rights Agreement, dated as of March 30, 2001, by and among USDATA Corporation, the Investors listed on Schedule A thereto and Safeguard Scientifics, Inc. 4.5 Warrant Agreement, dated as of March 30, 2001, by and between USDATA Corporation, Safeguard 2000 Capital, L.P. and SCP Private Equity Partners, II, L.P. 4.6 Waiver of Anti-Dilution Rights for Series A Preferred Stock and Series B Preferred Stock, dated March 30, 2001, by and among USDATA Corporation, Safeguard Delaware, Inc., Safeguard 2000 Capital, L.P. and SCP Private Equity Partners, II, L.P. 4.7 Right of First Refusal Agreement, dated as of March 30, 2001, by and among the Investors listed on Schedule A thereto, SCP Private Equity Partners, II, L.P. and USDATA Corporation 13 14 (b) Reports on Form 8-K On January 10, 2001, the Company filed a Current Report on Form 8-K to announce that the Company received a Nasdaq Stock Market Staff Determination that the Company was not in compliance with certain minimum listing requirements and as a result, the Company's securities were subject to delisting from the Nasdaq National Market. Subsequently, on February 9, 2001, the Company received a Nasdaq Stock Market Staff Determination that the Company has evidenced compliance with all minimum listing requirements for continued listing of the Company's stock. On February 6, 2001, the Company filed a Current Report on Form 8-K to announce that the Company's two major stockholders exercised their right to acquire shares of the Company's Series B Convertible Preferred Stock in exchange for Series A-1 and A-2 Redeemable Convertible Preferred Stock of eMake Corporation. On February 7, 2001, The Company filed an Amended Current Report on Form 8-K to update the financial information filed in the Form 8-K on February 6, 2001. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. USDATA CORPORATION Date: May 15, 2001 /s/ Robert A. Merry ---------------------------------- Robert A. Merry President, Chief Executive Officer and Director 15 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 4.1 Series C Preferred Stock Purchase Agreement, dated as of March 30, 2001, by and among USDATA Corporation and SCP Private Equity Partners, II, L.P. 4.2 Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock 4.3 Warrant, dated March 30, 2001, issued in the name of SCP Private Equity Partners, II, L.P. 4.4 Second Amended and Restated Investors' Rights Agreement, dated as of March 30, 2001, by and among USDATA Corporation, the Investors listed on Schedule A thereto and Safeguard Scientifics, Inc. 4.5 Warrant Agreement, dated as of March 30, 2001, by and between USDATA Corporation, Safeguard 2000 Capital, L.P. and SCP Private Equity Partners, II, L.P. 4.6 Waiver of Anti-Dilution Rights for Series A Preferred Stock and Series B Preferred Stock, dated March 30, 2001, by and among USDATA Corporation, Safeguard Delaware, Inc., Safeguard 2000 Capital, L.P. and SCP Private Equity Partners, II, L.P. 4.7 Right of First Refusal Agreement, dated as of March 30, 2001, by and among the Investors listed on Schedule A thereto, SCP Private Equity Partners, II, L.P. and USDATA Corporation
EX-4.1 2 d87226ex4-1.txt SERIES C PREFERRED STOCK PURCHASE AGREEMENT 1 EXHIBIT 4.1 USDATA CORPORATION SERIES C PREFERRED STOCK PURCHASE AGREEMENT March 30, 2001 2 TABLE OF CONTENTS
Page ---- 1. Purchase and Sale........................................................................................1 1.1 Sale and Issuance of Series C Preferred Stock...................................................1 1.2 Closing.........................................................................................1 1.3 Consideration...................................................................................1 1.4 Option Preferred Stock..........................................................................1 2. Representations and Warranties regarding the Company.....................................................2 2.1 Organization, Good Standing and Qualification...................................................2 2.2 SEC Reports; Financial Statements...............................................................2 2.3 Capitalization and Voting Rights................................................................2 2.4 Authorization...................................................................................3 2.5 Stockholder Approval............................................................................3 2.6 Valid Issuance of Stock.........................................................................3 2.7 Governmental Consents...........................................................................4 2.8 Offering........................................................................................4 2.9 Compliance with Certain Matters.................................................................4 2.10 Litigation......................................................................................4 2.11 Non-Disclosure and Proprietary Rights Agreements................................................5 2.12 Patents and Trademarks..........................................................................5 2.13 Agreements; Action..............................................................................6 2.14 Related-Party Transactions......................................................................7 2.15 Permits.........................................................................................7 2.16 Environmental and Safety Laws...................................................................7 2.17 Manufacturing and Marketing Rights..............................................................7 2.18 Disclosure......................................................................................7 2.19 Registration Rights.............................................................................7 2.20 Corporate Documents.............................................................................8 2.21 Title to Property and Assets....................................................................8 2.22 Tax Returns, Payments and Elections.............................................................8 2.23 Insurance.......................................................................................8 2.24 Minute Books....................................................................................8 2.25 Labor Agreements and Actions....................................................................8 2.26 Damage; Loss....................................................................................9 2.27 Liens; Claims...................................................................................9 2.28 Real Property Holding Company...................................................................9
i 3 3. Representations and Warranties of the Investor...........................................................9 3.1 Authorization...................................................................................9 3.2 Purchase Entirely for Own Account...............................................................9 3.3 Disclosure of Information.......................................................................9 3.4 Investment Experience...........................................................................9 3.5 Accredited Investor.............................................................................9 3.6 Restricted Securities..........................................................................10 3.7 Further Limitations on Disposition.............................................................10 3.8 Legends........................................................................................10 4. Conditions of Investor's Obligations at Closing.........................................................10 4.1 Representations and Warranties.................................................................10 4.2 Performance....................................................................................11 4.3 Compliance Certificate.........................................................................11 4.4 Qualifications.................................................................................11 4.5 Proceedings and Documents......................................................................11 4.6 Second Amended and Restated Investors' Rights Agreement........................................11 4.7 Stock Certificates; Warrant....................................................................11 4.8 Confidentiality Agreements.....................................................................11 4.9 Board of Directors.............................................................................11 4.10 Legal Opinion..................................................................................11 4.11 Designation....................................................................................11 4.12 NASD Matters...................................................................................11 4.13 Safeguard Agreement............................................................................11 5. Conditions of the Company's and the Company's Obligations at Closing....................................11 5.1 Representations and Warranties.................................................................12 5.2 Performance....................................................................................12 5.3 Proceedings and Documents......................................................................12 5.4 Payment of Purchase Price......................................................................12 5.5 Qualifications.................................................................................12 6. Miscellaneous...........................................................................................12 6.1 Survival of Warranties.........................................................................12 6.2 Use of Proceeds................................................................................12 6.3 Successors and Assigns.........................................................................12 6.4 Governing Law..................................................................................12 6.5 Counterparts...................................................................................12 6.6 Titles and Subtitles...........................................................................12 6.7 Notices........................................................................................12 6.8 Finder's Fee...................................................................................13
ii 4 6.9 Expenses.......................................................................................13 6.10 Dispute Resolution.............................................................................13 6.11 Amendments and Waivers.........................................................................14 6.12 Severability...................................................................................14 6.13 Publicity......................................................................................14 6.14 Entire Agreement...............................................................................15
SCHEDULE A Disclosure Schedule EXHIBIT A Certificate of Designation EXHIBIT B Warrant EXHIBIT C Budget and Financial Management Plan EXHIBIT D Second Amended and Restated Investors' Rights Agreement EXHIBIT E Form of Non-Disclosure and Proprietary Rights Agreement EXHIBIT F Opinion of Counsel EXHIBIT G Warrant Agreement EXHIBIT H Investor Waiver iii 5 SERIES C PREFERRED STOCK PURCHASE AGREEMENT THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT is made as of the 30th day of March, 2001, by and among USDATA Corporation, a Delaware corporation (the "Company") and SCP Private Equity Partners II, L.P., a Delaware limited partnership (the "Investor"). In consideration of the mutual promises hereinafter set forth, the parties hereto, each intending to be legally bound hereby, agree as follows: 1. Purchase and Sale. 1.1 Sale and Issuance of Series C Preferred Stock. 1. The Company shall adopt and file with the Secretary of State of Delaware, on or before the Closing (as defined below), a Certificate of Designation in the form attached hereto as Exhibit A (the "Designation"). (a) Subject to the terms and conditions of this Agreement, the Investor agrees to purchase at the Closing, and the Company agrees to sell and issue to the Investor at the Closing, (i) 37,500 shares of the Company's Series C-1 Preferred Stock, par value $0.01 per share (the "Series C-1 Preferred Stock"), and (ii) a warrant (the "Warrant") to purchase up to 75,000 shares of the Company's Series C-2 Preferred Stock, par value $0.01 per share (the "Series C-2 Preferred Stock") (at an initial exercise price of $40.00 per share), for an aggregate purchase price of $1,500,000. The Series C-1 Preferred Stock and the Series C-2 Preferred Stock are sometimes collectively and individually referred to as "Series C Preferred Stock". The rights, privileges and preferences of the Series C Preferred Stock shall be as stated in the Designation, and the Warrant shall be substantially in the form attached hereto as Exhibit B. As used herein, the term "Securities" means the shares of Series C Preferred Stock and the Warrant to be issued and sold hereunder. 1.2 Closing. The purchase, sale and issuance of the Securities shall take place at the offices of Saul Ewing LLP, Centre Square West, 1500 Market Street, 38th Floor, Philadelphia PA 19102-2186 at 10:00 a.m. on March 30, 2001, or at such other place and time as the Company and the Investor mutually agree upon (which time is designated as the "Closing"). 1.3 Consideration. At the Closing, the Company shall deliver to the Investor, certificates representing the Securities being sold to the Investor hereunder pursuant to Section 1.1(b) against payment of $1,500,000 by the Investor of the purchase price therefor by wire transfer. 1.4 Option Preferred Stock. On the basis of the representations, warranties and agreements herein contained, and upon the terms but subject to the conditions herein set forth and the approval of the Company's stockholders as set forth in Section 2.5, the Investor commits to purchase an additional 37,500 shares of the Series C-1 Preferred Stock (the "Option Preferred Stock") at the purchase price of $40.00 per share of Option Preferred Stock at the option of the Company. The Company may exercise its right to sell shares of the Option Preferred Stock on or before the expiration of 9 months after the date of Closing, but not before 2 months after the date of Closing, by means of a written notice therefore to the Investor (each, a "Notice") which certifies (a) the Company's compliance with the specified monthly "EBITDA Targets" and "Revenue Targets" as stated in the Budget and Financial Management Plan (the "Plan") attached hereto as Exhibit C for three consecutive months prior to the date of such notice, (b) the Company's then current need for an installment of the purchase price for the Option Preferred Stock (the "Purchase Price Installment"), including that (i) such need is necessary for the Company to keep a positive cash balance for the then current month and that (ii) the need does not arise out of the Company falling out of compliance with the specified EBITDA Targets and Revenue Targets set in the Plan and (c) the Board's approval of such Notice. Each Notice must be received by the Investor not less than ten business days prior to the desired date of payment and must be accompanied by financial information from the Company confirming to the reasonable satisfaction of the Investor the accuracy of the certifications contained in the Notice. The purchase and sale of the Option Preferred Stock pursuant to this Section may take place in one or more 1 6 closings at such times or places as the Company and the Investor may mutually agree (each a "Subsequent Closing"). At each Subsequent Closing, the Company shall deliver to the Investor a certificate or certificates, registered in the Investor's name, representing such number of shares of Option Preferred Stock purchasable for the amount of the Purchase Price Installment therefore, against payment of the Purchase Price Installment therefore, by check payable to the Company or wire transfer in accordance with the Company's instructions. The Investor's obligation to purchase the Option Preferred Stock at a Subsequent Closing is conditioned upon the Investor's receipt of a certificate, dated as of the date of such Subsequent Closing (the "Subsequent Closing Date"), and signed by an executive officer of the Company, certifying that the representations contained in Section 2 of this Agreement, are true and correct at and as of such Subsequent Closing Date. 2. Representations and Warranties regarding the Company. The Company hereby represents and warrants to the Investor that, except as set forth on the Disclosure Schedule attached hereto as Schedule A (the "Disclosure Schedule") furnished to the Investor, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. The Company 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. The Company 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. 2.2 SEC Reports; Financial Statements. The Company's Common Stock, $0.01 par value per share (the "Common Stock") is registered under Section 12(b) or (g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Company is in compliance with its reporting and filing obligations under the Exchange Act. The Company has made available to the Investor (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 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 Company 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 Company 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 Company 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 Company 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 Company and its subsidiaries taken together, or the ability of the Company to perform its obligations under this Agreement, the Warrant or the Second Amended and Restated Investors' Rights Agreement to be executed and delivered in connection herewith in the form attached hereto as Exhibit D (the "Second Amended and Restated Investors' Rights Agreement"). 2.3 Capitalization and Voting Rights (a) As of the date hereof, unless otherwise specified herein, the authorized capital of the Company consists of: (i) 2,200,000 shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock"), of which (x) 100,000 shares have been designated as "Series A Preferred Stock," of which 50,000 currently are issued or outstanding; (y) 800,000 shares have been designated as "Series B Preferred Stock," of which 265,000 currently are issued or outstanding; and (z) 125,000 shares have been designated as "Series C-1 2 7 Preferred Stock," none of which are currently issued or outstanding and 125,000 shares have been designated as "Series C-2 Preferred Stock," none of which are currently issued or outstanding. (ii) 40,000,000 shares of Company Common Stock, of which, as of March 16, 2001, 14,007,182 shares are issued and outstanding. (b) Except for the ownership of shares and warrants in eMake Corporation by the parties to the Second Amended and Restated Investors' Rights Agreement and holders of options pursuant to the 2000 Equity Compensation Plan of eMake Corporation, all outstanding shares of capital stock of the Company's subsidiaries are owned beneficially and of record by the Company, free and clear of any liens, security interests, encumbrances or other adverse claims. Except as described in the Disclosure Schedule, the Company 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 Company nor its subsidiaries are participants in any joint venture, partnership, or similar arrangement. (c) All outstanding shares of capital stock of the Company 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 of 1933, as amended (the "Securities Act"), and any relevant state securities laws or pursuant to valid exemptions therefrom. (d) Except (i) as disclosed in the SEC Reports, (ii) for warrants, options and rights in eMake Corporation held by the parties to the Second Amended and Restated Investors' Rights Agreement and holders of options pursuant to the 2000 Equity Compensation Plan of eMake Corporation, and (iii) except for the rights provided for in the Second Amended and Restated Investors' Rights Agreement and this Agreement, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company or any of its subsidiaries of any shares of their capital stock. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery by the Company of this Agreement, the Warrant, and the Second Amended and Restated Investors' Rights Agreement, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance) and delivery of the Securities being sold hereunder, the Series C Preferred Stock issuable upon exercise of the Warrant and the Common Stock issuable upon conversion of the Series C Preferred Stock, has been taken, and this Agreement, the Warrant, and the Second Amended and Restated Investors' Rights 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 Second Amended and Restated Investors' Rights Agreement may be limited by applicable federal or state securities laws. 2.5 Stockholder Approval. Except as otherwise provided in Section 1.4 of the Agreement and Section 1.1 of the Warrant, approval by the stockholders of the Company is not required for the authorization, execution and delivery of this Agreement, the Warrant, and the Second Amended and Restated Investors' Rights Agreement, the performance of all obligations of the Company hereunder and thereunder, and the authorization, issuance (or reservation for issuance) and delivery of the Securities being sold hereunder, the Series C Preferred Stock issuable upon exercise of the Warrant and the Common Stock issuable upon conversion of the Series C Preferred Stock. The Company agrees to use its best efforts to obtain stockholder approval of the transactions contemplated in Section 1.4 of the Agreement and Section 1.1 of the Warrant, as soon as practicable, but no later than the date of the Company's next Annual Meeting of Stockholders, scheduled to take place on May 29, 2001. 2.6 Valid Issuance of Stock. The shares of Series C Preferred Stock that are being issued to the Investor hereunder, when issued, sold and delivered in accordance with the terms of this Agreement for the 3 8 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 Second Amended and Restated Investors' Rights Agreement and under applicable state and federal securities laws. The Series C Preferred Stock issuable upon exercise of the Warrant has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Warrant, will be duly and validly issued, fully paid and nonassessable, and will be free of restrictions on transfers other than restrictions on transfer under this Agreement, the Second Amended and Restated Investors' Rights Agreement and under applicable state and federal securities laws. The Common Stock issuable upon conversion of the Series C Preferred Stock purchased under this Agreement or issuable upon the exercise of the Warrant has been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the 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, the Second Amended and Restated Investors' Rights Agreement and under applicable state and federal securities laws. 2.7 Governmental Consents. Other than those that have been duly obtained or filings which are required under applicable securities laws, which filings, if any, will be made within the applicable periods required 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 National Association of Securities Dealers, Inc. (the "NASD"), on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, the Warrant and the Second Amended and Restated Investors' Rights Agreement. 2.8 Offering. Subject in part to the truth and accuracy of the Investor representations set forth in Section 3 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 C Preferred Stock upon the exercise of the Warrant and the issuance of shares of Common Stock upon the conversion of shares of Series C Preferred Stock will be exempt from the registration requirement of the Securities Act and applicable state securities laws. 2.9 Compliance with Certain Matters. Neither the Company 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 Warrant and the Second Amended and Restated Investors' Rights 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 any of its subsidiaries or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company or any of its subsidiaries, their business or operations or any of their assets or properties. 2.10 Litigation. There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge, currently threatened against the Company or any of its subsidiaries that questions the validity of this Agreement, the Warrant or the Second Amended and Restated Investors' Rights Agreement or the right of the Company to enter into such agreements, or to consummate the transactions contemplated hereby or thereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company or any of its subsidiaries, financially or otherwise, or any change in the current equity ownership of the Company or any of its subsidiaries. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or, to the best of the Company's knowledge, threatened involving the prior employment of any of the Company's or any of its subsidiaries' employees or consultants, their use in connection with the Company's or any of its subsidiaries' 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 any of its subsidiaries is a party or subject to the provisions of any order, 4 9 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 any of its subsidiaries currently pending or that the Company or any of its subsidiaries intends to initiate. 2.11 Non-Disclosure and Proprietary Rights Agreements. Except as described in the Disclosure Schedule, each employee, officer and consultant of the Company or any of its subsidiaries has executed a Non-Disclosure and Proprietary Rights Agreement in the form attached as Exhibit E hereto. The Company, after reasonable investigation, is not aware that any of the Company's or its subsidiaries' key employees, officers or consultants are in violation of the agreements specified in this Section 2.11, and the Company and its subsidiaries will use their reasonable efforts to prevent any such violation. 2.12 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 any of its subsidiaries, (ii) pending patent applications and applications for registrations of other Intellectual Property Rights filed by the Company or any its subsidiaries and (iii) unregistered trade names and corporate names owned or used by the Company or any of its subsidiaries. The Disclosure Schedule also contains a complete and accurate list of all licenses and other rights granted by the Company or any of its subsidiaries 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 any of its subsidiaries 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 a subsidiary of the Company 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 a subsidiary of the Company 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 its subsidiaries 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 its subsidiaries 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 knowledge, the owners of any Intellectual Property Rights licensed to the Company or any of its subsidiaries 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 any of its subsidiaries 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 valid grounds for the same. Neither the Company nor any of its subsidiaries has received any notices of, and the Company is 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 any of its subsidiaries license any rights from a third party). To the best of the Company's knowledge, the conduct of the Company's and each of its subsidiaries' 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 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 knowledge, the Intellectual Property Rights owned by or licensed to the Company or any of its subsidiaries 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 any of its subsidiaries' right, title and interest in and to the Intellectual Property Rights listed on the Disclosure Schedule. To the best of the Company's knowledge, none of the Company's nor any of its subsidiaries' 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 any of its subsidiaries or that would conflict with the Company's or any of its subsidiaries' business as presently conducted and to the best of the Company'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 each of its subsidiaries' business by the employees of the Company and each of its subsidiaries, nor the conduct of the Company's or each of its subsidiaries' business as presently conducted or presently proposed to be conducted, will, to the best of the 5 10 Company's knowledge, 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. The Company does not believe it is or will be necessary for the Company or any of its subsidiaries to utilize any inventions of any of the Company's or any of its subsidiaries' employees (or people it currently intends to hire) made prior to their employment by the Company or any of its subsidiaries, 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 with 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 information), (vii) other intellectual property rights and (viii) copies and tangible embodiments thereof (in whatever form or medium). 2.13 Agreements; Action. (a) The SEC Reports list all material agreements, understandings, instruments and contracts, whether written or oral, to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or its assets and properties are bound. (b) Except as set forth in the SEC Reports or the Disclosure Schedule, there are no agreements, understandings or proposed transactions between the Company or any of its subsidiaries and any of its officers, directors, affiliates or any affiliate thereof. (c) Except as set forth in the SEC Reports, 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 any of its subsidiaries is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments to, the Company or any of its subsidiaries in excess of $25,000, (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company or any of its subsidiaries, 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 any of its subsidiaries' 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 any of its subsidiaries with respect to infringements of proprietary rights. (d) Except as set forth in the SEC Reports, neither the Company nor any of its subsidiaries 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) incurred any material indebtedness for money borrowed or any other liabilities, (iii) made any material 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 material amount 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 the Company 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 2.13 are valid, binding and enforceable in accordance with their respective terms and there 6 11 has been no material change to or amendment to a material contract by which the Company or any of its subsidiaries or any of their respective assets or properties is bound or subject. Each of the Company and each of its subsidiaries 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 any of its subsidiaries 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 any of its subsidiaries under any contract, agreement or instrument. None of the Company nor any of its subsidiaries have knowledge of any breach or anticipated breach by the other parties to any contract, agreement, instrument or commitment. (g) Neither the Company nor any of its subsidiaries is a party to or is bound by any contract, agreement or instrument, that materially adversely affects its business as now conducted or as proposed to be conducted, its properties or its financial condition. 2.14 Related-Party Transactions. Except as disclosed in the SEC Reports, no employee, consultant, officer, or director of the Company or any of its subsidiaries, or member of his or her immediate family is indebted to the Company or any of its the subsidiaries, nor is the Company or any of its subsidiaries 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 any of its subsidiaries, or member of the immediate family of any officer or director of the Company or any of its subsidiaries is directly or indirectly interested in any material contract with the Company or any of its subsidiaries. 2.15 Permits. Each of the Company and each of its subsidiaries 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 believes that each of the Company and each of its subsidiaries 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 any of its subsidiaries is in default in any material respect under any of such franchises, permits, licenses or other similar authority. 2.16 Environmental and Safety Laws. To the Company's knowledge, neither the Company nor any of its subsidiaries is in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to the Company's knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.17 Manufacturing and Marketing Rights. Except in the ordinary course of business or as disclosed in the SEC Reports, neither the Company nor any of its subsidiaries 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. 2.18 Disclosure. The Company has fully provided the Investor with all the information that the Investor has requested for deciding whether to purchase the Securities and to consummate the transactions contemplated by this Agreement. None of this Agreement, the Warrant, the Second Amended and Restated Investors' Rights Agreement, any other statements or certificates made or delivered in connection herewith or therewith or any other information supplied by the Company 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. 2.19 Registration Rights. Except as (a) provided in the Second Amended and Restated Investors' Rights Agreement, (b) provided in the Investors' Rights Agreement dated as of September 12, 2000 by and among eMake Corporation and the other parties named therein, or (c) as disclosed in the SEC Reports, neither 7 12 the Company nor any of its subsidiaries has granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.20 Corporate Documents. Except as contemplated by this Agreement, the Company's Certificate of Incorporation and Bylaws and each of its subsidiaries' Certificates of Incorporation or Articles of Incorporation, as applicable, and Bylaws are in the form previously provided to the Investor. 2.21 Title to Property and Assets. Each of the Company and each of its subsidiaries 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 each of its subsidiaries is in compliance with such leases and holds a valid leasehold interest free of any liens, claims or encumbrances. 2.22 Tax Returns, Payments and Elections. Each of the Company and each of its subsidiaries 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 each of its subsidiaries has paid all taxes and other assessments due, except those contested by it in good faith that are listed in the Disclosure Schedule. 2.23 Insurance. Each of the Company and each of its subsidiaries has in full force and effect or will obtain in a reasonable amount of time after the Closing, fire and casualty insurance policies, with extended coverage in amounts customary for companies similarly situated. Each of the Company and each of its subsidiaries has in full force and effect or will obtain in a reasonable amount of time after the Closing, products liability and errors and omissions insurance in amounts customary for companies similarly situated. Each of the Company and each of its subsidiaries shall have or will obtain in a reasonable amount of time after the Closing, directors' and officers' insurance in amounts satisfactory to the Investor. 2.24 Minute Books. The minute books of the Company and each of its subsidiaries made available to the Investor 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 any of its subsidiaries 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 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 any of its subsidiaries pending, or to the Company's knowledge, threatened, that could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company or any of its subsidiaries (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 any of its subsidiaries. Except with respect to eMake Corporation, 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 any of its subsidiaries, nor does the Company or any of its subsidiaries 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 or any subsidiary of the Company as listed in the Disclosure Schedule, the employment of each officer and employee of the Company and each of its subsidiaries is terminable at the will of the Company or a subsidiary of the Company, as applicable, and without any required severance payment. With the exception of the Company's consulting arrangement with Phoenix Management, Inc., the consulting relationship of each consultant of the Company or any of its subsidiaries is terminable at the will of the Company or a subsidiary of the Company, as applicable, and without any required severance payment. To the knowledge of the Company, each of the Company and each of its subsidiaries have complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment. 8 13 2.26 Damage; Loss. Neither the Company nor any of its subsidiaries has 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 or any of its subsidiaries, 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 any of its subsidiaries is a real property holding company within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended. 3. Representations and Warranties of the Investor. The Investor hereby represents and warrants to the Company that: 3.1 Authorization. The Investor has full power and authority to enter into this Agreement and the Second Amended and Restated Investors' Rights 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 Second Amended and Restated Investors' Rights Agreement may be limited by applicable federal or state securities laws. 3.2 Purchase Entirely for Own Account. The Securities to be purchased by the Investor hereunder, the Series C Preferred Stock issuable upon exercise of the Warrant to be issued to the Investor hereunder and the Common Stock issuable upon conversion of the Series C Preferred Stock issued or issuable to the Investor hereunder or under the Warrant issued to the Investor hereunder, 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 person, with respect to any of the Securities to be purchased by the Investor hereunder, the Series C Preferred Stock issuable upon exercise of the Warrant to be issued to the Investor hereunder, and the Common Stock issuable upon conversion of the Series C Preferred Stock issued or issuable to the Investor hereunder or under the Warrant issued to the Investor hereunder. 3.3 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 regarding the terms and conditions of the offering of the Securities and the business, properties, prospects and financial condition of the Company. The foregoing, however, does not limit or modify the representations and warranties in Section 2 of this Agreement or the right of the Investor to rely thereon. 3.4 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. 3.5 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. 9 14 3.6 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 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. 3.7 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 C Preferred Stock issuable upon exercise of the Warrant to be issued to the Investor hereunder, and the Common Stock issuable upon conversion of the Series C Preferred Stock issued or issuable to the Investor hereunder or under the Warrant to be issued to the Investor hereunder unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the applicable provisions of the Second Amended and Restated 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. 3.8 Legends. It is understood that the certificates evidencing the Securities, the Series C Preferred Stock issuable upon exercise of the Warrant and the Common Stock issuable upon conversion of the Series C Preferred Stock issued or issuable to the Investor hereunder or under the Warrant to be issued to the Investor hereunder, 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 Second Amended and Restated Investors' Rights Agreement or other applicable agreement. 4. Conditions of Investor's Obligations at Closing. The obligations of the Investor under Sections 1.1 and 1.2 of this Agreement are subject to the fulfillment on or before the Closing of each of the conditions hereinafter set forth. 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true in all material respects on and as of the Closing with the same effect as though 10 15 such representations and warranties had been made on and as of the date of the Closing, unless another date is specified therein. 4.2 Performance. The Company 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 it on or before the Closing. 4.3 Compliance Certificate. The President of the Company shall deliver to the Investor at the Closing a certificate on behalf of the Company, stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled. 4.4 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. 4.5 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 Investor 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. 4.6 Second Amended and Restated Investors' Rights Agreement. The Company, the Investor, Safeguard 2000 Capital, L.P. ("Safeguard"), Safeguard Delaware, Inc. and Safeguard Scientifics, Inc. shall have entered into the Second Amended and Restated Investors' Rights Agreement. 4.7 Stock Certificates; Warrant. The Company shall have delivered to the Investor executed certificates representing the Series C Preferred Stock and the Warrant to be purchased at the Closing. 4.8 Confidentiality Agreements. Each employee, officer and consultant of the Company or any of its subsidiaries shall have entered into the applicable confidentiality agreement as specified in Section 2.11 hereof. 4.9 Board of Directors. Effective as of the Closing, the Company's Board of Directors shall be increased to seven members, one of which shall have been designated by the Investor. 4.10 Legal Opinion. The Investor shall have received an opinion of counsel to the Company, in the form attached hereto as Exhibit F. 4.11 Designation. The Company shall have adopted and filed with the Secretary of State of Delaware the Designation. 4.12 NASD Matters. The Company shall have given or made all notices to or filings with the NASD, and shall have complied with all rules and regulations of the NASD, required in connection with the transactions contemplated hereby. 4.13 Safeguard Agreements. The Company, the Investor and Safeguard shall have entered into the Warrant Agreement in the form attached hereto as Exhibit G. The Investor, Safeguard and Safeguard Delaware, Inc. shall have entered into the Waiver of Anti-Dilution Rights for Series A Preferred Stock and Series B Preferred Stock (the "Investor Waiver") in the form attached hereto as Exhibit H. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to the Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by the Investor: 11 16 5.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 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. 5.2 Performance. The Investor 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. 5.3 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 Company's counsel, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.4 Payment of Purchase Price. The Investor shall have delivered to the Company the purchase price payable at the Closing pursuant to Section 1.3. 5.5 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. Miscellaneous. 6.1 Survival of Warranties. The warranties, representations and covenants of the Company and the Investor 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 Investor or the Company; provided, however, that there shall be no limitation period for those matters addressed in Section 2.3(a) or (b) hereof. 6.2 Use of Proceeds. The Company shall use the proceeds from the sale of the Securities to the Investor hereunder for general corporate purposes. 6.3 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 C Preferred Stock issuable upon exercise of the Warrant or any Common Stock issuable upon conversion of the Series C 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. 6.4 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. 6.5 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. 6.6 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. 6.7 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 12 17 Expressway, Richardson, Texas 75080 (Fax: (972) 669-9557), Attention: General Counsel and (b) 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: Chief Financial Officer (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. 6.8 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. The Investor agrees to indemnify and to hold harmless the Company 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 Investor or any of its officers, partners, employees, or representatives is responsible. The Company agrees to indemnify and hold harmless the Investor 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 any of its respective officers, employees, consultants or representatives is responsible. 6.9 Expenses. Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses incurred by the Investor with respect to the negotiation, execution, delivery and performance of this Agreement and any schedules or exhibits hereto. The Company shall also reimburse the Investor for all unreimbursed expenses of the Investor related to the Company's offer and sale of its Series B Preferred Stock and negotiation, execution, delivery and performance of the Exchange Agreement, dated September 12, 2000 by and between the Company and the Investor. 6.10 Dispute Resolution. (a) If any dispute arising out of or relating to this Agreement, the Warrant, the Second Amended and Restated Investors' Rights 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 13 18 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 6.10(c) relating to Summary Proceedings shall apply to such Proceeding. (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. 6.11 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 and the Investor. 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, and the Company. 6.12 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. 6.13 Publicity. Neither the Company nor the Investor 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 Investor, except pursuant to the Company'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 determines that it is required by law to disclose 14 19 these transactions or the identity of the Investor, it shall, at a reasonable time before making any such disclosure, consult with the Investor regarding such disclosure. 6.14 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] 15 20 IN WITNESS WHEREOF, the parties have executed this Series C Preferred Stock Purchase Agreement as of the date first above written. COMPANY: USDATA CORPORATION By: -------------------------------------------- Robert Merry, Chief Executive Officer INVESTOR: 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: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- [SIGNATURE PAGE - SERIES C PREFERRED STOCK PURCHASE AGREEMENT] 21 SCHEDULE A DISCLOSURE SCHEDULE 22 EXHIBIT A CERTIFICATE OF DESIGNATION [ATTACHED] 23 EXHIBIT B WARRANT 24 EXHIBIT C BUDGET AND FINANCIAL MANAGEMENT PLAN [ATTACHED] 25 EXHIBIT D SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT [ATTACHED] 26 EXHIBIT E FORM OF NON-DISCLOSURE AND PROPRIETARY RIGHTS AGREEMENT [ATTACHED] 27 EXHIBIT F OPINION OF COUNSEL [ATTACHED] 28 EXHIBIT G WARRANT AGREEMENT [ATTACHED] 29 EXHIBIT H INVESTOR WAIVER [ATTACHED] EX-4.2 3 d87226ex4-2.txt CERTIFICATE OF DESIGNATION FOR SERIES C-1 & C-2 1 EXHIBIT 4.2 CERTIFICATE OF DESIGNATION FOR SERIES C-1 PREFERRED STOCK AND SERIES C-2 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 pursuant to the authority conferred upon the Board of Directors by Article IV of its Certificate of Incorporation and the provisions of Section 151 of the DGCL, the Board of Directors adopted a resolution setting forth the designations, preferences, qualifications, privileges, limitations, conversion rights and other rights of two series of its Preferred Stock consisting of 250,000 shares which resolution is as follows: RESOLVED, that, pursuant to the authority vested in the Board of Directors by Article IV of the Certificate of Incorporation of the Corporation and the provisions of Section 151 of the DGCL, the Board of Directors, hereby approves, authorizes and establishes the following two series of Preferred Stock, par value $0.01 per share: (1) "Series C-1 Preferred Stock" to consist of 125,000 shares and (2) "Series C-2 Preferred Stock" to consist of 125,000 shares. As used herein, the term "Series C Preferred Stock" refers to both the Series C-1 Preferred Stock and the Series C-2 Preferred Stock. Each share of Series C Preferred Stock shall have the following preferences, qualifications, privileges, limitations, conversion rights and other rights: 1. Rank. The Series C Preferred Stock shall, with respect to dividend rights, rights on liquidation, dissolution and winding up, 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"), the Corporation's Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), the Corporation's Series B Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock") and all other series of the Corporation's Preferred Stock. The Corporation's Certificate of Designation for Series A Preferred Stock and Series B Preferred Stock (the "Series A and B Designation") is hereby amended to provide that the Series B Preferred Stock shall, with respect to dividend rights, rights on liquidation, dissolution and winding up, rank senior to the Series A Preferred Stock. No dividends or other distributions (including payments pursuant to liquidation, redemption or repurchase) shall be made with respect to the Series A Preferred Stock until such time as the holders of the Series B Preferred Stock shall have received from the Corporation, by way of dividends or other distributions (including payments pursuant to liquidation, redemption or repurchase), an amount equal to the Liquidation Amount (as such term is defined in Section 3 of the Series A and B Designation). Except as otherwise provided herein, each share of Series A Preferred Stock and Series B Preferred Stock shall have the rights, qualifications, privileges, limitations, conversion rights and other rights as set forth in the Series A and B Designation. 2 2. Dividends. a. The holders of the Series C Preferred Stock shall be entitled to receive cumulative dividends at the rate of $4.00 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 C Preferred Stock (valued at $40.00 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 C Preferred Stock to Common Stock pursuant to Section 6 below. b. 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 C Preferred Stock remain unpaid. c. So long as shares of Series C Preferred Stock 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.c. 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 C Preferred Stock shall be entitled to a proportionate share of any such dividend or distribution as though the holders of the Series C Preferred Stock were the holders of the number of shares of Common Stock of the Corporation into which their respective shares of Series C Preferred Stock 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. d. All numbers relating to calculation of cumulative dividends or the payment of dividends on the Series C 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 C Preferred Stock. 3. Liquidation Preference. a. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, (i) the holders of the Series C-1 Preferred Stock shall be entitled prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Junior Securities of the Corporation, by reason of their ownership thereof, an amount equal to $80.00 (as adjusted for any stock dividends, combinations, splits or similar events) plus all accrued but unpaid dividends and interest thereon (the "Series C-1 Liquidation Amount") for each share of Series C-1 Preferred Stock then held by them; and (ii) the holders of the Series C-2 Preferred Stock shall be entitled prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Junior Securities of the Corporation, by reason of their ownership thereof, an amount equal to $120.00 (as adjusted for any stock dividends, combinations, splits or similar events) plus all accrued but unpaid dividends and interest thereon (the "Series C-2 Liquidation Amount") for each share of Series C-2 Preferred Stock then held by them. The "Series C-1 Liquidation Amount" and the "Series C-2 Liquidation Amount" are hereinafter individually and collectively referred to as the "Liquidation Amount". If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series C Preferred Stock 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 C Preferred Stock in proportion to the aggregate amount each such holder is otherwise entitled to receive. The holders of Series C 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 C Preferred Stock 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 Series B 2 3 Preferred Stock to the extent of the respective liquidation values of the Series B Preferred Stock. After payment to the holders of the Series B Preferred Stock of the amounts set forth herein, 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 Series A Preferred Stock to the extent of the respective liquidation values of the Series A Preferred Stock. After payment to the holders of the Series A Preferred Stock of the amounts set forth herein, 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 Series B Preferred Stock, Series A Preferred Stock and 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 Series B Preferred Stock, Series A Preferred Stock and 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, the Series C Preferred Stock and all other series of the Corporation's Preferred Stock whose terms specifically provide that such series will rank on a parity with the Series A Preferred Stock and the Series B Preferred Stock (the "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, Series C 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 amounts received by the holders of the Series A Preferred Stock and the Series B Preferred Stock in connection with a liquidation of the Corporation and any other amounts distributed to the holders of the Series A Preferred Stock and the Series B Preferred Stock pursuant to this Section 3.b., for each outstanding share of Series A Preferred Stock and Series B Preferred Stock held by them. 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 the Series C Preferred Stock 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 C Preferred Stock. 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 C Preferred Stock 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 3 4 among the holders of Series C Preferred Stock 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 C Preferred Stock shall be redeemable. 5. Voting Rights. Each holder of shares of Series C 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 C Preferred Stock could be converted, (b) have voting rights and powers equal to the voting rights and powers of such Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class), and (c) be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and the DGCL. 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 C Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward). 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, Series C 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 C Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): a. Right to Convert. Each share of Series C 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 $40.00 plus all accrued but unpaid dividends and interest thereon by the conversion price applicable to such share (the "Conversion Price"), determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. The Conversion Price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series C Preferred Stock initially shall be $0.40 per share of Common Stock. Such initial Conversion Price shall be adjusted as hereinafter provided. b. Mechanics of Conversion. Before any holder of Series C 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 C Preferred Stock 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 C Preferred Stock to be converted and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 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 March 30, 2001. 4 5 (3) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock or Series C 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.(iii), 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, Series B Preferred Stock and Series C 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, Series B Preferred Stock and Series C Preferred Stock; or (D) for which adjustment of the Conversion Price is made pursuant to Section 6.d. (ii) No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the 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.(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue. In computing each adjusted 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 Conversion Price of less than $0.01, no adjustment to the then Conversion Price shall be made, but the amount of said adjustment calculated thereby shall be carried forward to successive occasions until such adjustments in the aggregate equal or exceed $0.01. (iii) 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 5 6 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 Conversion Price shall affect Common Stock previously issued upon conversion of Series C Preferred Stock); and (3) no readjustment pursuant to clause (1) or (2) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock. (1) In the event that, at any time after 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.(iii)) without consideration or for a consideration per share less than the Conversion Price in effect on the date of and immediately prior to such issue, then and in such event, the 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 C Preferred Stock. (v) 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.(iii), 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 6 7 (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 Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that the Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have subdivided the outstanding shares of Common Stock by an amount of shares equal to the maximum number of shares issuable through such dividend and/or upon exercise of such rights to acquire Common Stock. e. Adjustments to Conversion Price for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series C 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 Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series C 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 C 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 of its subsidiaries through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but 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 C 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 C 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 C 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 C Preferred Stock. 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 C 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. 7 8 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 C Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. j. Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C 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 C 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 C 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 C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series C 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 C 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. 7. Series C Restrictions and Limitations. So long as any shares of Series C 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 fifty percent of the then outstanding shares of the Series C 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 C Preferred Stock; (ii) increase the authorized number of shares of the Series C Preferred Stock or issue any additional shares of Series C Preferred Stock other than shares issued in payment of dividends on the outstanding shares of Series C 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 C Preferred Stock as to dividend rights, liquidation preferences or redemption rights; (iv) redeem, purchase or otherwise acquire any Parity Securities or Junior Securities (or pay into a sinking fund for such purpose); provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock at the original purchase price from employees, officers, directors or other persons performing services for this Corporation; (v) reorganize, merge or consolidate the Corporation with or into any corporation if such reorganization, merger or consolidation would result in the stockholders of the Corporation immediately prior to such reorganization, merger or consolidation holding less than a majority of the voting power of the stock of the surviving corporation immediately after such reorganization, merger or consolidation; (vi) sell, lease, convey or otherwise dispose of, or encumber, all or substantially all the Corporation's assets in a single transaction or series of related transactions; or (vii) liquidate, dissolve or wind-up the Company. 8 9 a. Board of Directors. The holders of the Series C Preferred Stock, voting as a separate class (acting by majority vote), shall be entitled to vote to elect one member to the Board of Directors of the Corporation. The right to elect a member of the Board of Directors of the holders of the Series C Preferred Stock contained in this Section may be exercised at a special meeting of the holders of Series C Preferred Stock, called as provided hereinafter, at any annual or special meeting of the stockholders of the Corporation, or by written consent of the holders of the Series C Preferred Stock in lieu of a meeting. The director to be elected by the holders of the Series C Preferred Stock shall serve for a term extending from the date of election and qualification until the time of the next succeeding annual meeting of stockholders and until his or her successor has been duly elected and qualified. Any director elected pursuant to this Section shall not be subject to removal unless such removal is approved by a majority vote of the holders of the Series C Preferred Stock. If at any time a directorship to be filled by the holders of the Series C Preferred Stock shall be vacant, the Chief Executive Officer of the Corporation shall, upon the written request of the holders of record of shares representing at least fifty percent of the voting power of the shares of Series C Preferred Stock, call a special meeting of the holders of Series C Preferred Stock for the purpose of electing a director to fill such vacancy. Such meeting shall be held at the earliest practicable date at such place as is specified in or determined in accordance with the Bylaws of the Corporation. If such meeting is not so called within ten days after delivery of said written request, then the holders of record of shares representing at least twenty-five percent of the voting power of the shares of Series C Preferred Stock may designate in writing one of such holders to call such meeting at the expense of the Corporation. Such meeting may be called by such designated person upon the notice required for annual meetings of stockholders and shall be held at such place as specified or determined above. At any meeting held for the purpose of electing directors at which the holders of Series C Preferred Stock shall have the right to elect such directors as aforesaid, the presence in person or by proxy of the holders owning shares having at least a majority of the votes of Series C Preferred Stock shall be required to constitute a quorum of such Series C Preferred Stock. Any holder of record of shares of Series C Preferred Stock shall have access to the stock books of the Corporation for the purpose of calling a meeting of stockholders pursuant to this Section 8. No Reissuance. No share or shares of Series C 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. * * * [Signature page follows.] 9 10 IN WITNESS WHEREOF, this Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock has been signed by the Chief Executive Officer of the Corporation this 30th day of March, 2001. - ---------------------------------------- Robert A. Merry, Chief Executive Officer 10 EX-4.3 4 d87226ex4-3.txt WARRANT DATED MARCH 30, 2001 1 EXHIBIT 4.3 NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NO TRANSFER OF THIS WARRANT OR OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF 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. WARRANT NO. C-2-1 MARCH 30, 2001 USDATA CORPORATION SERIES C-2 PREFERRED STOCK PURCHASE WARRANT Subject to the terms and conditions set forth herein, USDATA Corporation, a Delaware corporation (the "Company"), hereby grants to SCP Private Equity Partners II, L.P. ("SCP"), a Delaware limited partnership, or its registered assigns or transferees (SCP and each such assign or transferee being referred to herein as a "Holder" and collectively as the "Holders") the right to purchase, at any time and from time to time after the date hereof and until 5:00 p.m. (Eastern Standard Time) on March 30, 2011 (the "Expiration Date"), 75,000 fully paid and non-assessable shares of the Company's Series C-2 Preferred Stock, par value $0.01 per share (the "Series C Shares"), at a purchase price per share of $40.00 (the "Exercise Price"). 1. Exercise of Warrant. 1.1 Exercise. Subject to adjustment as provided in Section 3 hereof, the rights represented by this Warrant are exercisable, in whole or in part, on any business day (the "Exercise Date") and on or before the Expiration Date, at the Exercise Price per share of the Series C Shares issuable hereunder (hereinafter, "Warrant Shares"); provided, however that 50,500 of the Warrant Shares shall not become exercisable until the earlier of stockholder approval of the transactions contemplated hereby or May 31, 2001. Unless this Warrant is exercised in accordance with Section 1.2 hereof, the Exercise Price shall be payable in cash, or by certified or official bank check. 1.2 Net Issue Election. The Holder may elect to receive, without the payment by the Holder of any additional consideration, either (x) in the event of any liquidation, dissolution or winding up of the Company (whether actual or deemed to have occurred pursuant to Section 3.c of the Company's Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock), the Net Liquidation Value of this Warrant (as hereinafter defined) or (y) shares equal to the Net Value of this Warrant (as hereinafter defined), or in either case any portion hereof, by the surrender of this Warrant or such portion to the Company, with the Notice of Net Issue Election in the form of Annex C hereto duly executed, at the office of the Company. Thereupon, the Company shall issue to the Holder the Net Liquidation Value of this Warrant (or portion thereof), in the case of a net exercise pursuant to clause (x) or such number of fully paid and nonassessable Series C Shares as is computed using the following formula, in the case of a net exercise pursuant to clause (y): X = Y(A-B) ------ A where X = the number of shares to be issued to the holder pursuant to this Section 1.2. 2 Y = the number of shares covered by this Warrant in respect of which the net issue election is made pursuant to this Section 1.2. A = the fair market value of one Series C Share, which shall be deemed to equal the fair market value of one share of the Company's Common Stock, as determined in accordance with the provisions of this Section 1.2; provided, however, that if each Series C Share is then convertible into more than or less than one share of the Company's Common Stock, then the fair market value of each Series C Share shall be deemed to equal the fair market value of one share of the Company's Common Stock multiplied by the number of shares of the Company's Common Stock into which each Series C Share is then convertible. B = the Exercise Price in effect under this Warrant at the time the net issue election is made pursuant to this Section 1.2. For purposes of this Section 1.2, the "fair market value" per share of the Company's Common Stock shall mean: (a) If the Company's Common Stock is traded on a national securities exchange or admitted to unlisted trading privileges on such an exchange, or is listed on the National Market (the "National Market") of the National Association of Securities Dealers Automated Quotations System (the "NASDAQ"), the fair market value shall be the average of the last reported sale prices of the Company's Common Stock on such exchange or on the National Market over the five (5) consecutive trading days immediately preceding the effective date of exercise of the net issue election or if the last reported sale price information is not available for such days, the average of the mean of the closing bid and asked prices for such days on such exchange or on the National Market; (b) If the Company's Common Stock is not listed or admitted to unlisted trading privileges, the fair market value shall be the average of the mean of the last bid and asked prices reported over the five (5) consecutive Business Days immediately preceding the effective date of exercise of the net issue election (1) by the NASDAQ or (2) if reports are unavailable under clause (1) above, by the National Quotation Bureau Incorporated; and (c) If the Company's Common Stock is not so listed or admitted to unlisted trading privileges and bid and ask prices are not reported, the fair market value shall be the price per share which the Company could obtain from a willing buyer for shares sold by the Company from authorized but unissued shares, as such price shall be determined by mutual agreement of the Company and the holder of this Warrant. If the holder of this Warrant and the Company are unable to agree on such fair market value, the holder of this Warrant and the Company 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 Warrant and to perform the computations involved. The determination of such investment banking firm shall be binding upon the Company, the holder of this Warrant and any other holder of Warrants or Warrant Shares in connection with any transaction occurring at the time of such determination. All expenses of such investment banking firm shall be borne equally by the Company and the Holder of this Warrant. In all cases, the determination of fair market value shall be made without consideration of the lack of a liquid public market for the Common Stock and without consideration of any "control premium" or any discount for holding less than a majority or controlling interest of the outstanding Common Stock. For purposes of this Section 1.2, the term "Net Liquidation Value" of this Warrant, or portion thereof, shall mean the amount payable to the holders of Series C Shares (with respect to the number of Series C Shares covered by this Warrant in respect of which the net issue election is made pursuant to clause (x) of Section 1.2, and assuming, for purposes of calculating the "Net Liquidation Value, that such Series C Shares are issued and outstanding) as a result of or in connection with any liquidation, dissolution or winding up of the Company pursuant to Section 3 of the Company's Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock (whether actual or deemed to have occurred pursuant to Section 3.c thereof) less the Exercise Price of such Series C Shares. 1.3 Automatic Exercise Prior to Expiration. If not earlier exercised, this Warrant shall be deemed to have been exercised in full pursuant to Section 1.2 immediately prior to the expiration hereof, and upon such deemed exercise, and without any further act or deed of the holder hereof or any other person or entity, the Company shall issue to the Holder hereof the number of fully paid and non-assessable Series C Shares to which such holder would be entitled under Section 1.2. 1.4 Delivery of Certificate. Upon surrender of this Warrant with (a) a duly executed Notice of Exercise in the form of Annex A attached hereto, together with payment of the Exercise Price for the Warrant Shares purchased, or (b) a 2 3 duly executed Notice of Net Issue Election in the form of Annex C hereto, at the Company's principal executive offices presently located at 2435 North Central Expressway, Richardson, Texas, 75080, 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 Warrant Shares so purchased. The Company agrees that the Warrant Shares shall be deemed to have been issued to the holder as of the close of business on the date on which this Warrant shall have been surrendered together with (x) the Notice of Exercise and payment for such Warrant Shares or (y) the Notice of Net Issue Election. 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, each transfer of this Warrant and all rights hereunder, in whole or in part, shall be registered on the books of the Company to be maintained for such purpose, upon surrender of this Warrant at the Designated Office, together with a written assignment of this Warrant in the form of Annex B attached hereto duly executed by the holder or its agent or attorney. Upon such surrender and delivery, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, if any. A Warrant, if properly assigned in compliance with the provisions hereof, may be exercised by the new holder for the purchase of Warrant Shares without having a new Warrant issued. Prior to due presentment for registration of transfer thereof, the Company may deem and treat the registered holder of this Warrant 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 Warrants issued upon any assignment of Warrants shall be the valid obligations of the Company, evidencing the same rights, and entitled to the same benefits as the Warrants surrendered upon such registration of transfer or exchange. 2.2 Stock Certificates. Certificates for the Warrant Shares shall be delivered to the Holder within a reasonable time after the rights represented by this Warrant shall have been exercised pursuant to Section 1, and a new Warrant representing the Series C Shares, if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the Holder within such time. The issuance of certificates for Warrant Shares upon the exercise of this Warrant 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 Warrant or the Warrant Shares; and provided further, that if Warrant Shares are to be delivered in a name other than the name of the Holder hereof representing any Warrant 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 Restrictive Legends. (a) Except as otherwise provided in this Section 2, each certificate for Warrant Shares initially issued upon the exercise of this Warrant, and each certificate for Warrant 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." 3 4 (b) Except as otherwise provided in this Section 2, each Warrant shall be stamped or otherwise imprinted with a legend in substantially the following form: "NEITHER THIS WARRANT NOR ANY OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NO TRANSFER OF THIS WARRANT OR OF THE SECURITIES ISSUABLE UPON EXERCISE HEREOF 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 TRANSFER IS EXEMPT FROM THE REGISTRATION OR QUALIFICATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS." Notwithstanding the foregoing, the legend requirements of this Section 2.3 shall terminate as to any particular Warrant or Warrant 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 Warrant Shares, as the case may be, shall be entitled to receive from the Company without cost to such holder a new Warrant or certificate for Warrant Shares of like tenor, as the case may be, without such restrictive legend. 3. Adjustment of Number of Shares; Exercise Price; Nature of Securities Issuable Upon Exercise of Warrants. 3.1 Exercise Price; Adjustment of Number of Shares. The Exercise Price set forth in Section 1 hereof and the number of shares purchasable hereunder 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 this Warrant, 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 Warrant shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, 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 this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant 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 this Warrant. 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 Warrant with respect to the rights and interests of the holder hereof after the transaction, to the end that the provisions of this Warrant 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 this Warrant. 3.1.2 Reclassification, etc. If the Company, at any time while this Warrant, or any portion thereof, remains outstanding and unexpired, shall, by the reclassification or exchange of securities or otherwise, change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other 4 5 class or classes, this Warrant 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 that were subject to the purchase rights under this Warrant immediately prior to such reclassification, exchange, or other change and the Exercise Price 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 Series C Shares 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 Series C Shares, the Exercise Price in effect immediately prior to such subdivision or stock dividend shall be proportionately reduced and the number of Warrant Shares purchasable pursuant to this Warrant 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 Series C Shares into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced. 3.1.4 Adjustments for Dividends in Stock or Other Securities of Property. If while this Warrant, or any portion hereof, remains outstanding and unexpired the holders of Series C Shares 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 Warrant shall represent the right to acquire, in addition to the number of shares of the security receivable upon exercise of this Warrant, 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 this Warrant 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. 3.2 Timing of Exercise Price Adjustment. No adjustment of the Exercise Price shall be made unless such adjustment would require an increase or decrease of at least $0.0001 in such price; provided 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 adjustment(s) so carried forward, shall require an increase or decrease of at least $0.0001 in the Exercise Price then in effect hereunder. 3.3 Adjustment Certificate. In each case of an adjustment in the Exercise Price, number of Warrant Shares or other stock, securities or property receivable upon the exercise of this Warrant, 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 Series C Shares outstanding or deemed to be outstanding, (ii) the adjusted Exercise Price and (iii) the number of Warrant Shares issuable upon exercise of this Warrant. The Company will forthwith mail a copy of each such certificate to the holder hereof. 4. Registration; Exchange and Replacement of Warrant; 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 this Warrant. 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 this Warrant. The Company may deem and treat the person in whose name this Warrant is registered as the holder and owner hereof for all purposes and shall not be affected by any notice to the contrary, until presentation of this Warrant for registration or 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 Warrant 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 Warrant, the Company will (in the absence of notice to the Company that the Warrant has been acquired by a bona fide purchaser) make and deliver a new Warrant of like tenor, in lieu of this Warrant 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 Series C Shares, solely for the purpose of issuance upon the exercise of this Warrant, such number of shares of Series C Shares as shall be 5 6 issuable upon the exercise hereof. The Company covenants and agrees that, upon exercise of this Warrant and payment of the Exercise Price therefor, if applicable, all Warrant Shares issuable upon such exercise shall be duly and validly issued, fully paid and non-assessable. 5. Fractional Warrants and Fractional Shares. If the number of Warrant Shares purchasable upon the exercise of this Warrant is adjusted pursuant to Section 3 hereof, the Company shall nevertheless not be required to issue fractions of shares, upon exercise of this Warrant 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. Warrant Holders Not Deemed Stockholders. No holder of this Warrant shall, as such, be entitled to vote or to receive dividends or be deemed the holder of Warrant Shares that may at any time be issuable upon exercise of this Warrant for any purpose whatsoever, nor shall anything contained herein be construed to confer upon the holder of this Warrant, 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 this Warrant and been issued Warrant 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 this Warrant, 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 1.4 of this Warrant; 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 Warrant shall bind the parties hereto and their respective heirs, executors, administrators, distributees, successors, assigns and transferees. 9. Law Governing. This Warrant 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. 10. Entire Agreement; Amendments and Waivers. This Warrant 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 Warrant shall not constitute a waiver of such term and such party shall be entitled to enforce such term without regard to such forbearance. This Warrant 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 Warrant 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 Warrant or affecting the validity or enforceability of this Warrant or of such provision in any other jurisdiction. The Section headings in this Warrant have been inserted for purposes of convenience only and shall have no substantive effect. [Signature page follows.] 6 7 IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first written above. USDATA CORPORATION By: ------------------------------------- Robert Merry Chief Executive Officer Accepted and agreed: 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: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- [Signature Page - Series C Preferred Stock Purchase Warrant] 8 ANNEX A NOTICE OF EXERCISE (To be executed upon partial or full exercise of the within Warrant) The undersigned hereby irrevocably elects to exercise the right to purchase ________ shares of Series C-2 Preferred Stock of USDATA Corporation covered by the within Warrant according to the conditions hereof, herewith makes payment of the Exercise Price of such shares in full in the amount of $______________, and requests that a certificate for such number of shares 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 Warrant) -------------------------------------------- -------------------------------------------- (Address) 9 ANNEX B ASSIGNMENT FORM FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under this Warrant, with respect to the number of shares of Series C-2 Preferred Stock set forth below:
No. of Shares of Series C-2 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 Warrant in every particular, without alteration or enlargement or any change whatsoever. 10 ANNEX C NOTICE OF NET ISSUE ELECTION (To be signed only on net issue exercise of the Warrant) The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise this Warrant with respect to shares of Series C-2 Preferred Stock of USDATA Corporation, pursuant to the net issuance provisions set forth in Section 1.2 of this Warrant, and requests that a certificate for the number of shares of Series C-2 Preferred Stock issuable pursuant to said Section 1.2 after application of the net issuance formula to such shares to 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 Warrant) -------------------------------------------- -------------------------------------------- (Address) EX-4.4 5 d87226ex4-4.txt SECOND AMENDED/RESTATED INVESTORS' RIGHTS AGMT. 1 EXHIBIT 4.4 SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Second Amended and Restated Investors' Rights Agreement (this "Agreement") is made as of the 30th day of March, 2001, 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 Series C Preferred Stock Purchase Agreement, dated as of even date herewith (the "Purchase Agreement"), by and between the Company and SCP Private Equity Partners II, L.P., a Delaware limited partnership ("SCP"). 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 Company and the Investors named therein are parties to the Securities Purchase Agreement (the "Securities Purchase Agreement"), dated August 4, 2000; WHEREAS, the Company, the Investors and Safeguard are parties to the Amended and Restated Investors' Rights Agreement (the "Amended Agreement"), dated as of September 12, 2000; WHEREAS, the execution of this Agreement and the amendment and restatement of the Amended Agreement pursuant hereto is a condition precedent to the closing of the Purchase Agreement; and WHEREAS, in order to induce SCP 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 Amended 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, each intending to be legally bound hereby, agree as follows: 2 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; (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 Series A and B Registrable Securities, (ii) the Series C Registrable Securities; and (iii) 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) and (ii) 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 Preferred Stock, par value $0.01 per share; (h) the term "Series B Preferred Stock" means shares of the Company's Series B Preferred Stock, par value $0.01 per share; (i) the term "Series C-1 Preferred Stock" means shares of the Company's Series C-1 Preferred Stock, par value $0.01 per share; (j) the term "Series C-2 Preferred Stock" means shares of the Company's Series C-2 Preferred Stock, par value $0.01 per share; (k) the term "Series C Preferred Stock" means shares of the Series C-1 Preferred Stock and the Series C-2 Preferred Stock; (l) the term "Series A and B Registrable Securities" means the Common Stock issued and sold to 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 Securities Purchase Agreement); 2 3 (m) the term "Series C Registrable Securities" means the Common Stock issuable or issued upon conversion of (i) the Series C-1 Preferred Stock issued and sold to SCP pursuant to the Purchase Agreement or (ii) the Series C-2 Preferred Stock issued to SCP upon its exercise of the Warrant (as defined in the Purchase Agreement); (n) 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; (o) the term "SEC" shall mean the Securities and Exchange Commission; (p) the term "Shelf Registration Period" shall have the meaning set forth in Section 1.2(b) hereof; and (q) 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. 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 could be transferred without restriction 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 3 4 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 for its own account (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 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 of 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 4 5 effective, and in the case of a registration under Section 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 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; 5 6 (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 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 the holders of the Series C Registrable Securities 6 7 selling Series C Registrable Securities pro rata according to the total amount of Series C Registrable Securities entitled to be included therein owned by each such selling holder; (b) second to the holders selling Series A and B Registrable Securities pro rata according to the total amount of Series A and B Registrable Securities entitled to be included therein owned by each such selling holder and (c) third, 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 (for which such statement of material fact is untrue in light of the circumstances under which it was made) 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 (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 7 8 (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; (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 8 9 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 for such offering; 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. 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 reasonable actions 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. 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 9 10 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 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 apportioned (a) first to the holders of the Series C Registrable Securities selling Series C Registrable Securities pro rata according to the total amount of Series C Registrable Securities entitled to be included therein owned by each such selling holder; (b) second to the holders selling Series A and B Registrable Securities pro rata according to the total amount of Series A and B Registrable Securities entitled to be included therein owned by each such selling holder and (c) third, to the extent determined by the underwriters to be compatible with the offering, to other stockholders. 10 11 (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. 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 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 11 12 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 September 12, 2000, 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. 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 12 13 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. 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 13 14 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, 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 14 15 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 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 15 16 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 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 16 17 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. In addition to its right to designate one of the members of the Board of Directors of the Company pursuant to the Company's Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock, for so long as 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. 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. 17 18 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 A. Merry, (ii) if to an Investor, at the address beneath such Investor's name on Schedule A attached hereto, and (iii) if to Safeguard, at Safeguard Scientifics, Inc., 800 The Safeguard Building, 435 Devon Park Drive, Wayne, Pennsylvania 19087 (fax: (610) 293-0601). 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 1.1, 1.8, 1.14, 2, 3 and 4 and the next two sentences of this Agreement may be amended and the observance of any term other than Sections 1.1, 1.8, 1.14, 2, 3 and 4 and the next two sentences 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 1.1, 1.8, 1.14 and this sentence of this Agreement may be amended and the observance of any term of Sections 1.1, 1.8, 1.14 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, the holders of a majority of the shares of the Series C Registrable Securities and the holders of a majority of the Series A and B Registrable Securities. 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 generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and SCP. 18 19 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.] 19 20 IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Investors' Rights Agreement as of the date first above written. COMPANY: USDATA CORPORATION By: -------------------------------------------- Robert Merry Chief Executive Officer INVESTORS: SAFEGUARD DELAWARE, INC. By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- SAFEGUARD 2000 CAPITAL, L.P. By: Safeguard Delaware, Inc., its General Partner By: -------------------------------------------- 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: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 20 21 OTHER PARTY: SAFEGUARD SCIENTIFICS, INC. (solely for the limited purpose of agreeing to Sections 2, 3 and 5 hereof) By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 21 22 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., 300 The Safeguard Building 435 Devon Park Drive Wayne, Pennsylvania 19087 Fax: (610) 293-0601 ATTN: Chief Financial Officer EX-4.5 6 d87226ex4-5.txt WARRANT AGREEMENT DATED MARCH 30, 2001 1 EXHIBIT 4.5 WARRANT AGREEMENT This WARRANT AGREEMENT (this "Agreement") is entered into as of this 30th of March 2001 by and between USDATA Corporation, a Delaware corporation (the "Parent"), Safeguard 2000 Capital, L.P., a Delaware limited partnership ("Safeguard 2000") and SCP Private Equity Partners II, L.P., a Delaware limited partnership ("SCP"). RECITALS WHEREAS, SCP is the holder of Warrant No. A-1-1 (the "SCP Warrant") of eMake Corporation, a Delaware corporation ("eMake"), pursuant to which SCP has the right to purchase shares of eMake's Series A-1 Convertible Preferred Stock, par value $0.01 per share ("Series A-1 Stock"); WHEREAS, Safeguard 2000 is the holder of Warrant No. A-2-1 (the "Safeguard Warrant") of eMake, pursuant to which Safeguard 2000 has the right to purchase shares of eMake's Series A-2 Convertible Preferred Stock, par value $0.01 per share ("Series A-2 Stock"); WHEREAS, pursuant to the Exchange Agreement, dated September 12, 2000, by and between the Parent and SCP, SCP has the right, upon certain terms and conditions, to exchange any shares of Series A-1 Stock it may acquire upon exercise of the SCP Warrant for shares of the Parent's Series B Convertible Stock, par value $0.01 per share ("Series B Stock"); WHEREAS, pursuant to the Exchange Agreement, dated September 12, 2000, by and between the Parent and Safeguard 2000, Safeguard 2000 has the right, upon certain terms and conditions, to exchange any shares of Series A-2 Stock it may acquire upon exercise of the Safeguard Warrant for shares of the Series B Stock; WHEREAS, the Parent proposes to issue and sell up to 75,000 shares of the Parent's Series C-1 Preferred Stock, par value $0.01 per share ("Series C-1 Stock"), to SCP at a purchase price of $40.00 per share and to issue to SCP a warrant (the "Series C Warrant") to purchase 75,000 shares of Series C-2 Preferred Stock, par value $0.01 per share ("Series C-2 Stock") pursuant to the Series C Preferred Stock Purchase Agreement (the "Purchase Agreement"); WHEREAS, as a condition to the consummation of the purchase and sale of the Series C-1 Stock, the Series C-2 Stock and the Series C Warrant, SCP and Safeguard 2000 have each agreed not to exercise their respective rights to convert the Series A-1 Stock and the Series A-2 Stock into shares of Series B Stock; AGREEMENT NOW THEREFORE, in consideration of the foregoing and the mutual covenants hereinafter set forth, the parties hereto, each intending to be legally bound hereby, agree as follows: 2 1. SCP agrees that it shall not exercise its right to convert any shares of Series A-1 Stock it may acquire upon exercise of the SCP Warrant into shares of Series B Stock. 2. Safeguard 2000 agrees that it shall not exercise its right to convert any shares of Series A-2 Stock it may acquire upon exercise of the Safeguard Warrant into shares of Series B Stock. 3. The parties agree that if they choose to terminate this Agreement or to amend the Agreement to permit the conversion of any shares of Series A-1 Stock or Series A-2 Stock acquired upon exercise of the SCP Warrant or the Safeguard Warrant, as applicable, into shares of Series B Stock, they shall exercise such conversion rights only upon obtaining the requisite approval of the stockholders of the Parent in accordance with applicable Nasdaq Stock Market regulations. 4. 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. 5. 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. 6. 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. 2 3 IN WITNESS WHEREOF, the parties have executed this WARRANT AGREEMENT as of the date first above written. USDATA CORPORATION By: -------------------------------------------- Robert Merry, Chief Executive Officer SAFEGUARD 2000 CAPITAL, L.P. By: Safeguard Delaware, Inc., its General Partner By: -------------------------------------------- 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: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 3 EX-4.6 7 d87226ex4-6.txt WAIVER OF ANTI-DILUTION RIGHTS FOR SERIES A STOCK 1 EXHIBIT 4.6 WAIVER OF ANTI-DILUTION RIGHTS SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK This WAIVER OF ANTI-DILUTION RIGHTS FOR SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK ("Waiver") is entered into as of this 30th day of March 2001 by and among USDATA Corporation, a Delaware corporation (the "Corporation"), Safeguard Delaware, Inc., a Delaware corporation ("Safeguard Delaware"), Safeguard 2000 Capital, L.P., a Delaware limited partnership ("Safeguard 2000") and SCP Private Equity Partners II, L.P., a Delaware limited partnership ("SCP"). RECITALS WHEREAS, Safeguard Delaware and Safeguard 2000 (the "Preferred Stock Holders") hold shares of Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock") or Series B Preferred Stock, par value $0.01 per share (the "Series B Preferred Stock") of the Corporation; WHEREAS, Section 6(c) of the Corporation's Certificate of Designation for Series A Preferred Stock and Series B Preferred Stock (the "Series A and B Designation") provides for certain adjustments to the conversion prices of the Series A Preferred Stock and Series B Preferred Stock upon certain issuances of stock or warrants by the Corporation (the "Anti-Dilution Rights"); WHEREAS, the Corporation plans to issue and sell up to 75,000 shares of the Parent's Series C-1 Preferred Stock, par value $0.01 per share ("Series C-1 Stock"), to SCP at a purchase price of $40.00 per share and to issue to SCP a warrant (the "Warrant") to purchase 75,000 shares of Series C-2 Preferred Stock, par value $0.01 per share ("Series C-2 Stock") pursuant to the Series C Preferred Stock Purchase Agreement (the "Purchase Agreement"); WHEREAS, the Corporation plans to reserve shares of Series C-1 Stock and Series C-2 Stock, issuable as cumulative dividends under the Corporation's Certificate of Designation for Series C-1 Preferred Stock and Series C-2 Preferred Stock (the "PIK Shares"); WHEREAS, in order to induce SCP to enter into the Purchase Agreement and to consummate the transactions contemplated thereby, the Preferred Stock Holders now desire to provide for the waiver of their Anti-Dilution Rights with respect to their shares of the Series A Preferred Stock and the Series B Preferred Stock; WAIVER 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, each intending to be legally bound hereby, agree as follows: 2 1. The Preferred Stock Holders hereby waive their rights to any adjustment to the conversion price of their shares of Series A Preferred Stock and Series B Preferred Stock under Section 6(c) of the Series A and B Designation arising from the issuance of the Series C-1 Stock, the Series C-2 Stock, the Warrant, the Warrant Shares and the PIK Shares. 2. The construction, validity and interpretation of this Waiver 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. 3. This Waiver 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. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 2 3 IN WITNESS WHEREOF, the parties have executed this WAIVER OF ANTI-DILUTION RIGHTS FOR SERIES A PREFERRED STOCK AND SERIES B PREFERRED STOCK as of the date first above written. USDATA CORPORATION By: -------------------------------------------- Robert Merry Chief Executive Officer SAFEGUARD DELAWARE, INC. By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- SAFEGUARD 2000 CAPITAL, L.P. By: Safeguard Delaware, Inc., its General Partner By: -------------------------------------------- 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: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- 3 EX-4.7 8 d87226ex4-7.txt RIGHT OF FIRST REFUSAL AGREEMENT 1 EXHIBIT 4.7 RIGHT OF FIRST REFUSAL AGREEMENT THIS RIGHT OF FIRST REFUSAL AGREEMENT (the "Agreement") is made and entered into as of this 30th day of March, 2001, by and among the Investors listed on Schedule A hereto (each, an "Investor" and collectively, the "Investors"), SCP Private Equity Partners II, L.P., a Delaware limited partnership ("SCP"), and USDATA Corporation, a Delaware corporation (the "Corporation"). RECITALS WHEREAS, SCP has agreed to purchase from USDATA Corporation (the "Company"), and the Company has agreed to issue and sell to SCP, shares of the Company's Series C-1 Preferred Stock , $0.01 per share ("Series C-1 Stock"), and to issue to SCP a warrant to purchase shares of the Company's Series C-2 Preferred Stock, $0.01 per share ("Series C-2 Stock"), pursuant to that certain Series C Preferred Stock Purchase Agreement, dated as of even date herewith (the "Purchase Agreement"), by and between the Company and SCP; WHEREAS, each of the Investors is a holder of shares of the Company's Common Stock, par value $0.01 per share ("Common Stock"), Series A Preferred Stock, par value $0.01 per share ("Series A Stock"), and/or Series B Preferred Stock, par value $0.01 per share ("Series B Stock") (The Common Stock, the Series A Stock, and the Series B Stock are sometimes hereinafter referred to as the "Capital Stock."); WHEREAS, in order to induce SCP to enter into the Purchase Agreement and to consummate the transactions contemplated thereby, the Investors have agreed to grant SCP a right of first refusal with respect to transfers of their Capital Stock; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: 1. DEFINITIONS. 1.1 "INVESTOR STOCK" shall mean the shares of the Company's Common Stock or Preferred Stock now owned or subsequently acquired by the Investors. 1.2 "PREFERRED STOCK" shall mean shares of the Series A Stock, the Series B Stock, the Series C-1 Stock and Series C-2 Stock. 2 1.3 "TRANSFER" shall include any sale, assignment, encumbrance, hypothecation, pledge, conveyance in trust, gift, transfer by request, devise or descent, or other transfer or disposition of any kind, including, but not limited to, transfers to receivers, levying creditors, trustees or receivers in bankruptcy proceedings or general assignees for the benefit of creditors, whether voluntary or by operation of law, directly or indirectly, of any of the Investor Stock. 2. TRANSFERS. 2.1 PROHIBITION ON TRANSFERS. Except as otherwise permitted herein, no Investor shall Transfer any Investor Stock unless such Investor has complied with all of the terms of this Agreement. Any purported Transfer in violation of this Agreement shall be void and ineffective and shall not operate to transfer any interest or title to the purported transferee. Notwithstanding the foregoing, the prohibition on Transfer shall not apply to (a) any existing pledge or hypothecation of any Investor Stock, (b) any future pledge or hypothecation by an Investor of its Investor Stock if, in the case of such future pledge or hypothecation, the proposed pledgee or beneficiary of the hypothecation agrees in writing to be bound by the terms of this Agreement, or (c) one or more sales pursuant to Rule 144 of the Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended, if the number of shares sold during any three-month period is not greater than one percent of the outstanding shares of the Company's Common Stock at the commencement of such three-month period. 2.2 NOTICE OF TRANSFER. If an Investor proposes to Transfer any shares of Investor Stock pursuant to a bona fide offer, then the Investor shall promptly give written notice (the "Notice") to SCP at least fifteen (15) days prior to the closing of such Transfer. The Notice shall describe in reasonable detail the proposed Transfer including, without limitation, the number of shares of Investor Stock to be transferred, the nature of such Transfer, the consideration to be paid, and the name and address of each prospective purchaser or transferee, and shall include a copy of the bona fide offer. 2.3 RIGHT OF FIRST REFUSAL. SCP shall have the right, exercisable upon written notice to the Investor (the "Exercise Notice") within five (5) days after the receipt of the Notice, to purchase the Investor Stock subject to the Notice and on the same terms and conditions as set forth therein. SCP shall effect the purchase of the Investor Stock, including payment of the purchase price, not more than ten (10) days after delivery of the Exercise Notice, and at such time the Investor shall deliver to SCP the certificate(s) representing the Investor Stock to be purchased by SCP, each certificate to be properly endorsed for transfer. In the event that SCP shall not elect to exercise its right of first refusal with respect to all of the offered Investor Stock, the Investor shall be permitted to Transfer the Investor Stock to the bona fide transferee on terms no less favorable to the Investor than the terms provided for in the bona fide offer. In the event that such Transfer to the bona fide transferee shall not be effectuated within sixty (60) days after delivery of the Notice to SCP, any proposed Transfer thereafter by the Investor shall become subject to the terms of this Agreement. 2 3 3. LEGEND. 3.1 Each certificate representing shares of Investor Stock now or hereafter owned by the Investors shall be endorsed with the following legend: "THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A RIGHT OF FIRST REFUSAL BY AND BETWEEN THE STOCKHOLDER, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY." 3.2 The Investors agree that the Company may instruct its transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 3.1 above to enforce the provisions of this Agreement and the Company agrees to promptly do so. The legend shall be removed upon termination of this Agreement. 4. MISCELLANEOUS. 4.1 CONDITIONS TO EXERCISE OF RIGHTS. Exercise of SCP's rights under this Agreement shall be subject to and conditioned upon, and the Investors and the Company shall use their best efforts to assist SCP in, compliance with applicable laws. 4.2 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. 4.3 SUCCESSORS IN INTEREST. The provisions of this Agreement shall be binding upon the successors in interest to any of the shares of the Investor Stock subject to this Agreement. The Company shall not permit the transfer of any shares of Investor Stock on its books or issue a new certificate representing any shares of Investor Stock unless and until the person to whom such security is to be transferred shall have executed a written agreement, substantially in the form of this Agreement, pursuant to which such person becomes a party to this Agreement and agrees to be bound by all the provisions hereof as if such person were an Investor. 4.4 ASSIGNABILITY. 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. 4.5 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 3 4 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: General Counsel, (ii) if to an Investor, at the address beneath such Investor's name on Schedule A attached hereto, and (iii) if to SCP, at Building 300, 435 Devon Park Drive, Wayne, Pennsylvania 19087, Attention: General Counsel (fax: (610) 293-0601). 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. 4.6 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. 4.7 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. 4.8 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. 4.9 ENTIRE AGREEMENT. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. 4.10 COUNTERPARTS. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [THIS SPACE INTENTIONALLY LEFT BLANK] 4 5 The foregoing RIGHT OF FIRST REFUSAL AGREEMENT is hereby executed as of the date first above written. SAFEGUARD DELAWARE, INC. By: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- SAFEGUARD 2000 CAPITAL, L.P. By: Safeguard Delaware, Inc., its General Partner By: -------------------------------------------- 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: -------------------------------------------- Name: ------------------------------------------ Title: ----------------------------------------- USDATA CORPORATION By: ------------------------------------------- Robert Merry Chief Executive Officer 5 6 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 -----END PRIVACY-ENHANCED MESSAGE-----