-----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, Rr5Y8IxVjgckMyP7nzzO9yVAnr/f1Pq1Vb9xc60BQd/Fv5/C2ZtaNngXO/Xz1ae8 Sh/kg45qEXjt1BwFDPVyUQ== 0000930413-04-004174.txt : 20040830 0000930413-04-004174.hdr.sgml : 20040830 20040830155735 ACCESSION NUMBER: 0000930413-04-004174 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20040830 DATE AS OF CHANGE: 20040830 GROUP MEMBERS: PAUL TUDOR JONES, II GROUP MEMBERS: THE ALTAR ROCK FUND L.P. GROUP MEMBERS: THE RAPTOR GLOBAL PORTFOLIO LTD. GROUP MEMBERS: TUDOR VENTURES GROUP L.P. GROUP MEMBERS: TUDOR VENTURES GROUP LLC GROUP MEMBERS: TUDOR VENTURES II L.P. FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: TUDOR INVESTMENT CORP ET AL CENTRAL INDEX KEY: 0000923093 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 1275 KING STREET STREET 2: 2ND FLOOR CITY: GREENWICH STATE: CT ZIP: 06831-2936 MAIL ADDRESS: STREET 1: 1275 KING STREET STREET 2: 2ND FLOOR CITY: GREENWICH STATE: CT ZIP: 06831-2936 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FRONT PORCH DIGITAL INC CENTRAL INDEX KEY: 0001025707 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 860793960 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-78214 FILM NUMBER: 041005506 BUSINESS ADDRESS: STREET 1: 1810 CHAPEL AVE W STREET 2: SUITE 130 CITY: CHERRY HILL STATE: NJ ZIP: 08002 BUSINESS PHONE: 8566333500 MAIL ADDRESS: STREET 1: 1810 CHAPEL AVE W STREET 2: SUITE 130 CITY: CHERRY HILL STATE: NJ ZIP: 08002 FORMER COMPANY: FORMER CONFORMED NAME: EMPIRE COMMUNICATIONS CORP DATE OF NAME CHANGE: 19980327 FORMER COMPANY: FORMER CONFORMED NAME: LITIGATION ECONOMICS INC DATE OF NAME CHANGE: 19961022 SC 13D 1 c33598_sc-13d.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 SCHEDULE 13D (RULE 13D-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13D-L(A) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(A) (AMENDMENT NO. )* Front Porch Digital Inc. ---------------------------------------------------------------------------- (Name of Issuer) Common Stock, par value $.001 per share ---------------------------------------------------------------------------- (Title of Class of Securities) 359014107 (CUSIP number) Tudor Investment Corporation ---------------------------------------------------------------------------- Attn: Stephen N. Waldman, Esq. ---------------------------------------------------------------------------- 1275 King Street Greenwich, CT 06831 Tel: (203) 863-6700 (Name, address and telephone number of person authorized to receive notices and communications) August 18, 2004 --------------- (Date of event which requires filing of this statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box |_|. Note. Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 (b) for other parties to whom copies are to be sent. (Continued on the following pages) (Page 1 of 21 Pages) - --------------------- *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 2 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) Tudor Investment Corporation 22-2514825 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF SHARES ------------------------------------------------------------- BENEFICIALLY OWNED 8. SHARED VOTING POWER 26,845,466 (see Item 5) BY EACH REPORTING ------------------------------------------------------------- PERSON WITH 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 26,845,466 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 26,845,466 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) X --- - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 21.5% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) CO - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 3 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) Paul Tudor Jones, II - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization USA - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF SHARES ------------------------------------------------------------- BENEFICIALLY OWNED 8. SHARED VOTING POWER 26,845,466 (see Item 5) BY EACH REPORTING ------------------------------------------------------------- PERSON WITH 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 26,845,466 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 26,845,466 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) _X_ - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 21.5% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) IN - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 4 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) Tudor Ventures II L.P. 06-1581871 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Cayman Islands - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF SHARES ------------------------------------------------------------- BENEFICIALLY OWNED 8. SHARED VOTING POWER 24,161,509 (see Item 5) BY EACH REPORTING ------------------------------------------------------------- PERSON WITH 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 24,161,509 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 24,161,509 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) _X_ - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 19.4% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) PN - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 5 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) Tudor Ventures Group L.P. 06-1580269 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF SHARES ------------------------------------------------------------- BENEFICIALLY OWNED 8. SHARED VOTING POWER 24,161,509 (see Item 5) BY EACH REPORTING ------------------------------------------------------------- PERSON WITH 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 24,161,509 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 24,161,509 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) _X_ - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 19.4% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) PN - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 6 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) Tudor Ventures Group LLC 06-1580242 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF SHARES ------------------------------------------------------------ BENEFICIALLY OWNED 8. SHARED VOTING POWER 24,161,509 (see Item 5) BY EACH REPORTING ------------------------------------------------------------ PERSON WITH 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------ 10. SHARED DISPOSITIVE POWER 24,161,509 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 24,161,509 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) _X_ - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 19.4% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) OO - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 7 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) The Raptor Global Portfolio Ltd. 98-0211544 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Cayman Islands - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 BENEFICIALLY OWNED ------------------------------------------------------------- BY EACH REPORTING 8. SHARED VOTING POWER 2,665,826 (see Item 5) PERSON WITH ------------------------------------------------------------- 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 2,665,826 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 2,665,826 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) _X_ - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 2.1% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) CO - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 8 of Pages 21 - ------------------------- ---------------------------- - -------------------------------------------------------------------------------- 1. Names of Reporting Persons I.R.S. Identification Nos. of above persons (entities only) The Altar Rock Fund L.P. 06-1558414 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (a) |_| (See Instructions) (b) |X| - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Source of Funds (See Instructions) OO - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e) - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization Delaware - -------------------------------------------------------------------------------- 7. SOLE VOTING POWER 0 NUMBER OF SHARES ------------------------------------------------------------- BENEFICIALLY OWNED 8. SHARED VOTING POWER 18,131 (see Item 5) BY EACH REPORTING ------------------------------------------------------------- PERSON WITH 9. SOLE DISPOSITIVE POWER 0 ------------------------------------------------------------- 10. SHARED DISPOSITIVE POWER 18,131 (see Item 5) - -------------------------------------------------------------------------------- 11. Aggregate Amount Beneficially Owned by Each Reporting Person 18,131 (see Item 5) - -------------------------------------------------------------------------------- 12. Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions) _X_ - -------------------------------------------------------------------------------- 13. Percent of Class Represented by Amount in Row (11) 0.0% (see Item 5) - -------------------------------------------------------------------------------- 14. Type of Reporting Person (See Instructions) PN - -------------------------------------------------------------------------------- - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 9 of Pages 21 - ------------------------- ---------------------------- ITEM 1. SECURITY AND ISSUER The class of equity security to which this statement on Schedule 13D relates is the common stock, par value $0.001 per share (the "Common Stock" or the "Shares"), of Front Porch Digital Inc., a corporation organized under the laws of the state of Nevada (the "Company"). The Company's principal offices are located at 1140 Pearl Street, Boulder, Colorado 80302 This filing of the Schedule 13D is not, and should not be deemed to be, an admission that the statement on Schedule 13D or that any Amendment thereto is required to be filed. ITEM 2. IDENTITY AND BACKGROUND. This statement on Schedule 13D is being filed jointly on behalf of the following persons pursuant to Rule 13d-1(k) promulgated by the Securities and Exchange Act of 1934, as amended (the "Act"): (i) Tudor Investment Corporation ("TIC"), a Delaware corporation. (ii) Paul Tudor Jones, II ("Jones"), a citizen of the United States. (iii) Tudor Ventures II L.P. ("TVII"), a Cayman Islands limited partnership. (iv) Tudor Ventures Group L.P. ("TVG LP"), a Delaware limited partnership. (v) Tudor Ventures Group LLC ("TVG LLC"), a Delaware limited liability company. (vi) The Raptor Global Portfolio Ltd. ("Raptor"), a Cayman Islands corporation (vii) The Altar Rock Fund L.P. ("Altar Rock" and together with TIC, Jones, TVII, TVG LP, TVG LLC, and Raptor, the "Reporting Persons" and each a "Reporting Person"), a Delaware limited partnership. TIC is a money management firm that provides investment advice to TVII, Raptor and Altar Rock, among others. TIC is also the sole general partner of Altar Rock. The principal employment of Jones is as Chairman and Chief Executive Officer of TIC of which he owns a majority of the capital stock and voting securities. TVII is an investment fund principally engaged in the business of making private equity investments. Raptor and Altar Rock are investment funds engaged in the business of making investments in equity and debt securities, including private equity securities, derivatives and other financial instruments. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 10 of Pages 21 - ------------------------- ---------------------------- TVG LP is the general partner of TVII and TVG LLC is the general partner of TVG LP. The business address of TIC, Jones, TVII, TVG LP, TVG LLC, and Altar Rock is c/o Tudor Investment Corporation, 1275 King Street, Greenwich, CT 06831. The business address of Raptor is c/o CITCO Fund Services, Kaya Flamboyan 9, Curacao, Netherlands Antilles. The name, residence or business address, present principal occupation or employment, the name, principal business and address of any corporation or other organization in which such employment is conducted and the citizenship of each natural person that is a director or executive officer of TIC, TVG LLC or Raptor is set forth on Schedule I hereto and is incorporated by reference herein. During the last five (5) years, no Reporting Person, or to the best knowledge and belief of the Reporting Persons, any of the individuals listed on Schedule I hereto, has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). During the last five (5) years, no Reporting Person was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction as a result of which any such person was or is subject to a judgment, decree or final order enjoining future violations, or prohibiting or mandating activities subject to Federal or State securities laws or finding any violation with respect to such laws. On August 18, 2004, Front Porch Merger Corp. ("Mergersub"), a Delaware corporation and wholly-owned subsidiary of the Company, merged with and into ManagedStorage International, Inc. ("MSI"), a Delaware corporation, with MSI surviving (such merger, the "Merger") pursuant to an Agreement and Plan of Merger (the "Merger Agreement"), dated as of August 16, 2004, by and among, MSI, Mergersub and the Company in the form attached hereto as EXHIBIT 99.1 (which is hereby incorporated by reference). As a result of the Merger: (i) shares of common stock, series A redeemable preferred stock and/or series B convertible preferred stock of MSI were exchanged for the right to receive shares of Common Stock of the Company, and (ii) shares of series C redeemable preferred stock of MSI were exchanged for the right to receive shares of series A preferred stock, par value $0.001 per share, of the Company (the "Series A Preferred Stock"). By virtue of their ownership of capital stock of MSI as of immediately prior to the Merger, each of TVII, Raptor and Altar Rock received, as a result of the Merger, shares of Common Stock and shares of Series A Preferred Stock in exchange for their shares of MSI capital stock. Each of Great Hill Equity Partners Limited Partnership, Great Hill Investors, LLC, J.P. Morgan Direct Venture Capital Institutional Investors, LLC, J.P. Morgan Direct Venture Capital Private Investors, LLC, and 522 Fifth Avenue Fund, L.P. (each, an "Other Series A Stockholder" and together with TVII, Raptor and Altar Rock, the "Series A Stockholders"), along with certain other stockholders of MSI, received, as a result of the Merger, the right to receive shares of Series A Preferred Stock in exchange for their shares of series C redeemable preferred stock of MSI. As of the date hereof, each share of Series A Preferred Stock was immediately convertible, at the option of the holder thereof, into twenty (20) shares of Common Stock. The - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 11 of Pages 21 - ------------------------- ---------------------------- holders of shares of Series A Preferred Stock, voting separately as a single class, have the right to elect three (3) directors to the Board of Directors of the Company. Pursuant to a voting agreement (the "Voting Agreement"), dated August 18, 2004, by and among each of the Series A Stockholders in the form attached hereto as Exhibit 99.2 (which is hereby incorporated by reference), each of the Series A Stockholders has agreed to vote all of its shares of Series A Preferred Stock in favor of individuals nominated for election as directors of the Company by certain Series A Stockholders (including, without limitation, one (1) individual nominated from time to time by TVII). The Reporting Persons, the Other Series A Stockholders and persons deemed to beneficially own Shares held, or otherwise beneficially owned, by the Other Series A Stockholders may be deemed to constitute a group for purposes of Section 13(d) or Section 13(g) of the Act (the "Group"). The Reporting Persons expressly disclaim (i) that they are a member of any group for purposes of Section 13(d) or 13(g), and (ii) that they have agreed to act as a group other than as described in this Statement on Schedule 13D. The Reporting Persons are filing this statement on Schedule 13D jointly and in accordance with the provisions of Rule 13d-1(k)(1) of the Act but are filing this statement on Schedule 13D separately from the other members of the Group in accordance with the provisions of Rule 13d-1(k)(2) of the Act. Pursuant to Rule 13d-4 of the Act, each of the Reporting Persons expressly declares that the filings of this statement on Schedule 13D shall not be construed as an admission that any such person is, for purposes of Section 13(d) and/or Section 13(g) of the Act or otherwise, the beneficial owner of any securities held by any other person. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. As described in Item 2 above and Items 4 and 5 below, each of TVII, Raptor and Altar Rock received, as a result of the Merger, shares of Common Stock and Series A Preferred Stock of the Company in exchange for all of their shares of capital stock of MSI. ITEM 4. PURPOSE OF TRANSACTIONS. As described in Item 2 above, on August 18, 2004, Mergersub merged with and into MSI, with MSI surviving, pursuant to the Merger Agreement. As a result of the Merger: (i) each share of common stock, series A redeemable preferred stock and series B convertible preferred stock of MSI was exchanged for the right to receive 0.3089, 200, and 27.789 shares of Common Stock of the Company, respectively, and (ii) each share of series C redeemable preferred stock of MSI was exchanged for the right to receive 111.6042 shares of Series A Preferred Stock of the Company. As of the date hereof, each share of Series A Preferred Stock was immediately convertible, at the option of the holder thereof, into twenty (20) shares of Common Stock. The holders of shares of Series A Preferred Stock, voting separately as a single class, have the right to elect three (3) directors to the Board of Directors of the Company. In connection with the Merger, the size of the Board of Directors of the Company was increased to - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 12 of Pages 21 - ------------------------- ---------------------------- seven (7), Dr. Jay Yogeshwar resigned from the Board of Directors and two (2) of the vacancies created by such increase and resignation were filled by the Board of Directors of the Company with two (2) individuals nominated by certain Series A Stockholders. Pursuant to the Voting Agreement, each of the Series A Stockholders has agreed to vote all of its shares of Series A Preferred Stock in favor of: (i) one (1) individual nominated, from time to time, for election as a director of the Company by Great Hill Equity Partners Limited Partnership, (ii) one (1) individual nominated, from time to time, for election as a director of the Company by J.P. Morgan Direct Venture Capital Institutional Investors, LLC, and (iii) one (1) individual nominated, from time to time, for election as a director of the Company by TVII. No proxies were given to effect the provisions of the Voting Agreement. Effective as of August 18, 2004, Mr. Michael Knaisch has resigned as Chief Executive Officer of the Company and Mr. Thomas P. Sweeney III has been appointed as Mr. Michael Knaisch's replacement. In connection with the Merger, a certificate of designations (the "Certificate of Designations") setting forth the terms of the Series A Preferred Stock was filed on August 18, 2004 with the Secretary of State of Nevada in the form attached hereto as Exhibit 99.3 (which is hereby incorporated by reference herein). In addition, the Merger Agreement provides that the Corporation shall take all necessary actions to increase the number of shares of Common Stock authorized under its certificate of incorporation so that the Company can reserve the number of shares of Common Stock issuable upon conversion of its Series A Preferred Stock. The information provided in Item 6 below under the heading "Lock-Up and Voting Agreements" is hereby incorporated by reference herein. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. The descriptions contained in Item 2 and Item 4 above are incorporated herein by reference. As a result of the Merger, TVII received 6,081,629 shares of Common Stock and 903,994 shares of Series A Preferred Stock (convertible into 18,079,880 shares of Common Stock), Raptor received 671,006 shares of Common Stock and 99,741 shares of Series A Preferred Stock (convertible into 1,994,820 shares of Common Stock) and Altar Rock received 4,731 shares of Common Stock and 670 shares of Series A Preferred Stock (convertible into 13,400 shares of Common Stock). Assuming conversion by each of TVII, Raptor and Altar Rock of their shares of Series A Preferred Stock, TVII, Raptor and Altar Rock hold approximately 19.4%, 2.1% and 0.0% of the Common Stock, respectively. As a result of the Merger and based solely on information provided to the Reporting Persons by the Other Series A Stockholders, the Other Series A Stockholders received 31,715,189 shares of Common Stock and 1,445,944 shares of Series A Preferred Stock (convertible into 28,918,880 shares of Common Stock). Assuming conversion of the Series A Preferred Stock by each of TVII, Raptor, Altar Rock and the Other Series A Stockholders, the Other Series A Stockholders hold approximately 39.4% of the Common Stock. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 13 of Pages 21 - ------------------------- ---------------------------- Based in part on information provided to the Reporting Persons by the Other Series A Stockholders, as a result of the transactions and events described in Item 2 above, the Reporting Persons may be deemed to be members of the Group. Collectively, the Reporting Persons and the Other Series A Stockholders hold 38,473,200 shares of Common Stock and 2,450,382 shares of Series A Preferred Stock (convertible into 49,007,640 shares of Common Stock) which represent 56.9% of the Common Stock (assuming conversion of the Series A Preferred Stock by TVII, Raptor, Altar Rock and the Other Series A Stockholders). The Reporting Persons expressly disclaim (i) that they are a member of any group for purposes of Section 13(d) or 13(g), and (ii) that they have agreed to act as a group other than as described in this Statement on Schedule 13D. The Reporting Persons are filing this statement on Schedule 13D jointly and in accordance with the provisions of Rule 13d-1(k)(1) of the Act but are filing this statement on Schedule 13D separately from the other members of the Group in accordance with the provisions of Rule 13d-1(k)(2) of the Act. Because TIC is sole general partner of Altar Rock and provides investment advisory services to TVII, Raptor and Altar Rock, TIC may be deemed to beneficially own the shares of Common Stock and Series A Preferred Stock owned by each such Reporting Person. Because TVG LP is the general partner of TVII, TVG LP may be deemed to beneficially own the shares of Common Stock and Series A Preferred Stock owned by such Reporting Person. Because TVG LLC is the general partner of TVG LP, TVG LLC may be deemed to beneficially own the shares of Common Stock and Series A Preferred Stock deemed beneficially owned by such Reporting Person. Because Jones is the controlling shareholder of TIC and the indirect principal equity owner of TVG LLC, Jones may be deemed to beneficially own the shares of Common Stock and Series A Preferred Stock deemed beneficially owned by each such Reporting Person. Pursuant to Rule 13d-4 of the Act, each of the Reporting Persons expressly declares that the filings of this statement on Schedule 13D shall not be construed as an admission that any such person is, for purposes of Section 13(d) and/or Section 13(g) of the Act or otherwise, (i) the beneficial owner of any securities held by any other person, or (ii) the beneficial owner of any securities held or beneficially owned by any member of the Group other than such Reporting Person. The filing of this statement on Schedule 13D by each of the Reporting Persons shall not be considered an admission that such Reporting Person, for the purposes of Section 13(d) of the Act, is the beneficial owner of any Shares in which such Reporting Person does not have a pecuniary interest. Except as reported in this statement on Schedule 13D, the Reporting Persons have not engaged in any other transactions in the Company's securities in the past sixty (60) days. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. The information set forth under Item 5 above and the Exhibits attached hereto are incorporated herein by reference. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 14 of Pages 21 - ------------------------- ---------------------------- REGISTRATION RIGHTS AGREEMENT: Each of the Series A Stockholders entered into a registration rights agreement (the "Registration Rights Agreement"), dated as of August 18, 2004, with the Company in the form attached hereto as EXHIBIT 99.4 (which is hereby incorporated by reference herein), pursuant to which the Series A Stockholders have the following registration rights in respect of the Common Stock: o Subject to certain limitations as set forth in the Registration Rights Agreement, the holders of a majority of the then-outstanding (A) (i) shares of Common Stock and (ii) shares of Common Stock issued or issuable upon the conversion of the shares of Series A Preferred Stock, issued to the Series A Stockholders pursuant to the Merger Agreement, and (b) any stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Series A Preferred Stock or Common Stock referred to in clause (A) (collectively, the "Registrable Securities"), may demand, up to two (2) times, that the Company register their Common Stock on Form S-1; o Whenever the Company is eligible to register its securities under the Securities Act of 1933, as amended (the "Securities Act") on Form S-3 (but subject to certain limitation as set forth in the Registration Rights Agreement), the holders of at least twenty percent (20%) of the then-outstanding Registrable Securities may demand that the Company register their Common Stock on Form S-3; and o Subject to certain limitations as set forth in the Registration Rights Agreement, the Series A Stockholders have unlimited "piggyback" registrations rights under which they will have the right to request that the Company register their shares of Common Stock whenever the Company registers its securities under the Securities Act of 1933, as amended. LOCK-UP AND VOTING AGREEMENTS: The Series A Stockholders and the Company entered into a Lock-up and Voting Agreement, dated as of August 18, 2004, in the form of EXHIBIT 99.5 (which is hereby incorporated by reference herein). Pursuant to such agreement, the Series A Stockholders are generally prohibited from selling or otherwise transferring their shares of Common Stock and/or Series A Preferred Stock issued in the Merger until February 18, 2006; provided that such sale or transfer by a Series A Stockholder is permitted to: (i) any person to which such Series A Stockholder shall sell, assign or transfer all or substantially all of its assets; (ii) any affiliate of such Series A Stockholder, (iii) any member, partner or stockholder of such Series A Stockholder; provided, however, that no such transfer of shares of Series A Preferred Stock shall be permitted pursuant to this clause (iii), (iv) any other Series A Stockholder, (v) in connection with any sale of all or substantially all of the Company's assets, any sale or transfer of at least a majority of the Company's outstanding voting securities (as of immediately prior to such transfer) or any merger or consolidation in which the Company is not the surviving entity or any other transaction (or series of related transactions) following which the holders of the Company's outstanding capital stock prior to such transaction(s) do not own a majority of the outstanding capital stock of the Company (or any successor entity) immediately after such transaction, or (vi) - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 15 of Pages 21 - ------------------------- ---------------------------- in connection with its exercise of any "piggy-back" or similar registration rights. Pursuant to such agreement, each of the Series A Stockholders agreed to vote all of its shares of Common Stock and/or Series A Preferred Stock issued in the Merger in favor of the resolutions hereafter proposed by the Board of Directors of the Company and submitted to a vote of the stockholders of the Company within ninety (90) days following August 18, 2004, the purpose of which are to cause the number of authorized but unissued shares of Common Stock to be increased so as to be sufficient to issue the maximum number of such shares issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms of the Company's Certificate of Designations. In addition, the Series A Stockholders, the Company, Thomas P. Sweeney III and Equity Pier LLC entered into a Lock-Up and Voting Agreement, dated as of August 18, 2004, in the form of EXHIBIT 99.6 (which is hereby incorporated by reference herein). Pursuant to such agreement, each of Thomas P. Sweeney III and Equity Pier LLC are generally prohibited from selling or otherwise transferring their shares of Common Stock and/or Series A Preferred Stock until the earliest date on which the Series A Stockholders and/or their permitted transferees receive aggregate proceeds (whether in cash or otherwise) of at least $31,500,000 from the disposition of the shares of Series A Preferred Stock and/or Common Stock (whether underlying the Series A Preferred Stock or otherwise) acquired pursuant to the Merger Agreement; provided however that a transfer to (i) any person to which such restricted party shall sell, assign or transfer all or substantially all of its assets; or (ii) any affiliate of such restricted party, is permitted. Pursuant to such agreement, each of Thomas P. Sweeney III and Equity Pier LLC agreed to vote all of his or its shares of Common Stock and/or Series A Preferred Stock in favor of the resolutions hereafter proposed by the Board of Directors of the Company and submitted to a vote of the stockholders of the Company within ninety (90) days following August 18, 2004, the purpose of which are to cause the number of authorized but unissued shares of Common Stock to be increased so as to be sufficient to issue the maximum number of such shares issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms of the Company's Certificate of Designations. ITEM 7. MATERIALS TO BE FILED AS EXHIBITS. The following documents are filed as exhibits to this statement on Schedule 13D: Exhibit 99.1. Agreement and Plan of Merger, dated as of August 16, 2004, by and between the Company, MSI and Mergersub Exhibit 99.2. Voting Agreement, dated as of August 18, 2004, by and between the Series A Stockholders Exhibit 99.3. Certificate of Designations, filed with the Secretary of State of Nevada by the Company on August 18, 2004 Exhibit 99.4. Registration Rights Agreement, dated as of August 18, 2004, by and among the Series A Stockholders and the Company. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 16 of Pages 21 - ------------------------- ---------------------------- Exhibit 99.5. Lock-up and Voting Agreement, dated as of August 18, 2004, by and among the Series A Stockholders and the Company. Exhibit 99.6. Lock-up and Voting Agreement, dated as of August 18, 2004, by and among the Series A Stockholders, Thomas P. Sweeney III, Equity Pier LLC and the Company. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 17 of Pages 21 - ------------------------- ---------------------------- SIGNATURES After reasonable inquiry and to the best knowledge and belief of each of the persons signing below, each person signing below certifies that the information set forth in this statement on Schedule 13D is true, complete and correct. TUDOR INVESTMENT CORPORATION By: \s\ Stephen N. Waldman ------------------------------- Stephen N. Waldman Managing Director \s\ Paul Tudor Jones, II ----------------------------------- Paul Tudor Jones, II TUDOR VENTURES II L.P. By: Tudor Ventures Group L.P., its general partner By: Tudor Ventures Group LLC, its general partner By: \s\ Stephen N. Waldman ------------------------------- Stephen N. Waldman Managing Director TUDOR VENTURES GROUP L.P. By: Tudor Ventures Group LLC, its general partner By: \s\ Stephen N. Waldman ------------------------------- Stephen N. Waldman Managing Director TUDOR VENTURES GROUP LLC By: \s\ Stephen N. Waldman ------------------------------- Stephen N. Waldman Managing Director - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 18 of Pages 21 - ------------------------- ---------------------------- THE RAPTOR GLOBAL PORTFOLIO LTD. By: Tudor Investment Corporation, its investment adviser By: \s\ Stephen N. Waldman ------------------------------- Stephen N. Waldman Managing Director THE ALTAR ROCK FUND L.P. By: Tudor Investment Corporation, its general partner By: \s\ Stephen N. Waldman ------------------------------- Stephen N. Waldman Managing Director - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 19 of Pages 21 - ------------------------- ---------------------------- Schedule I EXECUTIVE OFFICERS AND DIRECTORS OF THE REPORTING PERSONS I. Tudor Investment Corporation The name, residence or business address, present principal occupation or employment, the name, principal business and address of any corporation or other organization in which such employment is conducted and the citizenship of each executive officer or director of TIC is set forth below. Unless otherwise indicated (i) the principal occupation or employment of such person is as an executive officer or director of TIC, (ii) the business address of such person is c/o TIC at the address of TIC set forth under Item 2 of this Schedule 13D, (iii) such person is a citizen of the United States and (iv) to the knowledge of the Reporting Persons, such person does not beneficially own and has not had any transactions in the Common Stock of Series A Preferred Stock. Principal Occupation/ Name Business Address - ---- ---------------- Paul Tudor Jones, II* Chairman of the Board, Chief Executive Officer of TIC. Mark F. Dalton Director and President of TIC. John G. Macfarlane, III Director, Chief Operating Officer and Managing Director of TIC. James J. Pallotta Director and Managing Director of TIC. Principal business address at Tudor Investment Corporation, 50 Rowes Wharf, 6th Floor, Boston, MA 02110. Andrew S. Paul Director, Managing Director, General Counsel and Corporate Secretary of TIC. Robert P. Forlenza Director and Managing Director of TIC. Principal business address at Tudor Investment Corporation, 50 Rowes Wharf, 6th Floor, Boston, MA 02110. John R. Torell Director, Managing Director and Chief Financial Officer of TIC. - -------- * See Item 5 of this Schedule 13D for a discussion of Mr. Jones' potential beneficial ownership of Common Stock and Series A Preferred Stock. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 20 of Pages 21 - ------------------------- ---------------------------- Mark Withy Director of TIC; Managing Director of Tudor Capital (U.K.), L.P., an affiliate of TIC located at The Great Burgh, Epsom, Surrey KT17 5XT, England. Mr. Withy is a citizen of New Zealand. Mark Nicholson Director of TIC; Managing Director of Tudor Proprietary Trading, L.L.C., an affiliate of TIC located at The Great Burgh, Epsom, Surrey KT17 5XT, England. Mr. Nicholson is a citizen of Australia. Richard L. Fisher Director of TIC. Mr. Fisher is Managing Director of Investments and Acquisitions and a Managing Director of Dunavant Enterprises, Inc., 3797 Getwell Road, Memphis, TN 38118. II. Tudor Ventures Group LLC The name, residence or business address, present principal occupation or employment, the name, principal business and address of any corporation or other organization in which such employment is conducted and the citizenship of each executive officer or director of TIC is set forth below. Unless otherwise indicated (i) the principal occupation or employment of such person is as an executive officer or director of TIC, (ii) the business address of such person is c/o TIC at the address of TIC set forth under Item 2 of this Schedule 13D, (iii) such person is a citizen of the United States and (iv) to the knowledge of the Reporting Persons, such person does not beneficially own and has not had any transactions in the Common Stock of Series A Preferred Stock. Principal Occupation/ Name Business Address - ---- ---------------- Mark F. Dalton Director and President of TIC. John G. Macfarlane, III Director, Chief Operating Officer and Managing Director of TIC. Andrew S. Paul Director, Managing Director, General Counsel and Corporate Secretary of TIC. John R. Torell Director, Managing Director and Chief Financial Officer of TIC. Robert P. Forlenza Director and Managing Director of TIC. Principal business address at Tudor Investment Corporation, 50 Rowes Wharf, 6th Floor, Boston, MA 02110. - ------------------------- ---------------------------- CUSIP No. 359014107 13D Page 21 of Pages 21 - ------------------------- ---------------------------- Richard J. Ganong Managing Director of TIC. Principal business address at Tudor Investment Corporation, 50 Rowes Wharf, 6th Floor, Boston, MA 02110. Carmen J. Scarpa Managing Director of TIC. Principal business address at Tudor Investment Corporation, 50 Rowes Wharf, 6th Floor, Boston, MA 02110. III. The Raptor Global Portfolio Ltd. The name, residence or business address, present principal occupation or employment, the name, principal business and address of any corporation or other organization in which such employment is conducted and the citizenship of each executive officer or director of Raptor is set forth below. To the knowledge of the Reporting Persons, such person does not beneficially own and has not had any transactions in the Common Stock or Series A Preferred Stock. Principal Occupation/ Name Business Address - ---- ---------------- InterCaribbean Services Ltd. Director of Raptor and other non-U.S. investment funds. The principal place of business of Kaya Flamboyan 9, Curacao, Netherlands Antilles. Bernard A. Loze Director of Raptor; Chairman and Chief Executive Officer of Loze et Associe, 43, Avenue Marceau, Paris 75116, France, a consulting firm that provides financial and investment advice to international clients. Mr. Loze is a citizen of France. Arpad A. Busson Director of Raptor; Chairman of EIM Group, 2, Chemin de Chantavril, Nyon, Switzerland, an international consulting and money management firm. Mr. Busson is a citizen of France. Jean-Pierre Jacquemoud Director of Raptor; Attorney, Jacquemoud & Stanislas, 2, rue Bellow, Geneva 1206, Switzerland. Mr. Jacquemoud is a citizen of Switzerland. EX-99.1 2 c33598_ex99-1.txt Exhibit 99.1 EXECUTION COPY AGREEMENT AND PLAN OF MERGER BY AND AMONG FRONT PORCH DIGITAL INC., FRONT PORCH MERGER CORP. AND MANAGEDSTORAGE INTERNATIONAL INC. DATED: AUGUST 16, 2004 TABLE OF CONTENTS PAGE ARTICLE I THE MERGER..........................................................1 SECTION 1.1 The Merger...................................................1 SECTION 1.2 Closing......................................................2 SECTION 1.3 Effective Time...............................................2 SECTION 1.4 Effects of the Merger........................................2 SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation........................................2 SECTION 1.6 Directors and Officers.......................................2 ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES....................................3 SECTION 2.1 Effect on Capital Stock......................................3 SECTION 2.2 Fractional Shares............................................5 SECTION 2.3 Exchange of Certificates.....................................5 SECTION 2.4 Certain Adjustments..........................................6 SECTION 2.5 Shares of Dissenting Shareholders............................7 SECTION 2.6 Stock Options................................................7 SECTION 2.7 Warrants.....................................................8 SECTION 2.8 Tax-Free Reorganization......................................9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................9 SECTION 3.1 Organization, Standing and Corporate Power...................9 SECTION 3.2 Subsidiaries................................................10 SECTION 3.3 Capital Structure...........................................10 SECTION 3.4 Authority; Noncontravention.................................11 SECTION 3.5 Financial Statements; Undisclosed Liabilities...............12 SECTION 3.6 Material Contracts..........................................12 SECTION 3.7 Absence of Certain Changes..................................13 SECTION 3.8 Permits; Compliance with Applicable Laws....................13 SECTION 3.9 Absence of Litigation.......................................14 SECTION 3.10 Tax Matters.................................................14 SECTION 3.11 Employee Benefit Plans......................................16 SECTION 3.12 Labor Matters...............................................19 SECTION 3.13 Environmental Matters.......................................20 SECTION 3.14 Intellectual Property.......................................21 SECTION 3.15 Insurance Matters...........................................24 SECTION 3.16 Transactions with Affiliates................................24 SECTION 3.17 Voting Requirements.........................................24 SECTION 3.18 Brokers.....................................................24 SECTION 3.19 Real Property...............................................24 SECTION 3.20 Tangible Personal Property..................................25 SECTION 3.21 Investment Company..........................................25 SECTION 3.22 Board Approval..............................................25 SECTION 3.23 Books and Records...........................................26 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT..........................26 SECTION 4.1 Organization, Standing and Corporate Power..................26 SECTION 4.2 Subsidiaries................................................27 SECTION 4.3 Capital Structure...........................................27 SECTION 4.4 Authority; Noncontravention.................................28 SECTION 4.5 Parent Documents............................................29 SECTION 4.6 Material Contracts..........................................30 SECTION 4.7 Absence of Certain Changes..................................31 SECTION 4.8 Permits; Compliance with Applicable Laws....................31 SECTION 4.9 Absence of Litigation.......................................31 SECTION 4.10 Tax Matters.................................................32 SECTION 4.11 Employee Benefit Plans......................................33 SECTION 4.12 Labor Matters...............................................35 SECTION 4.13 Environmental Matters.......................................36 SECTION 4.14 Intellectual Property.......................................37 SECTION 4.15 Insurance Matters...........................................39 SECTION 4.16 Transactions with Affiliates................................39 SECTION 4.17 Voting Requirements.........................................39 SECTION 4.18 Brokers.....................................................39 SECTION 4.19 Real Property...............................................40 SECTION 4.20 Tangible Personal Property..................................40 SECTION 4.21 Investment Company..........................................41 SECTION 4.22 Board Approval..............................................41 SECTION 4.23 Books and Records...........................................41 SECTION 4.24 Sarbanes Oxley Act Compliance...............................41 ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS..........................41 SECTION 5.1 Conduct of Business by the Company..........................41 SECTION 5.2 Advice of Changes...........................................43 SECTION 5.3 No Solicitation by the Company..............................43 SECTION 5.4 Conduct of Business by Parent...............................44 SECTION 5.5 No Solicitation by Parent...................................45 SECTION 5.6 Transition..................................................45 ARTICLE VI ADDITIONAL AGREEMENTS.............................................46 SECTION 6.1 Access to Information; Confidentiality......................46 SECTION 6.2 Commercially Reasonable Efforts.............................46 SECTION 6.3 Indemnification, Exculpation and Insurance..................47 SECTION 6.4 Fees and Expenses...........................................48 SECTION 6.5 Public Announcements........................................48 SECTION 6.6 Employee Benefits...........................................48 SECTION 6.7 Increase of Authorized Common Stock.........................50 SECTION 6.8 Company Shareholder Approval................................50 SECTION 6.9 Regulation D................................................50 ARTICLE VII CONDITIONS PRECEDENT.............................................50 SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger..50 SECTION 7.2 Conditions to Obligations of Parent and Merger Sub..........51 SECTION 7.3 Conditions to Obligations of the Company....................52 SECTION 7.4 Frustration of Closing Conditions...........................54 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................54 SECTION 8.1 Termination.................................................54 SECTION 8.2 Effect of Termination.......................................55 SECTION 8.3 Amendment...................................................57 SECTION 8.4 Extension; Waiver...........................................57 ARTICLE IX GENERAL PROVISIONS................................................57 SECTION 9.1 Nonsurvival of Representations, Warranties and Agreements...57 SECTION 9.2 Notices.....................................................57 SECTION 9.3 Definitions.................................................58 SECTION 9.4 Interpretation..............................................60 SECTION 9.5 Counterparts................................................60 SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries..............60 SECTION 9.7 Governing Law...............................................60 SECTION 9.8 Assignment..................................................60 SECTION 9.9 Consent to Jurisdiction.....................................60 SECTION 9.10 Headings....................................................61 SECTION 9.11 Severability................................................61 SECTION 9.12 Enforcement.................................................61 EXHIBITS Exhibit A - Certificate of Incorporation of Surviving Corporation Exhibit B - Form of Certificate of Designation, Number, Voting Powers, Preferences and Rights of Parent's Series A Preferred Stock Exhibit C - Form of Registration Rights Agreement Exhibit D - Form of Lock-Up Agreement Exhibit E - Form of Legal Opinion of Counsel to the Company Exhibit F - Form of Legal Opinion of Counsel to Parent Exhibit G - Form of Director Indemnification Agreement Exhibit H - Form of Sweeney Lock-Up and Voting Agreement Exhibit I - Form of Sweeney Employment Agreement INDEX OF DEFINED TERMS DEFINED TERMS SECTION DEFINED - ------------- --------------- Adjustment Event Section 2.4 affiliate Section 9.3(a) Agreement Preamble Certificate of Designation Section 2.1(e) Certificate of Merger Section 1.3 Closing Section 1.2 Closing Date Section 1.2 Code Section 2.6(a) Company Preamble Company Acquisition Proposal Section 5.3(a) Company Certificate of Incorporation Section 2.1(c) Company Common Stock Recitals Company Disclosure Schedule Article III Company Financial Statements Section 3.5 Company IP Agreements Section 3.14(g) Company Material Contracts Section 3.6(b) Company Preferred Stock Section 9.3(f) Company Series A Preferred Stock Section 2.1(c) Company Series B Preferred Stock Section 2.1(d) Company Series C Preferred Stock Section 2.1(e) Company Stock Certificates Section 2.3(a) Common Stock Merger Consideration Section 2.1(f) Company Stock Option Section 2.6(a) Company Stock Plans Section 3.3(a) Company Trade Secrets Section 3.14(h) Company Warrant Section 2.7(a) Company Undesignated Preferred Stock Section 3.3 Continuing Employees Section 6.3(a) DGCL Recitals Dissenting Shares Section 2.5 Director Indemnification Agreement Section 7.3(j) Effective Time Section 1.3 Employee Plans Section 3.11(a) Environmental Laws Section 3.13(d)(i) Environmental Permits Section 3.13(d)(ii) ERISA Section 3.11(a) ERISA Affiliate Section 3.11(a) Exchange Act Section 4.4(c) Fairness Opinion Section 7.2(f) Fiduciary Section 3.11(e) GAAP Section 3.5 Government Entities Section 3.4(c) Governmental Entity Section 3.4(c) Hazardous Substances Section 3.13(d)(iii) Indemnified Parties Section 6.4(a) Intellectual Property Section 3.14(a) IRS Section 3.11(g) ISO Section 2.6(a) knowledge Section 9.3(e) Letter of Transmittal Section 2.3(b) Liens Section 3.4(c) Lock-Up Agreement Section 2.1(g) Lock-Up Period Section 2.1(g) material adverse change Section 9.3(b) material adverse effect Section 9.3(b) Merger Recitals Merger Consideration Section 2.1(f) Merger Sub Preamble NVGCL Recitals Other Company Documents Section 3.8(c) Other Parent Documents Section 4.8(c) Parent Preamble Parent Acquisition Proposal Section 5.5 Parent Authorized Preferred Stock Section 4.3 Parent Common Stock Section 4.3(a) Parent Disclosure Schedule Article IV Parent Employee Stock Options Section 4.3(b) Parent IP Agreements Section 4.14(g) Parent Material Contracts Section 4.6(b) Parent SEC Documents Section 4.5 Parent Series A Preferred Stock Section 2.1(e) Parent Stock Plans Section 4.3(a) Parent Trade Secrets Section 4.14(h) Permits Section 3.8(a) Company Permitted Liens Section 3.9(b) Person Section 9.3(c) Preferred Stock Merger Consideration Section 2.1(e) Release Section 3.13(d)(iv) Registration Rights Agreement Section 2.1(e) Requisite Regulatory Approvals Section 7.1(b) Restraints Section 7.2(c) Sarbanes Oxley Act Section 4.24 SEC Section 4.5 Secretary Section 1.3 Securities Act Section 2.1(f) Software Section 3.14(a) Sweeney Employment Agreement Section 7.3(l) Sweeney Lock-Up Agreement Section 7.3(k) Subsidiary Section 9.3(d) Surviving Corporation Section 1.1 Tangible Personal Property Section 3.20 Tax Section 3.10(i)(i) Taxes Section 3.10(i)(i) Tax Return Section 3.10(i)(ii) Third Party Rights Section 3.14(d) AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") made and entered into on this 16th day of August 2004, by and among FRONT PORCH DIGITAL INC., a Nevada corporation ("PARENT"), FRONT PORCH MERGER CORP., a Delaware corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), and MANAGEDSTORAGE INTERNATIONAL, INC., a Delaware corporation (the "COMPANY"). W I T N E S S E T H: WHEREAS, each of Parent, Merger Sub and the Company desire Parent to consummate a business combination with the Company in a transaction whereby, upon the terms and subject to the conditions set forth in this Agreement, Merger Sub will merge with and into the Company (the "MERGER"), each outstanding share of Class A Common Stock, $.0001 par value per share, of the Company ("COMPANY COMMON STOCK") (other than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares and Company Preferred Stock (as defined herein), will be converted into the right to receive the Merger Consideration, and the Company will be the surviving corporation in the Merger; WHEREAS, the Board of Directors of the Company unanimously has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of the holders of Company Common Stock and Company Preferred Stock and that the Merger is fair and advisable, and has approved this Agreement in accordance with the Delaware General Corporation Law, as amended (the "DGCL"), and has further resolved unanimously to recommend to all holders of Company Common Stock and Company Preferred Stock that they authorize, approve and adopt this Agreement and the transactions contemplated hereby; and WHEREAS, the Board of Directors of Parent unanimously has determined and resolved that the Merger and all of the transactions contemplated by this Agreement are in the best interest of Parent and the holders of Parent Common Stock and has adopted this Agreement in accordance with the Nevada General Corporation Law, as amended (the "NVGCL") and Parent, as sole shareholder of Merger Sub, has adopted this Agreement in accordance with the DGCL. NOW, THEREFORE, in consideration of the mutual premises recited above and the representations, warranties, covenants and agreements contained in this Agreement, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I THE MERGER SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement and in accordance with the DGCL, at the Effective Time, Merger Sub shall be merged with and into the Company and the Company shall be the surviving corporation in the Merger (the "Surviving Corporation") and, as such, the Company shall continue its corporate existence as a direct, wholly owned subsidiary of Parent under the laws of the State of Delaware, and the separate corporate existence of Merger Sub thereupon shall cease. SECTION 1.2 CLOSING. Subject to the satisfaction or, to the extent permitted by applicable law, waiver of the conditions to consummation of the Merger contained in Article VII hereof, the closing of the Merger (the "Closing") shall take place at 10:00 a.m., New York time, on a date to be specified by the parties (the "Closing Date"), which date shall not be later than the third business day next following the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in Article VII (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or, to the extent permitted by applicable law, waiver of those conditions), unless another time or date is agreed to by the parties hereto. The Closing will be held at the offices of Pryor Cashman Sherman & Flynn, LLP, legal counsel to Parent, located at 410 Park Avenue, 10th Floor, New York, New York 10022 or at such other location as is agreed to by the parties hereto. SECTION 1.3 EFFECTIVE TIME. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing the parties shall cause the Merger to be consummated by filing with the Secretary of State of the State of Delaware (the "SECRETARY") a certificate of merger (the "CERTIFICATE OF MERGER") duly executed and so filed in accordance with the DGCL and shall make all other filings and recordings required under the DGCL to effectuate the Merger and the transactions contemplated by this Agreement. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary, or at such subsequent date or time as Parent and the Company mutually shall agree and specify in the Certificate of Merger (the time the Merger becomes so effective being hereinafter referred to as the "EFFECTIVE TIME"). SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in the DGCL. SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION. The certificate of incorporation of the Surviving Corporation shall be amended and restated to read as set forth in EXHIBIT A attached hereto and as so amended shall be the certificate of incorporation of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. The by-laws of Merger Sub in effect immediately prior to the Effective Time shall be the by-laws of the Surviving Corporation until thereafter amended or restated as provided therein or by applicable law. SECTION 1.6 DIRECTORS AND OFFICERS. The directors of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the directors of the Surviving Corporation until their successors shall have been duly elected and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and by-laws of the Surviving Corporation and the DGCL; provided that the board of directors of the Merger Sub shall be comprised of two (2) directors, consisting of Thomas P. Sweeney III and Paul McKnight. The officers of Merger Sub at the Effective Time shall, from and after the Effective Time, be and become the officers of the Surviving Corporation until their successors shall have been duly appointed and qualified or until their earlier death, resignation or removal in accordance with the certificate of incorporation and the by-laws of the Surviving Corporation. ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES SECTION 2.1 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the Merger and automatically without any action on the part of any holder of capital stock of Parent, Merger Sub or the Company, respectively: (A) CAPITAL STOCK OF MERGER SUB. Each then outstanding share of common stock, no par value, of Merger Sub shall be converted into and become one duly authorized, validly issued, fully paid and nonassessable share of common stock, no par value, of the Surviving Corporation. (B) CANCELLATION OF TREASURY STOCK AND PARENT OWNED STOCK. Each share of Company Common Stock and Company Preferred Stock then issued and held in the Company's treasury and each share of Company Common Stock and Company Preferred Stock then owned by Parent, Merger Sub or any other wholly owned subsidiary of Parent, shall be canceled and retired and shall cease to exist, and no consideration shall be delivered in exchange therefor. (C) SERIES A REDEEMABLE PREFERRED STOCK. Each share of the Series A Redeemable Preferred Stock, $.01 par value per share, of the Company ("COMPANY SERIES A PREFERRED STOCK") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b)), shall be converted into and become the right to receive, subject to Section 2.2, two hundred (200) duly authorized, validly issued, fully paid and nonassessable shares of Parent Common Stock. As a result of the conversion of the Company Series A Preferred Stock, such preferred stock shall cease to be outstanding and shall automatically be cancelled and retired. (D) SERIES B CONVERTIBLE PREFERRED STOCK. Each share of the Series B Convertible Preferred Stock, $.01 par value per share, of the Company ("COMPANY SERIES B PREFERRED STOCK") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b)), shall be converted into and become the right to receive, subject to Section 2.2, twenty-seven and seven hundred eighty nine one thousandths (27.789) duly authorized, validly issued, fully paid and nonassessable shares of Parent Common Stock. As a result of the conversion of the Company Series B Preferred Stock, such preferred stock shall cease to be outstanding and shall automatically be cancelled and retired. (E) SERIES C REDEEMABLE PREFERRED STOCK. Each share of the Series C Redeemable Preferred Stock, $.01 par value per share, of the Company ("COMPANY SERIES C PREFERRED STOCK") issued and outstanding immediately prior to the Effective Time (other than shares cancelled and retired pursuant to Section 2.1(b)), shall be converted into and become the right to receive, subject to Section 2.2, one hundred eleven and six thousand forty two ten-thousandths (111.6042) duly authorized, validly issued, fully paid and nonassessable shares of Parent Series A Preferred Stock (collectively with the shares of Parent Common Stock issuable pursuant to the foregoing subparagraphs (c) and (d), the "PREFERRED STOCK MERGER CONSIDERATION"). As a result of the conversion of the Company Series C Preferred Stock, such preferred stock shall cease to be outstanding and shall automatically be cancelled and retired. Prior to the Effective Time, Parent shall authorize and create a series of preferred stock consisting of 2,500,000 shares, $.001 par value per share, designated as its "Series A Convertible Preferred Stock" (the "PARENT SERIES A PREFERRED STOCK"). The terms, limitations and relative rights and preferences of the Parent Series A Preferred Stock shall be set forth in the Certificate of Designation, Number, Voting Powers, Preferences and Rights of Series A Preferred Stock of the Company, in substantially similar form as EXHIBIT B attached hereto (the "CERTIFICATE OF DESIGNATION"), which Parent shall file with the Secretary of State of the State of Nevada immediately prior to the Effective Time. At the Effective Time, Parent and each holder of Parent Series A Preferred Stock shall enter into (i) the Registration Rights Agreement attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT"), and (ii) the Lock-up and Voting Agreement attached hereto as EXHIBIT D (the "LOCK-UP AGREEMENT"). (F) COMPANY COMMON STOCK. Subject to the provisions of the last paragraph of this Section 2.1(f), each then outstanding share of Company Common Stock (but excluding shares cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall be converted into and become the right to receive, subject to Section 2.2, three thousand eighty nine ten-thousandths (0.3089) duly authorized, validly issued, fully paid and nonassessable shares of Parent Common Stock (the "COMMON STOCK MERGER CONSIDERATION"). For the purposes of this Agreement, the term "MERGER CONSIDERATION" shall mean, collectively, the Common Stock Merger Consideration and the Preferred Stock Merger Consideration. (G) LOCK UP. Certain shares of Parent Series A Preferred Stock and Parent Common Stock issued as Merger Consideration and Shares of Parent Common Stock issued upon conversion of such Shares of Parent Series A Preferred Stock shall be subject to the Lock-Up Agreement and each certificate representing such shares shall bear the appropriate restrictive legend. SECTION 2.2 FRACTIONAL SHARES. No certificates representing fractional shares of Parent Common Stock or Parent Preferred Stock shall be issued upon the surrender for exchange of Company Stock Certificates, no dividend or distribution by Parent shall relate to such fractional share interests, and such fractional share interests shall not entitle the owner thereof to vote or to any rights as a shareholder of Parent. Further, no holder of a Company Stock Certificate who otherwise would have been entitled to receive in the Merger a fractional share interest in exchange for such Company Stock Certificate shall have the right to receive cash payment in lieu thereof. In lieu of any such fractional shares or cash payment, (x) any such fractional share interest greater than or equal to one-half of a share (0.5) shall be rounded up to the next whole share number, and (y) any such fractional share less than one-half of a share (0.5) shall be rounded down to the preceding whole share number and the certificates representing shares of Parent Common Stock or Parent Preferred Stock to be issued in the Merger shall reflect such adjustments. SECTION 2.3 EXCHANGE OF CERTIFICATES. (A) As soon as reasonably practicable after the Effective Time, Parent shall mail to each holder of record of a certificate (or certificates) which immediately prior to the Effective Time represented outstanding shares of Company Common Stock or Company Preferred Stock (the "Company Stock Certificates") (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Company Stock Certificate(s) shall pass, only upon delivery of the Company Stock Certificate(s) (or affidavits of loss in lieu of such certificates) (the "Letter of Transmittal") to the Parent and shall be in such form and have such other provisions as Parent reasonably may specify, and (ii) instructions for use thereof in surrendering Company Stock Certificate(s) in exchange for the Merger Consideration. Upon surrender to the Parent of a Company Stock Certificate in proper form for cancellation, together with a duly executed letter of transmittal, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor (i) a certificate (or certificates) representing such whole number of shares of Parent Common Stock and/or Parent Series A Preferred Stock as such holder is entitled to receive pursuant to Article II in such denominations and registered in such names as such holder may request. The shares represented by the Company Stock Certificate so surrendered shall forthwith be cancelled. Without limiting the generality of the foregoing (and notwithstanding any other provisions of this Agreement), no interest shall be paid or accrued in respect of any of the Merger Consideration payable to holders of Company Common Stock or Company Preferred Stock in accordance with this Article II. The Letter of Transmittal shall provide (A) procedures for holders whose Company Stock Certificates are lost, stolen or destroyed to receive the Merger Consideration, and (B) procedures for the transfer of ownership of shares of the Company Common Stock or Company Preferred Stock that is not registered on the stock transfer books and records of the Company. Until surrendered in accordance with this Section 2.3 and as specified in the Letter of Transmittal, each Company Stock Certificate shall be deemed at all times from and after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration. (B) Notwithstanding any other provisions of this Agreement, no dividends or other distributions declared or made after the Effective Time in respect of shares of Parent Common Stock or Parent Series A Preferred Stock having a record date after the Effective Time shall be paid to the holder of any unsurrendered Company Stock Certificate until the holder shall surrender such Company Stock Certificate as provided in this Section 2.3. Subject to applicable law, following surrender of any such Company Stock Certificate, there shall be paid to the holder of the certificates representing whole shares of Parent Common Stock or Parent Series A Preferred Stock issued in exchange therefor, in each case without any interest thereon, (i) at the time of such surrender, the amount of dividends or other distributions, if any, having a record date after the Effective Time theretofore payable with respect to such whole shares of Parent Common Stock or Parent Series A Preferred Stock and not paid, less the amount of all required withholding Taxes in respect thereof, and (ii) at the appropriate payment date subsequent to surrender, the amount of dividends or other distributions having a record date after the Effective Time but prior to the date of such surrender and having a payment date subsequent to the date of such surrender and payable with respect to such whole shares of Parent Common Stock or Parent Series A Preferred Stock, less the amount of all required withholding Taxes in respect thereof. (C) All shares of Parent Common Stock or Parent Series A Preferred Stock issued upon surrender of Company Stock Certificates in accordance with this Article II and as specified in the Letter of Transmittal shall be deemed to have been issued and paid in full satisfaction of all rights pertaining to such shares of Company Common Stock or Company Preferred Stock represented thereby and, as of the Effective Time, the stock transfer books and records of the Company shall be closed and there shall be no further registration of transfers on the stock transfer books and records of the Company of shares of Company Common Stock or Company Preferred Stock outstanding immediately prior to the Effective Time. If, after the Effective Time, Company Stock Certificates are properly presented to the Surviving Corporation for any reason (but otherwise in accordance with this Article II and as specified in the Letter of Transmittal), they shall be cancelled and exchanged for the Merger Consideration as provided in this Section 2.3. SECTION 2.4 CERTAIN ADJUSTMENTS. If, after the date hereof and prior to the Effective Time and to the extent permitted by this Agreement, the outstanding shares of Parent Common Stock, Company Common Stock or Company Preferred Stock shall be changed into a different number, class or series of shares by reason of any reclassification, recapitalization or combination, forward stock split, reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event shall occur (any such action, an "ADJUSTMENT EVENT"), the Merger Consideration shall be adjusted correspondingly to provide to the holders of Company Common Stock or Company Preferred Stock, as the case may be, the right to receive shares of Parent Common Stock and/or Parent Series A Preferred stock having the same economic value as contemplated by this Agreement immediately prior to such Adjustment Event and Parent's payment obligations likewise shall be correspondingly adjusted such that it shall be required to pay and deliver not more than the aggregate Merger Consideration contemplated by this Agreement. SECTION 2.5 SHARES OF DISSENTING SHAREHOLDERS. Notwithstanding anything in this Agreement to the contrary, any shares of Company Common Stock or Company Preferred Stock that are outstanding as of the Effective Time and that are held by a shareholder who has properly exercised his appraisal rights under Section 262 of the DGCL (the "DISSENTING SHARES") shall not be converted into the right to receive the Merger Consideration; PROVIDED, HOWEVER, if any such holder shall have failed to perfect or shall have effectively withdrawn or lost his right to dissent from the Merger under the DGCL and to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to and subject to the requirements of the DGCL, each share of such holder's Company Common Stock or Company Preferred Stock, as the case may be, thereupon shall be deemed to have been converted into and to have become, as of the Effective Time, the right to receive, without any interest thereon, the Merger Consideration in accordance with Article II. The Company shall give Parent prompt written notice of (i) all demands for appraisal or payment for shares of Company Common Stock received by the Company prior to the Effective Time in accordance with the DGCL, and (ii) any settlement or offer to settle any such demands. SECTION 2.6 STOCK OPTIONS. (a) At the Effective Time, each outstanding option to purchase shares of Company Common Stock (a "COMPANY STOCK OPTION") shall be automatically amended to constitute an option to acquire such Common Stock Merger Consideration as the holder of such Company Stock Option would have been entitled to receive in the Merger had such holder exercised such Company Stock Option in full immediately prior to the Effective Time; PROVIDED, HOWEVER, that with respect to any Company Stock Option which is an incentive stock option (an "ISO") within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "CODE"), the determination of the exercise price, number of shares purchasable and terms and conditions of vesting shall in all respects comply with Section 424(a) of the Code; PROVIDED, FURTHER, that it is intended in all events for each such Company Stock Option which is an ISO to be treated in such a manner as to preserve such treatment. (b) As promptly as practicable after the Effective Time, Parent shall deliver to each holder of a Company Stock Option a notice that accurately reflects the changes to such options as contemplated by subsection (a) of this Section 2.6. (c) Parent shall take all corporate actions necessary to reserve for issuance such number of shares of Parent Common Stock as will be necessary to satisfy exercises in full or after the Effective Time all Company Stock Options which, as of the Effective Time, became options to acquire Common Stock Merger Consideration. Parent shall also use its best efforts to ensure that all ISO's continue to qualify as such at all times after the Effective Time. SECTION 2.7 WARRANTS. (a) At the Effective Time, each outstanding warrant to purchase shares of Company Common Stock (a "COMPANY COMMON WARRANT") set forth on Section 2.7 of the Company Disclosure Schedule hereof shall be automatically amended to constitute a warrant to acquire such Common Stock Merger Consideration as the holder of such Company Common Warrants would have been entitled to receive in the Merger had such holder exercised such Company Common Warrant in full immediately prior to the Effective Time. (b) At the Effective Time, each outstanding warrant to purchase shares of Company Series C Preferred Stock (a "COMPANY PREFERRED STOCK WARRANT") and, together with the Company Common Warrants, the "COMPANY WARRANTS") set forth on Section 2.7 of the Company Disclosure Schedule hereof shall be automatically amended to constitute a warrant to acquire ninety six and five thousand seven hundred seventy four ten-thousandths (96.5774) shares of Parent Series A Preferred Stock, subject to adjustment pursuant to Section 2.4 hereof for every one share into which such Company Preferred Stock Warrant was exercisable as of immediately prior to the Effective Time. (c) As promptly as practicable after the Effective Time, Parent shall deliver to each holder of a Company Warrant a notice that accurately reflects the Merger Consideration each such holder is entitled to receive upon the exercise of such holder's Company Warrant. (d) Parent shall take all corporate actions necessary to reserve for issuance such number of shares of Parent Common Stock and Parent Series A Preferred Stock as will be necessary to satisfy exercises in full after the Effective Time of all Company Warrants which, as of the Effective Time, became warrants to acquire Common Stock Merger Consideration or Preferred Stock Merger Consideration. SECTION 2.8 TAX-FREE REORGANIZATION. The Merger is intended to qualify as a reorganization described in Section 368(a)(1)(B) of the Code, and the parties hereto agree not take any action which could result in the Merger failing to so qualify. The parties hereto further agree to report the Merger for all purposes as a reorganization under Section 368 of the Code, and that this Agreement is intended to be a "plan of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as set forth on the Disclosure Schedule delivered by the Company to Parent prior to the execution of this Agreement which hereby is incorporated by reference in and constitutes an integral part of this Agreement (the "COMPANY DISCLOSURE SCHEDULE"), the Company hereby represents and warrants to Parent and Merger Sub as follows: SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) Each of the Company and its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as presently being conducted. Each of the Company and its subsidiaries is duly qualified or licensed to conduct business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on the Company. (b) The Company has delivered or made available to Parent prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws of the Company and its subsidiaries, each as in effect at the date of this Agreement. SECTION 3.2 SUBSIDIARIES. Section 3.2 of the Company Disclosure Schedule lists the names and jurisdiction of incorporation or organization of all the subsidiaries of the Company, whether consolidated or unconsolidated. The outstanding securities of the subsidiaries of Company are set forth in Section 3.2 of the Company Disclosure Schedules and all outstanding shares of capital stock of, or other equity interests in, each such subsidiary: (i) have been duly authorized, validly issued and are fully paid and nonassessable and (ii) are owned directly or indirectly by Company, free and clear of all Liens. Except as set forth above or in Section 3.2 of the Company Disclosure Schedule, the Company does not own, directly or indirectly, any capital stock of or other equity or voting interests in any person. SECTION 3.3 CAPITAL STRUCTURE. The authorized capital stock of the Company consists of 100,000,000 shares of Company Common Stock, 50,000 shares of Company Series A Preferred Stock, 650,000 shares of Company Series B Preferred Stock, 24,500 shares of Company Series C Preferred Stock, and 5,000,000 shares of undesignated preferred stock, $.01 par value ("COMPANY UNDESIGNATED PREFERRED STOCK"). As of the date hereof: (a) (i) 71,010,323 shares of Company Common Stock are issued and outstanding; (ii) no shares of Company Common Stock are held by the Company in its treasury and no shares of Company Common Stock are held by subsidiaries of the Company; (iii) 10,669,553 shares of Company Common Stock were reserved for issuance pursuant to any plans, agreements and arrangements providing for equity-based compensation to any director, employee, consultant or independent contractor of the Company or any of its subsidiaries (collectively, the "COMPANY STOCK PLANS"), of which 7,657,829 shares are subject to outstanding Company Stock Options and/or have been granted in the form of restricted stock or issued upon exercise of options and (iv) 656,257 warrants to purchase shares of Company Common Stock are issued and outstanding; (b) (i) 50,000 shares of Company Series A Preferred Stock are issued and outstanding, (ii) 650,000 shares of Company Series B Preferred Stock are issued and outstanding, (iii) 22,109 shares of Company Series C Preferred Stock are issued and outstanding, and (iv) warrants to purchase 342 shares of Company Series C Preferred Stock are issued and outstanding; (c) The Company has delivered to Parent a true and complete list, as of the close of business on the date hereof, of all outstanding Company Stock Options, the number of shares subject to each such Company Stock Option, the grant date, exercise price, term and vesting schedule of each such Company Stock Option and the names of the holders thereof. (d) Except as set forth on Section 3.3 of the Company Disclosure Schedule, all outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable and are not subject to preemptive rights created by statute, the Company's Certificate of Incorporation (the "COMPANY CERTIFICATE OF INCORPORATION") or any agreement to which the Company is a party or by which the Company may be bound. Except as set forth in this Section and except for changes since the date of this Agreement resulting from the exercise of Company Stock Options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of the Company, (ii) no securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company, and (iii) no options or other rights to acquire from the Company, and no obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of the Company. SECTION 3.4 AUTHORITY; NONCONTRAVENTION. (a) The Company has the corporate power and authority to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. Except for any required approval by the Company's shareholders in connection with the consummation of the Merger, all corporate acts and proceedings required to be taken by or on the part of the Company to authorize the Company to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement of the Company. (b) The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, conflict with or result in a violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under (i) any provision of the Company Certificate of Incorporation, (ii) any material loan or credit agreement, note, mortgage, indenture, lease or other material agreement or (iii) material instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or its properties or assets. (c) The execution, delivery and performance by the Company of this Agreement and the consummation of the Merger by the Company require no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any governmental body, court, agency, official or authority (each, a "GOVERNMENTAL ENTITY", collectively "GOVERNMENT ENTITIES") other than the filing of the Certificate of Merger with the Secretary of State of the State of Delaware. (d) The execution and delivery of this Agreement and the consummation of the Merger will not result in the creation of any pledges, claims, liens, charges, encumbrances, adverse claims, mortgages and security interests of any kind or nature whatsoever (collectively, "LIENS") upon any asset of the Company. (e) Except as set forth in Section 3.4(e) of the Company Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the Governmental Entities referred to in (c) above) under any Company Material Contract is required or necessary for, or made necessary by reason of, the execution, delivery and performance of this Agreement by the Company or the consummation of the Merger. SECTION 3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. (a) The Company has furnished to the Parent true, correct and complete copies of: (i) audited balance sheet of the Company as of December 31, 2002 and unaudited balance sheets of the Company as of December 31, 2003 and June 30, 2004 reviewed by the Company's independent accountants; (ii) an audited income statement of the Company for the fiscal year ended December 31, 2002 and unaudited income statements of the Company for the fiscal year ended December 31, 2003 and for the three (3) and six (6) month periods ended June 30, 2004 reviewed by the Company's independent accountants and (iii) an audited statement of cash flows of the Company for the fiscal year ended December 31, 2002 and unaudited statements of cash flows of the Company for the fiscal year ended December 31, 2003 and for the three (3) and six (6) month periods ended June 30, 2004 reviewed by the Company's independent accountants (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared by the Company on the basis of the books and records maintained by the Company in the ordinary course of business in a manner consistently used and applied throughout the periods involved. The Company Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") and fairly present in all material respects the financial condition of the Company and its subsidiaries as at the respective dates thereof, except that the Company's reviewed balance sheet as of June 30, 2004 and its income statements and statements of cash flows for the three (3) and six (6) month periods then ended do not contain footnotes and are subject to normal year end adjustments in the ordinary course of business. (b) Except for liabilities (i) set forth in Section 3.5 of the Company Disclosure Schedule, (ii) reflected in the Company Financial Statements or described in any notes thereto (or for which neither accrual nor footnote disclosure is required pursuant to GAAP), or (ii) incurred in the ordinary course of business, consistent with past practice or in connection with this Agreement or the transactions contemplated hereby, neither the Company nor any of its subsidiaries has any material liabilities or obligations of any nature. SECTION 3.6 MATERIAL CONTRACTS. (a) Each Company Material Contract is valid and binding on and enforceable against the Company (or, to the extent a subsidiary is a party, such subsidiary) and, to the knowledge of the Company, each other party thereto and is in full force and effect. Neither the Company nor any of its subsidiaries is in breach or default under any Company Material Contract. Neither the Company nor any of its subsidiaries knows of, and has not received notice of, any violation or default under (nor, to the knowledge of the Company, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Company Material Contract by any other party thereto. Prior to the date hereof, the Company has made available to Parent true and complete copies of all Company Material Contracts. (b) As used in this Agreement, "COMPANY MATERIAL CONTRACTS" shall mean any contract, license agreement, commitment, lease, or restriction of any kind to which the Company is a party or by which the Company or any of its subsidiaries is bound or to which any of the Company's or any of its subsidiaries' assets are subject which involve payments to or from the Company of at least $100,000. SECTION 3.7 ABSENCE OF CERTAIN CHANGES. Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby, and except as set forth in Section 3.7 of the Company Disclosure Schedule, (i) since December 31, 2003, there has not been any material adverse change in the Company or any of its subsidiaries or any event which either individually or when aggregated with other event(s) has or reasonably would be expected to have a material adverse effect on the Company or any of its subsidiaries taken as a whole, and (ii) there are not, to the Company's knowledge, any facts, circumstances or events that make it reasonably likely that the Company will not be able to fulfill its obligations under this Agreement in all material respects. SECTION 3.8 PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (a) The Company and its subsidiaries own and/or possess all material permits, licenses, variances, authorizations, exemptions, orders, registrations and approvals of all Governmental Entities which are required for the operation of the business of the Company and its subsidiaries (the "PERMITS") as presently conducted. The Company and its subsidiaries is in compliance in all material respects with the terms of the Permits and all the Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or, to the knowledge of the Company, threatened nor, to the knowledge of the Company, do grounds exist for any such action. (b) Each of the Company and its subsidiaries is in compliance in all material respects with all applicable statutes, laws, regulations, ordinances, Permits, rules, writs, judgments, orders, decrees and arbitration awards of each Governmental Entity applicable to the Company or any of its subsidiaries. (c) Except for filings with respect to Taxes, which are the subject of Section 3.10 and not covered by this Section 3.8(c), the Company and each of its subsidiaries has timely filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity (the "OTHER COMPANY DOCUMENTS"), and have timely paid all fees and assessments, if any, due and payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on the Company. SECTION 3.9 ABSENCE OF LITIGATION. Section 3.9 of the Company Disclosure Schedule contains a true and current summary description of each pending and, to the Company's knowledge, threatened litigation, action, suit, case, proceeding, investigation or arbitration. Except as set forth in Section 3.9 of the Company Disclosure Schedule, no action, inquiry, demand, charge, requirement or investigation by any Governmental Entity and no litigation, action, suit, case, proceeding, investigation or arbitration by any person or Governmental Entity, in each case with respect to the Company or any of its subsidiaries or any of their respective properties or Permits, is pending or, to the knowledge of the Company, threatened. SECTION 3.10 TAX MATTERS. (a) Each of the Company and its subsidiaries has (i) filed with the appropriate Governmental Entities all United States federal income and other material Tax Returns required to be filed by it (giving effect to all extensions) and such Tax Returns are true, correct and complete in all material respects; (ii) paid in full all United States federal income and other material Taxes required to have been paid by it; and (iii) made adequate provision for all accrued Taxes not yet due. The accruals and provisions for Taxes reflected in the Company Financial Statements are adequate in accordance with GAAP for all Taxes accrued or accruable through the date of such statements. (b) As of the date of this Agreement, no Federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Company or any of its subsidiaries, and neither the Company nor any of its subsidiaries has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. (c) No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Tax has been proposed, asserted, or assessed in writing by any Governmental Entity against, or with respect to, the Company or any of its subsidiaries. There is no action, suit or audit now in progress, pending or, to the knowledge of the Company, threatened against or with respect to the Company or any of its subsidiaries with respect to any material Tax. (d) Neither the Company nor any of its subsidiaries has been included in any "consolidated," "unitary" or "combined" Tax Return (other than Tax Returns which include only the Company) provided for under the laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year. (e) No election under Section 341(f) of the Code has been made by the Company or any of its subsidiaries. (f) No claim has been made in writing by any Governmental Entities in a jurisdiction where the Company or any of its subsidiaries does not file Tax Returns that the Company is, or may be, subject to taxation by that jurisdiction. (g) Each of the Company and its subsidiaries has made available to Parent correct and complete copies of (i) all of its material Tax Returns filed within the past three (3) years, (ii) all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Entity within the past three (3) years relating to the Federal, state, local or foreign Taxes due from or with respect to the Company or any of its subsidiaries, and (iii) any closing letters or agreements entered into by the Company with any Governmental Entities within the past three (3) years with respect to Taxes. (h) Neither the Company nor any of its subsidiaries has received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and to the knowledge of the Company, no such deficiency or assessment is proposed. (i) For purposes of this Agreement: (i) "TAX" or "TAXES" shall mean shall mean all federal, state, county, local, foreign and other taxes of any kind whatsoever (including, without limitation, income, profits, premium, excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance, capital levy, production, transfer, license, stamp, environmental, withholding, employment, unemployment compensation, payroll related and property taxes, import duties and other governmental charges and assessments), whether or not measured in whole or in part by net income, and including deficiencies, interest, additions to tax or interest, and penalties with respect thereto, and including expenses associated with contesting any proposed adjustment related to any of the foregoing. (ii) "TAX RETURN" shall mean any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendments thereof. SECTION 3.11 EMPLOYEE BENEFIT PLANS. (a) Section 3.11 of the Company Disclosure Schedule contains a true and complete list of all pension, stock option, stock purchase, benefit, welfare, profit-sharing, retirement, disability, vacation, severance, hospitalization, insurance, incentive, deferred compensation and other similar fringe or employee benefit plans, funds, programs or arrangements, whether written or oral, in each of the foregoing cases which (i) covers, is maintained for the benefit of, or relates to any or all current or former employees of the Company or any of its subsidiaries and any other entity ("ERISA AFFILIATE") related to the Company under Section 414(b), (c), (m) and (o) of the Code and (ii) is not a "multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or Section 414 of the Code (the "EMPLOYEE PLANS"). Section 3.11 of the Company Disclosure Schedule identifies and includes but is not limited to, each of the Employee Plans that is subject to Section 302 or Title IV of ERISA or Section 412 of the Code. Neither the Company, any of its subsidiaries nor any ERISA Affiliate of the Company or any of its subsidiaries has any commitment or formal plan, whether or not legally binding, to create any additional employee benefit plan or modify or change any existing Employee Plan other than as may be required by the express terms of such Employee Plan or applicable law. (b) With respect to each Employee Plan that has been qualified or is intended to be qualified under the Code or that is an "Employee Benefit Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved and adopted by all necessary and appropriate action of the Board of Directors of the Company (or a duly constituted committee thereof). (c) With respect to the Employee Plans, all required contributions for all periods ending before the Closing Date have been or will be paid in full by the Closing Date. Subject only to normal retrospective adjustments in the ordinary course, all required insurance premiums have been or will be paid in full with regard to such Employee Plans for policy years or other applicable policy periods ending on or before the Closing Date by the Closing Date. As of the date hereof, none of the Employee Plans has unfunded benefit liabilities, as defined in Section 4001(a)(16) of ERISA. (d) The Company has no "multi-employer plans," as defined in Section 3(37) or Section 4001(a)(3) of ERISA or Section 414 ("MULTI-EMPLOYER PLANS"), and never has had any such plans. (e) With respect to each Employee Plan (i) no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code have occurred or are expected to occur as a result of the Merger or the transactions contemplated by this Agreement, (ii) no action, suit, grievance, arbitration or other type of litigation, or claim with respect to the assets of any Employee Plan (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) is pending or, to the knowledge of the Company, threatened or imminent against the Company, any ERISA Affiliate or any fiduciary, as such term is defined in Section 3(21) of ERISA ("FIDUCIARY"), including, but not limited to, any action, suit, grievance, arbitration or other type of litigation, or claim regarding conduct that allegedly interferes with the attainment of rights under any Employee Plan. To the knowledge of the Company, neither the Company, nor its directors, officers, employees or any Fiduciary has any liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of such plan. None of the Employee Plans is subject to any pending investigations or to the knowledge of the Company threatened investigations from any Governmental Agencies who enforce applicable laws under ERISA and the Code. (f) Each of the Employee Plans is, and has been, operated in accordance with its terms and each of the Employee Plans, and administration thereof, is, and has been, in all material respects in compliance with the requirements of any and all applicable statutes, orders or governmental rules or regulations currently in effect, including, but not limited to, ERISA and the Code. All required reports and descriptions of the Employee Plans (including but not limited to Form 5500 Annual Reports, Form 1024 Application for Recognition of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan Descriptions) have been timely filed and distributed as required by ERISA and the Code. Any notices required by ERISA or the Code or any other state or federal law or any ruling or regulation of any state or federal administrative agency with respect to the Employee Plans, including but not limited to any notices required by Section 4980B of the Code, have been appropriately given. (g) The Internal Revenue Service (the "IRS") has issued a favorable determination letter or opinion letter with respect to each Employee Plan intended to be "qualified" within the meaning of Section 401(a) of the Code that has not been revoked and, to the knowledge of the Company, no circumstances exist that could adversely affect the qualified status of any such plan and the exemption under Section 501(a) of the Code of the trust maintained thereunder. Each Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or 501(c)(17) of the Code has satisfied such requirements in all material respects. (h) With respect to each Employee Plan to which the Company or any ERISA Affiliate made, or was required to make, contributions on behalf of any employee during the five-year period ending on the last day of the most recent plan year end prior to the Closing Date, (i) no liability under Title IV or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate that has not been satisfied in full, and (ii) to the knowledge of the Company, no condition exists that presents a material risk to the Company or any ERISA Affiliate of incurring any such liability and (iii) the present value of accrued benefits under such plan, based upon the actuarial assumptions used for funding purposes in the most recent actuarial report prepared by such plan's actuary with respect to such plan did not exceed, as of its latest valuation date, the then current value of the assets of such plan allocable to such accrued benefits. No Employee Plan or any trust established thereunder has incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recently ended fiscal year. (i) Except as set forth in Section 3.11 of the Company Disclosure Schedule, no Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits under any "pension plan," (iii) benefits the full cost of which is borne by the employee (or his beneficiary) or (iv) Employee Plans that can be amended or terminated by the Company without consent. The Company does not have any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of the Company. (j) No material amounts payable under the Employee Plans will fail to be deductible for Federal income tax purposes by virtue of Section 162(m) of the Code. (k) To the extent that the Company is deemed to be a fiduciary with respect to any Plan that is subject to ERISA, the Company (i) during the past five years has complied with the requirements of ERISA and the Code in the performance of its duties and responsibilities with respect to such employee benefit plan and (ii) has not knowingly caused any of the trusts for which it serves as an investment manager, as defined in Section 3(38) of ERISA, to enter into any transaction that would constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code, with respect to any such trusts, except for transactions that are the subject of a statutory or administrative exemption. (l) No person will be entitled to a "gross up" or other similar payment in respect of excise taxes under Section 4999 of the Code with respect to the transactions contemplated by this Agreement. (m) None of the Employee Plans have been completely or partially terminated and none has been the subject of a "reportable event" as that term is defined in Section 4043 of ERISA. No amendment has been adopted which would require the Company or any ERISA Affiliate to provide security pursuant to Section 307 of ERISA or Section 401(a)(29) of the Code. SECTION 3.12 LABOR MATTERS. (a) With respect to employees of the Company or its subsidiaries: (i) to the knowledge of the Company, no senior executive or key employee has any plans to terminate employment with the Company or any of its subsidiaries; (ii) there is no unfair labor practice charge or complaint against the Company pending or, to the knowledge of the Company, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (iii) there is no demand for recognition made by any labor organization or petition for election filed with the National Labor Relations Board or any other comparable Governmental Entity; (iv) no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and, to the knowledge of Company, no claims therefor have been threatened other than grievances or arbitrations incurred in the ordinary course of business; (v) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not give rise to termination of any existing collective bargaining agreement or permit any labor organization to commence or initiate any negotiations in respect of wages, hours, benefits, severance or working conditions under any such existing collective bargaining agreements; and (vi) there is no litigation, arbitration proceeding, governmental investigation, administrative charge, citation or action of any kind pending or, to the knowledge of the Company, proposed or threatened against the Company relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance and hours. (b) Section 3.12(b) of the Company Disclosure Schedule lists the name, title, date of employment and current annual salary of each current salaried employee whose annual salary exceeds $100,000. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Employee Plan or other agreement, (ii) materially increase any benefits otherwise payable under any Employee Plan or other agreement, or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits. (c) Section 3.12(c) of the Company Disclosure Schedule sets forth all contracts, agreements, plans or arrangements covering any employee of the Company or its subsidiaries containing "change of control," "stay-put," transition, retention, severance or similar provisions, and sets forth the names and titles of all such employees, the amounts payable under such provisions, whether such provisions would become payable as a result of the Merger and the transactions contemplated by this Agreement, and when such amounts would be payable to such employees, all of which are in writing, have heretofore been duly approved by the Company's Board of Directors, and true and complete copies of all of which have heretofore been delivered to Parent. There is no contract, agreement, plan or arrangement (oral or written) covering any employee of the Company that individually or collectively could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code. SECTION 3.13 ENVIRONMENTAL MATTERS. Except for such matters which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the Company or are listed in Section 3.13 of the Company Disclosure Schedule: (a) COMPLIANCE. (i) The Company and its subsidiaries are in compliance in all material respects with all applicable Environmental Laws; (ii) neither the Company nor any of its subsidiaries has received any written communication from any person or governmental entity that alleges that the Company or any of its subsidiaries is not in compliance with applicable Environmental Laws; and (iii) there have not been any Releases of Hazardous Substances by the Company or any of its subsidiaries, or, by any other party, at any property currently or formerly owned or operated by the Company or any of its subsidiaries that occurred during the period of the Company's or any of its subsidiaries' ownership or operation of such property. (b) ENVIRONMENTAL PERMITS. The Company and its subsidiaries have all Environmental Permits necessary for the conduct and operation of its business, and all such permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and the Company or its subsidiaries are in compliance with all terms and conditions of all such Environmental Permits and is not required to make any expenditure in order to obtain or renew any Environmental Permits. (c) ENVIRONMENTAL CLAIMS. There are no Environmental Claims pending or, to the Company's knowledge, threatened, against the Company, or against any real or personal property or operation that the Company owns, leases or manages. (d) As used in this Agreement: (i) "ENVIRONMENTAL LAWS" shall mean any and all binding and applicable local, municipal, state, federal or international law, statute, treaty, directive, decision, judgment, award, regulation, decree, rule, code of practice, guidance, order, direction, consent, authorization, permit or similar requirement, approval or standard concerning (A) occupational, consumer and/or public health and safety, and/or (B) environmental matters (including clean-up standards and practices), with respect to buildings, equipment, soil, sub-surface strata, air, surface water, or ground water, whether set forth in applicable law or applied in practice, whether to facilities such as those of the Company Properties in the jurisdictions in which the Company Properties are located or to facilities such as those used for the transportation, storage or disposal of Hazardous Substances generated by the Company or otherwise. (ii) "ENVIRONMENTAL PERMITS" shall mean Permits required by Environmental Laws. (iii) "HAZARDOUS SUBSTANCES" shall mean any and all dangerous substances, hazardous substances, toxic substances, radioactive substances, hazardous wastes, special wastes, controlled wastes, oils, petroleum and petroleum products, hazardous chemicals and any other materials which are regulated by the Environmental Laws or otherwise found or determined to be potentially harmful to human health or the environment. (iv) "RELEASE" shall mean any spilling, leaking, pumping, emitting, emptying, discharging, injecting, escaping, leaching, migrating, dumping or disposing of Hazardous Substances (including the abandonment or discarding of barrels, containers or other closed receptacles containing Hazardous Substances) into the environment. SECTION 3.14 INTELLECTUAL PROPERTY. (a) Section 3.14(a) of the Company Disclosure Schedule sets forth, for the Intellectual Property (as defined below) owned or purported to be owned by the Company or any of its subsidiaries, a complete and accurate list of all U.S. and foreign (i) patents and patent applications, (ii) trademarks and service marks which are registered or the subject of an application for registration and material unregistered trademarks or service marks , (iii) copyrights which are registered or the subject of an application for registration, and (iv) Internet domain names. The Company or one of its subsidiaries owns or has the valid right to use all patents and patent applications, patent rights, trademarks, service marks, trademark or service mark registrations and applications, trade names, logos, designs, Internet domain names, slogans and general intangibles of like nature, together with all goodwill related to the foregoing, copyrights, copyright registrations, renewals and applications, Software (as defined below), technology, inventions, discoveries, trade secrets and other confidential information, know-how, proprietary processes, designs, processes, techniques, formulae, algorithms, models and methodologies, licenses, and all other proprietary rights (collectively, the "INTELLECTUAL PROPERTY") that it owns or purports to own or is licensed to Company in a manner sufficient for the conduct of the business of the Company as it currently is conducted. "SOFTWARE" means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, whether in source code or object code, (ii) databases and compilations, including any and all data and collections of data, whether machine readable or otherwise, (iii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, (iv) the technology supporting and content contained on any owned or operated Internet site(s), and (v) all documentation, including user manuals and training materials, relating to any of the foregoing. (b) All of the Intellectual Property owned or purported to be owned by the Company or any of its subsidiaries is free and clear of all Liens. The Company or one of its subsidiaries is listed in the records of the appropriate United States, state or foreign agency as, the sole owner of record for each patent and patent application and trademark, service mark and copyright which is registered or the subject of an application for registration that is listed in Section 3.14(a) of the Company Disclosure Schedule. (c) All of the patents, patent applications, trademarks, service marks and copyrights owned or purported to be owned by Company which have been issued by, or registered or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or in any similar office or agency anywhere in the world, including, but not limited to the items listed in Section 3.14(a) of the Company Disclosure Schedule are subsisting, enforceable, in full force and effect, and have not been cancelled, expired, abandoned or otherwise terminated and all renewal fees in respect thereof have been duly paid and are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) and are, to the Company's knowledge, valid. There is no pending or, to the Company's knowledge, threatened opposition, interference, invalidation or cancellation proceeding before any court or registration authority in any jurisdiction against any of the items listed in Section 3.14(a) of the Company Disclosure Schedule or, to the Company's knowledge, against any other Intellectual Property used by the Company or its subsidiaries. (d) The conduct of the Company's or each of its subsidiaries' business as currently conducted does not infringe upon (either directly or indirectly such as through contributory infringement or inducement to infringe), dilute, misappropriate or otherwise violate (i) any Intellectual Property owned or controlled by any third party ("THIRD PARTY RIGHTS"), other than the rights of any third party under any patent, or (ii) to the Company's knowledge, the rights of any third party under any patent. There are no pending, or, to the knowledge of the Company, threatened claims against the Company or any of its subsidiaries alleging that the operation of the business as currently conducted, infringes on or conflicts with any Third Party Rights. (e) To the Company's knowledge, no third party is misappropriating, infringing, diluting, or violating any Intellectual Property owned or purported to be owned by or licensed to or by the Company or its subsidiaries and no such claims have been made against a third party by the Company or any of its subsidiaries. (f) Each material item of Software, which is used by the Company or any of its subsidiaries in connection with the operation of its business as currently conducted, is either (i) owned by the Company or any of its subsidiaries, (ii) currently in the public domain or otherwise available to the Company without the need of a license, lease or consent of any third party, or (iii) used under rights granted to the Company or any of its subsidiaries pursuant to a written agreement, license or lease from a third party. (g) Section 3.14(g) of Company Disclosure Schedule sets forth a complete list of all agreements under which the Company or any of its subsidiaries is granted rights to acquire or use the Intellectual Property of a third party (other than shrink-wrap general purpose software) (the "COMPANY IP AGREEMENTS"). Except as set forth in Section 3.14(g) of Company Disclosure Schedule, the Company is not under any obligation to pay royalties or other payments in connection with any Company IP Agreement, nor restricted from assigning its rights respecting Intellectual Property nor will the Company otherwise be, as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any Company IP Agreement. Each Company IP Agreement is in full force and effect and has not been amended. Neither the Company nor, to the knowledge of the Company, any other party thereto, is in default or breach under any such Company IP Agreement. No event has occurred which, with the passage of time or the giving of notice or both, would cause a breach of or default by the Company under any of the Company IP Agreements and, to the knowledge of the Company, there is no breach or anticipated breach by any other party to any Company IP Agreement. (h) To the Company's knowledge, the Products do not intentionally contain any "viruses", "time-bombs", "key-locks", or any other devices intentionally created that could disrupt or interfere with the operation of the Products or the integrity of the data, information or signals they produce in a manner adverse to the Company, any of its subsidiaries or any licensee or recipient. (i) To the Company's knowledge, neither the Company nor any of its subsidiaries has embedded any open source, copyleft or community source code in any of its Products which are generally available or in development, including but not limited to any libraries or code licensed under the GNU General Public License, GNU Lesser General Public License or similar license arrangement. SECTION 3.15 INSURANCE MATTERS. The Company and its subsidiaries have all material primary insurance providing insurance coverage that is customary in amount and scope for other companies in the industry in which the Company and its subsidiaries operate. All such policies are in full force and effect, all premiums due and payable thereon have been paid and no written or oral notice of cancellation or termination has been received and is outstanding. SECTION 3.16 TRANSACTIONS WITH AFFILIATES. Except as set forth on Section 3.16 of the Company Disclosure Schedule, there are no outstanding amounts payable to or receivable from, or advances by the Company or any of its subsidiaries to, and neither the Company nor any of its subsidiaries is otherwise a creditor of or debtor to, or a party to any transaction or agreement with, any stockholder, director, employee or affiliate of the Company or any of its subsidiaries, other than (i) transactions or agreements with Parent or its subsidiaries or their respective affiliates, stockholders, directors or executive officers, or (ii) as part of the normal and customary terms of such persons' employment or service as a director with the Company or any of its subsidiaries. SECTION 3.17 VOTING REQUIREMENTS. The affirmative vote (in person or by duly authorized and valid proxy at a Company shareholders' meeting or by written consent) of the holders of a majority of the outstanding shares of each of the Company Common Stock, Company Series A Preferred Stock, Company Series B Preferred Stock and Company Series C Preferred Stock in favor of the adoption of this Agreement is the only vote of the holders of any class or series of the Company's capital stock required by applicable law and the Company's organizational instruments to duly effect such adoption. SECTION 3.18 BROKERS. No broker, investment banker, financial advisor, finder, consultant or other person is entitled to any broker's, finder's, financial advisor's or other similar fee, compensation or commission, however and whenever payable, in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. SECTION 3.19 REAL PROPERTY. (a) Each of the Company and its subsidiaries has good and marketable title in fee simple to all real properties owned by it and all buildings, structures and other improvements located thereon and valid leaseholds in all real estate leased by it, other than Company Permitted Liens. Section 3.19(a) of the Company Disclosure Schedule sets forth a complete list of all (i) real property owned by the Company or its subsidiaries as of the date hereof and (ii) real property leased, subleased, or otherwise occupied or used by the Company or any of its subsidiaries as lessee. With respect to each parcel of real property leased, subleased, or otherwise occupied or used by the Company or any of its subsidiaries as lessee: (i) the Company or the applicable subsidiary has a valid leasehold interest or other right of use and occupancy, free and clear of any Liens on such leasehold interest or other rights of use and occupancy, or any covenants, easements or title defects known to or created by the Company or the applicable subsidiary, except as do not materially affect the occupancy or uses of such property. Each of the Company's and its subsidiaries' agreement with respect to real property leased, subleased, or otherwise occupied or used by the Company as lessee is in full force and effect and has not been amended. Neither the Company or the applicable subsidiary nor, to the knowledge of the Company or the applicable subsidiary, any other party thereto, is in material default or material breach under any such agreement. No event has occurred which, with the passage of time or the giving of notice or both, would cause a breach of or default by the Company or the applicable subsidiary under any of such agreement and, to the knowledge of the Company or the applicable subsidiary, there is no breach or anticipated breach by any other party to such agreements. (b) As used in this Agreement, Company Permitted Liens shall mean: (i) Any Lien reflected in Section 3.19(b)(i) of the Company Disclosure Schedule, (ii) Liens for Taxes not yet due or delinquent or as to which there is a good faith dispute and for which there are adequate provisions on the books and records of the Company in accordance with GAAP, (iii) with respect to real property, any Lien, encumbrance or other title defect which is not in a liquidated amount (whether material or immaterial) and which does not, individually or in the aggregate, interfere materially with the current use or materially detract from the value or marketability of such property (assuming its continued use in the manner in which it is currently used) and (iv) inchoate materialmen's, mechanics', carriers', workmen's and repairmen's liens arising in the ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings. SECTION 3.20 TANGIBLE PERSONAL PROPERTY. Except as would not materially impair the Company and its operations, the machinery, equipment, furniture, fixtures and other tangible personal property (the "Tangible Personal Property") owned, leased or used by the Company or any of its subsidiaries is in the aggregate sufficient and adequate to carry on business in all material respects as presently conducted and is, in the aggregate and in all material respects, in good operating condition and repair, normal wear and tear excepted. The Company is in possession of and has good title to, or valid leasehold interests in or valid rights under contract to use, the Tangible Personal Property material to the Company, taken as a whole, free and clear of all Liens, other than Company Permitted Liens. SECTION 3.21 INVESTMENT COMPANY. Neither the Company nor or any of its subsidiaries is an investment company required to be registered as an investment company pursuant to the Investment Company Act. SECTION 3.22 BOARD APPROVAL. Pursuant to meetings duly noticed and convened in accordance with all applicable laws and at each of which a quorum was present, the Board of Directors of the Company, after full and deliberate consideration, unanimously (other than for directors who abstain) has (i) duly approved this Agreement and resolved that the Merger and the transactions contemplated hereby are fair to, advisable and in the best interests of the Company's shareholders, (ii) resolved to unanimously recommend that the Company's shareholders approve the Merger and the transactions contemplated hereby and (iii) directed that the Merger be submitted for consideration by the holders of Company Common Stock and Company Preferred Stock. SECTION 3.23 BOOKS AND RECORDS. Each of the Company and its subsidiaries maintains and has maintained accurate books and records reflecting its assets and liabilities and accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT Except as set forth on the Disclosure Schedule delivered by Parent to the Company prior to the execution of this Agreement which is incorporated by reference in and constitutes an integral part of this Agreement (the "PARENT DISCLOSURE SCHEDULE"), Parent hereby represents and warrants to the Company as follows: SECTION 4.1 ORGANIZATION, STANDING AND CORPORATE POWER. (a) Each of Parent, its subsidiaries and Merger Sub is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized and has the requisite corporate power and requisite authority to carry on its business as presently being conducted. Each of Parent and its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties makes such qualification or licensing necessary, except for those jurisdictions where the failure to be so qualified or licensed or to be in good standing individually or in the aggregate would not reasonably be expected to have a material adverse effect on Parent. (b) Parent has delivered or made available to the Company prior to the execution of this Agreement complete and correct copies of the certificate of incorporation and by-laws or other organizational documents of Parent, its subsidiaries and Merger Sub, each as in effect at the date of this Agreement. SECTION 4.2 SUBSIDIARIES. (a) Section 4.2 of the Parent Disclosure Schedule lists the names and jurisdiction of incorporation or organization of all the subsidiaries of the Company, whether consolidated or unconsolidated. The outstanding securities of the subsidiaries of Parent are set forth in Section 4.2 of the Parent Disclosure Schedules and all outstanding shares of capital stock of, or other equity interests in, each such subsidiary: (i) have been duly authorized, validly issued and are fully paid and nonassessable and (ii) are owned directly or indirectly by Parent, free and clear of all Liens. Except as set forth above or in Section 4.2 of Parent Disclosure Schedule, the Parent does not own, directly or indirectly, any capital stock of or other equity or voting interests in any person. (b) Merger Sub is a newly formed corporation with no material assets or liabilities, except for liabilities arising under this Agreement. Merger Sub will not conduct any business or activities other than the issuance of its capital stock to Parent prior to the Merger. SECTION 4.3 CAPITAL STRUCTURE. (a) A) The authorized capital stock of Parent consists of 150,000,000 shares of common stock, $.001 par value (the "Parent Common Stock"), and 5,000,000 shares of undesignated preferred stock, par value $.001 per share, of Parent ("PARENT AUTHORIZED PREFERRED STOCK"). As of the date hereof: (i) 70,753,840 shares of Parent Common Stock were issued and outstanding; (ii) 1,433,639 shares of Parent Common Stock were held by Parent in its treasury; (iii) no shares of Parent Common Stock were held by subsidiaries of Parent; (iv) approximately 6,167,645 shares of Parent Common Stock were reserved for issuance pursuant to the stock-based plans identified in Section 4.2 of the Parent Disclosure Schedule (such plans, collectively, the "PARENT STOCK PLANS"), all of which are subject to outstanding employee stock options or other rights to purchase or receive Parent Common Stock granted under the Parent Stock Plans (collectively, "PARENT EMPLOYEE STOCK OPTIONS"); (v) 9,107,143 shares of Parent Common Stock are reserved for issuance pursuant to convertible notes and (vi) 17,237,696 shares of Parent Common Stock were reserved for issuance pursuant to outstanding warrants. (b) All outstanding shares of capital stock of Parent have been, and all shares thereof which may be issued pursuant to this Agreement or otherwise (including upon the conversion of the Parent Series A Preferred Stock) will be, when issued, duly authorized and validly issued and are fully paid and nonassessable and are not subject to preemptive rights created by statute, the Parent's articles of incorporation or any agreement to which Parent is a party or by which Parent may be bound. Except as set forth in this Section and except for changes since the date of this Agreement resulting from the exercise of Parent's employee stock options outstanding on such date, there are outstanding (i) no shares of capital stock or other voting securities of Parent, (ii) no securities of Parent convertible into or exchangeable for shares of capital stock or voting securities of Parent, and (iii) no options or other rights to acquire from Parent, and no obligation of Parent to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock of Parent. (c) Parent has a sufficient number of duly authorized but unissued shares of Parent Common Stock to issue the maximum number of such shares contemplated by Article II of this Agreement as the Merger Consideration. (d) Except as set forth on Section 4.3(d) of the Parent Disclosure Schedule, no Person holds any registration rights in respect of Parent's capital stock or other securities which have not been satisfied in full as of the Closing. (e) Section 4.3(e) of the Parent Disclosure Schedule sets forth all of Parent's indebtedness for borrowed money that is, or may become, convertible into Parent's capital stock and that is outstanding as of the Closing. SECTION 4.4 AUTHORITY; NONCONTRAVENTION. (a) Parent and Merger Sub have the corporate power and authority to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith and to consummate the transactions contemplated hereby and thereby. All corporate acts and proceedings required to be taken by or on the part of Parent and Merger Sub to authorize Parent and Merger Sub, as the case may be, to execute, deliver and perform this Agreement and the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith and to consummate the transactions contemplated hereby and thereby have been duly and validly taken. This Agreement constitutes a valid and binding agreement, and the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith when so executed and delivered will constitute valid and binding agreements, of Parent and Merger Sub. (b) The execution and delivery of this Agreement does not, the execution and delivery of the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith, and the consummation of the transactions contemplated hereby or thereby will not conflict with or result in a violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation under (i) any provision of Parent's or Merger Sub's articles/certificate of incorporation, (ii) any material loan or credit agreement, note, mortgage, indenture, lease or other material agreement or (iii) material instrument, permit, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or Merger Sub or their properties or assets. (c) The execution, delivery and performance by Parent and Merger Sub of this Agreement and the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith and the consummation of the Merger by Parent and Merger Sub requires no consent, approval, order or authorization of, action by or in respect of, or registration or filing with, any Governmental Entity other than (i) the filing of the Certificate of Designation and the Certificate of Merger and with the Secretary of State of the State of Delaware, and, with respect to Parent, (ii) compliance with any applicable requirement of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"); (iii) compliance with the Securities Act; and (iv) compliance with any state securities or blue sky laws. (d) The execution and delivery of this Agreement and the other agreements to be executed and delivered by Parent and/or Merger Sub in connection herewith and the consummation of the Merger will not result in the creation of any Lien upon any asset of Parent. (e) Except as set forth in Section 4.4(e) of the Parent Disclosure Schedule, no consent, approval, waiver or other action by any person (other than the Government Entities referred to in (c) above) under any Parent Material Contract is required or necessary for, or made necessary by reason of, the execution, delivery and performance of this Agreement by Parent or the consummation of the Merger. SECTION 4.5 PARENT DOCUMENTS. (a) As of their respective filing dates, (i) all reports filed by Parent with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act (the "PARENT SEC DOCUMENTS") complied in all material respects with the requirements of the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable to such Parent SEC Documents, and (ii) no Parent SEC Documents, as of their respective dates contained any untrue statement of a material fact or omitted, and no Parent SEC Document filed subsequent to the date hereof will omit as of their respective dates, to state a material fact required to be stated therein or necessary to make the statements therein (in the case of registration statements of the Parent under the Securities Act, in light of the circumstances under which they were made) not misleading. (b) The financial statements of Parent included in the Parent SEC Documents (including the related notes) complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Quarterly Report Form 10-Q of the SEC) applied on a consistent basis during the periods and at the dates involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial condition of Parent and its subsidiaries at the dates thereof and the consolidated results of operations and cash flows of Parent and its subsidiaries for the periods then ended (subject, in the case of unaudited statements, to notes and normal year-end audit adjustments that were not material in amount or effect). Except for liabilities (i) reflected in Parent's unaudited balance sheet as of June 30, 2004 or described in any notes thereto (or for which neither accrual nor footnote disclosure is required pursuant to GAAP), (ii) incurred in the ordinary course of business since June 30, 2004 consistent with past practice or in connection with this Agreement or the transactions contemplated hereby, or (iii) set forth on Schedule 4.5(b) of the Parent Disclosure Schedule, neither Parent nor any of its subsidiaries has any material liabilities or obligations of any nature. SECTION 4.6 MATERIAL CONTRACTS. (a) Each Parent Material Contract is valid and binding on and enforceable against Parent (or, to the extent a subsidiary of Parent is a party, such subsidiary) and, to the knowledge of Parent, each other party thereto and is in full force and effect. Neither Parent nor any of its subsidiaries is in breach or default under any Parent Material Contract. Neither the Parent nor any subsidiary of the Parent knows of, or has received notice of, any violation or default under (nor, to the knowledge of Parent, does there exist any condition which with the passage of time or the giving of notice or both would result in such a violation or default under) any Parent Material Contract by any other party thereto. Prior to the date hereof, Parent has made available to the Company true and complete copies of all Parent Material Contracts. (b) As used in this Agreement, "PARENT MATERIAL CONTRACTS" shall mean any contract, license agreement, commitment, lease, or restriction of any kind to which the Parent or any of its subsidiaries is a party or by which the Parent or any of its subsidiaries is bound or to which any of the Parent's or any of its subsidiaries' assets are subject which involve payments to or from Parent of at least $100,000. SECTION 4.7 ABSENCE OF CERTAIN CHANGES. Except for liabilities incurred in connection with this Agreement or the transactions contemplated hereby, and except as disclosed in the Parent SEC Documents filed and publicly available prior to the date hereof, (i) since June 30, 2004, there has not been any material adverse change in Parent or any event which either individually or when aggregated with other event(s) has or reasonably would be expected to have a material adverse effect on Parent and its subsidiaries taken as a whole, and (ii) there are not, to Parent's knowledge, any facts, circumstances or events that make it reasonably likely that Parent will not be able to fulfill its obligations under this Agreement in all material respects. SECTION 4.8 PERMITS; COMPLIANCE WITH APPLICABLE LAWS. (a) Parent and its subsidiaries own and/or possess all Permits which are required for the operation of the respective businesses of Parent and its subsidiaries as presently conducted. Each of Parent and its subsidiaries is in compliance in all material respects with the terms of the Permits and all the Permits are in full force and effect and no suspension, modification or revocation of any of them is pending or, to the knowledge of Parent, threatened nor, to the knowledge of Parent, do grounds exist for any such action. (b) Each of Parent and its subsidiaries is in compliance in all material respects with all applicable statutes, laws, regulations, ordinances, permits, rules, writs, judgments, orders, decrees or arbitration awards of any Governmental Entity applicable to Parent or its subsidiaries. (c) Except for filings with the SEC and filings with respect to Taxes, which are the subjects of Sections 4.5 and 4.10, respectively, and not covered by this Section 4.8(c), the Parent and each of its subsidiaries have timely filed all regulatory reports, schedules, forms, registrations and other documents, together with any amendments required to be made with respect thereto, that they were required to file with each Governmental Entity (the "OTHER PARENT DOCUMENTS"), and have timely paid all fees and assessments due and payable in connection therewith, except where the failure to make such payments and filings individually or in the aggregate would not have a material adverse effect on the Parent. SECTION 4.9 ABSENCE OF LITIGATION. Section 4.9 of Parent Disclosure Schedule contains a true and current summary description of each pending and, to Parent's knowledge, threatened litigation, action, suit, case, proceeding, investigation or arbitration, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed or other remedies requested. Except as set forth on Section 4.9 of the Parent Disclosure Schedule, no action, inquiry, demand, charge, requirement or investigation by any Governmental Entity and no litigation, action, suit, case, proceeding, investigation or arbitration by any person or Governmental Entity, in each case with respect to Parent or any of its subsidiaries or any of their respective properties or Permits, is pending or, to the knowledge of Parent, threatened. SECTION 4.10 TAX MATTERS. (a) Each of the Parent and each of its subsidiaries has (i) filed (or there have been filed on its behalf) with the appropriate Governmental Entities all United States federal income and other material Tax Returns required to be filed by it (giving effect to all extensions) and such Tax Returns are true, correct and complete in all material respects; (ii) paid in full (or there has been paid in full on its behalf) all income and other material Taxes required to have been paid by it; and (iii) made adequate provision (or adequate provision has been made on its behalf) for all accrued Taxes not yet due. The accruals and provisions for Taxes reflected in the Parent's audited consolidated balance sheet as of December 31, 2003 (and the notes thereto) and the most recent quarterly financial statements (and the notes thereto) are adequate in accordance with GAAP for all Taxes accrued or accruable through the date of such statements. (b) As of the date of this Agreement, no Federal, state, local or foreign audits or other administrative proceedings or court proceedings are presently pending with regard to any Taxes or Tax Returns of the Parent or any of its subsidiaries, and neither the Parent nor any subsidiary of the Parent has received a written notice of any material pending or proposed claims, audits or proceedings with respect to Taxes. (c) No deficiency or proposed adjustment which has not been settled or otherwise resolved for any amount of Tax has been proposed, asserted, or assessed by any Governmental Entity against, or with respect to, the Parent or any of its subsidiaries. There is no action, suit or audit now in progress, pending or, to the knowledge of Parent, threatened against or with respect to the Parent or any of its subsidiaries with respect to any Tax. (d) Neither the Parent nor any of its subsidiaries has been included in any "consolidated," "unitary" or "combined" Tax Return (other than Tax Returns which include only the Parent and any of its subsidiaries) provided for under the laws of the United States, any foreign jurisdiction or any state or locality with respect to Taxes for any taxable year. (e) No election under Section 341(f) of the Code has been made by Parent or any of its subsidiaries. (f) No claim has been made in writing by any Governmental Entities in a jurisdiction where Parent or any of its subsidiaries does not file Tax Returns that any such entity is, or may be, subject to taxation by that jurisdiction. (g) Each of the Parent and each of its subsidiaries has made available to the Company correct and complete copies of (i) all of their material Tax Returns filed within the past six years, (ii) all audit reports, letter rulings, technical advice memoranda and similar documents issued by a Governmental Entity within the past five years relating to the Federal, state, local or foreign Taxes due from or with respect to the Parent or any of its subsidiaries, and (iii) any closing letters or agreements entered into by the Parent or any of its subsidiaries with any Governmental Entities within the past five years with respect to Taxes. (h) Neither the Parent nor any of its subsidiaries has received any notice of deficiency or assessment from any Governmental Entity for any amount of Tax that has not been fully settled or satisfied, and to the knowledge of the Parent and its subsidiaries no such deficiency or assessment is proposed. SECTION 4.11 EMPLOYEE BENEFIT PLANS. (a) Section 4.11 of the Parent Disclosure Schedule contains a true and complete list of all of Parent's and its subsidiaries' Employee Plans. Neither Parent nor any ERISA Affiliate of Parent has any commitment or formal plan, whether or not legally binding, to create any additional employee benefit plan or modify or change any existing Employee Plan other than as may be required by the express terms of such Employee Plan or applicable law. (b) With respect to each Employee Plan that has been qualified or is intended to be qualified under the Code or that is an "Employee Benefit Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved and adopted by all necessary and appropriate action of the Board of Directors of Parent (or a duly constituted committee thereof). (c) With respect to the Employee Plans, all required contributions for all periods ending before the Closing Date have been or will be paid in full by the Closing Date. Subject only to normal retrospective adjustments in the ordinary course, all required insurance premiums have been or will be paid in full with regard to such Employee Plans for policy years or other applicable policy periods ending on or before the Closing Date by the Closing Date. (d) The Parent does not have any Multi-Employer Plans or any Employee Plans that are subject to Section 302 or Title IV of ERISA or Section 412 of the Code, nor has it ever had such plans. (e) With respect to each Employee Plan (i) no prohibited transactions as defined in Section 406 of ERISA or Section 4975 of the Code have occurred or are expected to occur as a result of the Merger or the transactions contemplated by this Agreement, (ii) except as set forth on Section 4.11(b) of the Parent Disclosure Schedule, no action, suit, grievance, arbitration or other type of litigation, or claim with respect to the assets of any Employee Plan (other than routine claims for benefits made in the ordinary course of plan administration for which plan administrative review procedures have not been exhausted) is pending or, to the knowledge of Parent, threatened or imminent against Parent, any ERISA Affiliate or any Fiduciary, including, but not limited to, any action, suit, grievance, arbitration or other type of litigation, or claim regarding conduct that allegedly interferes with the attainment of rights under any Employee Plan. Except as set forth on Section 4.11(b) of the Parent Disclosure Schedule, to the knowledge of Parent, neither Parent, nor its directors, officers, employees or any Fiduciary has any liability for failure to comply with ERISA or the Code for any action or failure to act in connection with the administration or investment of such plan. Except as set forth on Section 4.11(b) of the Parent Disclosure Schedule, none of the Employee Plans is subject to any pending investigations or to the knowledge of Parent threatened investigations from any Governmental Agencies who enforce applicable laws under ERISA and the Code. (f) Except as set forth on Section 4.11(f) of the Parent Disclosure Schedule, each of the Employee Plans is, and has been, operated in accordance with its terms and each of the Employee Plans, and administration thereof, is, and has been, in all material respects in compliance with the requirements of any and all applicable statutes, orders or governmental rules or regulations currently in effect, including, but not limited to, ERISA and the Code. All required reports and descriptions of the Employee Plans (including but not limited to Form 5500 Annual Reports, Form 1024 Application for Recognition of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan Descriptions) have been filed and distributed as required by ERISA and the Code. Any notices required by ERISA or the Code or any other state or federal law or any ruling or regulation of any state or federal administrative agency with respect to the Employee Plans, including but not limited to any notices required by Section 4980B of the Code, have been appropriately given. (g) The IRS has issued a favorable determination letter or opinion letter with respect to each Employee Plan intended to be "qualified" within the meaning of Section 401(a) of the Code that has not been revoked and, to the knowledge of the Company, no circumstances exist that could adversely affect the qualified status of any such plan and the exemption under Section 501(a) of the Code of the trust maintained thereunder. Each Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or 501(c)(17) of the Code has satisfied such requirements in all material respects. (h) No Employee Plan provides medical, surgical, hospitalization, death or similar benefits (whether or not insured) for employees for periods extending beyond their retirement or other termination of service, other than (i) coverage mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits under any "pension plan," (iii) benefits the full cost of which is borne by the employee (or his beneficiary) or (iv) Employee Plans that can be amended or terminated by Parent without consent. Parent does not have any current or projected liability with respect to post-employment or post-retirement welfare benefits for retired, former, or current employees of Parent. (i) No material amounts payable under the Employee Plans will fail to be deductible for Federal income tax purposes by virtue of Section 162(m) of the Code. (j) To the extent that Parent or any of its subsidiaries is deemed to be a fiduciary with respect to any Plan that is subject to ERISA, Parent or such subsidiary (i) during the past five years has complied with the requirements of ERISA and the Code in the performance of its duties and responsibilities with respect to such employee benefit plan and (ii) has not knowingly caused any of the trusts for which it serves as an investment manager, as defined in Section 3(38) of ERISA, to enter into any transaction that would constitute a "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code, with respect to any such trusts, except for transactions that are the subject of a statutory or administrative exemption. (k) No person will be entitled to a "gross up" or other similar payment in respect of excise taxes under Section 4999 of the Code with respect to the transactions contemplated by this Agreement. SECTION 4.12 LABOR MATTERS. (a) With respect to employees of Parent and its subsidiaries: (i) to the knowledge of Parent, no senior executive or key employee has any plans to terminate employment with Parent or any of its subsidiaries; (ii) there is no unfair labor practice charge or complaint against Parent or any of its subsidiaries pending or, to the knowledge of Parent, threatened before the National Labor Relations Board or any other comparable Governmental Entity; (iii) there is no demand for recognition made by any labor organization or petition for election filed with the National Labor Relations Board or any other comparable Governmental Entity; (iv) no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and, to the knowledge of Parent, no claims therefor have been threatened other than grievances or arbitrations incurred in the ordinary course of business; (v) the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not give rise to termination of any existing collective bargaining agreement or permit any labor organization to commence or initiate any negotiations in respect of wages, hours, benefits, severance or working conditions under any such existing collective bargaining agreements; and (vi) there is no litigation, arbitration proceeding, governmental investigation, administrative charge, citation or action of any kind pending or, to the knowledge of Parent, proposed or threatened against Parent relating to employment, employment practices, terms and conditions of employment or wages, benefits, severance and hours. (b) Section 4.12(b) of the Parent Disclosure Schedule lists the name, title, date of employment and current annual salary of each current salaried employee whose total annual salary exceeds $100,000. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of Parent or any of its subsidiaries, from Parent or any of its subsidiaries under any Employee Plan or other agreement, (ii) materially increase any benefits otherwise payable under any Employee Plan or other agreement, or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits. (c) Section 4.12(c) of the Parent Disclosure Schedule sets forth all contracts, agreements, plans or arrangements covering any employee of Parent or its subsidiaries containing "change of control," "stay-put," transition, retention, severance or similar provisions, and sets forth the names and titles of all such employees, the amounts payable under such provisions, whether such provisions would become payable as a result of the Merger and the transactions contemplated by this Agreement, and when such amounts would be payable to such employees, all of which are in writing, have heretofore been duly approved by the Parent's Board of Directors, and true and complete copies of all of which have heretofore been delivered to the Company. There is no contract, agreement, plan or arrangement (oral or written) covering any employee of Parent that individually or collectively could give rise to the payment of any amount that would not be deductible pursuant to the terms of Section 280G of the Code. SECTION 4.13 ENVIRONMENTAL MATTERS. Except for such matters which would not, individually or in the aggregate, reasonably be expected to result in a material adverse effect on the Parent or are set forth in Section 4.13 of the Parent Disclosure Schedule: (a) COMPLIANCE. (i) The Parent and its subsidiaries are in compliance in all material respects with all applicable Environmental Laws; (ii) neither the Parent nor any of its subsidiaries has received any written communication from any person or governmental entity that alleges that Parent or any of its subsidiaries are not in compliance with applicable Environmental Laws; and (iii) there have not been any Releases of Hazardous Substances by Parent or any of its subsidiaries, or, by any other party, at any property currently or formerly owned or operated by Parent or any of its subsidiaries that occurred during the period of Parent's or any of its subsidiaries' ownership or operation of such property. (b) ENVIRONMENTAL PERMITS. Parent and its subsidiaries have all Environmental Permits necessary for the conduct and operation of its business, and all such permits are in good standing or, where applicable, a renewal application has been timely filed and is pending agency approval, and Parent and its subsidiaries are in compliance with all terms and conditions of all such Environmental Permits and are not required to make any expenditure in order to obtain or renew any Environmental Perm (c) ENVIRONMENTAL CLAIMS. There are no Environmental Claims pending or, to Parent's knowledge, threatened, against Parent or any of its subsidiaries, or against any real or personal property or operation that Parent or any of its subsidiaries owns, leases or manages. SECTION 4.14 INTELLECTUAL PROPERTY. (a) Section 4.14(a) of Parent Disclosure Schedule sets forth, for the Intellectual Property owned or purported to be owned by Parent or any of its subsidiaries, a complete and accurate list of all U.S. and foreign (i) patents and patent applications, (ii) trademarks and service marks which are registered or the subject of an application for registration and material unregistered trademarks or service marks , (iii) copyrights which are registered or the subject of an application for registration, and (iv) Internet domain names. Parent or one of its subsidiaries owns or has the valid right to use the Intellectual Property, used in the business of Parent as it currently is conducted. (b) All of the Intellectual Property owned or purported to be owned by Parent or any of its subsidiaries is free and clear of all Liens. Parent or any of its subsidiaries (as applicable) is listed in the records of the appropriate United States, state or foreign agency as, the sole owner of record for each patent and patent application and trademark, service mark and copyright which is registered or the subject of an application for registration that is listed in Section 4.14(a) of Parent Disclosure Schedule. (c) All of the patents, patent applications, trademarks, service marks and copyrights owned or purported to be owned by Parent which have been issued by, or registered or the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office or in any similar office or agency anywhere in the world, including, but not limited to the items listed in Section 4.14(a) of Parent Disclosure Schedule are subsisting, enforceable, in full force and effect, and have not been cancelled, expired, abandoned or otherwise terminated and all renewal fees in respect thereof have been duly paid and are currently in compliance with all formal legal requirements (including the timely post-registration filing of affidavits of use and incontestability and renewal applications) and are, to Parent's knowledge, valid. There is no pending or, to Parent's knowledge, threatened opposition, interference, invalidation or cancellation proceeding before any court or registration authority in any jurisdiction against any of the items listed in Section 4.14(a) of Parent Disclosure Schedule or, to Parent's knowledge, against any other Intellectual Property used by Parent or its subsidiaries. (d) The conduct of Parent's and its subsidiaries' business as currently conducted does not infringe upon (either directly or indirectly such as through contributory infringement or inducement to infringe), dilute, misappropriate or otherwise violate (i) any Third Party Rights, other than the rights of any third party under any patent, or (ii) to Parent's knowledge, the rights of any third party under any patent. There are no pending, or, to the knowledge of Parent, threatened claims against Parent or any of its subsidiaries alleging that the operation of the business as currently conducted, infringes on or conflicts with any Third Party Rights. (e) To Parent's knowledge, no third party is misappropriating, infringing, diluting, or violating any Intellectual Property owned or purported to be owned by or licensed to or by Parent or any of its subsidiaries and no such claims have been made against a third party by Parent or any of its subsidiaries. (f) Each material item of Software, which is used by Parent or any of its subsidiaries in connection with the operation of their businesses as currently conducted, is either (i) owned by Parent or any of its subsidiaries, (ii) currently in the public domain or otherwise available to Parent without the need of a license, lease or consent of any third party, or (iii) used under rights granted to Parent or any of its subsidiaries pursuant to a written agreement, license or lease from a third party. (g) Section 4.14(g) of Parent Disclosure Schedule sets forth a complete list of all agreements under which Parent is granted rights to acquire or use the Intellectual Property of a third party (other than shrink-wrap general purpose software) (the "PARENT IP AGREEMENTS"). Except as set forth in Section 4.14(g) of Parent Disclosure Schedule, Parent is not under any obligation to pay royalties or other payments in connection with any Parent IP Agreement, nor restricted from assigning its rights respecting Intellectual Property nor will Parent otherwise be, as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any Parent IP Agreement. Each Parent IP Agreement is in full force and effect and has not been amended. Neither Parent nor, to the knowledge of Parent, any other party thereto, is in default or breach under any such Parent IP Agreement. No event has occurred which, with the passage of time or the giving of notice or both, would cause a breach of or default by Parent under any of Parent IP Agreements and, to the knowledge of Parent, there is no breach or anticipated breach by any other party to any Parent IP Agreement. (h) To Parent's knowledge, the Products do not intentionally contain any "viruses", "time bombs", "key-locks", or any other devices intentionally created that could disrupt or interfere with the operation of the Products or the integrity of the data, information or signals they produce in a manner adverse to Parent, any of its subsidiaries or any licensee or recipient. (i) To Parent's knowledge, neither Parent nor any of its subsidiaries has embedded any open source, copyleft or community source code in any of its Products which are generally available or in development, including but not limited to any libraries or code licensed under the GNU General Public License, GNU Lesser General Public License or similar license arrangement. SECTION 4.15 INSURANCE MATTERS. Parent and its subsidiaries have all material primary insurance providing insurance coverage that is customary in amount and scope for other companies in the industry in which Parent and its subsidiaries operate including, without limitation, directors and officers liability insurance. All such policies are in full force and effect, all premiums due and payable thereon have been paid and no written or oral notice of cancellation or termination has been received and is outstanding. SECTION 4.16 TRANSACTIONS WITH AFFILIATES. Except as set forth on Section 4.16 of the Parent Disclosure Schedule, there are no outstanding amounts payable to or receivable from, or advances by the Parent or any of its subsidiaries to, and neither the Parent nor any of its subsidiaries is otherwise a creditor of or debtor to, or a party to any transaction or agreement with, any stockholder, director, employee or affiliate of the Parent or any of its subsidiaries, other than (i) Parent's outstanding indebtedness to the Company, any of its stockholders, directors or executive officers, (ii) transactions or agreements with the Company or any of its stockholders, directors or executive officers, or (iii) as part of the normal and customary terms of such persons' employment or service as a director with the Parent or any of its subsidiaries. SECTION 4.17 VOTING REQUIREMENTS. No consent or approval of the holders of the outstanding shares of Parent Common Stock or any other class of Parent capital stock is required to approve the Merger and the transactions contemplated by this Agreement under applicable law or the Parent's organizational instruments. SECTION 4.18 BROKERS. No broker, investment banker, financial advisor, finder, consultant or other person is entitled to any broker's, finder's, financial advisor's or other similar fee, compensation or commission, however and whenever payable, in connection with the Merger and the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Merger Sub. SECTION 4.19 REAL PROPERTY. (a) Each of Parent and its subsidiaries has good and marketable title in fee simple to all real properties owned by it and all buildings, structures and other improvements located thereon and valid leaseholds in all real estate leased by it, other than Parent Permitted Liens. Section 4.19 of the Parent Disclosure Schedule sets forth a complete list of all (i) real property owned by Parent or its subsidiaries as of the date hereof; and (ii) real property leased, subleased, or otherwise occupied or used by Parent and its Subsidiaries as lessee. With respect to each parcel of real property leased, subleased, or otherwise occupied or used by the Parent or any of its Subsidiaries as lessee: (i) the Parent or the applicable subsidiary has a valid leasehold interest or other right of use and occupancy, free and clear of any Liens on such leasehold interest or other rights of use and occupancy, or any covenants, easements or title defects known to or created by the Parent or the applicable subsidiary, except as do not materially affect the occupancy or uses of such property. Each of the Parent's and its subsidiaries' agreements with respect to real property leased, subleased, or otherwise occupied or used by the Parent as lessee is in full force and effect and has not been amended. Neither the Parent or the applicable subsidiary nor, to the knowledge of the Parent or the applicable subsidiary, any other party thereto, is in material default or material breach under any such agreement. No event has occurred which, with the passage of time or the giving of notice or both, would cause a breach of or default by the Parent or the applicable subsidiary under any of such agreement and, to the knowledge of the Parent or the applicable subsidiary, there is no breach or anticipated breach by any other party to such agreements. (b) As used in this Agreement, Parent Permitted Liens shall mean: (i) any Lien reflected in Section 4.19(b)(i) of the Parent Disclosure Schedule, (ii) Liens for Taxes not yet due or delinquent or as to which there is a good faith dispute and for which there are adequate provisions on the books and records of Parent in accordance with GAAP, (iii) with respect to real property, any Lien, encumbrance or other title defect which is not in a liquidated amount (whether material or immaterial) and which does not, individually or in the aggregate, interfere materially with the current use or materially detract from the value or marketability of such property (assuming its continued use in the manner in which it is currently used) and (iv) inchoate materialmen's, mechanics', carriers', workmen's and repairmen's liens arising in the ordinary course and not past due and payable or the payment of which is being contested in good faith by appropriate proceedings. SECTION 4.20 TANGIBLE PERSONAL PROPERTY. Except as would not materially impair Parent and its operations or the operations of its subsidiaries, the Tangible Personal Property owned, leased or used by Parent or any of its subsidiaries is in the aggregate sufficient and adequate to carry on their respective businesses in all material respects as presently conducted and is, in the aggregate and in all material respects, in good operating condition and repair, normal wear and tear excepted. Parent and its subsidiaries are in possession of and have good title to, or valid leasehold interests in or valid rights under contract to use, the Tangible Personal Property material to Parent and its subsidiaries, taken as a whole, free and clear of all Liens, other than Parent Permitted Liens. SECTION 4.21 INVESTMENT COMPANY. Neither Parent nor any of its subsidiaries is an investment company required to be registered as an investment company pursuant to the Investment Company Act. SECTION 4.22 BOARD APPROVAL. Pursuant to meetings duly noticed and convened in accordance with all applicable laws and at each of which a quorum was present, the Board of Directors of Parent, after full and deliberate consideration, unanimously (other than for directors who abstain) has duly adopted this Agreement and resolved that the Merger and the transactions contemplated hereby are fair to, advisable and in the best interests of Parent's shareholders. The Board of Directors of Merger Sub unanimously has duly approved this Agreement and has determined that the Merger is advisable. SECTION 4.23 BOOKS AND RECORDS. Each of Parent and its subsidiaries maintains and has maintained accurate books and records reflecting its assets and liabilities and accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. SECTION 4.24 SARBANES OXLEY ACT COMPLIANCE. Parent is in compliance with all presently effective and applicable provisions of the Sarbanes Oxley Act of 2002 (the "SARBANES OXLEY ACT") and is actively taking steps to ensure that it will be in compliance with other provisions of the Sarbanes Oxley Act upon the effectiveness or applicability to Parent of such provisions. ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as required by applicable law or regulation and except as otherwise contemplated by this Agreement, until the earlier of the termination of this Agreement or the Effective Time, the Company shall, and cause each of its subsidiaries to, conduct its and their respective businesses in the ordinary course and consistent with past practices. Except as set forth in Section 5.1 of the Company Disclosure Schedule, as required by applicable law or regulation and except as otherwise contemplated by this Agreement or except as previously consented to by Parent, in writing, after the date hereof and until the earlier of the termination of this Agreement or the Effective Time, the Company shall not and shall not permit any of its subsidiaries to: (a) amend or otherwise change its Certificate of Incorporation or by-laws; (b) issue, sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or options, warrants, convertible securities or other rights of any kind to acquire shares of such capital stock, or any other ownership interest, thereof, other than exercises of Company warrants or Company Stock Options by the holders thereof in accordance with their terms or (ii) any of its assets, tangible or intangible; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to its capital stock; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other person, (ii) incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, or (iii) enter into any Company Material Contract; (f) make any capital expenditure in excess of $50,000 or enter into any contract or commitment therefore; (g) amend, terminate or extend any Company Material Contract; (h) delay or accelerate payment of any account payable or other liability of the Company beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice; or (i) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty contained in Article III untrue or incorrect. SECTION 5.2 ADVICE OF CHANGES. Each of the Company, as one party, and Parent and Merger Sub, together as the second party, shall promptly advise the other party orally and in writing to the extent it has knowledge of (i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becoming untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becoming untrue or inaccurate in any material respect, (ii) the failure by it to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; (iii) any suspension, termination, limitation, modification, change or other alteration of any agreement, arrangement, business or other relationship with any of its customers, suppliers or sales or design personnel; or (iv) any change or event having, or which, insofar as reasonably can be foreseen, could have a material adverse effect on such party or on the accuracy and completeness of its representations and warranties or the ability of such party to satisfy the conditions set forth in Article VII; PROVIDED, HOWEVER, that no such notification shall affect the representations, warranties, covenants or agreements of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement; and PROVIDED FURTHER that a failure to comply with this Section 5.2 shall not constitute a failure to be satisfied of any condition set forth in Article VII unless the underlying untruth, inaccuracy, failure to comply or satisfy, or change or event would independently result in a failure of a condition set forth in Article VII to be satisfied. SECTION 5.3 NO SOLICITATION BY THE COMPANY. (a) The Company will promptly notify Parent after receipt of any offer or indication that any person is considering making an offer with respect to a Company Acquisition Proposal or any request for nonpublic information relating to the Company or for access to the properties, books or records of the Company by any person that may be considering making, or has made, an offer with respect to a Company Acquisition Proposal and will keep Parent fully informed of the status and details of any such offer, indication or request. "Company Acquisition Proposal" means any proposal for a merger or other business combination involving the Company or the acquisition of any equity interest in, or a substantial portion of the assets of, the Company, other than the transactions contemplated by this Agreement. (b) From the date hereof until the termination hereof pursuant to Section 8.1, the Company and the officers of the Company will not and the Company will use its best efforts to cause its directors, employees and agents not to, directly or indirectly, (i) take any action to solicit, initiate or encourage any offer or indication of interest from any person or entity with respect to any Company Acquisition Proposal, (ii) engage in negotiations with, or disclose any nonpublic information relating to the Company or (iii) afford access to the properties, books or records of the Company to, any person or entity that may be considering making, or has made, an offer with respect to a Company Acquisition Proposal. SECTION 5.4 CONDUCT OF BUSINESS BY PARENT. Except as required by applicable law or regulation and except as otherwise contemplated by this Agreement, until the earlier of the termination of this Agreement or the Effective Time, Parent shall, and cause each of its subsidiaries to, conduct its and their respective businesses in the ordinary course and consistent with past practices. Except as set forth in Section 5.4 of the Parent Disclosure Schedule, as required by applicable law or regulation and except as otherwise contemplated by this Agreement or except as previously consented to by the Company, in writing, after the date hereof until the earlier of the termination of this Agreement or the Effective Time, Parent shall not, and shall not permit any of its subsidiaries to: (a) amend or otherwise change its certificate of incorporation or by-laws; (b) issue, sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares of its capital stock of any class, or options, warrants, convertible securities or other rights of any kind to acquire shares of such capital stock, or any other ownership interest, thereof, or (ii) any of its assets, tangible or intangible; (c) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to its capital stock, other than from any subsidiary of Parent to Parent or to any other subsidiary of Parent; (d) reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire, directly or indirectly, any of its capital stock; (e) (i) acquire (including, without limitation, for cash or shares of stock, by merger, consolidation, or acquisition of stock or assets) any interest in any corporation, partnership or other business organization or division thereof or any assets, or make any investment either by purchase of stock or securities, contributions of capital or property transfer, or, except in the ordinary course of business, consistent with past practice, purchase any property or assets of any other person, (ii) [other than in the ordinary course of business consistent with past practices,] incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse or otherwise as an accommodation become responsible for, the obligations of any person, or make any loans or advances, or (iii) enter into any Parent Material Contract; (f) make any capital expenditure or enter into any contract or commitment therefore, other than in the ordinary course of business consistent with past practices; (g) amend, terminate or extend any Parent Material Contract; (h) delay or accelerate payment of any account payable or other liability of the Company beyond or in advance of its due date or the date when such liability would have been paid in the ordinary course of business consistent with past practice; or (i) agree, in writing or otherwise, to take or authorize any of the foregoing actions or any action which would make any representation or warranty contained in Article IV untrue or incorrect. SECTION 5.5 NO SOLICITATION BY PARENT. (a) Parent will promptly notify the Company after receipt of any offer or indication that any person is considering making an offer with respect to a Parent Acquisition Proposal or any request for nonpublic information relating to Parent or for access to the properties, books or records of Parent by any person that may be considering making, or has made, an offer with respect to a Parent Acquisition Proposal and will keep the Company fully informed of the status and details of any such offer, indication or request. "PARENT ACQUISITION PROPOSAL" means any proposal for a merger or other business combination involving Parent or the acquisition of any equity interest in, or a substantial portion of the assets of, Parent, other than the transactions contemplated by this Agreement. (b) From the date hereof until the termination hereof pursuant to Section 8.1, Parent and the officers of Parent will not and Parent will use its best efforts to cause its directors, employees and agents not to, directly or indirectly, subject to the directors' fiduciary obligations under applicable law, (i) take any action to solicit, initiate or encourage any offer or indication of interest from any person or entity with respect to any Parent Acquisition Proposal, (ii) engage in negotiations with, or disclose any nonpublic information relating to Parent or (iii) afford access to the properties, books or records of Parent to, any person or entity that may be considering making, or has made, an offer with respect to a Parent Acquisition Proposal. SECTION 5.6 TRANSITION. To the extent permitted by applicable law, Parent and the Company shall, and shall cause their respective subsidiaries, affiliates, officers and employees to, use their commercially reasonable efforts to facilitate the integration of the Company and its subsidiaries with the businesses of Parent and its subsidiaries to be effective as of the Closing Date. ARTICLE VI ADDITIONAL AGREEMENTS SECTION 6.1 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) Each party shall, and shall cause its subsidiaries to, afford to the other party and to the officers, current employees, accountants, counsel, financial advisors, agents, lenders and other representatives of such party and its subsidiaries, reasonable access during normal business hours during the period prior to the Effective Time to all its respective properties, books, contracts, commitments, personnel and records and, during such period, each party shall, and shall cause each of its subsidiaries to, furnish promptly to the other party (i) a copy of each material report, schedule, registration statement and other document filed by it with any Governmental Entity, and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. (b) The parties will hold, and will use their best efforts to cause their officers, directors, employees, consultants, advisors and agents to hold, in confidence, unless compelled to disclose by judicial or administrative process or by other requirements of law, all confidential documents and information concerning the other party and its subsidiaries furnished to it in connection with the transactions contemplated hereby, except to the extent that such information can be shown to have been (i) previously known on a nonconfidential basis by the disclosing party, (ii) in the public domain through no fault of the disclosing party, or (iii) later lawfully acquired by the disclosing party from other sources; PROVIDED that each party may disclose such information to its officers, directors, employees, consultants, advisors and agents in connection with the Merger so long as such persons are informed of the confidential nature of such information and are directed to treat such information confidentially. Each parties' obligation to hold such information in confidence shall be satisfied if it exercises the same care with respect to such information as it would exercise to preserve the confidentiality of its own similar information. Notwithstanding any other provision of this Agreement, if this Agreement is terminated, such confidence shall be maintained and all confidential materials shall be destroyed or delivered to their owner, upon request. SECTION 6.2 COMMERCIALLY REASONABLE EFFORTS. Except where otherwise provided in this Agreement, each party will use its commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the Merger as soon as practicable after the satisfaction of the conditions set forth in Article VII hereof, PROVIDED that the foregoing shall not require the Company, Parent or Merger Sub to take any action or agree to any condition that might, in the reasonable judgment of the Company or Parent, as the case may be, have a material adverse effect on the Company or Parent, respectively. SECTION 6.3 INDEMNIFICATION, EXCULPATION AND INSURANCE. (a) All rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the Effective Time now existing in favor of the current or former directors or officers of the Company as provided in its certificate of incorporation or by-laws and any existing indemnification agreements or arrangements of the Company shall survive the Merger and shall continue in full force and effect in accordance with their terms, and shall not be amended, repealed or otherwise modified for a period of five years after the Effective Time in any manner that would adversely affect the rights thereunder of such individuals for acts or omissions occurring at or prior to the Effective Time. (b) In the event of any threatened or actual claim, action, suit, proceeding or investigation, whether civil, criminal or administrative, including, without limitation, any such claim, action, suit, proceeding or investigation in which any individual who is now or has been at any time prior to the date of this Agreement, or who becomes prior to the Effective Time, a director or officer of the Company (the "INDEMNIFIED PARTIES" and each an "INDEMNIFIED PARTY"), is, or is threatened to be, made a party, or arising out of or pertaining to (i) the fact that he is or was a director, officer or current employee of the Company or its predecessors or (ii) this Agreement or any of the transactions contemplated hereby, whether in any case asserted or arising before or after the Effective Time, the parties hereto agree to cooperate and use their reasonable best efforts to defend against and respond thereto. (c) For a period of five (5) years after the Effective Time, the Surviving Corporation shall maintain in effect the Company's current directors' and officers' liability insurance covering acts or omissions occurring prior to the Effective Time with respect to those persons who are currently covered by the Company's directors' and officers' liability insurance policy on terms with respect to such scope of coverage and amount no less favorable to the Company's directors and officers currently covered by such insurance than those of such policy in effect on the date hereof; PROVIDED, HOWEVER, that the Surviving Corporation may substitute therefor policies of Parent or its subsidiaries (including self-insurance) containing terms with respect to scope of coverage and amount no less favorable to such directors or officers. (d) From and after the Effective Time, the Surviving Corporation shall maintain in effect a directors' and officer's liability insurance policy covering acts or omissions occurring after the Effective Time. (e) Parent shall cause the Surviving Corporation or any successor thereto, whether by consolidation, merger or transfer of substantially all of its properties or assets, to comply with its obligations under this Section 6.3. The provisions of this Section 6.3 shall survive the Effective Time and are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and other person named herein and his or her heirs and representatives. SECTION 6.4 FEES AND EXPENSES. All costs, fees and expenses incurred in connection with the Merger, this Agreement (including all instruments and agreements prepared and delivered in connection herewith), and the transactions contemplated by this Agreement shall be paid by the party incurring such fees or expenses. SECTION 6.5 PUBLIC ANNOUNCEMENTS. Parent and the Company shall consult with each other before issuing, and shall provide each other the opportunity to review, comment upon and concur with, and shall use reasonable efforts to agree on, any press release or other public statements or announcements (including pursuant to Rule 165 under the Securities Act and Rule 14a-12 under the Exchange Act) and any broadly distributed internal communications with respect to the Merger, this Agreement and the transactions contemplated by this Agreement, and shall not issue any such press release or make any such public statement or announcement prior to such consultation, except as either party may determine is required by applicable law or court process (provided prior notice is given to the other party with a copy of any such disclosure). The parties agree that the initial press releases (or joint press release if the parties so determine) to be issued with respect to the Merger, this Agreement and the transactions contemplated by this Agreement shall be in the form heretofore agreed to by the parties. SECTION 6.6 EMPLOYEE BENEFITS. (a) Parent shall, or shall cause the Surviving Corporation and its subsidiaries to, (i) give those employees who are, as of the Effective Time, employed by the Company (the "CONTINUING EMPLOYEES") full credit for purposes of eligibility, vesting and benefit accruals (other than for purposes of benefit calculations and accruals under any defined benefit pension plan) under any employee benefit plans or arrangements maintained by Parent, the Surviving Corporation or any subsidiary of Parent or the Surviving Corporation for such Continuing Employees' service with the Company (or any predecessor entity) to the same extent recognized by the Company, and (ii) waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to the Continuing Employees under any welfare plan that such employees may be eligible to participate in after the Effective Time, other than limitations or waiting periods that are already in effect with respect to such employees and that have not been satisfied as of the Effective Time under any welfare plan maintained for the Continuing Employees by the Company immediately prior to the Effective Time, and provide credit under any such welfare plan for any copayments, deductibles and out-of-pocket expenditures for the remainder of the coverage period during which any transfer of coverage occurs. (b) From and after the Effective Time, Parent shall provide, or shall cause to be provided, to the Continuing Employees compensation and employee benefit plans, programs and arrangements that are, in the aggregate, substantially comparable to those generally provided to such employees as of the date hereof. (c) Subject to Section 6.6(a) and (b) above, from and after the Effective Time, Parent shall, or shall cause the Surviving Corporation to, assume and honor all Employee Plans, as in effect on the date hereof; PROVIDED, HOWEVER, nothing herein shall restrict Parent's or the Surviving Corporation's ability to amend or terminate such Employee Plans in accordance with their terms. SECTION 6.7 INCREASE OF AUTHORIZED COMMON STOCK. Not later than 90 days following the Effective Time, Parent shall take such action as may be necessary to ensure that the number of authorized but unissued shares of Parent Common Stock is sufficient to issue the maximum number of such shares issuable upon the conversion of the Parent Series A Preferred Stock into Parent Common Stock pursuant to the terms of the Certificate of Designation. SECTION 6.8 COMPANY SHAREHOLDER APPROVAL. The Company and the officers of the Company will, and the Company will use its commercially reasonable efforts to cause the directors of the Company to, obtain all requisite shareholder approval for the Merger and the other transactions contemplated in this Agreement, including, if necessary and to the extent applicable, through the exercise of "drag-along" rights held by the Company or its officers or directors pursuant to any shareholder agreements. SECTION 6.9 REGULATION D. Each party hereto shall use all reasonable efforts to cause the shares of Parent Common Stock and Parent Series A Preferred Stock to be issued hereunder in connection with the Merger to be issued in accordance with Regulation D promulgated under the Securities Act. Each party hereto shall cooperate with the other parties hereto with respect to all filings required pursuant to Regulation D promulgated under the Securities Act and shall not knowingly take any action or fail to act to the extent such action or failure to act would jeopardize the issuance of the shares of Parent Common Stock and Parent Series A Preferred Stock hereunder in accordance with such Regulation D. ARTICLE VII CONDITIONS PRECEDENT SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger is subject to the satisfaction or, to the extent permitted by applicable law, waiver by each of Parent and the Company on or prior to the Closing Date of the following conditions: (a) SHAREHOLDER APPROVALS. The Company shall have obtained the consent of its shareholders to the Merger, this Agreement and the transactions contemplated hereby. (b) GOVERNMENTAL AND REGULATORY APPROVALS. Other than the filing of the Certificate of Merger provided for under Section 1.3, all consents, approvals and actions of, filings with and notices to any Governmental Entity required by the Company, Parent or any of their subsidiaries under applicable law or regulation to consummate the Merger and the transactions contemplated by this Agreement, the failure of which to be obtained or made would result in a material adverse effect on Parent's ability to conduct the business of the Company in substantially the same manner as presently conducted, shall have been obtained or made (all such approvals and the expiration of all such waiting periods, the "REQUISITE REGULATORY APPROVALS") (c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order, restraining order and/or injunction (temporary or otherwise), decree, statute, law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or issued by any court or other Governmental Entity or other legal restraint or prohibition (collectively, "RESTRAINTS") shall be in effect preventing or materially delaying the consummation of the Merger; PROVIDED, HOWEVER, that each of the parties shall have used its commercially reasonable efforts to have such Restraint lifted, vacated or rescinded. SECTION 7.2 CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The obligation of Parent and Merger Sub to effect the Merger is further subject to satisfaction or waiver of the following conditions: (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The representations and warranties of the Company set forth herein and in the Company Disclosure Schedule shall be true and correct in all material respects at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct as of such date). Parent shall have received a certificate of the Company's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have performed in all material respects all obligations required to be performed by it at or prior to the Closing Date under this Agreement. Parent shall have received a certificate of the Company's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (c) REGULATORY CONDITION. No condition or requirement shall have been imposed by one or more Governmental Entities in connection with any required approval by them of the Merger that requires the Company or any of its subsidiaries to be operated in a manner that would have a material adverse effect on the Company. (d) NO COMPANY MATERIAL ADVERSE EFFECT. There shall not be or exist any change, effect, event, circumstance, occurrence or state of facts that has had, has or which reasonably could be expected to have, a material adverse effect on the Company. (d) LEGAL OPINION. Parent shall have received an opinion of Goodwin Procter LLP, counsel to the Company, substantially in the form of attached hereto as EXHIBIT E. (e) FAIRNESS OPINION. Parent shall have received and delivered to its Board of Directors and shareholders a fairness opinion (the "FAIRNESS OPINION") rendered by Wells Fargo Securities indicating that the transactions contemplated by this Agreement are fair to the current holders of Parent Common Stock, which opinion shall be in form and substance reasonably satisfactory to the Parent and customary in scope and substance for fairness opinions delivered by investment banking firms in connection with transactions similar to the Merger. (f) CERTIFICATE OF DESIGNATION. The Certificate of Designation shall have been filed with and accepted by the Secretary of State of the State of Nevada. (g) REGISTRATION RIGHTS AGREEMENT. Parent and each holder of Parent Series A Preferred Stock shall have entered into the Registration Rights Agreement. (h) LOCK-UP AGREEMENT. Each holder of Parent Series A Preferred Stock issued as Merger Consideration shall have executed the Lock-Up Agreement. (i) SWEENEY LOCK-UP AGREEMENT. Each holder of Parent Series A Preferred Stock and Thomas P. Sweeney III shall have executed the Lock-Up and Voting Agreement in the form attached hereto as EXHIBIT H (the "Sweeney Lock-Up Agreement"). (j) SWEENEY EMPLOYMENT AGREEMENT. Thomas P. Sweeney III shall have executed the Employment Agreement in the form attached hereto as EXHIBIT I (the "Sweeney Employment Agreement"). SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the Company to effect the Merger is further subject to satisfaction or waiver of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent set forth herein and in the Parent Disclosure Schedule shall be true and correct in all material respects at and as of the Closing Date, as if made at and as of such time (except to the extent expressly made as of an earlier date, in which case such representations and warranties shall be true and correct as of such date). The Company shall have received a certificate of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (b) PERFORMANCE OF OBLIGATIONS OF PARENT. Parent shall have performed in all material respects all obligations required to be performed by it at or prior to the Closing Date under this Agreement. The Company shall have received a certificate of Parent's Chief Executive Officer and Chief Financial Officer to the foregoing effect. (c) REGULATORY CONDITION. No condition or requirement shall have been imposed by one or more Governmental Entities in connection with any required approval by them of the Merger that requires Parent or any of its subsidiaries to be operated in a manner that would have a material adverse effect on Parent. (d) NO PARENT MATERIAL ADVERSE EFFECT. There shall not be or exist any change, effect, event, circumstance, occurrence or state of facts that has had, has or which reasonably could be expected to have, a material adverse effect on Parent. (e) LEGAL OPINION. The Company shall have received an opinion of Pryor Cashman Sherman & Flynn LLP, counsel to Parent, substantially in the form attached hereto as EXHIBIT F. (f) CERTIFICATE OF DESIGNATION. The Company shall have received evidence of filing and effectiveness of the Certificate of Designation with the Secretary of State of Nevada and the Company shall have received a certificate of Parent's Chief Executive Officer to the foregoing effect. (g) REGISTRATION RIGHTS AGREEMENT. Parent and each holder of Parent Series A Preferred Stock shall have entered into the Registration Rights Agreement and the Company shall have received a fully executed copy thereof. (h) LOCK-UP AGREEMENT. Parent and each holder of Parent Series A Preferred Stock issued as Merger Consideration shall have entered into the Lock-Up Agreement and the Company shall have received a fully executed copy thereof. (i) DIRECTOR RESIGNATION. Dr. Jay Yogeshwar shall have resigned from Parent's Board of Directors effective as of the Effective Time. (j) ADDITIONAL DIRECTORS. Parent's Board of Directors shall have resolved that, effective two (2) days following the Closing, the size of such Board of Directors be increased by two (2) for an aggregate total of seven (7) directors, and that two of the vacancies created by such increase and by the resignation of Dr. Jay Yogeshwar be filled at such time by Christopher S. Gaffney and Carmen J. Scarpa and that such resolutions shall not have been rescinded, amended or otherwise modified. (k) DIRECTOR INDEMNIFICATION AGREEMENTS. Parent shall have entered into a Director Indemnification Agreement substantially in the form attached hereto as EXHIBIT G (each, a "DIRECTOR INDEMNIFICATION AGREEMENT") with each of James Wolfinger, Patrick Whittingham, Thomas P. Sweeney III, Dr. Jay Yogeshwar, Christopher S Gaffney and Paul McKnight, and effective upon the date of their appointment to the Board, Christopher S. Gaffney and Carmen J. Scarpa. (l) SWEENEY LOCK-UP AGREEMENT. Parent, each holder of Parent Series A Preferred Stock and Thomas P. Sweeney III shall have entered into a Lock-Up and Voting Agreement in the form attached hereto as EXHIBIT H (the "Sweeney Lock-Up Agreement"). (m) SWEENEY EMPLOYMENT AGREEMENT. Parent and Thomas P. Sweeney III shall have entered into an Employment Agreement in the form attached hereto as EXHIBIT I (the "Sweeney Employment Agreement"). SECTION 7.4 FRUSTRATION OF CLOSING CONDITIONS. Neither Parent nor the Company may rely on the failure of any condition set forth in Section 7.1, 7.2 or 7.3, as the case may be, to be satisfied if such failure was caused by such party's failure to use its own commercially reasonable efforts to consummate the Merger and the other transactions contemplated by this Agreement, as required by and subject to Section 6.2. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER SECTION 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Time, whether or not the Company's shareholders have approved the Agreement: (a) by mutual written consent of Parent and the Company; (b) by either Parent or the Company; (i) if the Merger shall not have been consummated at or prior to 5:00 p.m., New York time, on August 31, 2004, PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this Section 8.1(b)(i) shall not be available to any party whose failure to perform any of its obligations under this Agreement results in the failure of the Merger to be consummated by such time and date. (ii) if any Restraint having any of the effects set forth in Section 7.1(c) shall be in effect and shall have become final and nonappealable; PROVIDED, HOWEVER, that the party seeking to terminate this Agreement pursuant to this Section 8.1(b) (iii) shall have used its commercially reasonable efforts to prevent the entry of such Restraint and to have such Restraint vacated or removed; (iii) if any Governmental Entity that must grant a Requisite Regulatory Approval shall have denied the applicable Requisite Regulatory Approval and such denial shall have become final and nonappealable; or (c) by Parent or the Company if the Company's shareholders have not consented to Merger; (d) by Parent, if the Company shall have breached any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach (i) would give rise to the failure of a condition set forth in Section 7.2(a) or (b), and (ii) is either incapable of being cured by the Company or, if curable, is not cured within 15 days of receipt from Parent of written notice thereof; or (e) by the Company, if Parent shall have breached any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach (i) would give rise to the failure of a condition set forth in Section 7.3(a) or (b), and (ii) is either incapable of being cured by Parent or, if curable, is not cured within 15 days of receipt from the Company written notice thereof. The party desiring to terminate this Agreement pursuant to clause (b) or (c) of this Section 8.1 shall provide written notice of such termination to the other party in accordance with Section 8.2, specifying in reasonable detail the provision hereof pursuant to which such termination is effected. SECTION 8.2 EFFECT OF TERMINATION. (a) If this Agreement is terminated by either the Company or Parent as provided in Section 8.1, this Agreement forthwith shall become void and have no effect, without any liability or obligation on the part of Parent or the Company; PROVIDED, HOWEVER, that nothing herein shall relieve any party from any liability (in contract, tort or otherwise, and whether pursuant to an action at law or in equity) for any knowing or willful breach by such party of any of its representations, warranties, covenants or agreements set forth in this Agreement or in respect of fraud by any party. Notwithstanding the foregoing, the provisions of this Article VIII, Section 6.1(b), Section 6.4, Section 6.5, Section 9.7, Section 9.9 and Section 9.12 shall survive any termination of this Agreement. (b) Anything in this Agreement to the contrary notwithstanding, if any of the conditions specified in Article VIII hereof for its benefit have not been satisfied, Parent, Merger Sub and/or the Company (as applicable) shall have the right to waive the satisfaction thereof and to proceed with the transactions contemplated hereby. SECTION 8.3 AMENDMENT. This Agreement may be amended by the parties at any time; PROVIDED, HOWEVER, that after receipt of approval by the Company's shareholders, there shall not be made any amendment that by law requires any further approval by the shareholders of the Company without the further approval of such shareholders. This Agreement may not be amended except by an instrument in writing signed on behalf of all of the parties to be bound thereby. SECTION 8.4 EXTENSION; WAIVER. At any time prior to the Effective Time, a party may (a) extend the time for the performance of any of the obligations or other acts of the other party, (b) waive any inaccuracies in the representations and warranties of the other party contained in this Agreement or in any document delivered pursuant to this Agreement or (c) subject to the proviso of Section 8.3, waive compliance by the other party with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. ARTICLE IX GENERAL PROVISIONS SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 9.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time. SECTION 9.2 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) If to Parent or Merger Sub, to: Front Porch Digital Inc. 1140 Pearl Street Boulder, Colorado 80302 Fax No.: (303) 440-7114 Attention: Michael Knaisch with a copy (which shall not constitute notice pursuant to this Section 9.2 to: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 Fax No.: (212) 326-0806 Attention: Eric M. Hellige, Esq. (b) if to the Company, to: ManagedStorage International, Inc. 12303 Airport Way, Suite 250 Broomfield, Colorado 80021 Fax No.: (720) 566-5001 Attention: Paul McKnight with a copy (which shall not constitute notice pursuant to this Section 9.2) to: Goodwin Procter LLP Exchange Place 53 State Street Boston, Massachusetts 02109 Fax No.: (617) 523-1231 Attention: David Lewis, Esq. and Reed Guest, Esq. 94 Underhill Road Orinda, California 94563 Fax No.: (925) 254-9226 SECTION 9.3 DEFINITIONS. For purposes of this Agreement: (a) an "AFFILIATE" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person, where "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management policies of a person, whether through the ownership of voting securities, by contract, as trustee or executor, or otherwise. (b) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means, when used in reference to the Company or Parent, any change, effect, event, circumstance, occurrence or state of facts that is, or which reasonably could be expected to be, materially adverse to the business, assets, liabilities, condition (financial or otherwise), cash flows or results of operations of such party and its subsidiaries, considered as an entirety. (c) "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity. (d) a "SUBSIDIARY" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect not less than a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first person. (e) "KNOWLEDGE" means, (i) with respect to the Company, the knowledge after reasonable due inquiry, of the Company's executive officers and (ii) with respect to Parent, the knowledge after reasonable due inquiry, of Parent's executive officers. (f) "COMPANY PREFERRED STOCK" means, collectively, the Company Series A Preferred Stock, the Company Series B Preferred Stock and the Company Series C Preferred Stock. SECTION 9.4 INTERPRETATION. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. SECTION 9.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. A facsimile copy of a signature page shall be deemed to be an original signature page. SECTION 9.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement (including the documents and instruments referred to herein) (a) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement and (b) except for the provisions of Section 6.4 which shall inure to the benefit of and be enforceable by the persons referred to therein, are not intended to confer upon any person other than the parties any rights or remedies. SECTION 9.7 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the internal substantive and procedural laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of law of such state. SECTION 9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties hereto without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. SECTION 9.9 CONSENT TO JURISDICTION. Each of the parties hereto (a) consents to submit itself to the personal jurisdiction of any Federal court located in the State of New York or Colorado in the event any dispute arises out of this Agreement or any of the transactions contemplated by this Agreement, (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court, and (c) agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than a Federal court sitting in the State of New York or Colorado. The parties irrevocably and unconditionally waive any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or any of the transactions contemplated by this Agreement in any Federal court located in the State of New York or Colorado, and hereby further irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 9.10 HEADINGS. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. SECTION 9.11 SEVERABILITY. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. SECTION 9.12 ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement, this being in addition to any other remedy to which they are entitled at law or in equity. [The remainder of this page is intentionally left blank.] IN WITNESS WHEREOF, Parent, the Company and Merger Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. FRONT PORCH DIGITAL INC. By /s/ Michael Knaisch ---------------------------------- Name: Michael Knaisch Title: Chief Executive Officer FRONT PORCH MERGER CORP. By /s/ Thomas P. Sweeney III ---------------------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer MANAGEDSTORAGE INTERNATIONAL, INC. By /s/ Thomas P. Sweeney III ---------------------------------- Name: Thomas P. Sweeney III Title: Chief Executive Officer [SIGNATURE PAGE TO MERGER AGREEMENT] EX-99.2 3 c33598_ex99-2.txt Exhibit 99.2 VOTING SIDE-LETTER AGREEMENT This agreement (the "Agreement") is made as of this 18th day of August, 2004, by and among the persons and entities listed on SCHEDULE I attached hereto (each, a "Series A Stockholder"). WHEREAS, this Agreement is being entered into in connection with the merger (the "Merger") of Front Porch Merger Corp. ("Mergersub"), a wholly owned subsidiary of Front Porch Digital Inc. ("FPDI"), with and into ManagedStorage International, Inc. ("MSI"), with MSI surviving as a wholly-owned subsidiary of FPDI, pursuant to that certain Agreement and Plan of Merger, dated as of August 16, 2004, by and among FPDI, MSI and Mergersub (the "Merger Agreement"); WHEREAS, each of the Series A Stockholders held, as of immediately prior to the Merger, shares of MSI's Series C Preferred Stock, which capital stock is being exchanged for shares of Series A Preferred Stock, par value $0.001 per share, of FPDI (the "Series A Preferred Stock"); and WHEREAS, pursuant to FPDI's certificate of incorporation as in effect as of immediately following the Merger (as amended or modified by any certificates of designations, the "Charter"), the holders of Series A Preferred Stock are entitled to elect, separately as a single class, three (3) directors of FPDI (each, a "Series A Director"). NOW THEREFORE, for the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agrees and covenant as follows: 1. Each Series A Stockholder agrees to vote all of his, her or its shares of Series A Preferred Stock having voting power in connection with the election of Directors and to elect and continue in office as Series A Directors the following: (a) one (1) person (the "GHP Nominee") nominated by Great Hill Equity Partners Limited Partnership, which GHP Nominee shall initially be Christopher S. Gaffney; (b) one (1) person (the "JPM Nominee") nominated by J.P. Morgan Direct Venture Capital Institutional Investors, LLC; and (c) one (1) person (the "Tudor Nominee") nominated by Tudor Ventures II L.P., which Tudor Nominee shall initially be Carmen J. Scarpa; 2. Each Series A Stockholder agrees to vote all of his, her or its shares of Series A Preferred Stock having voting power for the removal of any Series A Director upon the request of the Series A Stockholder then entitled to nominate such Series A Director as set forth in Section 1 above, and for the election to the Board of Directors of FPDI of a substitute Series A Director designated by such party in accordance with the provisions hereof. Each Series A Stockholder further agrees to vote all of his, her or its shares of Series A Preferred Stock having voting power in such manner as shall be necessary or appropriate to ensure that any vacancy on the Board of Directors of FPDI with respect to Series A Director(s) occurring for any reason shall be filled only in accordance with the provisions of this Agreement. 3. Each Series A Stockholder agrees, as a condition to any sale, disposition, hypothecation or other transfer (each such action, a "Transfer" and the recipient thereof, a "Transferee") of his, her or its shares of Series A Preferred Stock, to cause the Transferee thereof to agree to the provisions of this Agreement, whereupon such Transferee shall be subject to the provisions hereof to the same extent as the Series A Stockholders in connection with its ownership of the shares so Transferred. 4. This Agreement shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto as contemplated herein. The rights of the parties hereto hereunder shall be assignable to Transferees of their shares of Series A Preferred Stock as contemplated herein. 5. This Agreement shall be governed by the laws of the State of Delaware, without regard to conflicts of law principles. 6. This Agreement may be executed in one or more counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement. 7. This Agreement is intended by the parties as a final expression of their agreement and intended to be complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. [Signature Pages Follow] 2 IN WITNESS WHEREOF, each of the undersigned has hereunto set its hand as of the date first above written. GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP By: Great Hill Partners GP, LLC, its General Partner By:/s/ Christopher S. Gaffney -------------------------- Name: Christopher S. Gaffney Title: Manager GREAT HILL INVESTORS, LLC By:/s/ Christopher S. Gaffney -------------------------- Name: Christopher S. Gaffney Title: Manager [SIGNATURE PAGE TO VOTING SIDE-LETTER] JPMORGAN CHASE BANK, as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC By:/s/ Robert E. Kiss ------------------ Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC By:/s/ Robert E. Kiss ------------------ Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for 522 FIFTH AVENUE FUND, L.P. By:/s/ Robert E. Kiss ------------------ Name: Robert E. Kiss Title: Portfolio Manager [SIGNATURE PAGE TO VOTING SIDE-LETTER] TUDOR VENTURES II L.P. By: Tudor Ventures Group, L.P., general partner By:/s/ Carmen J. Scarpa -------------------- Name: Carmen J. Scarpa Title: Managing Director, Tudor Ventures Group LLC THE RAPTOR GLOBAL PORTFOLIO LTD. By: Tudor Investment Corporation as Investment Adviser By:/s/ Carmen J. Scarpa -------------------- Name: Carmen J. Scarpa Title: Managing Director THE ALTAR ROCK FUND L.P. By: Tudor Investment Corporation as General Partner By:/s/ Carmen J. Scarpa -------------------- Name: Carmen J. Scarpa Title: Managing Director [SIGNATURE PAGE TO VOTING SIDE-LETTER] SCHEDULE I ---------- GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP GREAT HILL INVESTORS, LLC J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC 522 FIFTH AVENUE FUND, L.P. TUDOR VENTURES II L.P. THE RAPTOR GLOBAL PORTFOLIO LTD. THE ALTAR ROCK FUND L.P. EX-99.3 4 c33598_ex99-3.txt Exhibit 99.3 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF A SERIES OF PREFERRED STOCK OF FRONT PORCH DIGITAL INC. ---------------- Front Porch Digital Inc., a corporation organized and existing under the laws of the State of Nevada (the "Corporation"), does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Corporation by the Articles of Incorporation of the Corporation (as amended from time to time, the "Articles of Incorporation"), and pursuant to the provisions of Section 78.030 of the Nevada General Corporation Law, as amended from time to time, said Board of Directors duly adopted a resolution providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of a series of preferred stock, which resolution is as follows: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Articles of Incorporation, a series of preferred stock of the Corporation known as the Series A Convertible Preferred Stock be, and such series hereby is, created, classified, and authorized, and the issuance thereof is provided for, and that the designation and number of shares, and relative rights, preferences and limitations thereof, shall be as set forth in the form appended hereto as EXHIBIT A. I, Michael Knaisch, Chief Executive Officer of the Corporation, do make this Certificate, hereby declaring and certifying that this is my act and deed on behalf of the Corporation this 18th day of August, 2004. By: /s/ Michael Knaisch ------------------------------ Name: Michael Knaisch Title: Chief Executive Officer EXHIBIT A --------- 1. DESIGNATION. A total of two million five hundred thousand (2,500,000) shares of the Corporation's preferred stock shall be designated as a series known as Series A Convertible Preferred Stock, par value $0.001 per share (the "Series A Preferred Stock"). 2. VOTING. (a) ELECTION OF DIRECTORS. So long as least 500,000 shares of the originally issued shares of Series A Preferred Stock (as adjusted appropriately for stock splits, stock dividends, combinations, recapitalizations and similar transactions) remain outstanding, the holders of outstanding shares of Series A Preferred Stock shall, voting together as a separate class, be entitled to elect three (3) Directors of the Corporation. Except as provided in Section 2(a)(iv) hereof, such Directors shall be elected by a plurality vote, with the elected candidates being the candidates receiving the greatest number of affirmative votes (with each holder of Series A Preferred Stock entitled to cast one vote for or against each candidate with respect to each share of Series A Preferred Stock held by such holder) of the outstanding shares of Series A Preferred Stock, with votes cast against such candidates and votes withheld having no legal effect. The election of such Directors shall occur (i) at the annual meeting of holders of capital stock, (ii) at any special meeting of holders of capital stock if such meeting is called for the purpose of electing directors, (iii) at any special meeting of holders of shares of Series A Preferred Stock called by holders of not less than a majority of the outstanding shares of Series A Preferred Stock or (iv) by the written consent of holders of a majority of the outstanding shares of Series A Preferred Stock entitled to vote for such Directors in the manner and on the basis specified above or as otherwise provided by law. If at any time when any share of Series A Preferred Stock is outstanding any such Director should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of the holders of the outstanding shares of Series A Preferred Stock, voting together as a separate class, in the manner and on the basis specified above or as otherwise provided by law. The holders of outstanding shares of Series A Preferred Stock shall also be entitled to vote in the election of all other Directors of the Corporation together with holders of all other shares of the Corporation's outstanding capital stock entitled to vote thereon, voting as a single class, with each outstanding share of Series A Preferred Stock entitled to the number of votes specified in Section 2(b) hereof. The holders of outstanding shares of Series A Preferred Stock may, in their sole discretion, determine not to elect one or more Directors as provided herein from time to time, and during any such period the Board of Directors shall not be deemed unduly constituted solely as a result of such vacancy. (b) VOTING GENERALLY. Each outstanding share of Series A Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such share of Series A Preferred Stock is then convertible pursuant to Section 6 hereof as of the record date for the vote or written consent of stockholders, if applicable. Each holder of outstanding shares of Series A Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the by-laws of the Corporation and shall vote with holders of the Common Stock, voting together as single class, upon all matters submitted to a vote of stockholders, excluding those matters required to be submitted to a class or series vote pursuant to the terms hereof (including, without limitation, Section 8 hereof) or by law. 3. DIVIDENDS. Subject to Section 8 hereof, the Corporation may (when, as and if declared by the Board of Directors) declare and distribute dividends among the holders of Series A Preferred Stock and the holders of Common Stock pro rata based on the number of shares of Common Stock held by each, determined on an as-if-converted basis (assuming full conversion of all such Series A Preferred Stock) as of the record date with respect to the declaration of such dividends; PROVIDED, that the holders of shares of Series A Preferred Stock shall be entitled to participate on such a pro rata basis in any dividends declared with respect to the Common Stock. 4. LIQUIDATION; MERGER, ETC. (a) SERIES A LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of the Corporation and its subsidiaries, whether voluntary or involuntary (a "Liquidation Event"): (i) each holder of outstanding shares of Series A Preferred Stock shall be entitled to be paid in cash, before any amount shall be paid or distributed to the holders of the Common Stock or any other capital stock ranking on liquidation junior to the Series A Preferred Stock (the Common Stock and such other capital stock being referred to collectively as, "Junior Stock"), an amount in cash per share of Series A Preferred Stock equal to (A) $12.60 (the "Original Issue Price") PLUS (B) an amount equal to all accumulated but unpaid dividends on such share of Series A Preferred Stock (such amount to be adjusted appropriately for stock splits, stock dividends, combinations, recapitalizations and the like) (the "Series A Preference Amount"). If the amounts available for distribution by the Corporation to holders of Series A Preferred Stock upon a Liquidation Event are not sufficient to pay the aggregate Series A Preference Amount due to such holders, such holders of Series A Preferred Stock shall share ratably in any distribution in connection with such Liquidation Event in proportion to the full respective preferential amounts to which they are entitled. (ii) REMAINING ASSETS. After the prior payment in full of the Series A Preference Amount in connection with a Liquidation Event, the remaining assets and funds of the Corporation available for distribution to its stockholders, if any, shall be distributed among the holders of shares of Junior Stock then outstanding in accordance with the terms of such Junior Stock. (b) ALTERNATIVE LIQUIDATION PAYMENT. Notwithstanding Section 4(a) hereof, if, upon such Liquidation Event, the holders of outstanding shares of Series A Preferred Stock would receive more than the aggregate amount to be received under Section 4(a) above in the event all of their shares of Series A Preferred Stock were converted into shares of Common Stock pursuant to the provisions of Section 6(a) hereof immediately prior to such Liquidation Event and the holders of shares of Common Stock thereafter received a liquidating distribution or distributions from the Corporation, then each holder of outstanding shares of Series A Preferred Stock in connection with such Liquidation Event shall be entitled to be paid in cash, in lieu of the payments described in Section 4(a) above, an amount per share of Series A Preferred Stock equal to such amount as would have been payable in respect of each share of Common Stock (including any fraction thereof) issuable upon conversion of such share of Series A 2 Preferred Stock had such share of Series A Preferred Stock been converted to Common Stock immediately prior to such Liquidation Event pursuant to the provisions of Section 6 hereof. (c) AMOUNT PAYABLE IN MERGERS, ETC. Subject to Section 7(e) hereof, the holders of not less than 80% of the voting power of the outstanding shares of Series A Preferred Stock (a "Supermajority Interest") may elect to have treated as a Liquidation Event: (i) any merger or consolidation of the Corporation into or with another corporation (except one in which the holders of capital stock of the Corporation immediately prior to such merger or consolidation continue to hold at least a majority of the voting power of the capital stock of the surviving corporation), (ii) any sale, lease, license or transfer of all or substantially all of the assets of the Corporation, or (iii) any other transaction pursuant to, or as a result of, which a single party (or group of affiliated parties) acquires or holds capital stock of the Corporation representing a majority of the Corporation's outstanding voting power (such transaction, a "Change of Control Transaction"). If such election is made, all consideration payable to the stockholders of the Corporation in connection with any such merger, consolidation or Change of Control Transaction, or all consideration payable to the Corporation and distributable to its stockholders, together with all other available assets of the Corporation (net of obligations owed by the Corporation that are senior to the Series A Preferred Stock), in connection with any such asset sale or Change of Control Transaction, shall be, as applicable, paid by the purchaser to the holders of, or distributed by the Corporation in redemption (out of funds legally available therefor) of, the Series A Preferred Stock and any Junior Stock in accordance with the preferences and priorities set forth in Sections 4(a) and 4(b) above, with such preferences and priorities specifically intended to be applicable in any such merger, consolidation, asset sale or Change of Control Transaction, as if such transaction were a Liquidation Event. In furtherance of the foregoing, the Corporation shall take such actions as are necessary to give effect to the provisions of this Section 4(c), including, without limitation, (A) in the case of a merger, consolidation or Change of Control Transaction, causing the definitive agreement relating to such merger, consolidation or Change of Control Transaction to provide for a rate at which the shares of Series A Preferred Stock are converted into or exchanged for cash, new securities or other property, or to provide for shares of Series A Preferred Stock to be redeemed, in each case which gives effect to the preferences and priorities set forth in Sections 4(a) and 4(b) above, or (B) in the case of an asset sale, redeeming the Series A Preferred Stock. The Corporation shall promptly provide to the holders of shares of Series A Preferred Stock such information concerning the terms of such merger, consolidation, asset sale or Change of Control Transaction, and the value of the assets of the Corporation as may reasonably be requested by the holders of Series A Preferred Stock. The amount deemed distributed to the holders of Series A Preferred Stock upon any such transaction shall be the cash or the value of the property, rights or securities distributed to such holders by the Corporation or the acquiring person, firm or other entity, as applicable. Any election by a Supermajority Interest pursuant to this Section 4(c) shall be made by written notice to the Corporation and the other holders of Series A Preferred Stock at least five (5) days prior to the closing of the relevant transaction. Upon the election of such Supermajority Interest hereunder, all holders of Series A Preferred Stock shall be deemed to have made such election and such election shall bind all holders of the Series A Preferred Stock. Notwithstanding anything to the contrary contained herein, the holders of shares of Series A Preferred Stock or a Supermajority Interest, as applicable, shall have the right to elect to give effect to the conversion rights contained in Section 6(a) hereof or the rights contained in Section 3 7(e) hereof, if applicable, instead of giving effect to the provisions contained in this Section 4(c) with respect to the shares of Series A Preferred Stock held by such holders. (d) VALUATION OF SECURITIES OR OTHER NON-CASH CONSIDERATION. For purposes of valuing any securities or other non-cash consideration to be delivered to the holders of the Series A Preferred Stock in connection with any transaction to which Section 4(c) is applicable, the following shall apply: (i) If any such securities are traded on a nationally recognized securities exchange or inter-dealer quotation system, the value shall be deemed to be the average of the closing prices of such securities on such exchange or system over the thirty (30)-day period ending three (3) business days prior to the closing; (ii) If any such securities are traded over-the-counter, the value shall be deemed to be the average of the closing bid prices of such securities over the thirty (30)-day period ending three (3) business days prior to the closing; and (iii) If there is no active public market for such securities or other non-cash consideration, the value shall be the fair market value thereof, as mutually determined in good faith by the Corporation and the holders of not less than a Supermajority Interest, provided that if the Corporation and the holders of a Supermajority Interest are unable to reach agreement, then by independent appraisal by a mutually agreed to investment banker, the fees of which shall be paid by the Corporation. 5. REDEMPTION. (a) OPTIONAL REDEMPTION; REDEMPTION DATE. At any time on or after August 18, 2008, the holder(s) of a Supermajority Interest may elect to have all (but not less than all) of the outstanding shares of Series A Preferred Stock redeemed. In such event, the Corporation shall redeem all (subject to Section 5(c) hereof) of the outstanding shares of Series A Preferred Stock, out of funds legally available therefor, for an amount equal to the aggregate Series A Redemption Price specified in Section 5(b) hereof. Any election by a Supermajority Interest pursuant to this Section 5(a) shall be made by written notice to the Corporation and the other holders of Series A Preferred Stock at least fifteen (15) days prior to the elected redemption date (the "Series A Redemption Date"). Upon such election, all holders of Series A Preferred Stock shall be deemed to have elected to have their shares of Series A Preferred Stock redeemed pursuant to this Section 5(a) and such election shall bind all holders of Series A Preferred Stock. Notwithstanding anything to the contrary contained herein, each holder of shares of Series A Preferred Stock shall have the right to elect to give effect to the conversion rights contained in Section 6(a) hereof instead of giving effect to the provisions contained in this Section 5(a) with respect to the shares of Series A Preferred Stock held by such holder. (b) REDEMPTION PRICE. The price for each share of Series A Preferred Stock redeemed pursuant to this Section 5 shall be an amount (the "Series A Redemption Price") equal to the greater of (i) the Series A Preference Amount (such amount to be adjusted appropriately for stock splits, stock dividends, combinations, recapitalizations and the like), and (ii) the Fair Market Value (as defined below) of the Common Stock into which the Series A Preferred Stock 4 is then convertible. The aggregate Series A Redemption Price shall be payable in cash in immediately available funds to the respective holders of the Series A Preferred Stock on the Series A Redemption Date. For purposes of this Section 5(b), the "Fair Market Value" of any share of Common Stock of the Corporation shall be determined as follows: (i) within five (5) days after written notice from the holders of a Supermajority Interest of their election to redeem is delivered to the Corporation in accordance with Section 5(a) hereof, each of the Corporation and such Supermajority Interest, as a group, shall submit their good faith estimate of such Fair Market Value; (ii) to the extent that the Fair Market Value estimates of the Corporation and such Supermajority Interest differ, the Corporation and such Supermajority Interest shall engage, for an additional five (5)-day period, in negotiations to reach agreement (if possible) on the Fair Market Value; and (iii) if the Corporation and such Supermajority Interest fail to reach agreement at the end of the foregoing five (5)-day period, the Fair Market Value shall be determined by appraisal as set forth below. In the event Fair Market Value is to be determined by appraisal pursuant to the preceding paragraph, the Corporation and such Supermajority Interest shall initially negotiate in good faith to select a mutually agreeable appraiser to determine Fair Market Value with such determination to be binding on all concerned. If the Corporation and such Supermajority Interest shall fail to agree on the selection of such appraiser within five (5) days following the expiration of the five (5)-day period specified in the preceding paragraph, then the Corporation shall select one independent appraiser and such Supermajority Interest shall select another independent appraiser and such appraisers shall promptly designate a third (3rd) independent appraiser which shall determine Fair Market Value. The Fair Market Value under such circumstances shall be the Fair Market Value arrived at by the third appraiser within twenty (20) days following its appointment. In the event that the two original appraisers cannot agree upon the final appraiser within ten (10) days following their selection by the Corporation and such Supermajority Interest, then the final appraiser shall be appointed by the American Arbitration Association. The determination of Fair Market Value shall be conclusive, final and binding on all parties hereto and shall be enforceable in any court having any jurisdiction over a proceeding brought to seek enforcement. All fees and expenses incurred in connection with an appraisal under this Section 5(b) shall be borne by the Corporation. Fair Market Value shall be determined on the basis of the following assumptions: (i) on a "fully diluted" basis (such dilution to be determined in accordance with generally accepted accounting principles consistently applied) as if the Series A Preferred Stock was converted and the Common Stock acquired upon such conversion was sold as part of a sale of all of the capital stock of the Corporation; (ii) as though all outstanding securities which are then convertible into, exercisable for or exchangeable into shares of Common Stock of the Corporation (including, without limitation, vested options and warrants) had been converted into, exercised for or exchanged into Common Stock of the Corporation and any amounts payable upon such conversion, exercise or exchange paid to the Corporation, (iii) without any reduction in value for lack of control or the inherent lack of liquidity of non-public minority interests; (iv) giving full effect to the revenue and, if applicable, earnings history and prospects of the Corporation; and (v) otherwise on a basis which values all Common Stock of the Corporation at the same per share price. 5 (c) INSUFFICIENT FUNDS. If the funds of the Corporation legally available to redeem shares of Series A Preferred Stock on the Series A Redemption Date are insufficient to redeem the total number of such shares required to be redeemed on such date, the Corporation shall (i) take any action necessary or appropriate, to the extent reasonably within its control, to remove promptly any impediments to its ability to redeem the total number of shares of Series A Preferred Stock required to be so redeemed, including, without limitation, to the extent permissible under applicable law, reducing the stated capital of the Corporation or causing a revaluation of the assets of the Corporation under to create sufficient surplus to make such redemption, and (ii) in any event, use any funds that are legally available to redeem the maximum possible number of such shares from the holders of such shares to be redeemed in proportion to the respective number of such shares that otherwise would have been redeemed if all such shares had been redeemed in full. At any time thereafter when additional funds of the Corporation are legally available to redeem such shares of Series A Preferred Stock, the Corporation shall immediately use such funds to redeem the balance of the shares of Series A Preferred Stock that the Corporation became obligated to redeem on the Series A Redemption Date (but which it has not yet redeemed) at such Series A Redemption Price. (d) INTEREST. If any shares of Series A Preferred Stock are not redeemed on the Series A Redemption Date for any reason, all such unredeemed shares shall remain outstanding and entitled to all the rights and preferences provided herein, and the Corporation shall pay interest on the Series A Redemption Price applicable to such unredeemed shares at an aggregate per annum rate equal to fifteen percent (15%), with such interest to accrue daily in arrears and to be compounded quarterly; PROVIDED, HOWEVER, that in no event shall such interest exceed the maximum permitted rate of interest under applicable law (the "Maximum Permitted Rate"). In the event that fulfillment of any provision hereof results in such rate of interest being in excess of the Maximum Permitted Rate, the amount of interest required to be paid hereunder shall automatically be reduced to eliminate such excess; PROVIDED, HOWEVER, that any subsequent increase in the Maximum Permitted Rate shall be retroactively effective to the applicable Series A Redemption Date to the extent permitted by law. (e) RIGHT TO ELECT ADDITIONAL DIRECTORS. If any shares of Series A Preferred Stock are not redeemed on the Series A Redemption Date for any reason, the number of Directors constituting the Board of Directors of the Corporation shall automatically be increased by a number of Directors which, when added to the number of Directors elected by the holders of outstanding shares of Series A Preferred Stock pursuant to Section 2(a) hereof, will constitute a majority of the Board of Directors as it will be constituted following the election of such additional Directors, and the holders of outstanding shares of Series A Preferred Stock shall be entitled, voting as a single class (to the exclusion of the holders of all other securities and classes of capital stock of the Corporation), to elect such additional Directors. The period beginning on the Series A Redemption Date and ending on the date upon which all shares of Series A Preferred Stock required to be redeemed are so redeemed is referred to herein as the "Voting Period." (i) As soon as practicable after the commencement of the Voting Period, the Corporation shall call a special meeting of the holders of outstanding shares of Series A Preferred Stock to be held not more than ten (10) days after the date of mailing of notice of such meeting. If the Corporation fails to send a notice, any such 6 holder may call the meeting on like notice. The record date for determining the holders of Series A Preferred Stock entitled to notice of and to vote at such special meeting shall be the close of business on the fifth (5th) business day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of shares of Series A Preferred Stock held during a Voting Period at which Directors are to be elected (or with respect to any action by written consent in lieu of a meeting of stockholders), such holders, voting together as a single class to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, shall be entitled to elect the number of Directors prescribed in this Section 5(e), and each share of Series A Preferred Stock shall be entitled to one (1) vote (whether voted in person by the holder thereof or by proxy or pursuant to a stockholders consent). (ii) The terms of office of all persons who are incumbent Directors of the Corporation at the time of a special meeting of the holders of Series A Preferred Stock to elect such additional Directors shall continue, notwithstanding the election at such meeting of the additional Directors that such holders are entitled to elect, and the additional Directors so elected by such holders, together with such incumbent Directors, shall constitute the duly elected Directors of the Corporation. Simultaneously with the termination of a Voting Period, the terms of office of the additional Directors elected by the holders of the Series A Preferred Stock shall terminate, such incumbent Directors shall constitute the Directors of the Corporation and the rights of the holders of Series A Preferred Stock to elect additional Directors pursuant to this Section 5(e) shall cease. (f) DIVIDEND AFTER REDEMPTION DATE. In the event that shares of Series A Preferred Stock required to be redeemed are not redeemed and continue to be outstanding, such shares shall continue to be entitled to dividends thereon as provided in Section 3 hereof until the date on which the Corporation actually redeems such shares. (g) SURRENDER OF CERTIFICATES. Each holder of shares of Series A Preferred Stock to be redeemed shall surrender the certificate or certificates representing such shares to the Corporation, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), or, in the event the certificate or certificates are lost, stolen or missing, shall deliver an affidavit of loss, at the principal executive office of the Corporation or such other place as the Corporation may from time to time designate by notice to the holders of Series A Preferred Stock, and each surrendered certificate shall be canceled and retired and the Corporation shall thereafter make payment of the applicable Series A Redemption Price by certified check or wire transfer; PROVIDED, HOWEVER, that if the Corporation has insufficient funds legally available to redeem all shares of Series A Preferred Stock required to be redeemed, each such holder shall, in addition to receiving the payment of the portion of the aggregate Series A Redemption Price that the Corporation is not legally prohibited from paying to such holder by certified check or wire transfer, receive a new stock certificate for those shares of Series A Preferred Stock not so redeemed. 6. CONVERSION. Shares of Series A Preferred Stock shall be converted into Common Stock in accordance with the following: 7 (a) VOLUNTARY CONVERSION. Upon the written election of the holder thereof and without payment of any additional consideration, each outstanding share of Series A Preferred Stock held by such holder shall be converted into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing (i) the Series A Preference Amount, by (ii) the Conversion Price at the time in effect for such Series A Preferred Stock (such quotient, the "Conversion Rate"). The initial "Conversion Price" per share for shares of Series A Preferred Stock shall be $0.63, subject to adjustment as set forth in Section 7 hereof. Any election by a holder of Series A Preferred Stock pursuant to this Section 6(a) shall be made by written notice to the Corporation, and such notice may be given at any time and from time to time after August 18, 2004 (the "Closing Date") and through and including the day which is five (5) days prior to the Series A Redemption Date or the closing of any transaction contemplated by Section 4(c) hereof. (b) AUTOMATIC CONVERSION. Upon the written election of a Supermajority Interest and without the payment of any additional consideration, all (but not less than all) of the outstanding shares of Series A Preferred Stock shall be converted into fully paid and nonassessable shares of Common Stock at the Conversion Rate. Any election by a Supermajority Interest pursuant to this Section 6(b) shall be made by written notice to the Corporation and the other holders of Series A Preferred Stock, and such notice may be given at any time after the Closing Date through and including the date which is five (5) days prior to the closing of any transaction contemplated by Section 4(c) hereof. Upon such election, all holders of the Series A Preferred Stock shall be deemed to have elected to voluntarily convert all outstanding shares of Series A Preferred Stock into shares of Common Stock pursuant to this Section 6(b) and such election shall bind all holders of Series A Preferred Stock. (c) PROCEDURE FOR CONVERSION. (i) VOLUNTARY CONVERSION. Upon election to convert pursuant to Section 6(a) hereof, the relevant holder or holders of Series A Preferred Stock shall surrender the certificate or certificates representing the Series A Preferred Stock being converted to the Corporation, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) or shall deliver an affidavit of loss to the Corporation, at its principal executive office or such other place as the Corporation may from time to time designate by notice to the holders of the Series A Preferred Stock. Upon surrender of such certificate(s) or delivery of an affidavit of loss, the Corporation shall issue and send by hand delivery, by courier or by first class mail (postage prepaid) to the holder thereof or to such holder's designee, at the address designated by such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion. The issuance of certificates for Common Stock upon conversion of Series A Preferred Stock shall be deemed effective as of the date of surrender of such Series A Preferred Stock certificates or delivery of such affidavit of loss and will be made without charge to the holders of such shares for any issuance tax in respect thereof or other costs incurred by the Corporation in connection with such conversion and the related issuance of such stock. (ii) AUTOMATIC CONVERSION. Upon election to convert pursuant to Section 6(b) hereof (the "Automatic Conversion Date"), all outstanding shares of Series 8 A Preferred Stock shall be converted into shares of Common Stock without any further action by the holders of such shares and whether or not the certificates representing such shares of Series A Preferred Stock are surrendered to the Corporation. On the Automatic Conversion Date, all rights with respect to the Series A Preferred Stock so converted shall terminate, except any of the rights of the holders thereof upon surrender of their certificate or certificates therefor or delivery of an affidavit of loss thereof to receive certificates for the number of shares of Common Stock into which such shares of Series A Preferred Stock have been converted. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. Upon surrender of such certificates or affidavit of loss, the Corporation shall issue and deliver to such holder, promptly at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of the Series A Preferred Stock surrendered are convertible on the Automatic Conversion Date. (d) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. (i) CORPORATE ACTION. By no later than ninety (90) days following the Filing Date (the "Reservation Date"), the Corporation shall have taken such actions as may be necessary to ensure that the number of authorized but unissued shares of Common Stock is sufficient to issue the maximum number of such shares issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms hereof. Thereafter, 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 Series A 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 Series A 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 outstanding shares of Series A Preferred Stock, the Corporation will take such corporate action as may be necessary to increase the number of its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, and to reserve the appropriate number of shares of Common Stock for issuance upon such conversion. (ii) RIGHT TO ELECT ADDITIONAL DIRECTORS. If the number of authorized but unissued shares of Common Stock on the Reservation Date is not sufficient to issue the maximum number of such shares as are issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms hereof, the number of Directors constituting the Board of Directors of the Corporation shall automatically be increased by a number of Directors which, when added to the number of Directors elected by the holders of outstanding shares of Series A Preferred Stock pursuant to Section 2(a) hereof, will constitute a majority of the Board of Directors as it will be constituted following the election of such additional Directors, and the holders of outstanding shares of Series A Preferred Stock shall be entitled, voting as a single class (to the exclusion of the holders of all other securities and classes of capital stock of the 9 Corporation), to elect such additional Directors. The period beginning on the Reservation Date and ending on the date upon which the number of authorized but unissued shares of Common Stock is sufficient to issue the maximum number of such shares as are issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms hereof is referred to herein as the "Reservation Period." (iii) As soon as practicable after the commencement of the Reservation Period, the Corporation shall call a special meeting of the holders of outstanding shares of Series A Preferred Stock to be held not more than ten (10) days after the date of mailing of notice of such meeting. If the Corporation fails to send a notice, any such holder may call the meeting on like notice. The record date for determining the holders of Series A Preferred Stock entitled to notice of and to vote at such special meeting shall be the close of business on the fifth (5th) business day preceding the day on which such notice is mailed. At any such special meeting and at each meeting of holders of shares of Series A Preferred Stock held during a Reservation Period at which Directors are to be elected (or with respect to any action by written consent in lieu of a meeting of stockholders), such holders, voting together as a single class to the exclusion of the holders of all other securities and classes of capital stock of the Corporation, shall be entitled to elect the number of Directors prescribed in this Section 6(d), and each share of Series A Preferred Stock shall be entitled to one (1) vote (whether voted in person by the holder thereof or by proxy or pursuant to a stockholders consent). (iv) The terms of office of all persons who are incumbent Directors of the Corporation at the time of a special meeting of the holders of Series A Preferred Stock to elect such additional Directors shall continue, notwithstanding the election at such meeting of the additional Directors that such holders are entitled to elect, and the additional Directors so elected by such holders, together with such incumbent Directors, shall constitute the duly elected Directors of the Corporation. Simultaneously with the termination of the Reservation Period, the terms of office of the additional Directors elected by the holders of the Series A Preferred Stock shall terminate, such incumbent Directors shall constitute the Directors of the Corporation and the rights of the holders of Series A Preferred Stock to elect additional Directors pursuant to this Section 6(d) shall cease. (e) NO CLOSING OF TRANSFER BOOKS. The Corporation shall not close its books against the transfer of shares of Series A Preferred Stock in any manner that would interfere with the timely conversion of any shares of Series A Preferred Stock. 7. ADJUSTMENTS. (a) ADJUSTMENTS TO THE CONVERSION PRICE. Except (i) as provided in Section 7(b) hereof, (ii) in the case of an event described in Section 7(c) hereof and (iii) as the holder(s) of a Supermajority Interest may otherwise agree in writing to waive the provisions hereof, if and whenever after the date this Certificate of Designations is first filed with the Secretary of State of Nevada (the "Filing Date") the Corporation shall issue or sell, or is, in accordance with this Section 7(a), deemed to have issued or sold, any shares of Common Stock for a consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale, then, 10 upon such issuance or sale (or deemed issuance or sale), the Conversion Price shall be reduced to the price determined by dividing (i) the sum of (A) the Common Stock Deemed Outstanding (as defined in subparagraph (x) below) immediately prior to such issuance or sale (or deemed issuance or sale) multiplied by the Conversion Price then in effect and (B) the aggregate consideration, if any, received by the Corporation upon such issuance or sale (or deemed issuance or sale) by (ii) the Common Stock Deemed Outstanding immediately after such issuance or sale (or deemed issuance or sale). For purposes of this Section 7(a), the following shall also be applicable: (i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation shall, at any time after the Filing Date, in any manner grant (whether directly or by assumption in a merger or otherwise) any warrants or other rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock or security convertible into or exchangeable for Common Stock (such warrants, rights or options being called "Options" and such convertible or exchangeable stock or securities being called "Convertible Securities"), in each case for - consideration per share (determined as provided in this paragraph and in Section 7(a)(vi)) hereof less than the Conversion Price then in effect, whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options, or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon exercise of such Options, shall be deemed to have been issued as of the date of granting of such Options, at a price per share equal to the amount determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issuance or sale of such Convertible Securities and upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock deemed to have been so issued. Except as otherwise provided in Section 7(a)(iii) hereof, no adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the Corporation shall, at any time after the Filing Date, in any manner issue or sell any Convertible Securities for consideration per share (determined as provided in this paragraph and in Section 7(a)(vi)) hereof less than the Conversion Price then in effect, whether or not the rights to exchange or convert any such Convertible Securities are immediately exercisable, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued as of the date of the issuance or sale of such Convertible Securities, at a price per share equal to the amount determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issuance or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the 11 Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock deemed to have been so issued; PROVIDED, that (1) except as otherwise provided in Section 7(a)(iii) hereof, no adjustment of the Conversion Price shall be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities and (2) if any such issuance or sale of such Convertible Securities is made upon exercise of any Options to purchase any such Convertible Securities, no further adjustment of the Conversion Price shall be made by reason of such issuance or sale. (iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If there shall occur a change in (A) the maximum number of shares of Common Stock issuable in connection with any Option referred to in Section 7(a)(i) or any Convertible Securities referred to in Section 7(a)(i) or (ii) hereof, (B) the purchase price provided for in any Option referred to in Section 7(a)(i) hereof, (C) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities referred to in Section 7(a)(i) or (ii) hereof, or (D) the rate at which Convertible Securities referred to in Section 7(a)(i) or (ii) hereof are convertible into or exchangeable for Common Stock (in each case, other than in connection with an event described in Section 7(b) hereof), then the Conversion Price in effect at the time of such event shall be adjusted to the Conversion Price that would have been in effect at such time had such Options or Convertible Securities that are still outstanding provided for such changed maximum number of shares, purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment the Conversion Price then in effect is thereby reduced; and on the termination of any such Option or any such right to convert or exchange such Convertible Securities, the Conversion Price then in effect hereunder shall be increased to the Conversion Price that would have been in effect at the time of such termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such termination (i.e., to the extent that fewer than the number of shares of Common Stock deemed to have been issued in connection with such Option or Convertible Securities were actually issued), never been issued or been issued at such higher price, as the case may be. (iv) STOCK DIVIDENDS. If the Corporation, at any time or from time to time after the Filing Date, shall declare or make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock, Options or Convertible Securities, any Common Stock, Options or Convertible Securities, as the case may be, issuable in payment of such dividend or distribution shall be deemed to have been issued or sold without consideration, and the Conversion Price will be adjusted pursuant to this Section 7(a); PROVIDED, that no adjustment shall be made to the Conversion Price as a result of such dividend or distribution if the holders of the shares of Series A Preferred Stock are entitled to, and do, receive such dividend or distribution in accordance with Section 3; and, PROVIDED, FURTHER, that if any adjustment is made to the Conversion Price as a result of the declaration of a dividend and such dividend is not effected, the Conversion Price shall be appropriately readjusted to the Conversion Price in effect had such dividend not been declared. 12 (v) OTHER DIVIDENDS AND DISTRIBUTIONS. If the Corporation, at any time or from time to time after the Filing Date, shall declare or make, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities or other property of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the outstanding shares of Series A Preferred Stock shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of such other securities of the Corporation or the value of such other property that they would have received had the Series A Preferred Stock been converted into Common Stock on the date of such event and had such holders thereafter, during the period from the date of such event to and including the conversion date, retained such securities or other property receivable by them during such period giving application to all adjustments called for during such period under Section 7 with respect to the rights of the holders of the outstanding shares of Series A Preferred Stock; and, PROVIDED, FURTHER, however, that no such adjustment shall be made if the holders of Series A Preferred Stock simultaneously receive a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event. (vi) CONSIDERATION FOR STOCK. If the Corporation, at any time or from time to time after the Filing Date, shall issue or sell, or is deemed to have issued or sold, any shares of Common Stock for cash, the consideration received therefor shall be deemed to be the amount received or to be received by the Corporation therefor (determined with respect to deemed issuances and sales in connection with Options and Convertible Securities in accordance with clause (A) of Section 7(a)(i) or (ii) hereof, as appropriate). In case any shares of Common Stock shall be issued or sold, or deemed issued or sold, for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration received or to be received by the Corporation (determined with respect to deemed issuances and sales in connection with Options and Convertible Securities in accordance with clause (A) of Section 7(a)(i) or(ii) hereof, as appropriate) as determined in good faith by the Board of Directors of the Corporation and a Supermajority Interest. In case any Options shall be issued in connection with the issuance and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued for such consideration as determined in good faith by the Board of Directors of the Corporation and a Supermajority Interest. Anything herein to the contrary notwithstanding, if in any case described in this Section 7(a)(vi) the Corporation and the holders of a Supermajority Interest are unable to reach agreement as to the value of such consideration, then the value thereof will be determined by an independent appraisal by a mutually agreed to investment banker, the fees of which shall be paid by the Corporation. (vii) RECORD DATE. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) 13 to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issuance or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (viii) TREASURY SHARES. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation; PROVIDED, that the disposition of any such shares shall be considered an issuance or sale of Common Stock for the purpose of this Section 7. (ix) OTHER ISSUANCES OR SALES. In calculating any adjustment to the Conversion Price pursuant to this Section 7(a): (A) any shares of Common Stock, Options or Convertible Securities issued or sold (or deemed issued or sold pursuant to Section 7(a)(i) or (ii) above) after the Filing Date and prior to the effective date of such adjustment, the issuance or sale (or deemed issuance or sale) of which did not result in any adjustment to the Conversion Price under this Section 7(a), shall be deemed to have been issued or sold as part of the issuance or sale (or deemed issuance or sale) giving rise to such adjustment for the same consideration per share as the Corporation received in the issuance or sale (or deemed issuance or sale) giving rise to such adjustment, and (B) any Options or Convertible Securities that provide, as of the effective date of such adjustment, for the issuance upon exercise or conversion thereof of an indeterminable number of shares of Common Stock shall (together with the shares of Common Stock issuable upon exercise or conversion thereof) be disregarded; PROVIDED, that at such time as the number of shares of Common Stock issuable upon exercise or conversion of such Options or Convertible Securities becomes determinable, the Conversion Price shall be adjusted as provided in Section 7(a)(iii) above. (x) COMMON STOCK DEEMED OUTSTANDING. For purposes of this Section 7, the term "Common Stock Deemed Outstanding" shall mean, at any time, the sum of (A) the number of shares of Common Stock outstanding immediately prior to the Filing Date (including for this purpose all shares of Common Stock issuable upon exercise or conversion of any Options or Convertible Securities outstanding immediately prior to the Filing Date), PLUS (B) the number of shares of Common Stock issued or sold (or deemed issued or sold) after the Filing Date, the issuance or sale of which resulted in an adjustment to the Conversion Price pursuant to Section 7(a) hereof, PLUS (C) the number of shares of Common Stock deemed issued or sold pursuant to Section 7(a)(ix)(A) above; PROVIDED, that Common Stock Deemed Outstanding shall not include the Series A Preferred Stock or any shares of Common Stock issuable upon conversion of the Series A Preferred Stock. (b) CERTAIN ISSUES OF COMMON STOCK EXCEPTED. Anything herein to the contrary notwithstanding, the Corporation shall not be required to make any adjustment of the Conversion Price in the case of the issuance from and after the Filing Date of (i) shares of Common Stock upon conversion of shares of Series A Preferred Stock, upon conversion of other convertible securities issued prior to the Filing Date, or upon exercise of warrants issued prior to the Filing Date, and (ii) up to 22,625,000 shares of Common Stock or options therefor to 14 directors, officers, employees or consultants of the Corporation in connection with their service as directors of the Corporation, their employment by the Corporation or their retention as consultants by the Corporation, in each case authorized by the Board of Directors and issued pursuant to the Corporation's 2000 Equity Incentive Plan or 401K Plan ("EXCLUDED SHARES"). (c) SUBDIVISION OR COMBINATION OF COMMON STOCK. In case the Corporation shall at any time after the Filing Date subdivide its outstanding shares of Common Stock into a greater number of shares (by any stock split, stock dividend or otherwise), the Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely, in case the Corporation shall at any time after the Filing Date combine its outstanding shares of Common Stock into a smaller number of shares (by any reverse stock split or otherwise), the Conversion Price in effect immediately prior to such combination shall be proportionately increased. In the case of any such subdivision, no further adjustment shall be made pursuant to Section 7(a)(iv) hereof by reason thereof. (d) REORGANIZATION OR RECLASSIFICATION. If any capital reorganization or reclassification of the capital stock of the Corporation shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization or reclassification, lawful and adequate provisions shall be made whereby each holder of a share or shares of Series A Preferred Stock shall thereupon have the right to receive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon the conversion of such share or shares of Series A Preferred Stock, as the case may be, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore receivable upon such conversion had such reorganization or reclassification not taken place, and in any such case appropriate provisions shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights. (e) MERGERS, ASSET SALES AND CHANGE OF CONTROL TRANSACTIONS. Upon the election of a Supermajority Interest made in connection with any merger or consolidation of the Corporation with or into another corporation, any sale, lease, license or transfer of all or substantially all of the assets of the Corporation to another corporation or any Change of Control Transaction, each share of Series A Preferred Stock shall remain outstanding and shall thereafter be convertible (or shall be converted into a security which shall be convertible) into the kind and amount of securities or other property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such share of Series A Preferred Stock would have been entitled upon such merger, consolidation, asset sale or Change of Control Transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors) shall be made in the application of the provisions in Section 7 hereof set forth with respect to the rights and interests thereafter of the holders of the Series A Preferred Stock, to the end that the provisions set forth in Section 7 hereof (including provisions with respect to changes in and other adjustments of the Conversion Price) shall thereafter be applicable, as nearly as possible, in relation to any securities or other property thereafter deliverable upon the conversion 15 of the Series A Preferred Stock. Any election by a Supermajority Interest pursuant to this Section 7(e) shall be made by written notice to the Corporation and the other holders of Series A Preferred Stock at least five (5) days prior to the closing of the relevant transaction. Upon the election of such Supermajority Interest hereunder, all holders of Series A Preferred Stock shall be deemed to have elected to so participate in such merger, consolidation, asset sale or Change of Control Transaction as provided in this Section 7(e) and such election shall bind all holders of Series A Preferred Stock. Notwithstanding anything to the contrary contained herein, the holders of shares of Series A Preferred Stock or a Supermajority Interest, as applicable, shall have the right to elect to give effect to the conversion rights contained in Section 6 hereof or the rights contained in Section 4(c) hereof, if applicable, instead of giving effect to the provisions contained in this Section 7(e) with respect to the shares of Series A Preferred Stock held by such holders. 8. COVENANTS. So long as at least 250,000 shares of the originally issued shares of Series A Preferred Stock (as adjusted appropriately for stock splits, stock dividends, combinations, recapitalizations and similar transactions) remain outstanding, the Corporation shall not, and shall not permit any of its subsidiaries to (in any case, by merger, consolidation, operation of law or otherwise), without first having provided written notice of such proposed action to each holder of outstanding shares of Series A Preferred Stock and having obtained the affirmative vote or written consent of the holders of a Supermajority Interest: (a) increase, decrease or otherwise modify the size of the Board of Directors of the Corporation such that the number of directors constituting the full Board of Directors of the Corporation shall not be seven (7); (b) declare or pay any dividends or make any distributions of cash, property or securities in respect of its capital stock, or apply any of its assets to the redemption, retirement, purchase or other acquisition of its capital stock, directly or indirectly, through subsidiaries or otherwise, except for the redemption of Series A Preferred Stock pursuant to and as provided in this Certificate of Designations; (c) reclassify any capital stock of the Corporation; (d) other than securities issuable pursuant to warrants in existence on the Filing Date, authorize or issue, or obligate itself to issue, any convertible debt or other debt with any equity participation, any securities convertible into or exercisable or exchangeable for any equity securities, or any other equity security, in any case ranking senior to or on parity with the Series A Preferred Stock as to liquidation, sale or merger preferences, redemption, covenant or dividend rights, or with any special voting rights; (e) amend, alter or repeal (whether by merger, consolidation, operation of law, or otherwise) any provision of, or add any provision to, the Articles of Incorporation or this Certificate of Designations (in each case including, without limitation, increasing the total number of shares of preferred stock (including the Series A Preferred Stock) or Common Stock that the Corporation shall have the authority to issue) or the bylaws of the Corporation as in effect on the Closing Date; 16 (f) effect any Liquidation Event, any Change of Control Transaction or any other event described in Section 4(c) hereof; (g) effect the sale, transfer, license or lease of any assets of the Corporation or any subsidiary to any person or entity other than the Corporation or a wholly-owned subsidiary of the Corporation, other than in the ordinary course of business; (h) permit any subsidiary of the Corporation to issue any capital stock, or any securities convertible into or exercisable or exchangeable for capital stock or other securities of such subsidiary, to any person or entity other than to the Corporation or a wholly owned subsidiary of the Corporation; (i) make any material change in the nature or conduct of the Corporation's business that results in the Corporation being primarily engaged in a line of business other than information storage or information technology services. (j) enter into or consummate a transaction or a series of related transactions with any officer, director, or stockholder or any affiliate thereof or of the Corporation which transaction(s) has a value in excess of $50,000 in the aggregate, other than as part of the normal and customary terms of such person's employment, consultancy or service as a director with the Corporation; (k) adopt or amend, or cause any subsidiary of the Corporation to adopt or amend, any stock option plans or equity incentive plans other than amendments to increase the number of shares of Common Stock reserved for issuance as of the Filing Date under the Corporation's stock option plans adopted on or prior to the Filing Date by an aggregate total of five percent (5%); or (l) enter into any agreement to do any of the foregoing that is not expressly made conditional on obtaining the affirmative vote or written consent of a Supermajority Interest. Further, the Corporation shall not, by amendment, alteration or repeal of the Articles of Incorporation or this Certificate of Designations (in each case whether by merger, consolidation, operation of law, or otherwise) or through any Liquidation Event, any event described in Section 4(c) hereof, or any other reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, agreement 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 and shall at all times in good faith assist in the carrying out of all the provisions of the Articles of Incorporation and this Certificate of Designations and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Series A Preferred Stock against impairment. Any successor to the Corporation shall agree in writing, as a condition to such succession, to carry out and observe the obligations of the Corporation hereunder with respect to the Series A Preferred Stock. 17 9. PURCHASE RIGHTS. (a) RIGHT TO PURCHASE CERTAIN SECURITIES. Except in the case of Excluded Shares, if at any time or from time to time after the Filing Date, the Corporation proposes to issue or sell any shares of Common Stock or other capital stock of the Corporation, Options or Convertible Securities or (the "Proposed Securities"), then each holder of Series A Preferred Stock shall be entitled to acquire a portion of such Proposed Securities on the following terms: (i) The Corporation shall submit a written notice to each holder of the Series A Preferred Stock identifying the terms of the proposed sale of the Proposed Securities (including price, number or aggregate principal amount of securities, the voting powers, preferences and relative participating, optional or other special rights, all other material terms and such other information the holders of Series A Preferred Stock may reasonably request in order to evaluate the proposed issuance); (ii) The Corporation shall offer to each holder of Series A Preferred Stock the opportunity to purchase a portion of the Proposed Securities equal to the product of (1) the number of Proposed Securities, and (2) a fraction, the numerator of which is the number of shares of Common Stock Owned by the holder of Series A Preferred Stock and the denominator of which is the total number of shares of Common Stock Deemed Outstanding, including for purposes of this calculation all shares of Common Stock Owned by the holder of Series A Preferred Stock (such portion of the Proposed Securities is hereinafter referred to as the "First Right Securities"). For the purposes hereof, "Owned" shall mean beneficial ownership, assuming the conversion of all outstanding securities convertible into Common Stock and the exercise of all outstanding options or warrants to acquire Common Stock; and (iii) The Corporation's offer to the holders of Series A Preferred Stock pursuant to this Section 9 shall be on terms and conditions, including price, which, taken as a whole, are not less favorable than those on which the Corporation proposes to sell such securities to a third party or parties and shall remain open and irrevocable for a period of twenty (20) days following the Corporation's mailing to the holders of Series A Preferred Stock of the notice described in clause (a) above (the "First Right Offer Period"). (b) ACCEPTANCE BY HOLDERS OF SERIES A PREFERRED STOCK. Each holder of Series A Preferred Stock may elect to purchase his or her First Right Securities by giving written notice thereof to the Corporation prior to the expiration of the First Right Offer Period, including in such written notice the number of First Right Securities that the holder of Series A Preferred Stock wishes to purchase (the "Accepted First Right Securities"). (c) SALE TO THIRD PARTY. Any securities so offered that are not purchased by the holders of Series A Preferred Stock pursuant to the offers set forth in Sections 9(a) and (b) above, may be sold by the Corporation, but only on terms and conditions not more favorable than 18 those set forth in the notice to holders of Series A Preferred Stock, at any time within sixty (60) calendar days following the termination of the above-referenced twenty (20) day period, but may not be sold to any other person or on terms and conditions, including price, which, taken as a whole, are more favorable to the purchaser than those set forth in such offer or after such sixty (60) day period without renewed compliance with this Section 9. (d) CLOSING. The closing of the purchase of any Accepted First Right Securities by a holder of Series A Preferred Stock shall take place not later than thirty (30) calendar days after the expiration of the First Right Offer Period and shall be held at the principal office of the Corporation unless otherwise mutually agreed. At such closing, the Corporation shall cause to be delivered to the holders of Series A Preferred Stock who have elected to purchase Accepted First Right Securities, certificates or other instruments, as applicable, evidencing such Accepted First Right Securities in exchange for the purchase price paid therefor. 10. NOTICE; ADJUSTMENTS; WAIVERS. (a) LIQUIDATION EVENTS, ETC. In the event (i) the Corporation establishes a record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution or who are entitled to vote at a meeting (or by written consent) in connection with any of the transactions identified in clause (ii) hereof, or (ii) any Liquidation Event, event deemed a Liquidation Event pursuant to Section 4(c) hereof, or any public offering becomes reasonably likely to occur, the Corporation shall mail or cause to be mailed by first class mail (postage prepaid) to each holder of Series A Preferred Stock at least thirty (30) days prior to such record date specified therein or the expected effective date of any such transaction, whichever is earlier, a notice specifying (A) the date of such record date for the purpose of such dividend or distribution or meeting or consent and a description of such dividend or distribution or the action to be taken at such meeting or by such consent, (B) the date on which any such Liquidation Event or event deemed a Liquidation Event pursuant to Section 4(c) hereof is expected to become effective, and (C) the date on which the books of the Corporation shall close or a record shall be taken with respect to any such event. Such notice shall be accompanied by a certificate prepared by the chief financial officer of the Corporation describing in detail (1) the facts of such transaction, (2) the amount(s) per share of Series A Preferred Stock or Common Stock each holder of Series A Preferred Stock would receive pursuant to the applicable provisions of the Articles of Incorporation (including this Certificate of Designations), and (3) the facts upon which such amounts were determined. (b) ADJUSTMENTS; CALCULATIONS. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to Section 7, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth in detail (i) such adjustment or readjustment, (ii) the Conversion Price before and after such adjustment or readjustment, 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 such holder's shares of Series A Preferred Stock. All such calculations shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share as the case may be. 19 (c) WAIVER OF NOTICE. The holder or holders of a Supermajority Interest may, at any time upon written notice to the Corporation, waive any notice or certificate delivery provisions specified herein for the benefit of such holders, and any such waiver shall be binding upon all holders of such securities. (d) OTHER WAIVERS. The holder or holders of a Supermajority Interest may, at any time upon written notice to the Corporation, waive compliance by the Corporation with any term or provision herein, provided that any such waiver does not affect any holder of outstanding shares of Series A Preferred Stock in a manner materially different than any other holder, and any such waiver shall be binding upon all holders of Series A Preferred Stock and their respective transferees. 11. NO REISSUANCE OF SERIES A PREFERRED STOCK. No share or shares of Series A Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue. 12. CONTRACTUAL RIGHTS OF HOLDERS. The various provisions set forth herein for the benefit of the holders of the Series A Preferred Stock shall be deemed contract rights enforceable by them, including, without limitation, one or more actions for specific performance. 20 EX-99.4 5 c33598_ex99-4.txt Exhibit 99.4 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of August 18, 2004, between FRONT PORCH DIGITAL, INC., a Nevada corporation (the "Company"), and each Person whose name appears on SCHEDULE A attached hereto (each a "Former MSI Stockholder"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to the terms of an Agreement and Plan of Merger dated as of August 16, 2004 (the "Merger Agreement") between the Company, ManagedStorage International, Inc., a Delaware corporation, and Front Porch Merger Corp., a Delaware corporation, on the date hereof, the Company has agreed to issue to certain Former MSI Stockholders such number of shares of Series A Convertible Preferred Stock, $.001 par value, of the Company (the "Series A Preferred Stock") as determined pursuant to the Merger Agreement; and WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Merger Agreement, the Company has agreed to provide certain registration rights pursuant to the terms of this Agreement; NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS. For purposes of this Agreement, capitalized terms used herein shall have the meanings set forth in the preambles hereto and in this Section 1. 1.1 "COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. 1.2 "COMMON STOCK" shall mean the common stock, par value $.001 per share, of the Company or, in the case of a conversion, reclassification or exchange of such shares of such Common Stock, shares of the stock issued or issuable in respect of such shares of Common Stock, and all provisions of this Agreement shall be applied appropriately thereto and to any stock resulting therefrom. 1.3 "CURRENT SB-2" shall mean the Company's Registration Statement on Form SB-2 filed with the Commission on June 29, 2004, as previously or hereafter amended. 1.4 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute enacted hereafter, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 1.5 "EXISTING RIGHTS AGREEMENTS" shall mean (i) the warrant agreements originally dated as of October 10, 2000 between the Company and the Original Warrantholders for the purchase of an aggregate of 900,000 shares of Common Stock and any warrant agreement executed and delivered by the Company upon the registration or transfer of any warrants evidenced by such warrant agreements, (ii) the Registration Rights Agreement dated as of October 10, 2000 between the Company and Equity Pier LLC and (iii) the warrant agreement between the Company and Equity Pier LLC dated February 28, 2001 for the purchase of up to 3,324,696 shares of Common Stock. 1.6 "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the Commission. 1.7 "FORMER MSI SERIES A HOLDER RIGHTS AGREEMENT" means that certain Registration Rights Agreement of even date herewith, by and among the Company and Providence Equity Partners III, L.P., Providence Equity Operating Partners III, L.P. and First Union Capital Partners. 1.8 "HOLDER" shall mean any holder of Registrable Securities. 1.9 "INITIATING HOLDERS" shall mean Holders representing (on a fully diluted basis) at least fifty-one percent (51%) of the total number of Registrable Securities. 1.10 "ORIGINAL WARRANTHOLDERS" shall mean Hawke Company Ltd, Tillgrove Investments Ltd and Madona Resources Ltd. 1.11 "PERSON" shall mean any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind. 1.12 "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a registration effected by preparing and filing a registration statement with the Commission in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement by the Commission. 1.13 "REGISTRABLE SECURITIES" shall mean (A) (i) the shares of Common Stock and (ii) the shares of Common Stock issued or issuable upon the conversion of the shares of Series A Preferred Stock, issued to the Former MSI Stockholders pursuant to the Merger Agreement, and (B) any stock of the Company issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares of Series A Preferred Stock or Common Stock referred to in clause (A); PROVIDED, HOWEVER, that such shares of Common Stock shall only be treated as Registrable Securities hereunder if and so long as they have not been sold in a registered public offering or have not been sold to the public pursuant to Rule 144 under the Securities Act or any similar or successor rule. 1.14 "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in compliance herewith, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, blue sky fees and expenses, the reasonable fees and expenses (subject to documentation thereof) of one counsel for all Holders and Other Stockholders that offer securities being sold pursuant to the Existing Rights Agreements, and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). 1.15 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute enacted hereafter, and the rules and regulations of the Commission thereunder, all as the same shall be in effect from time to time. 1.16 "SELLING EXPENSES" shall mean all underwriting discounts and commissions applicable to the sale of Registrable Securities. 2. REQUESTED REGISTRATION. 2.1 REQUEST FOR REGISTRATION. At any time after February 18, 2006 (such date being hereinafter referred to as the "Demand Date"), if the Company shall receive from Initiating Holders a written request that the Company effect any registration with respect to Registrable Securities the Company will: (a) promptly give written notice of the proposed registration to all other Holders; and (b) as soon as practicable, use all reasonable efforts to effect such registration (including, without limitation, the execution of an undertaking to file post- effective amendments, appropriate qualification under the blue sky or other state securities laws requested by Initiating Holders and appropriate compliance with applicable regulations issued under the Securities Act) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request given within thirty (30) days after receipt of such written notice from the Company; provided, that the Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 2: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder; (ii) less than ninety (90) calendar days after the effective date of any registration declared or ordered effective other than a registration on Form S-3 or Form S-8; (iii) if, while a registration request is pending pursuant to this Section 2, the Company determines, in the good faith judgment of the Board of Directors of the Company, with the advice of counsel, that the filing of a registration statement would require the disclosure of non-public material information the disclosure of which would have a material adverse effect on the Company or would otherwise materially adversely affect a financing, acquisition, disposition, merger or other significant transaction, in which event the Company shall deliver a certificate to such effect signed by its President to the proposed selling Holders and the Company shall not be required to effect a registration pursuant to this Section 2 until the earlier of (A) three (3) days after the date upon which such material information is disclosed to the public or ceases to be material or (B) 90 days after the Company makes such good faith determination; provided, however, that the Company shall not utilize the right under this Section 2.1(a)(iii) more than once in any twelve month period; or (iv) except as set forth in Section 2.5, after the second such registration pursuant to this Section 2.1 has been declared or ordered effective. Subject to the foregoing clauses (i), (ii), (iii) and (iv), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. 2.2 ADDITIONAL SHARES TO BE INCLUDED. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Sections 2.4 and 3.3 below, include (a) other securities of the Company (the "Additional Shares") which are held by (i) officers or directors of the Company who, by virtue of agreements with the Company, are entitled to include their securities in any such registration or (ii) other persons who, by virtue of agreements with the Company, including the Existing Rights Agreements, are entitled to include their securities in any such registration (the "Other Stockholders"), and (b) securities of the Company being sold for the account of the Company. 2.3 UNDERWRITING. (a) If 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 this Section 2 and the Company shall include such information in the written notice to other Holders referred to in Section 2.1 above. The right of any Holder to registration pursuant to this Section 2 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 and subject to the limitations provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he holds. (b) The Company shall (together with all Holders, officers, directors and Other Stockholders proposing to distribute their securities through such underwriting) negotiate and enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriter(s) shall be reasonably acceptable to the Company. 2.4 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, first the Additional Shares and any securities being sold for the account of the Company shall be excluded from such registration pursuant to the priorities set forth in Section 3.3 of this Agreement and, if a limitation on the number of shares is still required, the number of shares that may be included in the registration and underwriting shall be allocated among all Holders, including Initiating Holders, in proportion, as nearly practicable, to the respective amounts of Registrable Securities which they have requested to be included in such registration statement. If the Company or any Holder, officer, director or Other Stockholder who has requested inclusion in such registration as provided above disapproves of the terms of any such underwriting, such Person may elect to withdraw such Person's Registrable Securities or Additional Shares therefrom by written notice to the Company and the underwriter and the Initiating Holders. Any Registrable Securities or other securities excluded shall also be withdrawn from such registration. No Registrable Securities or Additional Shares excluded from such registration by reason of such underwriters' marketing limitation shall be included in such registration. To facilitate the allocation of shares in accordance with this Section 2.4, the Company or underwriter or underwriters selected as provided above may round the number of Registrable Securities of any Holder which may be included in such registration to the nearest 100 shares. 2.5 ADDITIONAL DEMAND REGISTRATION. If with respect to the last registration permitted to be exercised by the Holders of Registrable Securities under Section 2.1, the Holders are unable to register all of their Registrable Securities because of the operation of Section 2.4 hereof, such Holders shall be entitled to require the Company to effect one additional registration to afford the Holders an opportunity to register all such Registrable Securities. Such additional registration shall again be subject to the provisions of this Section 2. 3. COMPANY REGISTRATION. 3.1 If the Company shall determine to register under the Securities Act any of its equity securities or securities convertible into equity securities either for its own account or the account of a security holder or holders exercising any demand registration rights, other than a registration relating solely to employee benefit plans, or a registration relating solely to a Commission Rule 145 transaction, or a registration on Form S-4 or S-8 (or any successor forms thereto), the Company will: (a) promptly give to each Holder written notice thereof (which shall include a list of the jurisdictions in which the Company intends to attempt to qualify such securities under the applicable blue sky or other state securities laws); and (b) include in such registration (and, subject to Section 2.1(b)(i), any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or request, made by any Holder within thirty (30) days after receipt of the written notice from the Company described in clause (a) above, except as set forth in Section 3.3 below. Such written request may specify all or a part of a Holder's Registrable Securities. 3.2 UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.1(a). The right of any Holder to registration pursuant to this Section 3 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 and any officers, directors or Other Stockholders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. 3.3 LIMITATIONS ON SHARES TO BE INCLUDED. Notwithstanding any other provision of this Section 3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation or elimination on the number of shares to be underwritten, the representative may (subject to the allocation priority set forth below) limit the number of or eliminate the Registrable Securities to be included in the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated as follows: first, if such underwritten offering shall have been initiated by the Company for the sale of securities for its own account, to the Company for securities being sold for its own account; second, among the Other Stockholders that offer securities being sold pursuant to the Existing Rights Agreements, in proportion, as nearly as practicable, to the respective amounts of Additional Shares which they had requested to be included in such registration pursuant to the Existing Rights Agreements; third, among the Holders and the Other Stockholders that offer securities being sold pursuant to the Former MSI Series A Rights Agreements, in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which they had requested to be included in such registration; and thereafter, the number of shares that may be included in the registration statement and underwriting shall be allocated among all officers or directors or remaining Other Stockholders, in each case in proportion, as nearly as practicable, to the respective amounts of Additional Shares which they had requested to be included in such registration at the time of filing the registration statement. If any Holder of Registrable Securities or any officer, director or Other Stockholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. 4. REGISTRATIONS ON FORM S-3. 4.1 Anything contained in Section 2 to the contrary notwithstanding, at any time after the Demand Date and if the Company is then qualified for the use of Form S-3, the Holders representing (on a fully diluted basis) at least twenty percent (20%) of the total number of Registrable Securities (the "FORM S-3 INITIATING HOLDERS") shall have the right to request in writing unlimited registrations of Registrable Shares on Form S-3, which request or requests shall (i) specify the number of Registrable Shares intended to be sold or disposed of and the holders thereof and (ii) state the intended method of disposition of such Registrable Shares, and upon receipt of any such request, the Company shall use all reasonable efforts promptly to effect the registration under the Securities Act of the Registrable Shares so requested to be registered. A requested registration on Form S-3 in compliance with this Section 4 shall not count as a Registration Statement initiated pursuant to Section 2 for purposes of determining the number of registrations which may be requested by the Initiating Holders under such Section, but shall otherwise be treated as a registration initiated pursuant to, and shall be subject to, the provisions of Section 2. 4.2 Anything contained in Section 4.1 to the contrary notwithstanding, the Company shall not be obligated to effect, or take any action to effect, any registration under the Securities Act pursuant to Section 4.1: (a) Unless the Form S-3 Initiating Holders propose to dispose of shares of Registrable Securities having an aggregate price to the public (before deduction of Selling Expenses) of more than $7,500,000; (b) Within one hundred eighty (180) days of the effective date of the most recent registration pursuant to this Section 4 in which securities held by the requesting Holder could have been included for sale or distribution; (c) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act or applicable rules or regulations thereunder; (d) If the Company shall furnish to the Form S-3 Initiating Holders a certificate signed by the President of the Company stating that the Company intends in good faith to file within ninety (90) days after the date of such notice a registration statement pertaining to securities of the Company and in which the Form S-3 Initiating Holders may request inclusion of Registrable Securities pursuant to Section 3, then, during the period starting with the date of such notice and ending on the date six (6) months immediately following the effective date of such registration statement, PROVIDED that the Company actively employs in good faith all reasonable efforts to cause such registration statement to become effective; PROVIDED, HOWEVER, that the Company may only delay an offering pursuant to this Section 4.2(d) for a period of not more than ninety (90) days, if a filing of any other registration statement is not made within that period and the Company may only exercise the right specified in this clause (d) once in any twelve (12)-month period; or (e) If the Company determines, in the good faith judgment of the Board of Directors of the Company, with the advice of counsel, that the filing of a registration statement would require the disclosure of non-public material information the disclosure of which would have a material adverse effect on the Company or would otherwise materially adversely affect a financing, acquisition, disposition, merger or other significant transaction, in which event the Company shall deliver a certificate to such effect signed by its President to the Form S-3 Initiating Holders and the Company shall not be required to effect a registration under this Section 4 until the earlier of (A) three (3) days after the date upon which such material information is disclosed to the public or ceases to be material or (B) 90 days after the Company makes such good faith determination; PROVIDED, HOWEVER, that the Company shall not utilize the right under this Section 4.2(e) more than once in any twelve (12) month period 5. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2, 3 or 4 of this Agreement shall be borne by the Company, except that Selling Expenses shall be borne pro rata by each Holder in accordance with the number of shares sold. 6. REGISTRATION PROCEDURES. 6.1 In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof and will, at its expense: (a) use all reasonable efforts to keep such registration effective for a period of 180 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; provided, however, that the Company will keep such registration effective for longer than 180 days if the costs and expenses associated with such extended registration are borne by the selling Holders; and provided, further, that in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 180-day period shall, at the cost and expense of the Company, be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Securities Act, permits an offering on a continuous or delayed basis, and provided, further, that applicable rules and regulations under the Securities Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (y) includes any prospectus required by Section 10(a)(3) of the Securities Act or (z) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information otherwise required to be included in such post-effective amendment covered by (y) and (z) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the registration statement; (b) Prepare and file with the Commission 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 Securities Act with respect to the disposition of all securities covered by such registration statement; (c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request; (d) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities 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 or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such shares, such prospectus shall not include an 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 not misleading or incomplete in the light of the circumstances then existing; (e) List all such Registrable Securities registered in such registration on each securities exchange or automated quotation system on which the Common Stock of the Company is then listed; (f) Provide a transfer agent and registrar for all Registrable Securities and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; (g) Make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney or accountant retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers and directors to supply all information reasonably requested by any such seller, underwriter, attorney or accountant in connection with such registration statement; (h) Furnish to each selling Holder upon request a signed counterpart, addressed to each such selling Holder, of (i) an opinion of counsel for the Company, dated the effective date of the registration statement in form reasonably acceptable to the Company and such counsel, and (ii) "comfort" letters signed by the Company's independent public accountants who have examined and reported on the Company's financial statements included in the registration statement, to the extent permitted by the standards of the American Institute of Certified Public Accountants, covering such matters as are customarily covered in opinions of issuer's counsel and accountants' "comfort" letters delivered to underwriters in underwritten public offerings of securities; (i) Furnish to each selling Holder upon request a copy of all documents filed with and all correspondence from or to the Commission in connection with any such offering; and (j) Make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month after the effective date of the Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act. 6.2 It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement that the Holders proposing to register Registrable Securities shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and their intended method of distribution of such Registrable Securities as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. 6.3 In connection with the preparation and filing of each registration statement under this Agreement, the Company will give the Holders on whose behalf such Registrable Securities are to be registered and their underwriters, if any, and their respective counsel and accountants, the opportunity to review such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each such Holder such access to the Company's books and records and such opportunities to discuss the business of the Company with its officers, its counsel and the independent public accountants who have certified the Company's financial statements, as shall be necessary, in the opinion of such Holders or such underwriters or their respective counsel, in order to conduct a reasonable and diligent investigation within the meaning of the Securities Act. 6.4 Notwithstanding anything to the contrary contained in this Agreement, the Company shall have no obligation, and the Holders shall have no right, to include any Registrable Securities in the registration under the Securities Act effected pursuant to the Current SB-2. 7. INDEMNIFICATION. 7.1 INDEMNIFICATION BY THE COMPANY. The Company will indemnify each Holder, each of its officers, employees, agents, directors and partners (including partners of partners and shareholders of such partners), and each person controlling (within the meaning of the Securities Act) such Holder, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each underwriter, if any, and each Person who controls any underwriter, against all claims, losses, damages and liabilities (or actions, proceedings or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any 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 any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers, employees, agents, directors and partners (including partners of partners and shareholders of such partners), and each person controlling (within the meaning of the Securities Act) such Holder, each such underwriter and each Person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability or action as the same are incurred, PROVIDED that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission made in reliance upon and based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. 7.2 INDEMNIFICATION BY THE HOLDERS. Each Holder will, if Registrable Securities held by him are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company (other than such Holder) or such underwriter within the meaning of the Securities Act and the rules and regulations thereunder, each other such Holder and each of their officers, directors and partners, and each Person controlling such Holder or other stockholder, against all claims, losses, damages, expenses and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained, on the effective date thereof, in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, each of its directors and officers, each underwriter or control Person, each other Holder and each of their officers, directors and partners and each Person controlling such Holder or other stockholder for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; PROVIDED, HOWEVER, that in no event shall the liability of any Holder for indemnification under this Section 7 in its capacity as a seller of Registrable Securities exceed the amount equal to the proceeds to such Holder of the securities sold in any such registration; and PROVIDED FURTHER, however, that no selling Holder shall be required to indemnify any Person against any liability arising from any untrue or misleading statement or omission contained in any preliminary prospectus if such deficiency is corrected in the final prospectus or for any liability which arises out of the failure of any Person to deliver a prospectus as required by the Securities Act. 7.3 NOTICES OF CLAIMS, PROCEDURES, ETC. Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at the Indemnified Party's sole expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 7 unless such failure is prejudicial to the ability of Indemnifying Party to defend such claim or action. Notwithstanding the foregoing, such Indemnified Party shall have the right to employ its own counsel in any such litigation, proceeding or other action if (i) the employment of such counsel has been authorized by the Indemnifying Party, in its sole and absolute discretion, or (ii) the named parties in any such claims (including any impleaded parties) include any such Indemnified Party and the Indemnified Party and the Indemnifying Party shall have been advised in writing (in suitable detail) by counsel to the Indemnified Party either (A) that there may be one or more legal defenses available to such Indemnified Party which are different from or additional to those available to the Indemnifying Party, or (B) that there is a conflict of interest by virtue of the Indemnified Party and the Indemnifying Parties having common counsel, in any of which events, the legal fees and expenses of a single counsel for all Indemnified Parties with respect to each such claim, defense thereof, or counterclaims thereto shall be borne by Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall cooperate to the extent reasonably required and furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. 8. INFORMATION BY HOLDER. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement. 9. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted by the Company under this Agreement may be transferred or assigned by a Holder to a transferee or assignee of any Registrable Securities; provided that the Company is given written notice at or prior to the time of said transfer or assignment, stating the name and address of said transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned; and provided further that the transferee or assignee of such rights assumes in writing the obligations of a Holder under this Agreement to the Company and other Holders in effect at the time of transfer under all effective agreements. 10. EXCHANGE ACT COMPLIANCE. So long as the Company remains subject to the reporting requirements of the Exchange Act, the Company shall file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder, and will take all actions reasonably necessary to enable holders of Registrable Securities to sell such securities without registration under the Securities Act within the limitation of the provisions of (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, (b) Rule 144A under the Securities Act, as such Rule may be amended from time to time, if applicable or (c) any similar rules or regulations hereunder adopted by the Commission. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. 11. NO CONFLICT OF RIGHTS. Without the consent of holders of 80% of the Registrable Securities, the Company will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the Holders in this Agreement. Without limiting the generality of the foregoing, the Company will not hereafter enter into or modify any agreement with respect to its securities which grants, or modifies any existing agreement with respect to its securities to grant, to a holder of its securities in connection with an incidental registration of such securities equal or higher priority to the rights granted to the Holders under Sections 2, 3 and 4 of this Agreement. The Company hereby represents and warrants to each Holder that the execution, delivery or performance of this Agreement does not (including with the passage of time) (i) constitute a breach or an event of default under any Existing Rights Agreement and any other agreement between the Company and any Other Stockholder, or (ii) cause or trigger a right of termination or right of acceleration under any such agreement. 12. BENEFITS OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns, legal representatives and heirs. Except as provided in Section 9 above, this Agreement does not create, and shall not be construed as creating, any rights enforceable by any other Person. 13. COMPLETE AGREEMENT. This Agreement constitutes the complete understanding among the parties with respect to its subject matter and supersedes all existing agreements and understandings, whether oral or written, among them. No alteration or modification of any provisions of this Agreement shall be valid unless made in writing and signed, on the one hand, by the Holders of a majority of the Registrable Securities then outstanding and, on the other, by the Company. 14. SECTION HEADINGS. The section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 15. NOTICES. All notices, offers, acceptances and other communications required or permitted to be given or to otherwise be made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered by hand, first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next day delivery, if to the Company, at 1140 Pearl Street, Boulder, Colorado 80302, Attention: Chief Financial Officer, with a copy to Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New York 10022, Attention: Eric M. Hellige, Esq., and if to any Holder, to the address listed on Schedule A attached hereto or at such other address as may have been furnished the Company in writing. All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five business days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any party may change the address to which each such notice or communication shall be sent by giving written notice to the other parties of such new address in the manner provided herein for giving notice. 16. GOVERNING LAW. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware without giving effect to the provisions, policies or principles thereof respecting conflict or choice of laws. 17. COUNTERPARTS. This Agreement may be executed in one or more counterparts each of which shall be deemed an original but all of which taken together shall constitute one and the same agreement. 18. SEVERABILITY. Any provision of this Agreement which is determined to be illegal, prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such illegality, prohibition or unenforceability without invalidating the remaining provisions hereof which shall be severable and enforceable according to their terms and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. IN WITNESS WHEREOF, the parties have signed this Registration Rights Agreement as of the date first set forth above. FRONT PORCH DIGITAL INC. By: /s/ Michael Knaisch ------------------------------ Name: Michael Knaisch Title: Chief Executive Officer IN WITNESS WHEREOF, the parties have signed this Registration Rights Agreement as of the date first set forth above. FORMER MSI STOCKHOLDERS GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP By: Great Hill Partners GP, LLC, its General Partner By: /s/ Christopher S. Gaffney ------------------------------- Name: Christopher S. Gaffney Title: Manager GREAT HILL INVESTORS, LLC By: /s/ Christopher S. Gaffney ------------------------------- Name: Christopher S. Gaffney Title: Manager IN WITNESS WHEREOF, the parties have signed this Registration Rights Agreement as of the date first set forth above. JPMORGAN CHASE BANK, as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC By: /s/ Robert E. Kiss --------------------------------------- Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC By: /s/ Robert E. Kiss --------------------------------------- Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for 522 FIFTH AVENUE FUND, L.P. By: /s/ Robert E. Kiss --------------------------------------- Name: Robert E. Kiss Title: Portfolio Manager IN WITNESS WHEREOF, the parties have signed this Registration Rights Agreement as of the date first set forth above. /s/ Thomas P. Sweeney III ------------------------------------ Thomas P. Sweeney III IN WITNESS WHEREOF, the parties have signed this Registration Rights Agreement as of the date first set forth above. TUDOR VENTURES II L.P. By: Tudor Ventures Group, L.P., general partner By: /s/ Carmen J. Scarpa -------------------------------------------------- Name: Carmen J. Scarpa Title: Managing Director, Tudor Ventures Group LLC THE RAPTOR GLOBAL PORTFOLIO LTD. By: Tudor Investment Corporation as Investment Adviser By: /s/ Carmen J. Scarpa -------------------------------------------------- Name: Carmen J. Scarpa Title: Managing Director THE ALTAR ROCK FUND L.P. By: Tudor Investment Corporation as General Partner By: /s/ Carmen J. Scarpa -------------------------------------------------- Name: Carmen J. Scarpa Title: Managing Director SCHEDULE A NAMES AND ADDRESSES OF FORMER MSI STOCKHOLDERS THOMAS P. SWEENEY III ManagedStorage International, Inc. 1140 Pearl Street Boulder, Colorado 80302 GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP GREAT HILLS INVESTORS, LLC c/o Great Hills Partners One Liberty Square Boston, Massachusetts 02109 Attention: Mr. Pat Curran JPMORGAN CHASE BANK, AS INVESTMENT ADVISOR FOR J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC J.P. MORGAN INVESTMENT MANAGEMENT, AS INVESTMENT ADVISOR FOR J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC J.P. MORGAN INVESTMENT MANAGEMENT INC., AS INVESTMENT ADVISOR FOR 522 FIFTH AVENUE FUND, LLC c/o JP Morgan 522 Fifth Avenue New York, New York 10036 Attention: Mr. Robert E. Kiss TUDOR VENTURES II L.P. THE RAPTOR GLOBAL PORTFOLIO LTD. THE ALTAR ROCK FUND L.P. c/o Tudor Ventures 50 Rowes Wharf, 6th Floor Boston, Massachusetts 02110 Attention: Mr. Carmen J. Scarpa EX-99.5 6 c33598_ex99-5.txt Exhibit 99.5 EXECUTION COPY LOCK-UP AND VOTING AGREEMENT LOCK-UP AND VOTING AGREEMENT (the "Agreement") dated as of August 18, 2004, by and among FRONT PORCH DIGITAL INC., a Nevada corporation (the "Company"), and each Person whose name appears on SCHEDULE A attached hereto (each a "Former MSI Stockholder"). W I T N E S S E T H - - - - - - - - - - WHEREAS, pursuant to the terms of an Agreement and Plan of Merger dated as of August 16, 2004 (the "Merger Agreement") between the Company, ManagedStorage International, Inc., a Delaware corporation ("MSI"), and Front Porch Merger Corp., a Delaware corporation, on the date hereof, the Company has agreed to issue to each Former MSI Stockholder such number of shares of Common Stock, $.001 par value, of the Company (the "Common Stock") or Series A Convertible Preferred Stock, $.001 par value, of the Company (the "Series A Preferred Stock") as determined pursuant to the Merger Agreement; and WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Merger Agreement, the Company and the Former MSI Stockholders desire to provide for certain restrictions on the transfer of such shares by the Former MSI Stockholders and the voting agreement by the Former MSI Stockholders as to certain corporate action by the Company; NOW THEREFORE, in consideration of the premises and the mutual covenants of the parties hereto, it is hereby agreed as follows: ARTICLE I CERTAIN DEFINITIONS 1.1 DEFINITIONS. Whenever used in this Agreement, unless otherwise defined or the subject matter or context dictates, the following terms shall have these respective meanings: (a) "Affiliate" shall have the meaning ascribed to it in Rule 12(b)(2) promulgated under the Securities Exchange Act of 1934, as amended. (b) "Agreement" means this Lock-up Agreement, any agreement which is supplementary to or in amendment or confirmation of this Agreement, and any schedules hereto or thereto. (c) "Certificate of Designations" means the Certificate of Designations, Preferences and Rights of the Series A Preferred Stock. (d) "Disposition" shall have the meaning assigned in Section 2.1. (e) "Person" means any individual, estate, trust, partnership, joint venture, limited liability company, association, firm, corporation, company or other entity. (f) "Shares" mean the shares of Common Stock issued to the Former MSI Stockholders pursuant to the Merger Agreement, as well as: (i) any shares into which such shares may be converted, reclassified, redesignated, subdivided, consolidated or otherwise changed; (ii) any shares of the Company or any successor or other body corporate which may be received by the holders of such shares on a merger, amalgamation or other reorganization of or including the Company; and (iii) any securities which may now or hereinafter be convertible or exercisable into such shares, including without limitation, shares of Series A Preferred Stock. (g) "Transfer" shall have the meaning assigned in Section 2.1. 1.2 EXTENDED MEANINGS. Words importing the singular number include the plural and vice versa and words importing gender include all genders. ARTICLE II DISPOSITION OF SHARES 2.1 RESTRICTION ON TRANSFER OF SHARES. (a) Except as provided in Section 2.1(b), prior to February 18, 2006, no Former MSI Stockholder may sell, assign, transfer, mortgage, alienate, pledge, hypothecate, create or permit to exist a security interest in or lien on, place in trust or in any other way encumber or otherwise dispose of (any of the foregoing shall constitute a "Transfer," and the consummation of such being a "Disposition") any Shares now owned or any interest therein except as expressly permitted by the terms and provisions of this Agreement. The Company shall have no obligation to recognize or accede to any Disposition or to register any Transfer of Shares on its books unless such Disposition is effected in accordance with the terms and provisions of this Agreement. No Person who purports to be a holder of Shares acquired in violation of the terms and provisions of this Agreement shall be entitled to any rights with respect to such Shares, including any rights to vote such Shares, to receive any dividends declared thereon, or to receive any notice with respect thereto under this Agreement or otherwise. The sale or transfer of outstanding equity securities of, or the issuance of equity securities of, a Former MSI Stockholder shall not be deemed a `Transfer' for the purposes of this Agreement. (b) Any Former MSI Stockholder may Transfer all or a portion of his, her or its Shares to (i) any Person to which such Former MSI Stockholder shall sell, assign or transfer all or substantially all of its assets; (ii) any Affiliate of such Former MSI Stockholder, including, any funds affiliated with such Former MSI Stockholder, (iii) any member, partner or stockholder of such Former MSI Stockholder; provided, however, that no Transfer of shares of Series A Preferred Stock shall be permitted pursuant to this clause (b)(iii), (iv) any other Former MSI Stockholder, (v) in connection with any sale of all or substantially all of the Company's assets, any Transfer of at least a majority of the Company's outstanding voting securities (as of immediately prior to such transfer) or any merger or consolidation in which the Company is not the surviving entity or any other transaction (or series of related transactions) following which the holders of the Company's outstanding capital stock prior to such transaction(s) do not own a majority of the outstanding capital stock of the Company (or any successor entity) immediately after such transaction (any such transaction, a "Sale Transaction"), or (vi) in connection with its exercise of any "piggy-back" or similar registration rights. If any Former MSI Stockholder intends to make a Disposition of all or a portion of his, her or its Shares pursuant to this paragraph, such Former MSI Stockholder shall give at least 15 days prior written notice of such proposed Disposition to the Company (except in respect of a Disposition pursuant to clauses (v) or (vi) above). Any such notice shall specify the number of Shares subject to such proposed Disposition, identify the proposed transferee and state the relationship between such Former MSI Stockholder and the proposed transferee. ARTICLE III VOTING AGREEMENT Each of the Former MSI Stockholders hereby agrees to vote all of his or its Shares in favor of the resolutions hereafter proposed by the Board of Directors of the Company and submitted to a vote of the stockholders of the Company within ninety (90) days following the date hereof, the purpose of which are to cause the number of authorized but unissued shares of Common Stock to be sufficient to issue the maximum number of such shares issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms of the Certificate of Designations. ARTICLE IV MISCELLANEOUS 4.1 LEGEND. The Company may cause each certificate representing Shares that are subject to this Agreement to have stamped, printed or typed thereon the following legend: The securities represented by this certificate are subject to a Lock-Up, dated as of August 18, 2004, among Front Porch Digital Inc. (the "Company") and certain of its stockholders, a copy of which may be examined at the principal office of the Company. 4.2 NOTICE. Any notice or document required or permitted by this Agreement to be given to a party hereto shall be in writing and is sufficiently given if delivered personally, or if sent by prepaid certified mail, return receipt requested, to the Company or to a Former MSI Stockholder addressed as follows: the Company: Front Porch Digital Inc. 1140 Pearl Street Boulder, Colorado 80302 Attention: Chief Financial Officer with a copy to: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, N.Y. 10022 Attention: Eric M. Hellige, Esq. Former MSI Stockholder: To the address of such Former MSI Stockholder set forth on SCHEDULE A attached hereto or at such other address as may have been furnished the Company in writing. Notice so mailed shall be deemed to have been given upon receipt if delivered personally or on the fifth business day next following the date of the returned receipt. Any notice delivered to the party to whom it is addressed shall be deemed to have been given and received on the day it is delivered. Any party may from time to time notify the others in the manner provided herein of any change of address which thereafter, until changed by like notice, shall be the address of such party for all purposes hereof. 4.3 TERM OF AGREEMENT. (a) The provisions of this Agreement shall terminate upon the consummation of a Sale Transaction, at such time as provided in Articles II and III, respectively, or on such earlier date as is mutually agreed in writing by the Company and the Former MSI Stockholders holding a majority of the then outstanding Shares. (b) Nothing contained in this Section 4.3 shall affect or impair any rights or obligations arising prior to the time of the termination of this Agreement, or which may arise by an event causing the termination of this Agreement. 4.4 SEVERABILITY. If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances. 4.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and together shall constitute one document. 4.6 ENTIRE AGREEMENT; ETC. This Agreement sets forth the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, among the parties hereto and there are no warranties, representations and other agreements between the parties hereto in connection with the subject matter hereof except as specifically set forth herein or therein. No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Company and the Former MSI Stockholders holding a majority of the then outstanding Shares. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 4.7 TRANSFEREES BOUND. Except in connection with a Disposition pursuant to Section 2.1(b)(v) or (vi) hereof, each Disposition otherwise permitted by Article II hereof shall not become effective unless and until the transferee executes and delivers to the Company a counterpart to this Agreement, agreeing to be treated in the same manner as a Former MSI Stockholder. Upon such Disposition and such execution and delivery, the transferee shall be bound by, and entitled to the benefits of, this Agreement with respect to the transferred Shares in the same manner as the transferring Former MSI Stockholder. 4.8 GOVERNING LAW. This Agreement shall be construed in accordance with the internal laws of the State of Delaware applicable to agreements made and to be performed in Delaware. [remainder of page left intentionally blank] IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. FRONT PORCH DIGITAL INC. By: /s/ Michael Knaisch ----------------------------------- Name: Michael Knaisch Title: Chief Executive Officer IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. FORMER MSI STOCKHOLDERS GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP By: Great Hill Partners GP, LLC, its General Partner By: /s/ Christopher S. Gaffney ----------------------------------- Name: Christopher S. Gaffney Title: Manager GREAT HILL INVESTORS, LLC By: /s/ Christopher S. Gaffney ----------------------------------- Name: Christopher S. Gaffney Title: Manager IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. JPMORGAN CHASE BANK, as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC By: /s/ Robert E. Kiss ----------------------------------- Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC By: /s/ Robert E. Kiss ----------------------------------- Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for 522 FIFTH AVENUE FUND, L.P. By: /s/ Robert E. Kiss ----------------------------------- Name: Robert E. Kiss Title: Portfolio Manager IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. TUDOR VENTURES II L.P. By: Tudor Ventures Group, L.P., general partner By: /s/ Carmen J. Scarpa ----------------------------------- Name: Carmen J. Scarpa Title: Managing Director, Tudor Ventures Group LLC THE RAPTOR GLOBAL PORTFOLIO LTD. By: Tudor Investment Corporation as Investment Adviser By: /s/ Carmen J. Scarpa ----------------------------------- Name: Carmen J. Scarpa Title: Managing Director THE ALTAR ROCK FUND L.P. By: Tudor Investment Corporation as General Partner By: /s/ Carmen J. Scarpa ----------------------------------- Name: Carmen J. Scarpa Title: Managing Director SCHEDULE A NAMES AND ADDRESSES OF FORMER MSI STOCKHOLDERS GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP GREAT HILLS INVESTORS, LLC c/o Great Hills Partners One Liberty Square Boston, Massachusetts 02109 Attention: Mr. Pat Curran JPMORGAN CHASE BANK, AS INVESTMENT ADVISOR FOR J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC J.P. MORGAN INVESTMENT MANAGEMENT, AS INVESTMENT ADVISOR FOR J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC J.P. MORGAN INVESTMENT MANAGEMENT INC., AS INVESTMENT ADVISOR FOR 522 FIFTH AVENUE FUND, LLC c/o JP Morgan 522 Fifth Avenue New York, New York 10036 Attention: Mr. Robert E. Kiss TUDOR VENTURES II L.P. THE RAPTOR GLOBAL PORTFOLIO LTD. THE ALTAR ROCK FUND L.P. c/o Tudor Ventures 50 Rowes Wharf, 6th Floor Boston, Massachusetts 02110 Attention: Mr. Carmen J. Scarpa EX-99.6 7 c33598_ex99-6.txt Exhibit 99.6 LOCK-UP AND VOTING AGREEMENT LOCK-UP AND VOTING AGREEMENT (the "Agreement") dated as of August 18, 2004, by and among FRONT PORCH DIGITAL INC., a Nevada corporation (the "Company"), THOMAS P. SWEENEY III ("Sweeney"), EQUITY PIER LLC, a Colorado limited liability company ("EP" and collectively with Sweeney, the "Restricted Parties") and each Person whose name appears on SCHEDULE A attached hereto (collectively the "Former MSI Stockholders"). W I T N E S S E T H - - - - - - - - - - WHEREAS, pursuant to the terms of an Agreement and Plan of Merger dated as of August 16, 2004 (the "Merger Agreement") between the Company, ManagedStorage International, Inc., a Delaware corporation ("MSI"), and Front Porch Merger Corp., a Delaware corporation, on the date hereof, the Company has agreed to issue to the Former MSI Stockholders such number of shares of Common Stock, $.001 par value, of the Company (the "Common Stock") or Series A Convertible Preferred Stock, $.001 par value, of the Company (the "Series A Preferred Stock") as determined pursuant to the Merger Agreement; and WHEREAS, pursuant to the terms of an Employment Agreement of even date herewith (the "Employment Agreement") between the Company and Sweeney, Sweeney will become the Chief Executive Officer of the Company upon the consummation of the transactions contemplated by the Merger Agreement; and WHEREAS, Sweeney is the founder and Managing Member of EP; WHEREAS, following the consummation of the transactions contemplated in the Merger Agreement, the Restricted Parties will beneficially own approximately 18,879,289 shares of Common Stock; and WHEREAS, as a condition precedent to the consummation of the transactions contemplated by the Merger Agreement and the Employment Agreement, the Company, the Restricted Parties and the Former MSI Stockholders desire to provide for certain restrictions on the transfer of such shares by the Restricted Parties; NOW THEREFORE, in consideration of the premises and the mutual covenants of the parties hereto, it is hereby agreed as follows: ARTICLE I CERTAIN DEFINITIONS 1.1 DEFINITIONS. Whenever used in this Agreement, unless otherwise defined or the subject matter or context dictates, the following terms shall have these respective meanings: (a) Affiliate" shall have the meaning ascribed to it in Rule 12(b)(2) promulgated under the Securities Exchange Act of 1934, as amended. (b) "Agreement" means this Lock-up Agreement, any agreement which is supplementary to or in amendment or confirmation of this Agreement, and any schedules hereto or thereto. (c) "Certificate of Designations" means the Certificate of Designations, Preferences and Rights of the Series A Preferred Stock. (d) "Disposition" shall have the meaning assigned in Section 2.1. (e) "Lock Up Expiration Date" means the earliest date on which the Former MSI Stockholders and/or their permitted transferees receive aggregate proceeds (whether in cash or otherwise) of at least $31,500,000 from the disposition of the shares of Series A Preferred Stock and/or Common Stock (whether underlying the Series A Preferred Stock or otherwise) acquired pursuant to the Merger Agreement, including without limitation, upon the occurrence of one or more of the following events: (A) a Liquidation Event or event deemed to be a Liquidation Event pursuant to Section 4 of the Certificate of Designations, (B) a redemption of the Series A Preferred Stock pursuant to Section 5 of the Certificate of Designations, (C) a public offering of the Common Stock, (D) the sale of such shares (or the shares of Common Stock into which they may be converted) in the public or private market or (E) the Transfer of such shares to any member, partner or stockholder of such Former MSI Stockholder(s). (f) "Person" means any individual, estate, trust, partnership, joint venture, limited liability company, association, firm, corporation, company or other entity. (g) "Shares" mean the shares of Common Stock beneficially owned by the Restricted Parties, as well as: (i) any shares into which such shares may be converted, reclassified, redesignated, subdivided, consolidated or otherwise changed; (ii) any shares of the Company or any successor or other body corporate which may be received by the holders of such shares on a merger, amalgamation or other reorganization of or including the Company; and (iii) any securities which may now or hereinafter be convertible or exercisable into such shares. (h) "Transfer" shall have the meaning assigned in Section 2.1. 1.2 EXTENDED MEANINGS. Words importing the singular number include the plural and vice versa and words importing gender include all genders. ARTICLE II DISPOSITION OF SHARES 2.1 RESTRICTION ON TRANSFER OF SHARES. (a) Except as provided in Section 2.1(b), prior to the Lock Up Expiration Date, the Restricted Parties may not sell, assign, transfer, mortgage, alienate, pledge, hypothecate, create or permit to exist a security interest in or lien on, place in trust or in any other way encumber or otherwise dispose of (any of the foregoing shall constitute a "Transfer," and the consummation of such being a "Disposition") any Shares now owned or any interest therein except as expressly permitted by the terms and provisions of this Agreement. The Company shall have no obligation to recognize or accede to any Disposition or to register any Transfer of Shares on its books unless such Disposition is effected in accordance with the terms and provisions of this Agreement. No Person who purports to be a holder of Shares acquired in violation of the terms and provisions of this Agreement shall be entitled to any rights with respect to such Shares, including any rights to vote such Shares, to receive any dividends declared thereon, or to receive any notice with respect thereto under this Agreement or otherwise. (b) Any Restricted Party may Transfer all or a portion of his or its Shares to (i) any Person to which such Restricted Party shall sell, assign or transfer all or substantially all of its assets; or (ii) any Affiliate of such Restricted Party. If a Restricted Party intends to make a Disposition of all or a portion of his, her or its Shares pursuant to this paragraph, such Restricted Party shall give at least 30 days prior written notice of such proposed Disposition to the Company, a copy of which shall be given to the Former MSI Stockholders. Any such notice shall specify the number of Shares subject to such proposed disposition, identify the proposed transferee and state the relationship between such Restricted Party and the proposed transferee. ARTICLE III VOTING AGREEMENT Each of the Restricted Parties hereby agrees to vote all of his or its Shares in favor of the resolutions hereafter proposed by the Board of Directors of the Company and submitted to a vote of the stockholders of the Company within ninety (90) days following the date hereof, the purpose of which are to cause the number of authorized but unissued shares of Common Stock to be sufficient to issue the maximum number of such shares issuable upon the conversion of the Series A Preferred Stock into Common Stock pursuant to the terms of the Certificate of Designations. ARTICLE IV MISCELLANEOUS 4.1 LEGEND. The Company may cause each certificate representing Shares that are subject to this Agreement to have stamped, printed or typed thereon the following legend: The securities represented by this certificate are subject to a Lock-Up and Voting Agreement, dated as of August 18, 2004, among Front Porch Digital Inc. (the "Company") and certain of its stockholders, a copy of which may be examined at the principal office of the Company. 4.2 NOTICE. Any notice or document required or permitted by this Agreement to be given to a party hereto shall be in writing and is sufficiently given if delivered personally, or if sent by prepaid certified mail, return receipt requested, to the Company, the Restricted Parties or to the Former MSI Stockholders addressed as follows: the Company: Front Porch Digital Inc. 1140 Pearl Street Boulder, Colorado 80302 Attention: Chief Financial Officer with a copy to: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, N.Y. 10022 Attention: Eric M. Hellige, Esq. Sweeney or EP To the address of the Company set forth above. with a copy to: Hogan & Hartson, LLP 1470 Walnut Street, Suite 200 Boulder, Colorado 80302 Attention: Patrick Perrin, Esq. Former MSI Stockholders: To the address of each Former MSI Stockholder set forth A attached hereto or at such other address as may have been furnished the Company in writing. Notice so mailed shall be deemed to have been given upon receipt if delivered personally or on the fifth business day next following the date of the returned receipt. Any notice delivered to the party to whom it is addressed shall be deemed to have been given and received on the day it is delivered. Any party may from time to time notify the others in the manner provided herein of any change of address which thereafter, until changed by like notice, shall be the address of such party for all purposes hereof. 4.3 TERM OF AGREEMENT. (a) The provisions of this Agreement shall terminate as provided in Articles II and III or on such earlier date as is mutually agreed in writing by the Company, Sweeney, EP and the Former MSI Stockholders holding a majority of the then outstanding Shares. (b) Nothing contained in this Section 4.3 shall affect or impair any rights or obligations arising prior to the time of the termination of this Agreement, or which may arise by an event causing the termination of this Agreement. 4.4 SEVERABILITY. If in any jurisdiction, any provision of this Agreement or its application to any party or circumstance is restricted, prohibited or unenforceable, such provision shall, as to such jurisdiction, be ineffective only to the extent of such restriction, prohibition or unenforceability without invalidating the remaining provisions hereof and without affecting the validity or enforceability of such provision in any other jurisdiction or its application to other parties or circumstances. 4.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and together shall constitute one document. 4.6 ENTIRE AGREEMENT; ETC. This Agreement sets forth the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, among the parties hereto and there are no warranties, representations and other agreements between the parties hereto in connection with the subject matter hereof except as specifically set forth herein or therein. No supplement, modification, waiver or termination of this Agreement shall be binding unless executed in writing by the Company, Sweeney, EP and the Former MSI Stockholders holding a majority of the then outstanding Shares. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions nor shall such waiver constitute a continuing waiver unless otherwise expressly provided. 4.7 TRANSFEREES BOUND. Each Disposition otherwise permitted by Article II hereof shall not become effective unless and until the transferee executes and delivers to the Company a counterpart to this Agreement, agreeing to be treated in the same manner as the Restricted Parties. Upon such Disposition and such execution and delivery, the transferee shall be bound by, and entitled to the benefits of, this Agreement with respect to the transferred Shares in the same manner as the transferring Restricted Party. 4.8 GOVERNING LAW. This Agreement shall be construed in accordance with the internal laws of the State of Delaware applicable to agreements made and to be performed in Delaware. [remainder of page left intentionally blank] IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. FRONT PORCH DIGITAL INC. By: /s/ Michael Knaisch ----------------------------------- Name: Michael Knaisch Title: Chief Executive Officer EQUITY PIER, LLC By: /s/ Thomas P. Sweeney III ----------------------------------- Name: Thomas P. Sweeney III Title: Managing Member /s/ Thomas P. Sweeney III ----------------------------------- Thomas P. Sweeney III, Individually IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. FORMER MSI STOCKHOLDERS GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP By: Great Hill Partners GP, LLC, its General Partner By: /s/ Christopher S. Gaffney ---------------------------------- Name: Christopher S. Gaffney Title: Manager GREAT HILL INVESTORS, LLC By: /s/ Christopher S. Gaffney ---------------------------------- Name: Christopher S. Gaffney Title: Manager IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. JPMORGAN CHASE BANK, as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC By: /s/ Robert E. Kiss ----------------------------------- Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC By: /s/ Robert E. Kiss ----------------------------------- Name: Robert E. Kiss Title: Portfolio Manager J.P. MORGAN INVESTMENT MANAGEMENT INC., as Investment Advisor for 522 FIFTH AVENUE FUND, L.P. By: /s/ Robert E. Kiss ----------------------------------- Name: Robert E. Kiss Title: Portfolio Manager IN WITNESS WHEREOF, this Lock Up and Voting Agreement has been executed by or on behalf of each of the parties hereto as of the date first above written. TUDOR VENTURES II L.P. By: Tudor Ventures Group, L.P., general partner By: /s/ Carmen J. Scarpa ----------------------------------- Name: Carmen J. Scarpa Title: Managing Director, Tudor Ventures Group LLC THE RAPTOR GLOBAL PORTFOLIO LTD. By: Tudor Investment Corporation as Investment Adviser By: /s/ Carmen J. Scarpa ----------------------------------- Name: Carmen J. Scarpa Title: Managing Director THE ALTAR ROCK FUND L.P. By: Tudor Investment Corporation as General Partner By: /s/ Carmen J. Scarpa ----------------------------------- Name: Carmen J. Scarpa Title: Managing Director SCHEDULE A NAMES AND ADDRESSES OF FORMER MSI STOCKHOLDERS GREAT HILL EQUITY PARTNERS LIMITED PARTNERSHIP GREAT HILLS INVESTORS, LLC c/o Great Hills Partners One Liberty Square Boston, Massachusetts 02109 Attention: Mr. Pat Curran JPMORGAN CHASE BANK, AS INVESTMENT ADVISOR FOR J.P. MORGAN DIRECT VENTURE CAPITAL INSTITUTIONAL INVESTORS, LLC J.P. MORGAN INVESTMENT MANAGEMENT, AS INVESTMENT ADVISOR FOR J.P. MORGAN DIRECT VENTURE CAPITAL PRIVATE INVESTORS, LLC J.P. MORGAN INVESTMENT MANAGEMENT INC., AS INVESTMENT ADVISOR FOR 522 FIFTH AVENUE FUND, LLC c/o JP Morgan 522 Fifth Avenue New York, New York 10036 Attention: Mr. Robert E. Kiss TUDOR VENTURES II L.P. THE RAPTOR GLOBAL PORTFOLIO LTD. THE ALTAR ROCK FUND L.P. c/o Tudor Ventures 50 Rowes Wharf, 6th Floor Boston, Massachusetts 02110 Attention: Mr. Carmen J. Scarpa -----END PRIVACY-ENHANCED MESSAGE-----