Share Purchase Agreement [Amendment No. 1] - eLoyalty Corp., Technology Crossover Ventures and Sutter Hill Ventures
AMENDMENT NO. 1 TO SHARE PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO SHARE PURCHASE AGREEMENT (this "Amendment") is
made as of December 19, 2001, by and among eLOYALTY CORPORATION, a Delaware
corporation (the "Company"), and the investors listed on Exhibit A hereto, each
of which is herein referred to as an "Investor" and all of which are
collectively referred to herein as the "Investors."
RECITALS
WHEREAS, the Company has entered into that certain Share Purchase
Agreement, dated as of September 24, 2001, with the Investors (the "Share
Purchase Agreement"); and
WHEREAS, the Company and the Investors desire to amend the Share Purchase
Agreement to revise the allocation of Shares (as such term is defined in the
Share Purchase Agreement) to be purchased by certain of the Investors pursuant
to the Share Purchase Agreement and to reflect certain other agreements among
them.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Amendment of Exhibit A. Exhibit A to the Share Purchase Agreement is
hereby amended and restated in its entirety to read as is set forth as Exhibit A
to this Amendment.
2. Amendment of Exhibit B. Exhibit B to the Share Purchase Agreement is
hereby amended and restated in its entirety to read as is set forth as Exhibit B
to this Amendment.
3. Amendment of Section 7.6. Each reference to "December 31, 2002" in
Section 7.6 of the Share Purchase Agreement is hereby replaced in its entirety
by "December 15, 2002."
4. No Other Amendments. Except as amended hereby, the Share Purchase
Agreement shall remain in full force and effect.
5. Governing Law. This Amendment shall be governed in all respects by the
laws of the State of Illinois without regard to choice of laws or conflict of
laws provisions thereof.
6. Counterparts. This Amendment may be executed in any number of
counterparts and signatures may be delivered by facsimile, each of which may be
executed by less than all Investors, each of which shall be enforceable against
the parties actually executing such counterparts, and all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
THE COMPANY:
eLOYALTY CORPORATION
By: /s/ Timothy J. Cunningham
---------------------------------------------
Name: Timothy J. Cunningham
Title: Senior Vice President and Chief Financial
Officer
Address: 150 Field Drive, Suite 250
Lake Forest, IL 60045
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THE INVESTORS:
TCV IV, L.P., a Delaware limited partnership
By: Technology Crossover Management IV, L.L.C.
Its: General Partner
By: /s/ Carla S. Newell
-----------------------------------------
Name: Carla S. Newell
Title: Attorney in Fact
TCV IV STRATEGIC PARTNERS, L.P., a Delaware limited partnership
By: Technology Crossover Management IV, L.L.C.
Its: General Partner
By: /s/ Carla S. Newell
-----------------------------------------
Name: Carla S. Newell
Title: Attorney in Fact
TCV III (GP), a Delaware general partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Carla S. Newell
-----------------------------------------
Name: Carla S. Newell
Title: Attorney in Fact
TCV III, L.P., a Delaware limited partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Carla S. Newell
-----------------------------------------
Name: Carla S. Newell
Title: Attorney in Fact
TCV III (Q), L.P., a Delaware limited partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Carla S. Newell
-----------------------------------------
Name: Carla S. Newell
Title: Attorney in Fact
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TCV III STRATEGIC PARTNERS, L.P., a Delaware limited partnership
By: Technology Crossover Management III, L.L.C.
Its: General Partner
By: /s/ Carla S. Newell
-----------------------------------------
Name: Carla S. Newell
Title: Attorney in Fact
SUTTER HILL VENTURES, a California limited partnership
By: Sutter Hill Ventures, LLC
Its: General Partner
By: /s/ Tench Coxe
-----------------------------------------
Name: Tench Coxe
Title: Managing Director
SUTTER HILL ENTREPRENEURS FUND (AI), L.P.,
a California limited partnership
By: Sutter Hill Ventures, LLC
Its: General Partner
By: /s/ Tench Coxe
-----------------------------------------
Name: Tench Coxe
Title: Managing Director
SUTTER HILL ENTREPRENEURS FUND (QP), L.P.,
a California limited partnership
By: Sutter Hill Ventures, LLC
Its: General Partner
By: /s/ Tench Coxe
-----------------------------------------
Name: Tench Coxe
Title: Managing Director
SUTTER HILL ASSOCIATES, L.P., a California limited partnership
/s/ Tench Coxe
-----------------------------------------
By: Tench Coxe
Its: General Partner
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EXHIBIT A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
The following are the "TCV Maximum Aggregate Investment: Percentage of TCV
Investors" for the purposes of Shares:
the Agreement (list continues
on multiple pages):
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCV IV, L.P., a Delaware $12,027,468.00 80.18312%
limited partnership
528 Ramona Street
Palo Alto, California 94301
Fax: 650-614-8222
(principal address)
56 Main Street, Suite 210
Millburn, New Jersey 07041
(copy)
-------------------------------------------------------------------------------------------------------------
TCV IV STRATEGIC $452,658.00 3.01772%
PARTNERS, L.P., a Delaware
limited partnership
528 Ramona Street
Palo Alto, California 94301
Fax: 650-614-8222
(principal address)
56 Main Street, Suite 210
Millburn, New Jersey 07041
(copy)
-------------------------------------------------------------------------------------------------------------
TCV III (GP), a Delaware $18,298.50 .12199%
general partnership
528 Ramona Street
Palo Alto, California 94301
Fax: 650-614-8222
(principal address)
56 Main Street, Suite 210
Millburn, New Jersey 07041
(copy)
-------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
The following are the "TCV Maximum Aggregate Investment: Percentage of TCV
Investors" for the purposes of Shares:
the Agreement (list continues
on multiple pages):
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TCV III, L.P., a Delaware $86,916.00 .57944%
limited partnership
528 Ramona Street
Palo Alto, California 94301
Fax: 650-614-8222
(principal address)
56 Main Street, Suite 210
Millburn, New Jersey 07041
(copy)
-------------------------------------------------------------------------------------------------------------
TCV III (Q), L.P., a Delaware $2,310,078.00 15.40052%
limited partnership
528 Ramona Street
Palo Alto, California 94301
Fax: 650-614-8222
(principal address)
56 Main Street, Suite 210
Millburn, New Jersey 07041
(copy)
-------------------------------------------------------------------------------------------------------------
TCV III STRATEGIC $104,581.50 .69721%
PARTNERS, L.P., a Delaware
limited partnership
528 Ramona Street
Palo Alto, California 94301
Fax: 650-614-8222
(principal address)
56 Main Street, Suite 210
Millburn, New Jersey 07041
(copy)
-------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
The following are the "SH Maximum Aggregate Investment: Percentage of SH
Investors" for the purposes of Shares:
the Agreement (list continues
on multiple pages):
-------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUTTER HILL VENTURES, $7,169,888.00 71.69888%
a California limited
partnership
755 Page Mill Road
Suite A-200
Palo Alto, California 94304
Fax: 650-858-1854
-------------------------------------------------------------------------------------------------------------
SUTTER HILL $70,913.00 .70913%
ENTREPRENEURS FUND
(AI), L.P., a California limited
partnership
755 Page Mill Road
Suite A-200
Palo Alto, California 94304
Fax: 650-858-1854
-------------------------------------------------------------------------------------------------------------
SUTTER HILL $179,551.00 1.79551%
ENTREPRENEURS FUND
(QP), L.P., a California limited
partnership
755 Page Mill Road
Suite A-200
Palo Alto, California 94304
Fax: 650-858-1854
-------------------------------------------------------------------------------------------------------------
SUTTER HILL $2,579,648.00 25.79648%
ASSOCIATES, L.P., a
California limited partnership
755 Page Mill Road
Suite A-200
Palo Alto, California 94304
Fax: 650-858-1854
-------------------------------------------------------------------------------------------------------------
</TABLE>
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EXHIBIT B
CERTIFICATE OF DESIGNATIONS
OF
7% SERIES B CONVERTIBLE PREFERRED STOCK
OF ELOYALTY CORPORATION
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned do hereby certify that the following resolution was duly
adopted by the Board of Directors of eLoyalty Corporation, a Delaware
corporation, on December 19th, 2001:
WHEREAS, the Certificate of Incorporation of eLoyalty Corporation, a
Delaware corporation (the "Corporation"), authorizes the Corporation to issue a
total of [___________] shares of preferred stock, par value $.01 per share
("Preferred Stock"), which may be divided into one or more series as the Board
of Directors may determine;
WHEREAS, the Certificate of Incorporation of the Corporation expressly
vests in the Board of Directors the authority to fix and determine the
designations, powers, preferences and rights, and the qualifications,
limitations and restrictions, of the Preferred Stock;
WHEREAS, the Board of Directors deems it advisable to designate a series
of the Preferred Stock consisting of [__________] shares designated as 7% Series
B Convertible Preferred Stock; and
WHEREAS, immediately prior to the filing of this Certificate of
Designation with the Secretary of State of the State of Delaware, the
Corporation filed an amendment to its Certificate of Incorporation which, among
other things, gave effect to a one-for-ten reverse stock split of the
Corporation's common stock, $.01 par value per share.
NOW, THEREFORE, IT IS HEREBY RESOLVED, that pursuant to Article IV of the
Certificate of Incorporation of the Corporation, there be and hereby is
authorized and created a series of Preferred Stock hereby designated as 7%
Series B Convertible Preferred Stock, to consist of [_____________] shares,
having a par value of $.01 per share, which series shall have the voting rights,
designations, powers, preferences, relative and other special rights, and the
qualifications, limitations and restrictions set forth below:
Series B Convertible Preferred Stock. [______________] of the authorized
shares of Preferred Stock are hereby designated "7% Series B Convertible
Preferred Stock" (the "Series B
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Preferred Stock"). The rights, preferences, privileges, restrictions and other
matters relating to the Series B Preferred Stock are as follows:
(a) Dividend Rights.
(i) Subject to the right of any other series of Preferred Stock that
may from time to time come into existence and which is expressly senior to
the rights of the Series B Preferred Stock, the holders of Series B
Preferred Stock, in preference to the holders of common stock, par value
$.01 per share, of the Corporation (the "Common Stock"), the Series A
Junior Participating Preferred Stock, par value $.01 per share, of the
Corporation and any other stock of the Corporation hereafter created which
shall be junior to the Series B Preferred Stock (together, "Series B
Junior Stock"), shall be entitled to receive dividends, when, as and if
declared by the Board of Directors, but only out of funds that are legally
available therefor, at the rate of 7% of the Series B Original Issue Price
(as defined below) per annum (the "Series B Dividend Rate") on each
outstanding share of Series B Preferred Stock (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with
respect to such shares). For any share of Series B Preferred Stock, such
dividends shall begin to accrue commencing upon the first date such share
is issued and becomes outstanding and shall be payable semi-annually in
cash on January 1 and July 1 of each year, beginning on July 1, 2002
(each, a "Dividend Payment Date"), provided, that, (i) if any such
Dividend Payment Date is not a Business Day, then any such dividend shall
be payable on the next Business Day, and (ii) any such dividend shall be
payable only as the Board of Directors may from time to time determine,
and only when, as and if declared by the Board of Directors. Subject to
the foregoing, any such dividend shall be paid to the holders of record at
the close of business on the date specified by the Board of Directors at
the time such dividend is declared, provided, however, that such date may
not be more than 60 days nor less than 10 days prior to the applicable
dividend payment date. Such dividends shall accrue day by day and shall be
cumulative, whether or not declared by the Board of Directors and whether
or not there shall be funds legally available for the payment of
dividends. The original issue price of the Series B Preferred Stock shall
be $5.10 (the "Series B Original Issue Price"). Dividends payable for any
period shorter or longer than a semi-annual dividend period shall be
computed on the basis of a 360-day year of twelve 30-day months. Dividends
in arrears may be declared by the Board of Directors and paid on any date
fixed by the Board of Directors, without reference to any regular Dividend
Payment Date. Any dividend paid upon the Series B Preferred Stock at a
time when any accrued dividends for any prior periods are delinquent shall
be expressly declared as a dividend in whole or partial payment of the
accrued dividend for the earliest period or periods for which dividends
are then delinquent, and shall be so designated to each holder to whom
payment is made thereof. The term "Business Day" means any day other than
a Saturday, a Sunday or a day on which banking institutions in the City of
Chicago, Illinois are authorized or required by law to be closed.
(ii) So long as any shares of Series B Preferred Stock shall be
outstanding, without the prior written consent of the holders of a
majority of the then issued and
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outstanding shares of Series B Preferred Stock, no dividend (other than a
Common Stock dividend paid pro rata to the Corporation's stockholders),
whether in cash, securities or other property, shall be paid or declared,
nor shall any other distribution (other than a Common Stock dividend paid
pro rata to the Corporation's stockholders) be made, on any Series B
Junior Stock, nor shall any shares of any Series B Junior Stock of the
Corporation be purchased, redeemed or otherwise acquired for value by the
Corporation or any of its subsidiaries (except (A) for acquisitions of
Common Stock by the Corporation or its subsidiaries pursuant to
stock-based compensation arrangements or agreements that permit the
Corporation to repurchase such shares upon termination of services to the
Corporation or its subsidiaries for a price not greater than the cost
thereof to the applicable service provider, (B) for acquisitions by the
Corporation or its subsidiaries in whole or partial satisfaction of the
exercise price or applicable tax withholding requirements in respect of
any option, restricted stock or similar award made pursuant to any
compensation or benefit plan, agreement or arrangement maintained or
assumed by the Corporation or its subsidiaries and (C) by conversion into
or exchange for Series B Junior Stock or any security convertible into or
exchangeable for Series B Junior Stock) until all dividends (set forth in
Section (a)(i) above) then accrued on the Series B Preferred Stock shall
have been paid or declared and set apart. In the event that the
Corporation shall declare a dividend or distribution payable in securities
of the Corporation or of other persons (other than a dividend paid solely
in shares of Common Stock), evidences of indebtedness issued by the
Corporation or other persons, or options or rights to purchase any such
securities or evidences of indebtedness or other assets (including cash)
to the holders of the Common Stock, then the holders of the Series B
Preferred Stock shall be entitled to a proportionate share of any such
dividend or distribution as though the holders of the Series B Preferred
Stock were the holders of the number of shares of Common Stock into which
their respective shares of Series B Preferred Stock are convertible as of
the record date fixed for the determination of the holders of the Common
Stock entitled to receive such dividend or distribution (calculated as if
the Series B Preferred Stock were convertible upon the Series B Original
Issue Date and without consideration of the restriction on conversion
contained in Section (d)(i) hereof).
(b) Voting Rights.
(i) General Rights. Except as otherwise provided herein or as
required by law, the Series B Preferred Stock shall be voted equally with
the shares of the Common Stock of the Corporation and not as a separate
class, at any annual or special meeting of stockholders of the
Corporation, upon the following basis: each holder of shares of Series B
Preferred Stock shall be entitled to such number of votes as shall be
equal to the whole number of shares of Common Stock into which such
holder's aggregate number of shares of Series B Preferred Stock are
convertible pursuant to Section (d) hereof immediately after the close of
business on the record date fixed for such meeting or the effective date
of such written consent (calculated as if the Series B Preferred Stock
were convertible upon the Series B Original Issue Date and without
consideration of the restriction on conversion contained in Section (d)(i)
hereof).
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(ii) Separate Vote of Series B Preferred Stock. In addition to any
other vote or consent required herein or by law, the vote of the holders
of at least a majority of the outstanding Series B Preferred Stock shall
be necessary for effecting or validating the following actions:
(A) any action that authorizes, creates or results in the
issuance of any class or series of stock or any other securities
convertible into or exercisable for equity securities of the
Corporation having rights, preferences or privileges senior to or on
a parity with the Series B Preferred Stock;
(B) any increase or decrease in the authorized number of
shares of Series B Preferred Stock; or
(C) any amendment, waiver, alteration or repeal of any
provisions of the Certificate of Incorporation (including without
limitation by merger, consolidation or otherwise) or Bylaws of the
Corporation in a way that, directly or indirectly, adversely affects
the rights, preferences or privileges of the Series B Preferred
Stock.
(iii) Special Voting Rights. During the period beginning on the
Series B Original Issue Date (as defined below), and ending on the date
which is six months after the Series B Original Issue Date, the
Corporation shall not consummate any Sale Transaction to which it is a
party unless such Sale Transaction has been approved by the affirmative
vote of the holders of at least 85% of the Series B Preferred Stock
present in person or by proxy and entitled to vote at a stockholder
meeting called for the purpose of approving such Sale Transaction.
(c) Liquidation Rights.
(i) Upon any liquidation, dissolution, or winding up of the
Corporation, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Series B Junior Stock, subject
to the rights of any series of Preferred Stock that may from time to time
come into existence and which is expressly senior to the rights of the
Series B Preferred Stock, the holders of Series B Preferred Stock shall be
entitled to be paid in cash out of the assets of the Corporation an amount
per share of Series B Preferred Stock equal to 100% of the Series B
Original Issue Price (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares), plus
an amount equal to accrued but unpaid dividends (the "Liquidation
Preference"), for each share of Series B Preferred Stock held by each such
holder. If, upon any such liquidation, dissolution, or winding up, the
assets of the Corporation shall be insufficient to make payment in full of
the Liquidation Preference to all holders of Series B Preferred Stock,
then such assets shall be distributed among the holders of Series B
Preferred Stock at the time outstanding, ratably in proportion to the full
amounts to which they would otherwise be respectively entitled. After the
payment of the foregoing full Liquidation Preference of the Series B
Preferred Stock and any other distribution that may be required with
respect to any
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series of Preferred Stock that may from time to time come into existence,
the assets of the Corporation legally available for distribution, if any,
shall be distributed ratably to the holders of the Series B Junior Stock
and the Series B Preferred Stock, on an as converted basis; provided,
however, that if, in connection with a Sale Transaction (as defined
below), the holders of a share of the Common Stock (before giving effect
to the payment of the Liquidation Preference but after giving effect to
the payment of the liquidation preference of any other class of Preferred
Stock and assuming conversion in full of the outstanding shares of Series
B Preferred Stock into Common Stock) would receive consideration with a
value of at least four times the Series B Original Issue Price (as
adjusted for stock splits, stock dividends, combinations,
recapitalizations and the like), then in lieu of the Liquidation
Preference plus participation with the Series B Junior Stock provided for
above, the holders of the Series B Preferred Stock shall receive the
amount that they would be entitled to receive if all shares of Series B
Preferred Stock were converted to Common Stock immediately prior to the
Sale Transaction. The Corporation shall not enter into any Sale
Transaction that does not provide for the treatment of the holders of
Series B Preferred Stock in a manner consistent (assuming in the case of a
merger or consolidation that the assets of the Corporation legally
available for distribution equals the aggregate consideration to be
received by the Corporation's stockholders in such merger or
consolidation) with the provisions of this Section (c). In the event the
requirements of the immediately preceding sentence are not complied with
in connection with a Sale Transaction, the Corporation shall forthwith
either (A) cause the closing of such Sale Transaction to be postponed
until such time as such requirements have been complied with or (B) cancel
such Sale Transaction, in which event the rights, preferences and
privileges of the holders of the Series B Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing
immediately prior to the date of the first notice referred to in Section
(c)(iv) hereof. Upon receipt by any holder of the full amount of the
distributions to such holder as contemplated by this Section (c)(i) in
respect of any share of Series B Preferred Stock, such share of Series B
Preferred Stock shall be deemed to be retired and shall no longer be
outstanding.
(ii) The following events (each a "Sale Transaction") shall be
considered a liquidation under this Section:
(A) any consolidation or merger of the Corporation with or
into any other corporation or other entity or person, or any other
corporate reorganization, in which the stockholders of the
Corporation immediately prior to such consolidation, merger or
reorganization, own less than 50% of the Corporation's voting power
immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions to which the
Corporation is a direct contracting party in which in excess of 50%
of the Corporation's voting power is transferred, excluding any
consolidation or merger effected exclusively to change the domicile
of the Corporation (an "Acquisition"); or
(B) a sale, lease or other disposition of all or substantially
all of the assets of the Corporation (an "Asset Transfer").
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(iii) In any of the events set forth in subparagraph (ii), if the
consideration received by the Corporation or its stockholders is other
than cash, its value will be deemed its fair market value as determined in
good faith by the Board of Directors. Any securities shall be valued as
follows:
(A) Securities not subject to restrictions on free
marketability covered by subparagraph (B) below:
(1) If traded on a securities exchange or through the
Nasdaq National Market (or a similar national quotation
system), the value shall be deemed to be the average of the
closing prices of the securities on such quotation system over
the 30 day period ending three days prior to the closing;
(2) If actively traded over-the-counter, the value shall
be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the 30 day period ending three
days prior to the closing; and
(3) If there is no active public market, the value shall
be the fair market value thereof, as determined in good faith
by the Board of Directors.
(B) The method of valuation of securities subject to
restrictions on free marketability (other than restrictions arising
solely by virtue of a stockholder's status as an affiliate or former
affiliate) shall be to make an appropriate discount from the market
value determined as above in subparagraphs (iii)(A)(1), (2) or (3)
to reflect the approximate fair market value thereof, as determined
in good faith by the Board of Directors.
(iv) Written notice of any such liquidation, dissolution or winding
up (or deemed liquidation, dissolution or winding up) of the Corporation
within the meaning of this Section, which states the payment date, the
place where said payments shall be made and the date on which conversion
rights as set forth herein terminate as to such shares (which shall be not
less than 10 days after the date of such notice), shall be given by first
class mail, postage prepaid, or by telecopy or facsimile, not less than 20
days prior to the payment date stated therein, to the then holders of
record of Series B Preferred Stock, such notice to be addressed to each
such holder at its address as shown on the records of the Corporation.
(d) Conversion Rights. The holders of the Series B Preferred Stock shall
have the following rights with respect to the conversion of the Series B
Preferred Stock into shares of Common Stock:
(i) Optional Conversion. Subject to and in compliance with the
provisions of this Section (d), any shares of Series B Preferred Stock
may, at the option of the holder, be converted at any time on and after
the date which is six months after the Series B Original
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Issue Date into fully-paid and nonassessable shares of Common Stock. The
number of shares of Common Stock to which a holder of Series B Preferred
Stock shall be entitled upon conversion shall be the product obtained by
multiplying the "Series B Preferred Conversion Rate" then in effect
(determined as provided in subsection (ii)) by the number of shares of
Series B Preferred Stock being converted.
(ii) Series B Preferred Conversion Rate. The conversion rate in
effect at any time for conversion of the Series B Preferred Stock (the
"Series B Preferred Conversion Rate") shall be the quotient obtained by
dividing the Series B Original Issue Price by the "Series B Preferred
Conversion Price," calculated as provided in subsection (iii) below.
(iii) Series B Preferred Conversion Price. The conversion price for
the Series B Preferred Stock shall initially be the Series B Original
Issue Price (the "Series B Preferred Conversion Price"). Such initial
Series B Preferred Conversion Price shall be adjusted from time to time in
accordance with this Section (d). All references to the Series B Preferred
Conversion Price herein shall mean the Series B Preferred Conversion Price
as so adjusted.
(iv) Mechanics of Conversion. Each holder of Series B Preferred
Stock who desires to convert the same into shares of Common Stock pursuant
to this Section (d) shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or any transfer
agent for the Series B Preferred Stock, and shall give written notice to
the Corporation at such office that such holder elects to convert the
same. Such notice shall state the number of shares of Series B Preferred
Stock being converted. Thereupon, the Corporation shall promptly issue and
deliver at such office to such holder a certificate or certificates for
the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash (at the Common Stock's fair market value
determined by the Board of Directors as of the date of conversion) the
value of any fractional share of Common Stock otherwise issuable to any
holder of Series B Preferred Stock. Such conversion shall be deemed to
have been made at the close of business on the date of such surrender of
the certificates representing the shares of Series B Preferred Stock to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.
(v) Adjustment Upon Common Stock Event. Upon the happening of a
Common Stock Event (as hereinafter defined) at any time or from time to
time after the date that the first share of Series B Preferred Stock is
issued (the "Series B Original Issue Date"), the Series B Preferred
Conversion Price shall, simultaneously with the happening of such Common
Stock Event, be adjusted by multiplying the Series B Preferred Conversion
Price in effect immediately prior to such Common Stock Event by a
fraction, (i) the numerator of which shall be the number of shares of
Common Stock issued and outstanding immediately prior to such Common Stock
Event, and (ii) the denominator of which shall be the number of shares of
Common Stock issued and outstanding immediately after such Common Stock
Event, and the product so obtained shall thereafter be the Series B
Preferred Conversion
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Price. The Series B Preferred Conversion Price shall be readjusted in the
same manner upon the happening of each subsequent Common Stock Event. As
used in this Section (d), the term "Common Stock Event" shall mean (i) the
issue by the Corporation of additional shares of Common Stock as a
dividend or other distribution on outstanding Common Stock, (ii) a
subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by stock split, reclassification or
otherwise), or (iii) a combination or consolidation, by reclassification
or otherwise, of the outstanding shares of Common Stock into a smaller
number of shares of Common Stock (unless the Series B Preferred Stock is
combined, consolidated or reclassified on an equal basis).
(vi) Adjustment for Other Dividends and Distributions. If at any
time or from time to time after the Series B Original Issue Date the
Corporation pays a dividend or makes another distribution to the holders
of the Common Stock (or fixes a record date for the determination of
holders of Common Stock entitled to receive such dividend or other
distribution) payable in securities of the Corporation or any of its
subsidiaries other than shares of Common Stock, then in each such event
provision shall be made so that the holders of Series B Preferred Stock
shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable upon conversion thereof, the amount of
securities of the Corporation or such subsidiary which they would have
received had their Series B Preferred Stock been converted into Common
Stock (determined as if the Series B Preferred Stock were convertible upon
the Series B Original Issue Date and without consideration of the
restriction on conversion contained in Section (d)(i) hereof) on the date
of such event (or such record date, as applicable) and had they
thereafter, during the period from the date of such event (or such record
date, as applicable) to and including the conversion date, retained such
securities receivable by them as aforesaid during such period, subject to
all other adjustments called for during such period under this Section (d)
with respect to the rights of the holders of the Series B Preferred Stock
or with respect to such other securities by their terms. Notwithstanding
the foregoing, the adjustment provided by this Section (d)(vi) shall not
be made if the holders of the Series B Preferred Stock shall have received
a proportionate dividend as provided in Section (a)(ii).
(vii) Adjustment for Reclassification, Exchange and Substitution. If
at any time or from time to time after the Series B Original Issue Date,
the Common Stock issuable upon the conversion of the Series B Preferred
Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification
or otherwise (other than an Acquisition or Asset Transfer as defined in
Section (c) or a subdivision or combination of shares or stock dividend or
a reorganization, merger, consolidation or sale of assets provided for
elsewhere in this Section (d)), in any such event each holder of Series B
Preferred Stock shall have the right thereafter (to the extent such Series
B Preferred Stock is convertible as otherwise provided herein) to convert
such Series B Preferred Stock into the kind and amount of stock and other
securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of
shares of Common Stock into which such shares of Series B Preferred Stock
could have been converted immediately prior to such recapitalization,
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reclassification or change (determined as if the Series B Preferred Stock
were convertible upon the Series B Original Issue Date and without
consideration of the restriction on conversion contained in Section (d)(i)
hereof), all subject to further adjustment as provided herein or with
respect to such other securities or property by the terms thereof. In any
such case, appropriate adjustment shall be made in the application of the
provisions of this Section (d) with respect to the rights of the holders
of Series B Preferred Stock after such recapitalization, reclassification
or other change (including adjustment of the Series B Preferred Conversion
Price then in effect and the number of shares issuable upon conversion of
the Series B Preferred Stock), to the end that the provisions of this
Section (d) shall be applicable after that event and be as nearly
equivalent as practicable.
(viii) Adjustment for Reorganizations, Mergers or Consolidations. If
at any time or from time to time after the Series B Original Issue Date,
there is a capital reorganization of the Common Stock or the merger or
consolidation of the Corporation with or into another corporation or
another entity or person (other than an Acquisition or Asset Transfer as
defined in Section (c) or a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for
elsewhere in this Section (d)), as a part of such capital reorganization,
merger or consolidation, provision shall be made so that the holders of
the Series B Preferred Stock, if any shares thereof remaining outstanding
thereafter, shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock the number of shares of stock or other securities
or property which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled on such capital
reorganization, merger or consolidation, subject to adjustment in respect
of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions
of this Section (d) with respect to the rights of the holders of Series B
Preferred Stock after the capital reorganization, merger or consolidation
(including adjustment of the Series B Preferred Conversion Price then in
effect and the number of shares issuable upon conversion of the Series B
Preferred Stock), to the end that the provisions of this Section (d) shall
be applicable after that event and be as nearly equivalent as practicable.
(ix) Notices of Record Date. Upon (i) any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
or other distribution, or (ii) any Acquisition (as defined in Section (c))
or other capital reorganization of the Corporation, any reclassification
or recapitalization of the capital stock of the Corporation, any merger or
consolidation of the Corporation with or into any other entity, or any
Asset Transfer (as defined in Section (c)), or any voluntary or
involuntary dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series B Preferred Stock at least
10 days prior to the record date specified therein (or such shorter period
approved by a majority of the outstanding Series B Preferred Stock) a
notice specifying (A) the date on which any such record is to be taken for
the purpose of such dividend or distribution and a description of such
dividend or distribution, (B) the date on which any such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or
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winding up is expected to become effective, and (C) the date, if any, that
is to be fixed as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation,
merger, Asset Transfer, dissolution, liquidation or winding up.
(x) Automatic Conversion.
(A) Each share of Series B Preferred Stock shall automatically
be converted into shares of Common Stock, based on the
then-effective Series B Preferred Conversion Price, (i) with respect
to holders of the Series B Preferred Stock other than the Investors
(as defined below), if at any time after six months from the Series
B Original Issue Date the Common Stock has a Closing Price (as
defined below) of at least five times the Series B Original Issue
Price (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for
thirty consecutive trading days, and (ii) with respect to the
Investors, if at any time after six months from the Series B
Original Issue Date (y) the Common Stock has a Closing Price (as
defined below) of at least five times the Series B Original Issue
Price (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) for
thirty consecutive trading days, and (z) the Shelf Registration as
defined in and provided for in the Amended and Restated Investor
Rights Agreement, dated as of December 19, 2001 (as the same may be
amended from time to time, the "Investor Agreement"), between the
Corporation and the investors named on Exhibit A thereto
(collectively with the Holders, as such term is defined in the
Investor Agreement, the "Investors") has become effective under the
Securities Act of 1933, as amended, and is available for sales of
Common Stock by the Investors thereunder (to the extent the
requirement to maintain such Shelf Registration effective has not at
such time lapsed pursuant to Section 5 of such Investor Agreement).
For purposes of this Section (d)(x), the term "Closing Price" shall
mean (1) if the Common Stock is traded on a securities exchange or
through the Nasdaq National Market (or a similar national quotation
system), the closing price of the Common Stock on such exchange or
the last sale price of the Common Stock on such quotation system,
and (2) if clause (1) is inapplicable, the closing bid or sale price
(whichever is applicable) in the over-the-counter market.
(B) Upon the occurrence of any of the events specified in
subparagraph (A), the applicable outstanding shares of Series B
Preferred Stock shall be converted automatically without any further
action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, however, that the
Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series B Preferred Stock are
either delivered to the Corporation or its transfer agent as
provided below, or the
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holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of
any of the Series B Preferred Stock, (y) the Corporation shall
notify (the "Automatic Conversion Notice") each holder of such
Series B Preferred Stock who is shown to be such a holder on the
books of the Corporation as of the time immediately prior to such
conversion, and (z) the holders of such Series B Preferred Stock
shall surrender the certificates representing such shares at the
office of the Corporation or any transfer agent for the Series B
Preferred Stock, which shall be designated in the Automatic
Conversion Notice. Thereupon, there shall be issued and delivered 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 Series B Preferred Stock surrendered were convertible on
the date on which such automatic conversion occurred. Until such
time as a holder of shares of Series B Preferred Stock shall
surrender his or its certificates therefor as provided above, such
certificates shall be deemed to represent the shares of Common Stock
to which such holder shall be entitled pursuant to the terms hereof.
(xi) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of Series B Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Series B Preferred Stock by a holder thereof shall
be aggregated for purposes of determining whether the conversion would
result in the issuance of any fractional share. If, after the
aforementioned aggregation, the conversion would result in the issuance of
any fractional share, the Corporation shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the
Board of Directors) on the date of conversion.
(xii) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series B Preferred
Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series B Preferred Stock, the Corporation will
take such corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(xiii) Notices. Any notice required by the provisions of this
Section (d) shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when sent by
confirmed electronic mail or facsimile if sent during normal business
hours of the recipient; if not, then on the next business day, (iii) five
days after
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having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery,
with verification of receipt. All notices shall be addressed to each
holder of record at the address of such holder appearing on the books of
the Corporation.
(xiv) Payment of Taxes. The Corporation will pay all taxes (other
than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock
upon conversion of shares of Series B Preferred Stock, excluding any tax
or other charge imposed in connection with any transfer involved in the
issue and delivery of shares of Common Stock in a name other than that in
which the shares of Series B Preferred Stock so converted were registered.
(xv) No Impairment. The Corporation shall not avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation, but shall at all times in good
faith assist in carrying out all such actions as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Series B Preferred Stock against impairment.
(xvi) Satisfaction of Accrued Dividends. Except as otherwise
expressly provided, upon the conversion of any shares of Series B
Preferred Stock into Common Stock as provided herein, the Corporation
shall pay holders thereof all accrued but unpaid dividends out of funds
legally available therefor.
(e) Waiver. Any rights of the holders of Series B Preferred Stock set
forth herein, other than the voting rights set forth in Section (b)(iii), may be
waived by the affirmative vote or consent of the holders of a majority of the
shares of Series B Preferred Stock then outstanding.
(f) Limitation on Reissuance of Shares. No share of shares of Series B
Preferred Stock acquired by the Corporation by reason of purchase, conversion or
otherwise shall be reissued, and all such shares shall be cancelled, retired and
eliminated from the shares of Series B Preferred Stock that the Corporation is
authorized to issue.
(g) Limitation on Transfer. The Series B Preferred Stock shall not be
eligible to be transferred on the books of the Corporation prior to the one year
anniversary of the Series B Original Issue Date except for transfers: (i) in
connection with a Sale Transaction, (ii) in any transaction in which a holder
that is a partnership or limited liability company distributes Series B
Preferred Stock solely to its affiliates (including affiliated fund
partnerships), current or former partners or members thereof, or (ii) by will or
by the laws of intestate succession. Certificates issued in respect of the
Series B Preferred Stock within one year after the Series B Original Issue Date
shall bear a legend referencing the restrictions set forth in this Section (g).
This Certificate of Designations, and the designations effected hereby,
shall become effective upon filing.
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IN WITNESS WHEREOF, eLoyalty Corporation has caused this certificate to be
signed by Kelly D. Conway, its President and Chief Executive Officer, and the
same to be attested to by Timothy J. Cunningham, its Senior Vice President and
Chief Financial Officer, this 19th day of December, 2001.
eLOYALTY CORPORATION
By: ________________________________________
Name: Kelly D. Conway
Title: President and Chief Executive Officer
Attest:
By:_______________________________
Name: Timothy J. Cunningham
Title: Senior Vice President and Chief Financial Officer