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EXHIBIT 10.4
STOCK EXCHANGE AGREEMENT
THIS STOCK EXCHANGE AGREEMENT (this "Agreement") is made as of this 9th day
of December, 1997 by and among ISS Group, Inc., a Delaware corporation (the
"Company") and Xxxxxxxxxxx Xxxxx, Xxxxxx X. Xxxxxx, Xxxxx X'Xxxxxx, Xxxxx
XxXxxxxxxx, Xxxxxx Xxxx, the Xxxxxx 1997 Family Trust and the Xxxxxx 1997
Annunity Trust (collectively, the "Common Stockholders"), Greylock Equity
Limited Partnership, Xxxx X. Xxxxx, Xx., Sigma Partners III, L.P., Sigma
Associates III, L.P. and Sigma Investors III, L.P., (collectively, the "Series A
Stockholders"), and AT&T Venture Fund II, L.P., Greylock Equity Limited
Partnership, Xxxx X. Xxxxx, Xx., Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx VIII, KPCB
Information Sciences Zaibatsu Fund II, KPCB Java Fund, Sigma Associates III,
L.P., Sigma Investors III, L.P., Sigma Partners III, L.P. and Venture Fund I,
L.P., (collectively, the "Series B Stockholders" and together with the Common
Stockholders and the Series A Stockholders, the "Stockholders") and Internet
Security Systems, Inc., a Georgia corporation ("ISS").
WHEREAS, the Stockholders are owners of an aggregate of 7,914,471 shares of
Common Stock (the "ISS Common Stock"), 3,650,000 shares of Series A Preferred
Stock (the "ISS Series A Preferred Stock") and 2,086,957 shares of Series B
Preferred Stock (the "ISS Series B Preferred Stock") of ISS, which shares
constitute all of the issued and outstanding capital stock of ISS;
WHEREAS, the Board of Directors of the Company has authorized the Company
to offer the Stockholders the right to exchange their shares of ISS Common
Stock, ISS Series A Preferred Stock and ISS Series B Preferred Stock for the
number of shares of the Common Stock, the Series A Preferred Stock and the
Series B Preferred Stock, respectively, of the Company set forth beside their
respective names on Schedule A attached hereto (the "Exchange Offer"); and
WHEREAS, the Stockholders desire to accept the Exchange Offer of the
Company.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1. EXCHANGE OF STOCK
1.1 Common Stock. Subject to the terms and conditions of this Agreement,
the Common Stockholders hereby agree to deliver to the Company an aggregate of
7,914,471 shares of ISS Common Stock, in the amounts shown on Schedule A hereto.
In exchange for such shares of ISS Common Stock, the Company agrees to deliver
to the Common Stockholders one share of the Company's Common Stock for each
share of ISS Common Stock surrendered to the
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Company, for an aggregate of 7,914,471 shares of the Common Stock of the
Company, in the respective amounts shown on Schedule A hereto.
1.2 Series A Preferred Stock. Subject to the terms and conditions of this
Agreement, the Series A Stockholders hereby agree to deliver to the Company an
aggregate of 3,650,000 shares of ISS Series A Preferred Stock, in the amounts
shown on Schedule A hereto. In exchange for such shares of ISS Series A
Preferred Stock, the Company agrees to deliver to the Series A Stockholders one
share of the Company's Series A Preferred Stock for each share of ISS Series A
Preferred Stock surrendered to the Company, for an aggregate of 3,650,000 shares
of the Series A Preferred Stock of the Company, in the respective amounts shown
on Schedule A hereto.
1.3 Series B Preferred Stock. Subject to the terms and conditions of this
Agreement, the Series B Stockholders hereby agree to deliver to the Company an
aggregate of 2,086,957 shares of ISS Series B Preferred Stock, in the amounts
shown on Schedule A hereto. In exchange for such shares of ISS Series B
Preferred Stock, the Company agrees to deliver to the Series B Stockholders one
share of the Company's Series B Preferred Stock for each share of ISS Series B
Preferred Stock surrendered to the Company, for an aggregate of 2,086,957 shares
of the Series B Preferred Stock of the Company, in the respective amounts shown
on Schedule A hereto.
SECTION 2. CLOSING
2.1 Closing Date. The closing (the "Closing") of the exchange of the ISS
Common Stock of the Common Stockholders for the Common Stock of the Company, the
ISS Series A Preferred Stock of the Series A Stockholders for the Series A
Preferred Stock of the Company and the ISS Series B Preferred Stock of the
Series B Stockholders for the Series B Preferred Stock of the Company shall be
held on December 10, 1997, at the offices of Xxxxxxx, Phleger and Xxxxxxxx LLP,
000 Xxxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, or on such other date or at such
other place as the parties shall mutually agree (the date of the Closing is
hereinafter referred to as the "Closing Date").
2.2 Deliveries. At the Closing, the Common Stockholders shall deliver share
certificates evidencing their shares of ISS Common Stock against delivery by the
Company of share certificates evidencing the Common Stock; the Series A
Stockholders shall deliver certificates evidencing their shares of ISS Series A
Preferred Stock against delivery by the Company of share certificates evidencing
the Series A Preferred Stock; and the Series B Stockholders shall deliver
certificates evidencing their shares of ISS Series B Preferred Stock against
delivery by the Company of share certificates evidencing the Series B Preferred
Stock.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Stockholders as follows:
3.1 Organization. The Company is a corporation duly organized and existing
in good standing under the laws of the State of Delaware.
3.2 Authorization. The execution and delivery of this Agreement has been
duly authorized by the Company's Board of Directors and no further corporate
action is necessary on the part of the Company to enter into this Agreement or
to consummate the transactions contemplated hereby, and this Agreement, when
executed and delivered by the Company, will constitute a valid and legally
binding obligation of the Company, enforceable in accordance with its terms,
except as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting the
enforcement of creditor's rights.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
4.1 Authorization. Each Stockholder severally represents and warrants to
the Company that this Agreement, when executed and delivered by such
Stockholder, will constitute a valid and legally binding obligation of such
Stockholder, enforceable in accordance with its terms, except as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of creditor rights.
4.2 No Encumbrances. Each Common Stockholder, Series A Stockholder and
Series B Stockholder severally represents and warrants to the Company that such
holder is the beneficial owner of the shares of ISS Common Stock, ISS Series A
Preferred Stock and ISS Series B Preferred Stock, respectively, being exchanged
for Common Stock, Series A Preferred Stock and Series B Preferred Stock,
respectively, hereunder, free and clear of all liens, encumbrances, charges and
assessments, and are subject to no restrictions with respect to transferability
except in compliance with applicable securities laws, the terms of that certain
Amended and Restated Rights Agreement dated February 14, 1997 by and among ISS,
the persons listed on Exhibit A thereto and the persons listed on the signature
pages thereto (the "Rights Agreement") and that certain Amended and Restated
Right of First Refusal and Co-Sale Agreement dated February 14, 1997, by and
among ISS and the persons listed on the signature pages thereto (the "Co-Sale
Agreement").
SECTION 5. LEGENDS
All certificates representing the Common Stock, the Series A Preferred
Stock and Series B Preferred Stock issued to the Stockholders shall have
endorsed thereon the following the legend:
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS
NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF
SUCH ACT.
SECTION 6. MISCELLANEOUS
6.1 Entire Agreement; Amendment. This Agreement constitutes the full and
entire understanding and agreement among the parties with respect to the subject
hereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged or terminated verbally, but only by a written instrument signed by
the party against whom enforcement of any such amendment, waiver, discharge or
termination is sought.
6.2 Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original and all of which together shall constitute one
instrument.
6.3 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware.
6.4 Assignment of Obligations. ISS hereby assigns all of its rights and
obligations pursuant to the Rights Agreement, the Co-Sale Agreement, that
certain Series A Preferred Stock Purchase Agreement dated February 2, 1996 by
and among ISS and the persons listed on the signature pages thereto, that
certain Letter Agreement Relating to Directed Shares dated February 2, 1996, by
and among ISS, Greylock Equity Limited Partnership ("Greylock") and Sigma
Partners, that certain Stock Repurchase Agreement dated February 2, 1996,
between ISS and Xxxxxxxxxxx Xxxxx, that certain Stock Repurchase Agreement dated
February 2, 1996, between ISS and Xxxxxx Xxxxxx, that certain Agreement
Regarding Acceleration of Vesting of Future Optionees dated February 2, 1996 by
and among ISS, Greylock, Sigma Partners III, L.P., Sigma Associates III, L.P.
and Sigma Investors III, L.P. (collectively "Sigma"), that certain Amended and
Restated Voting Agreement dated as of February 17, 1997 by and among ISS, the
persons listed on Exhibit A thereto, Sigma, Greylock, Xxxxxxx Xxxxxxx Xxxxxxxx &
Xxxxx VIII, KPCB Information Sciences Zaibatsu Fund II, KPCB Java Fund
(collectively, "Xxxxxxx"), AT&T Venture Fund II, L.P., and Venture Fund I, L.P.,
that certain Agreement Regarding Acceleration of Vesting of Future Optionees
dated February 14, 1997, by and among ISS, AT&T and Xxxxxxx, that certain Letter
Agreement regarding Directed Shares dated February 14, 1997, by and among ISS,
AT&T Venture Fund II, L.P. and Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx and that certain
Letter Agreement dated February 14, 1997, between ISS and Xxxxxxx Xxxxxxx
Xxxxxxxx & Xxxxx VIII regarding Management Rights and the Company hereby accepts
such rights and obligations.
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IN WITNESS WHEREOF, the parties have hereunto set their hands as of the
date first hereinabove set forth.
THE COMPANY:
ISS GROUP, INC.
By:
----------------------------------
Xxxxxx X. Xxxxxx, President
ISS:
INTERNET SECURITY SYSTEMS, INC.
By:
----------------------------------
Xxxxxx X. Xxxxxx, President
STOCKHOLDERS:
COMMON STOCK
--------------------------------------
Xxxxxxxxxxx Xxxxx
--------------------------------------
Xxxxxx X. Xxxxxx
--------------------------------------
Xxxxx X'Xxxxxx
--------------------------------------
Xxxxx XxXxxxxxxx
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XXXXXX 1997 FAMILY TRUST
By:
----------------------------------
Xxxxxxxxx X. Xxxxxx
Trustee
XXXXXX 1997 ANNUNITY TRUST
By:
----------------------------------
Xxxxxx X. Xxxxxx
Trustee
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Xxxxxx Xxxx
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SERIES A PREFERRED STOCK
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity Limited Partnership,
Its Partner
By:
----------------------------------
Name:
Title:
----------------------------------
Xxxx X. Xxxxx, Xx., Individually
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SIGMA PARTNERS III, L.P.
By: Sigma Management III, L.P.,
its General Partner
By:
-----------------------------------
Xxxxxx Xxxxxx,
General Partner
SIGMA ASSOCIATES III, L.P.
By: Sigma Management III, L.P.,
its General Partner
By:
----------------------------------
Xxxxxx Xxxxxx,
General Partner
SIGMA INVESTORS III, L.P.
By: Sigma Management III, L.P.,
its General Partner
By:
-----------------------------------
Xxxxxx Xxxxxx,
General Partner
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SERIES B PREFERRED STOCK
AT & T VENTURE FUND I, L.P.
By:
----------------------------------
Xxxxxxx X. Xxxxxx,
General Partner
GREYLOCK EQUITY LIMITED PARTNERSHIP
By: Greylock Equity Limited Partnership,
its Partner
By:
----------------------------------
Name:
Title:
--------------------------------------
Xxxx X. Xxxxx, Xx., Individually
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XXXXXXX XXXXXXX XXXXXXXX & XXXXX VIII
By: KPCB VIII Associates
By:
----------------------------------
Name:
Title:
KPCB INFORMATION SCIENCES
ZAIBATSU FUND II
By: KPCB VII Associates
By:
----------------------------------
Name:
Title:
KPCB JAVA FUND
By: KPCB VIII Associates
By:
----------------------------------
Name:
Title:
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SIGMA ASSOCIATES, III, L.P.
By: Sigma Management III, L.P.,
its General Partner
By:
----------------------------------
Xxxxxx Xxxxxx,
General Partner
SIGMA INVESTORS III, L.P.
By: Sigma Management III, L.P.,
its General Partner
By:
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Xxxxxx Xxxxxx,
General Partner
SIGMA PARTNERS III, L.P.
By: Sigma Management III, L.P.,
its General Partner
By:
----------------------------------
Xxxxxx Xxxxxx,
General Partner
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VENTURE FUND I, L.P.
By:
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Xxxxxxx X. Xxxxxx,
General Partner
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SCHEDULE A
================================= ====================================== ========================================
Common Stockholders Number of Shares of ISS Common Stock Number of Shares of Common Stock to be
to be Exchanged Received
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxxx Xxxx 12,500 12,500
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxxxxxxxx Xxxxx 4,485,836 4,485,836
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxxx X. Xxxxxx 1,784,770 1,784,770
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxxx 1997 Family Trust 110,000 110,000
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxxx 1997 Annuity Trust 65,000 65,000
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxx X'Xxxxxx 1,293,475 1,293,475
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxx XxXxxxxxxx 162,890 162,890
--------------------------------- -------------------------------------- ----------------------------------------
Series A Stockholders Number of Shares of ISS Series A Number of Shares of Series A Preferred
Preferred Stock to be Exchanged Stock to be Received
--------------------------------- -------------------------------------- ----------------------------------------
Greylock Equity Limited
Partnership 2,050,000 2,050,000
--------------------------------- -------------------------------------- ----------------------------------------
Xxxx X. Xxxxx, Xx. 100,000 100,000
--------------------------------- -------------------------------------- ----------------------------------------
Sigma Associates III, L.P. 228,000 228,000
--------------------------------- -------------------------------------- ----------------------------------------
Sigma Investors III, L.P. 19,500 19,500
--------------------------------- -------------------------------------- ----------------------------------------
Sigma Partners III, L.P. 1,252,500 1,252,500
--------------------------------- -------------------------------------- ----------------------------------------
Series B Stockholders Number of Shares of ISS Series B Number of Shares of Series B Preferred
Preferred Stock to be Exchanged Stock to be Received
--------------------------------- -------------------------------------- ----------------------------------------
AT&T Venture Fund II, L.P. 337,945 337,945
--------------------------------- -------------------------------------- ----------------------------------------
Greylock Equity Limited 296,498 296,498
Partnership
--------------------------------- -------------------------------------- ----------------------------------------
Xxxx X. Xxxxx, Xx. 13,427 13,427
--------------------------------- -------------------------------------- ----------------------------------------
Xxxxxxx Xxxxxxx Xxxxxxxx &
Xxxxx VIII 326,196 326,196
--------------------------------- -------------------------------------- ----------------------------------------
KPCB Information Sciences
Zaibatsu Fund II 29,654 29,654
--------------------------------- -------------------------------------- ----------------------------------------
KPCB Java Fund 830,316 830,316
--------------------------------- -------------------------------------- ----------------------------------------
Sigma Associates III, L.P. 41,804 41,804
--------------------------------- -------------------------------------- ----------------------------------------
Sigma Investors III, L.P. 4,652 4,652
--------------------------------- -------------------------------------- ----------------------------------------
Sigma Partners III, L.P. 168,916 168,916
--------------------------------- -------------------------------------- ----------------------------------------
Venture Fund I, L.P. 37,549 37,549
================================= ====================================== ========================================
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