**Exhibit 10.3**

 

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OFUNLESS IT HAS BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATIONIS AVAILABLE.

 

Right to Purchase

232,007 Shares

of Series C Convertible Preferred

Stock of ClearStory Systems, Inc.

 

August 25, 2005

 

No. C-1

 

**CLEARSTORY SYSTEMS, INC.**

 

**SERIES C CONVERTIBLE PREFERRED STOCK PURCHASEWARRANT**

 

ClearStory Systems, Inc., a Delawarecorporation (the “Company”), hereby certifies that, for value received,SCP Private Equity Partners II, L.P. (the “Holder”), or its successorsor registered assigns, is entitled, subject to the terms set forth below, topurchase from the Company at any time or from time to time before 5:00 p.m.,Boston time, on the Expiration Date (as hereinafter defined),232,007 fully paid and nonassessable shares of Series C ConvertiblePreferred Stock, par value $0.01 per share (the “Series C PreferredStock”), of the Company, at a purchase price per share of $1.9396 (the “PurchasePrice”).  The number of such sharesof Series C Preferred Stock and the Purchase Price are subject toadjustment as provided in this Warrant.  

 

1.             Certain Definitions.  As used herein the following terms have thefollowing respective meanings:

 

### (a)           Theterm “Change of Control” means (i)  any reorganization,consolidation, merger or similar transaction or series of related transactions(each, a “combination transaction”)in which the Company is a constituent corporation or is a party if, as a resultof such combination transaction, the voting securities of the Company that areoutstanding immediately prior to the consummation of such combinationtransaction (otherthan any such securities that are held by an AcquiringStockholder (as defined below)) **donot represent, or are not converted into, securities of the survivingcorporation of such combination transaction (or such surviving corporation’sparent corporation if the surviving corporation is owned by the parentcorporation) that, immediately after the consummation of such combinationtransaction, together possess at least a majority of the total voting power ofall securities of such surviving corporation (or its parent corporation, ifapplicable) that are outstanding immediately after the consummation of suchcombination transaction; or**(ii) a sale of all orsubstantially all of the assets of the Company. For purposes of this definition, an “Acquiring Stockholder” means astockholder or stockholders of the Company that (A) merges or combineswith the Company in

 

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### such combination transaction or (B) ownsor controls a majority of another corporation that merges or combines withthe Company in such combination transaction.

 

### (b)           Theterm “Expiration Date” means (i) August 25, 2015 or (ii) immediatelyprior to the consummation of a Change of Control.

###  

2.             Exercise of Warrant.

 

(a)           This Warrant may be exercised in fullor in part at any time or from time to time until the Expiration Date by theholder hereof by surrender of this Warrant and the exercise notice annexedhereto (duly executed) by such holder, to the Company at its principal office,accompanied by payment, in cash or by check payable to the order of the Companyin the amount obtained by multiplying (a) the number of shares of Series CPreferred Stock designated by the holder in the notice of exercise by (b) thePurchase Price then in effect (or by net exercise in accordance with theprovisions of Section 3 below).  Onany partial exercise, the Company at its expense will forthwith issue anddeliver to or upon the order of the holder hereof a new Warrant or Warrants oflike tenor, in the name of the holder hereof or as such holder (upon payment bysuch holder of any applicable transfer taxes and subject to applicable securitieslaws) may request, providing in the aggregate on the face or faces thereof forthe number of shares of Series C Preferred Stock for which such Warrant orWarrants may still be exercised.

 

(b)           Automatic Exercise Prior toExpiration.  If not earlier exercised, this Warrant shallbe deemed to have been exercised on a net basis pursuant to Section 3(a) belowimmediately prior to the expiration hereof, and upon such deemed exercise, andwithout any further act or deed of the Holder or any other person or entity,the Company shall issue to the Holder the number of fully paid andnon-assessable shares of Series C Preferred Stock to which such Holderwould be entitled hereunder.

 

3.             Net Exercise.  

 

### (a)           Inlieu of exercising this Warrant pursuant to Section 2, the Holder mayelect to receive, without the payment by the Holder of any additionalconsideration, shares of Series C Preferred Stock equal to the value ofthis Warrant or any portion hereof by the surrender of this Warrant or suchportion to the Company, with the exercise notice annexed hereto duly executed(and by indicating thereon that the Holder is exercising this Warrant pursuantto the net exercise provisions of this Section 3), at the office of theCompany.  Thereupon, the Company shallissue to the Holder such number of fully paid and nonassessable shares of Series CPreferred Stock as is computed using the following formula:

 

X = Y (A-B)

   A 

 

Where   X=                        the number of shares to be issued to the Holder pursuant to this Section 3.

 

Y =                              thenumber of shares covered by this Warrant in respect of which the net issueelection is made pursuant to this Section 3.

 

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A =                            the Fair Market Value (as hereinafter defined) of one share of Series CPreferred Stock, as at the time the net issue election is made pursuant to thisSection 3. 

 

B =                              the Purchase Price in effect under this Warrant at the time the netissue election is made pursuant to this Section 3.

 

The Board shall promptly respond in writing to aninquiry by the Holder as to the Fair Market Value of one share of Series CPreferred Stock.

 

 

 

### (b)           The“Fair Market Value” of a share of Series C Preferred Stock as of aparticular date (the “Determination Date”) shall mean the fair marketvalue of such share as determined in good faith by the Board of Directors uponreview of all relevant factors; provided, however, that, if theDetermination Date is the date of a liquidation, dissolution or winding up ofthe Company (including a Change of Control), then the “Fair Market Value”of a share of Series C Preferred Stock shall mean the aggregate of allamounts paid, payable (or otherwise distributed or distributable) to theholders of the Series C Preferred Stock pursuant to the Company’sCertificate of Incorporation, as amended to date (the “Charter”) uponsuch liquidation, dissolution or winding up (assuming, for this purpose, that: (i) thisWarrant was exercised immediately prior to, and the underlying shares of Series CPreferred Stock issued thereon were issued and outstanding as of, suchliquidation, dissolution or winding up; and (ii) the exercise pricepayable in respect of such deemed exercise of this Warrant is included in theassets available for distribution to the holders of the Company’s capital stockunder the Charter in connection with such liquidation, dissolution or windingup).

 

4.             Delivery of Stock Certificates,etc., on Exercise.  As soon aspracticable after the exercise of this Warrant, and in any event within10 business days thereafter, the Company at its expense (including thepayment by it of any applicable issue or stamp taxes) will cause to be issuedin the name of and delivered to the holder hereof, or as such holder (uponpayment by such holder of any applicable transfer taxes and subject toapplicable securities laws) may direct, a certificate or certificates for thenumber of fully paid and nonassessable shares of Series C Preferred Stockto which such holder shall be entitled on such exercise, in such denominationsas may be requested by such holder, plus, in lieu of any fractional share towhich such holder would otherwise be entitled, cash equal to such fractionmultiplied by the then current Fair Market Value (as determined in Section 3(b) above)of one full share of Series C Preferred Stock, together with any otherstock or other securities and property (including cash, where applicable) towhich such holder is entitled upon such exercise pursuant to Section 2 or3 hereof, or otherwise.

 

5.             Covenants as to Series CPreferred Stock and Common Stock.  The Company covenants and agrees that allshares of Series C Preferred Stock which may be issued upon the exerciseof this Warrant, and all shares of Common Stock, $.10 par value per share (the “CommonStock”), of the Company, which may be issued upon the conversion of the Series CPreferred Stock, will, upon issuance, be validly issued, fully paid andnon-assessable and free

 

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from alltaxes, liens and charges with respect to the issue thereof.  Without limiting the generality of theforegoing, the Company covenants that it will from time to time take all suchactions as may be required to assure that the stated or par value per share of Series CPreferred Stock is at all times equal to or less than the then effectivePurchase Price per share of Series C Preferred Stock issuable uponexercise of this Warrant.  The Companyfurther covenants and agrees that the Company will at all times have authorizedand reserved, free from preemptive rights, a sufficient number of shares of itsSeries C Preferred Stock to provide for the exercise of this Warrant andshares of Common Stock to provide for the conversion of the Series CPreferred Stock. If and so long as the Series C Preferred Stock issuable uponthe exercise of this Warrant or the Common Stock issuable upon conversion ofthe Series C Preferred Stock is listed on any national securitiesexchange, the Company will, if permitted by the rules of such exchange,list and keep listed on such exchange, upon official notice of issuance, allsuch shares of capital stock that are so listed.

 

6.             No Stockholder Rights .  This Warrant shall not entitle the holderhereof to any voting rights or other rights as a stockholder of the Company.

 

7.             Restrictions on Transfer;Registration Rights.   The holder ofthis Warrant by acceptance hereof agrees that the transfer of this Warrant, theshares of Series C Preferred Stock issuable upon the exercise of all orany portion of this Warrant and the shares of Common Stock issuable uponconversion of such shares of Series C Preferred Stock are subject to theprovisions of the Charter, including, without limitation, the rights,privileges and preferences of the Series C Preferred Stock set forth inthe Certificate of Designation for the Series C Preferred Stock containedin the Charter. This Warrant, and the shares of Series C Preferred Stockissuable upon exercise of all or any portion of this Warrant and the shares ofCommon Stock issuable upon conversion of such shares of Series C PreferredStock shall be entitled to all rights and benefits accorded thereto in theCharter, and the applicable provisions of the Charter are hereby incorporatedherein by reference.  Without limitingthe generality of the foregoing, the shares of Series C Preferred Stockissuable upon exercise of this Warrant (and, as applicable, any securitiesissuable upon conversion of such shares), shall be entitled to the sameregistration rights applicable to the “Registrable Securities” in that certain Amendedand Restated Registration Rights Agreement, dated as of September 2, 2003,by and among the Company, the Holder, Selway Partners, LLC, Selway Management, Inc.and CIP Capital L.P.

 

8.             Transfer of Warrant.  Subject to applicable securities laws, thisWarrant and all rights hereunder are transferable, in whole or in part, at theagency or office of the Company referred to in Section 2, by the holderhereof in person or by duly authorized attorney, upon surrender of this Warrantproperly endorsed.  Subject to applicablesecurities laws, each taker and holder of this Warrant, by taking or holdingthe same, consents and agrees that this Warrant, when endorsed, in blank, shallbe deemed negotiable, and, when so endorsed the holder hereof may be treated bythe Company and all other persons dealing with this Warrant as the absoluteowner hereof for any purposes and as the person entitled to exercise the rightsrepresented by this Warrant, or to the transfer hereof on the books of theCompany, any notice to the contrary

 

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notwithstanding;but until each transfer on such books, the Company may treat the registeredholder hereof as the owner hereof for all purposes.

 

9.                                       Adjustment of Number of Shares; Purchase Price; Nature of SecuritiesIssuable Upon Exercise of Warrants..

 

(a)           Purchase Price; Adjustment ofNumber of Shares.  The Purchase Price set forth aboveand the number of shares purchasable hereunder shall be subject to adjustmentfrom time to time as hereinafter provided.

 

(i)            Reclassification,etc.  If the Company, at any timewhile this Warrant, or any portion thereof, remains outstanding and unexpired,shall, by the reclassification or exchange of securities or otherwise, changeany of the securities as to which purchase rights under this Warrant exist intothe same or a different number of securities of any other class or classes,this Warrant shall thereafter represent the right to acquire such number andkind of securities as would have been issuable as the result of such changewith respect to the securities that were subject to the purchase rights underthis Warrant immediately prior to such reclassification, exchange, or otherchange and the Purchase Price therefor shall be appropriately adjusted, allsubject to further adjustment as provided in this Section 9.

 

(ii)           StockSplits, Stock Dividends and Reverse Stock Splits.  In case at any time the Company shall splitor subdivide the outstanding shares of Series C Preferred Stock into agreater number of shares, or shall declare and pay any stock dividend withrespect to its outstanding stock that has the effect of increasing the numberof outstanding shares of Series C Preferred Stock, the Purchase Price ineffect immediately prior to such subdivision or stock dividend shall beproportionately reduced and the number of shares of Series C PreferredStock purchasable pursuant to this Warrant immediately prior to suchsubdivision or stock dividend shall be proportionately increased, andconversely, in case at any time the Company shall combine its outstandingshares of Series C Preferred Stock into a smaller number of shares, thePurchase Price in effect immediately prior to such combination shall beproportionately increased and the number of shares of Series C PreferredStock purchasable upon the exercise of this Warrant immediately prior to suchcombination shall be proportionately reduced.

 

(iii)          Adjustmentsfor Dividends in Stock or Other Securities of Property.  If while this Warrant, or any portion hereof,remains outstanding and unexpired the holders of shares of Series CPreferred Stock shall have received, or, on or after the record date fixed forthe determination of eligible stockholders, shall have become entitled toreceive, without payment therefor, other or additional stock or othersecurities or property (other than cash) of the Company by way of dividend,then and in each case, this Warrant shall represent the right to acquire, inaddition to the number of shares of the security receivable upon exercise ofthis Warrant, and without payment of any additional consideration therefor, theamount of such other or additional stock or other securities or property of theCompany that such holder would hold on the date of such exercise had it beenthe holder of record of the security receivable upon exercise of this Warranton the date hereof and had thereafter, during the period from the date

 

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hereof to andincluding the date of such exercise, retained such shares and/or all otheradditional stock available by it as aforesaid during such period, giving effectto all adjustments called for during such period by the provisions of this Section 9.

 

(b)           Timing of Purchase PriceAdjustment.  No adjustment of the Purchase Price shall bemade unless such adjustment would require an increase or decrease of at least$0.0001 in such price; provided that any adjustments which by reason of this Section 9(b) arenot required to be made shall be carried forward and shall be made at the timeof and together with the next subsequent adjustment which, together with anyadjustment(s) so carried forward, shall require an increase or decrease of atleast $0.0001 in the Purchase Price then in effect hereunder.

 

10.           Certificate of Adjustment.Whenever the Purchase Price (or the number of shares of Series C PreferredStock issuable on the exercise of this Warrant) is adjusted, as hereinprovided, the Company shall promptly deliver to the Holder a certificate of theCompany’s chief financial officer setting forth the Purchase Price (and thenumber of shares of Series C Preferred Stock issuable on the exercise ofthis Warrant) after such adjustment and setting forth a brief statement of thefacts requiring such adjustment.

 

11.           Notices of Record Date, Etc.  In the event of:

 

### (a)           anytaking by the Company of a record of the holders of the Series C PreferredStock or Common Stock for the purpose of determining the holders thereof whoare entitled to receive any dividend or other distribution, or any right tosubscribe for, purchase, sell or otherwise acquire or dispose of any shares ofstock of any class or any other securities or property, or to receive any otherright;

 

### (b)           anyreclassification of the capital stock of the Company, capital reorganization ofthe Company, or Change of Control; or

 

### (c)           anyvoluntary or involuntary dissolution, liquidation or winding up of the Company;

 

then in each such event the Company will provide orcause to be provided to the Holder a written notice thereof.  Such notice shall be provided at least ten (10) calendardays prior to the date specified in such notice on which any such action is tobe taken.

 

12.           Exchange of Warrant.  This Warrant is exchangeable upon thesurrender hereof by the holders hereof at the office or agency of the Companydesignated in Section 2 hereof, for new Warrants of like tenorrepresenting in the aggregate the rights to subscribe for and purchase thenumber of shares which may be subscribed for and purchased hereunder, each ofsuch new Warrants to represent the right to subscribe for and purchase suchnumber of shares as shall be designated by said holder or holders hereof at thetime of such surrender.

 

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13.           Lost, Stolen, Mutilated orDestroyed Warrant.  If this Warrantis lost, stolen, mutilated or destroyed, the Company may, on such terms as toindemnity or otherwise as it may in its reasonable discretion impose (whichshall, in the case of a mutilated Warrant, include the surrender thereof),issue a new Warrant of like denomination and tenor as the Warrant so lost,stolen, mutilated or destroyed.  Any suchnew Warrant shall constitute a contractual obligation of the Company, whetheror not the allegedly lost, stolen, mutilated or destroyed Warrant shall be atany time enforceable by anyone.

 

14.           Notice Prior to Public Offering.  The Company shall give each Holder at leastthirty (30) days prior written notice of the effectiveness of any registrationstatement filed with the Securities and Exchange Commission under the 1933 Actcovering any shares of capital stock of the Company.

 

15.           No Impairment.  The Company will not, by amendment of itsCharter or through any reclassification, capital reorganization, consolidation,merger, sale or conveyance of assets, dissolution, liquidation, issue or saleof securities or any other voluntary action, avoid or seek to avoid theobservance of performance of any of the terms of this Warrant, but will at alltimes in good faith assist in the carrying out of all such terms and in thetaking of all such action as may be necessary or appropriate in order toprotect the rights of the Holder.

 

16.           Miscellaneous.  This Warrant and any term hereof may bechanged, waived, discharged or terminated only by an instrument in writingsigned by the party against which enforcement of such change, waiver, dischargeor termination is sought.  This Warrantshall be governed by and construed in accordance with the General CorporationLaw of the State of Delaware as to matters within the scope thereof, and as toall other matters shall be governed by and construed in accordance with theinternal laws of the Commonwealth of Massachusetts as applied to agreementsentered into among Massachusetts residents to be performed entirely within theCommonwealth of Massachusetts, without regard to principles of conflicts oflaw.  The headings in this Warrant arefor purposes of reference only, and shall not limit or otherwise affect any ofthe terms hereof.  This Warrant is beingexecuted as an instrument under seal. The invalidity or unenforceability of any provision hereof shall in noway affect the validity or enforceability of any other provision.

 

***[Remainder of Page IntentionallyLeft Blank]***

 

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INWITNESS WHEREOF, the undersigned have executed this Series C ConvertiblePreferred Stock Purchase Warrant as a sealed instrument as of the day and yearfirst above written.

 

 
| Dated:  August 25,  2005 | CLEARSTORY SYSTEMS, INC. |
|------------------------------------|--------------------------|
|                               |                     |
|                               | By:                      | /S/ Henry F. Nelson |   |
|                               | Name:                    | Henry F. Nelson |
|                               | Title:                   | President, CEO |
|                                    |                          |  |  |  |

 
| ACCEPTED AND AGREED TO BY:          |                |            |
|-------------------------------------|---------------------|-----------------|
|                                |                |            |
| By:                                 |                |            |
| SCP PRIVATE EQUITY PARTNERS II, L.P |                |            |
|                                | General Partner     |            |   |
|                                |                |            |
| By:                                 | /S/ Thomas G. Rebar |            |   |   |
|                                | Name:               | Thomas G. Rebar |   |   |
|                                | Title:              |            |   |
|                                     |                     |                 |  |  |  |

 

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**NOTICE OF EXERCISE**

 

(To be signed only on exercise of Warrant)

 

TO:         CLEARSTORYSYSTEMS, INC.

 

The undersigned hereby irrevocably elects to [checkapplicable subsection]:

 
|                (a) |   | Purchase                        shares of Series C Preferred Stock of ClearStory Systems, Inc.  pursuant to the terms of Section 2 of the attached Warrant.  Payment of the Purchase Price per share  required under Section 2 of such Warrant accompanies this notice. |
|-------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| OR

                                                                           |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
|                (b) |   | Exercise the attached Warrant for [all of the  shares] [               of  the shares] [cross out inapplicable phrase] purchasable under the Warrant  pursuant to the net exercise provisions of Section 3 of such Warrant.                                                                                               |

 

 
| Dated: |                                                                                 |   |   |   |
|--------|--------------------------------------------------------------------------------------|--------|--------|--------|
|   | (Signature must conform to name  of holder as specified on the  face of the Warrant) |
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|   | (Address)                                                                            |
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|        |                                                                                      |        |        |        |  |  |  |

 

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**FORM OF ASSIGNMENT**

 

(To be signed only on transfer of Warrant)

 

For value received, the undersigned herebysells, assigns, and transfers unto                                               the right represented by the within Warrant to purchase                     shares of Series C Convertible Preferred Stock of ClearStory Systems, Inc.to which the within Warrant relates, and appoints                                        as its Attorney to transfer such right on the books of ClearStory Systems, Inc.with full power of substitution in the premises.

 
| Dated:                     |                                                                                 |   |   |   |
|----------------------------|--------------------------------------------------------------------------------------|--------|--------|--------|
|                       | (Signature must conform to name  of holder as specified on the  face of the Warrant) |
|                       |                                                                                 |
|                       |                                                                                 |   |
|                       |                                                                                 |   |
| Signed in the presence of: |                                                                                 |
|                       |                                                                                 |
|                       |                                                                                 |   |
|                            |                                                                                      |        |        |        |  |  |

 

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