SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Section 14a-12
CRITICAL PATH, INC.
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(Name of Registrant as Specified in Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules o 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[CRITICAL PATH LOGO]
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105-1204
[ ], 2004
To the shareholders:
On behalf of the board of directors and employees of Critical Path, Inc., I
cordially invite you to attend a special meeting of our shareholders to be held
on [ ], 2004, at 10:00 a.m., California time, at the Park Hyatt hotel
located at 333 Battery Street, San Francisco, California.
At the special meeting, you will be asked to consider and vote upon two
proposals, in connection with a private placement of our securities and a
proposed rights offering, described in the enclosed proxy statement:
- to approve (i) the issuance of approximately 7.3 million shares of Series
E preferred stock with a price per share of $1.50 to the General Atlantic
Investors, issuable upon conversion of $11 million principal amount and
interest of convertible secured notes, and such additional shares of
Series E preferred stock as they may purchase in connection with the
proposed rights offering, (ii) the issuance of approximately 21.9 million
shares of Series E preferred stock with a price per share of $1.50 to the
Cheung Kong Investors, issuable upon exchange of approximately $32.8
million principal amount of 5 3/4% convertible subordinated notes, and
such additional shares of Series E preferred stock as they may purchase
in connection with the proposed rights offering, and (iii) the amendment
of warrants to purchase 625,000 shares of common stock held by members of
the General Atlantic Investors that reduces the exercise price per share
from $4.20 to $1.50; and
- to approve (i) an amendment to our current amended and restated articles
of incorporation to increase the authorized number of shares of common
stock from 125 million to 200 million and the authorized number of shares
of preferred stock from 5 million to 75 million and (ii) an amended and
restated certificate of determination of preferences of Series D
preferred stock to, among other things, amend the Series D preferred
stock liquidation preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the conversion price from
$4.20 to $1.50 and to reduce the amount of dividends to which the holders
of Series D preferred stock are entitled.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in the private placement. The General Atlantic Investors consist of
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC and GAPCO GmbH & Co. KG. The Cheung Kong Investors consist of Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited. Members of the General Atlantic Investors and
the Cheung Kong Investors are current shareholders of Critical Path. The General
Atlantic Investors and the Cheung Kong Investors are unaffiliated, unrelated and
do not constitute a group.
Our board of directors recommends that you vote "For" the approval and
adoption of both proposals.
Assuming approval and adoption of both proposals and the closing of the
private placement, we intend to consummate an offer to our existing common
shareholders of transferable rights to purchase up to an aggregate of $21
million of shares of newly issued Series E preferred stock at a purchase price
of $1.50 per share, the same purchase price paid by the General Atlantic
Investors and the Cheung Kong Investors in the private placement. One purpose of
the proposed rights offering is to allow the holders of our common stock an
opportunity to further invest in Critical Path and restore a portion, although
not all, of their proportionate interest in our capital stock at the same price
per share of Series E preferred stock as was
paid in the private placement. In addition, we plan to use any funds raised from
the proposed rights offering to support our current operating plan. We are not
asking you to vote on the rights offering.
Only shareholders of record of our common stock at the close of business on
[RECORD DATE] will be entitled to vote at the special meeting and any
adjournments or postponements of the meeting. This proxy statement is being
mailed to you because our records show that you were a shareholder of record of
our common stock on [RECORD DATE]. You should note, however, that your ability
to vote at the special meeting does not give you the right to participate in the
proposed rights offering. You will only be able to participate in the proposed
rights offering if you were a record holder of shares of our common stock as of
a date to be determined by our board of directors.
We have included for your convenience some questions and answers about the
special meeting, our private placement and proposed rights offering of Series E
preferred stock and the proposed increase in the number of our authorized shares
beginning on page 2 of the enclosed proxy statement.
Shareholders are cordially invited to attend the special meeting. In any
event, shareholders are urged to read carefully the enclosed proxy statement for
additional information concerning the matters to be considered at this special
meeting. Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. As
explained in the proxy statement, you may withdraw your proxy at any time before
it is actually voted at the meeting.
Sincerely,
WILLIAM E. MCGLASHAN, JR.
Chief Executive Officer and
Chairman of the Board of Directors
This proxy statement is dated [ ], 2004 and is first being mailed
to shareholders on or about [ ], 2004.
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105-1204
(415) 541-2500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS -- [ ], 2004
To the shareholders of Critical Path, Inc.:
Notice is hereby given that a special meeting of shareholders of Critical
Path, Inc., a California corporation, will be held on [ ], 2004, at
10:00 a.m. California time, at the Park Hyatt hotel located at 333 Battery
Street, San Francisco, California:
The special meeting will be held to consider and vote upon two proposals,
in connection with a private placement of our securities and a proposed rights
offering, described in the enclosed proxy statement:
- to approve (i) the issuance of approximately 7.3 million shares of Series
E preferred stock with a price per share of $1.50 to the General Atlantic
Investors, issuable upon conversion of $11 million principal amount and
interest of convertible secured notes, and such additional shares of
Series E preferred stock as they may purchase in connection with the
proposed rights offering, (ii) the issuance of approximately 21.9 million
shares of Series E preferred stock with a price per share of $1.50 to the
Cheung Kong Investors, issuable upon exchange of approximately $32.8
million principal amount of 5 3/4% convertible subordinated notes, and
such additional shares of Series E preferred stock as they may purchase
in connection with the proposed rights offering, and (iii) the amendment
of warrants to purchase 625,000 shares of common stock held by members of
the General Atlantic Investors that reduces the exercise price per share
from $4.20 to $1.50; and
- to approve (i) an amendment to our current amended and restated articles
of incorporation to increase the authorized number of shares of common
stock from 125 million to 200 million and the authorized number of shares
of preferred stock from 5 million to 75 million and (ii) an amended and
restated certificate of determination of preferences of Series D
preferred stock to, among other things, amend the Series D preferred
stock liquidation preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the conversion price from
$4.20 to $1.50 and to reduce the amount of dividends to which the holders
of Series D preferred stock are entitled.
Shareholders are cordially invited to attend the special meeting. In any
event, shareholders are urged to read carefully the enclosed proxy statement for
additional information concerning the matters to be considered at this special
meeting. The board of directors has fixed the close of business on [RECORD DATE]
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the special meeting or any postponement or adjournment of the
meeting. A list of these shareholders will be available for examination at our
principal executive office during normal business hours for a period of 10 days
before the special meeting.
Only shareholders of record of our common stock at the close of business on
[RECORD DATE] will be entitled to vote at the special meeting and any
adjournments or postponements of the meeting. This proxy statement is being
mailed to you because our records show that you were a shareholder of record of
our common stock on [RECORD DATE]. You should note, however, that your ability
to vote at the special meeting does not give you the right to participate in the
proposed rights offering. You will only be able to participate in the proposed
rights offering if you were a record holder of shares of our common stock as of
a date to be determined by our board of directors.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in the private placement. The General Atlantic Investors consist of
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC and GAPCO GmbH & Co. KG. The Cheung Kong Investors consist of Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited. Members of the General Atlantic Investors and
the Cheung Kong Investors are current shareholders of Critical Path. The General
Atlantic Investors and the Cheung Kong
Investors, who held [ ] shares and [ ] shares, respectively, of our
Series D preferred stock (on an as converted to common stock basis), or
approximately [ ]% and [ ]%, respectively, of our outstanding voting
securities, as of [RECORD DATE], have agreed, solely in their capacity as
Critical Path shareholders, to vote their shares of our Series D preferred stock
in favor of both proposals. The General Atlantic Investors and the Cheung Kong
Investors are unaffiliated, unrelated and do not constitute a group.
YOUR VOTE IS VERY IMPORTANT TO US. Whether or not you plan to attend the
special meeting in person and regardless of the number of shares of stock that
you own, please complete, sign, date and return the enclosed proxy card promptly
in the enclosed pre-addressed, postage-paid envelope. Should you receive more
than one proxy because your shares are registered in different names and
addresses, each proxy should be returned to assure that all of your shares will
be voted. If you attend the special meeting in person and vote by ballot, your
proxy will be revoked automatically and only your vote at the special meeting
will be counted. The prompt return of your proxy card will assist us in
preparing for the special meeting.
Only shareholders of record at the close of business on [RECORD DATE] are
entitled to notice of and to vote at this meeting and at any continuation or
adjournment of the meeting. Please note that if your shares are held in "street
name," that is in the custody of a financial institution or other holder of
record, you will vote through the institution or holder in whose name the shares
are held. If you wish to vote at the meeting, you must obtain from the record
holder a proxy issued in your name.
By Order of the Board of Directors,
MICHAEL J. ZUKERMAN
Senior Vice President, General Counsel
and Secretary
San Francisco, California
[ ], 2004
TABLE OF CONTENTS
<Table>
Forward Looking Statements.................................. 1
Questions and Answers....................................... 2
Proposal 1 -- Approval of the Private Placement............. 18
Use of Proceeds............................................. 37
Proposal 2 -- Approval of Charter Amendments................ 38
Common Stock Ownership of Certain Beneficial Owners and
Management and Directors.................................. 43
Advance Notice Procedures................................... 47
Submission of Shareholder Proposals......................... 47
Attendance of Principal Accountants......................... 47
Incorporation of Certain Documents by Reference............. 48
Additional Information...................................... 48
</Table>
FORWARD-LOOKING STATEMENTS
This document includes certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements relating to the consummation of the proposed transactions described
in this proxy statement. The words "anticipates," "expects," "intends," "plans,"
"believes," "seek," and "estimate" and similar expressions are intended to
identify forward-looking statements. These statements are based on management's
current expectations and involve risks and uncertainties that could cause our
actual results to differ materially from those set forth in the statements. We
can give no assurance that such expectations will prove to be correct. Important
factors that could cause actual results to differ materially from current
expectations include: non-approval by our shareholders of the proposals in this
proxy statement; the level of demand for our services by customers; the level of
interest rates, which affects demand for our services and our interest expense;
the potential impact of any acquisition, disposition, merger, joint venture or
any other significant financial transactions that could occur in the future;
working capital requirements; general economic conditions; as well as other
factors listed in our Forms 10-K and 10-K/A for the year ended December 31,
2002, our most recent Form 10-Q and this proxy statement. We assume no
obligation to update these forward-looking statements to reflect actual results,
changes in risks, uncertainties or assumptions underlying or affecting such
statements or for prospective events that may have a retroactive effect.
QUESTIONS AND ANSWERS
While we encourage you to read this proxy statement in its entirety, we
include this Question and Answer section to provide some background information
and brief answers to several questions you might have about the enclosed
proposals. All references to "we," "our," "ours," "us" and "the Company" or
"Critical Path" in this proxy statement are to Critical Path, Inc. and its
subsidiaries, unless otherwise indicated.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
AND THE PROXY STATEMENT
WHEN AND WHERE IS THE SPECIAL MEETING?
The special meeting will be held on [ ], 2004 beginning at 10:00
a.m., California time, at the Park Hyatt hotel, 333 Battery Street, San
Francisco, California.
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At the special meeting, we will ask you to consider and vote upon two
proposals, in connection with a private placement of our securities and a
proposed rights offering, described in this proxy statement:
- to approve (i) the issuance of approximately 7.3 million shares of Series
E preferred stock with a price per share of $1.50 to the General Atlantic
Investors, issuable upon conversion of $11 million principal amount and
interest of convertible secured notes, and such additional shares of
Series E preferred stock as they may purchase in connection with the
proposed rights offering, (ii) the issuance of approximately 21.9 million
shares of Series E preferred stock with a price per share of $1.50 to the
Cheung Kong Investors, issuable upon exchange of approximately $32.8
million principal amount of 5 3/4% convertible subordinated notes, and
such additional shares of Series E preferred stock as they may purchase
in connection with the proposed rights offering, and (iii) the amendment
of warrants to purchase 625,000 shares of common stock held by members of
the General Atlantic Investors that reduces the exercise price per share
from $4.20 to $1.50; and
- to approve (i) an amendment to our current amended and restated articles
of incorporation to increase the authorized number of shares of common
stock from 125 million to 200 million and the authorized number of shares
of preferred stock from 5 million to 75 million and (ii) an amended and
restated certificate of determination of preferences of Series D
preferred stock to, among other things, amend the Series D preferred
stock liquidation preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the conversion price from
$4.20 to $1.50 and to reduce the amount of dividends to which the holders
of Series D preferred stock are entitled.
The approval of both proposals is a requirement for the closing of the
private placement and the proposed rights offering.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in the private placement. The General Atlantic Investors consist of
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC and GAPCO GmbH & Co. KG. The Cheung Kong Investors consist of Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited. Members of the General Atlantic Investors and
the Cheung Kong Investors are current shareholders of Critical Path. The General
Atlantic Investors and the Cheung Kong Investors are unaffiliated, unrelated and
do not constitute a group.
WHY DID I RECEIVE THIS PROXY STATEMENT?
We sent you this proxy statement and the enclosed proxy card because our
board of directors is soliciting your proxy to vote at the special meeting. YOUR
VOTE IS VERY IMPORTANT.
2
This proxy statement summarizes the information you need to know to vote on
an informed basis at the special meeting. However, you do not need to attend the
special meeting to vote your shares (see the question entitled "How Do I Vote?"
on page 5 of this proxy statement). We began sending this proxy statement, the
attached notice of special meeting and the enclosed proxy card on or about
[ ], 2004 to all shareholders entitled to vote.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on [RECORD DATE] will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on [RECORD DATE]. You should
note, however, that your ability to vote at the special meeting does not give
you the right to participate in the proposed rights offering. You will only be
entitled to participate in the proposed rights offering if you were a record
holder of shares of our common stock as of a date to be determined by our board
of directors.
WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD OR VOTER INSTRUCTION FORM?
If your shares are registered differently or are in more than one account,
you will receive more than one proxy card or voter instruction form, each of
which will indicate the number of shares you are entitled to vote on that
particular card or form. Sign and return all proxy cards or voter instruction
forms to ensure that all your shares are voted.
CAN I ATTEND THE SPECIAL MEETING?
If you owned common stock on [RECORD DATE] then you may attend the special
meeting. You should be prepared to present photo identification for admittance.
In addition, if your shares are held in the name of your broker, bank or other
nominee, you must bring an account statement or letter from the nominee
indicating that you are the beneficial owner of the shares on the record date.
CAN I REVOKE MY PROXY?
If you execute and return a proxy, you may revoke that proxy at any time
before it is voted at the special meeting by:
- filing with the Secretary of Critical Path, Inc., at 350 The Embarcadero,
San Francisco, California 94105-1204, written notice of revocation
bearing a later date than the proxy;
- filing a duly executed proxy bearing a later date; or
- appearing in person and voting by ballot at the special meeting.
If you execute and return voting instructions to a nominee, you may revoke
such instructions at any time before the proxy executed by the nominee on your
behalf is voted at the special meeting by submitting to the nominee written
notice of revocation bearing a later date than the voting instructions.
If you were a shareholder of record as of [RECORD DATE], you may attend the
special meeting and may vote in person whether or not a proxy has been
previously given, but your presence (without further action) at the special
meeting will not constitute revocation of a previously given proxy.
WILL OTHER MATTERS BE VOTED ON AT THE SPECIAL MEETING?
No. Under our bylaws only the proposals described in the attached notice of
special meeting of shareholders may be considered.
3
QUESTIONS AND ANSWERS ABOUT VOTING
WHAT CONSTITUTES A QUORUM AND WHY IS IT NECESSARY?
In order to carry on the business of the special meeting, we must have a
quorum. We urge you to either attend the meeting or send in your proxy so that
your shares will be counted for quorum purposes. A quorum for the meeting will
exist if the holders of a majority of the shares entitled to vote at the meeting
are represented, either in person or by proxy, at the meeting. Abstentions are
counted as present and entitled to vote for purposes of determining a quorum. If
you submit a properly executed proxy card or voter instruction form, even if you
abstain from voting, you will be considered part of the quorum. Broker non-votes
will also be counted in determining the existence of a quorum.
WHO IS ENTITLED TO VOTE?
If our records show that you are a holder of common stock (including shares
of common stock represented by the Special Voting Share related to our Nova
Scotia subsidiary) as of the close of business on [RECORD DATE], you are
entitled to receive notice of the special meeting and to vote the shares that
you held on the record date. Only shareholders of record of our common stock
(including shares of common stock represented by the Special Voting Share
related to our Nova Scotia subsidiary) at the close of business on [RECORD DATE]
will be entitled to vote at the special meeting and any adjournments or
postponements of the meeting. Each share of common stock is entitled to one
vote. Cumulative voting is not permitted.
On [RECORD DATE], there were [ ] shares of common stock
outstanding and entitled to vote at the special meeting (including shares of
common stock represented by the Special Voting Share related to our Nova Scotia
subsidiary). Therefore, the presence at the special meeting, either in person or
by proxy, of a majority, or [ ] shares of common stock (including
shares of common stock represented by the Special Voting Share related to our
Nova Scotia subsidiary) will constitute a quorum. See the question entitled "How
many votes do the common shareholders have?" on page 5 of this proxy statement
for further information on the common stock issuable upon the conversion or
exchange of specified securities.
If on [RECORD DATE] your shares were held in an account at a brokerage
firm, bank, dealer or other similar organization, then you are the beneficial
owner of shares held in "street name," and these proxy materials are being
forwarded to you by that organization. The organization holding your account is
considered the shareholder of record for purposes of voting at the special
meeting. As a beneficial owner, you have the right to direct your broker or
other agent on how to vote the shares in your account. You are also invited to
attend the special meeting. However, since you are not the shareholder of
record, you may not vote your shares in person at the meeting unless you request
and obtain a valid proxy from your broker or other agent.
Abstentions and broker non-votes will be counted for the purpose of
determining if a quorum is present. Broker non-votes occur when a nominee, such
as a financial institution, returns a proxy, but does not have the authorization
from the beneficial owner to vote the owner's shares on a particular proposal
because the nominee did not receive voting instructions (via proxy vote) from
the beneficial owner. An automated system administered by ComputerShare Trust
Company, Inc., our transfer agent, will tabulate votes cast by proxy and an
employee of the transfer agent will serve as inspector of elections for the
common stock and will tabulate votes cast in person at the special meeting. An
employee of the transfer agent also will tabulate separately affirmative and
negative votes, abstentions and broker non-votes.
You should note that your ability to vote at the special meeting does not
give you the right to participate in the proposed rights offering. You will only
be entitled to participate in the proposed rights offering if you were a record
holder of shares of our common stock as of a date to be determined by our board
of directors.
4
HOW DO I VOTE?
If you are a shareholder of record, you may vote in person at the special
meeting, vote by proxy using the enclosed proxy card or vote by proxy on the
Internet. Whether or not you plan to attend the special meeting, we urge you to
vote by proxy to ensure your vote is counted. You may still attend the special
meeting and vote in person if you have already voted by proxy.
- To vote in person, come to the special meeting and we will give you a
ballot when you arrive.
- To vote using the proxy card, simply complete, sign and date the enclosed
proxy card and return it promptly in the envelope provided. If you return
your signed proxy card to us before the special meeting, we will vote
your shares as you direct.
- To vote on the Internet or by telephone, go to [ ] to
complete an electronic proxy card or call [ ]. You will be
asked to provide the company number and control number from the enclosed
proxy card. Your vote must be received by 12:00 noon, California time, on
[ ] in order to be counted.
If you are a beneficial owner of shares registered in the name of your
broker, bank or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
Critical Path. Simply complete and mail the proxy card to ensure that your vote
is counted. Alternatively, you may vote by telephone or over the Internet as
instructed by your broker or bank. If your broker or bank is participating in
the [ ] program, you may grant a proxy to vote those shares
telephonically by calling the telephone number shown on the instruction form
received from your broker or bank, or via the Internet at [ ]'s
web site at [ ]. To vote in person at the special meeting, you
must obtain a valid proxy from your broker, bank or other agent. Follow the
instructions from your broker or bank included with these proxy materials, or
contact your broker or bank to request a proxy form.
We provide Internet proxy voting to allow you to vote your shares on-line,
with procedures designed to ensure the authenticity and correctness of your
proxy vote instructions. However, please be aware that you must bear any costs
associated with your Internet access, such as usage charges from Internet access
providers and telephone companies.
HOW MANY VOTES DO THE COMMON SHAREHOLDERS HAVE?
Each share of common stock that you own entitles you to cast one vote on
each matter to be voted upon. Accordingly, the holders of common stock on
[RECORD DATE] (excluding shares issuable upon conversion of outstanding Series D
preferred stock) are entitled to cast an aggregate of [ ] votes on
each proposal, representing approximately [ ]% of our outstanding voting power
as of [RECORD DATE] after taking into account the voting power of the holders of
shares of our Series D preferred stock as discussed in the following paragraph.
This also assumes the exercise in full of the warrants to purchase 625,000
shares of common stock held by members of the General Atlantic Investors. Unless
otherwise indicated, references to the voting rights of our outstanding shares
of common stock include [347,629] shares of common stock issuable to
non-affiliates of Critical Path upon the exchange of Class A Non-Voting
preference shares of Critical Path Messaging Co., a Nova Scotia subsidiary of
Critical Path, for our common stock (Exchangeable Shares). The Exchangeable
Shares can be exchanged at any time for our common stock upon the election of
the holder. The holders of Exchangeable Shares are entitled to vote by directing
the holder of the share of Special Voting Stock of the Company (Special Voting
Share). The Special Voting Share has one vote for each share of Class A
Non-Voting stock outstanding and held by non-affiliates.
We have issued 4,188,587 shares of our Series D preferred stock that are
convertible into [ ] shares of our common stock as of [RECORD DATE].
The Series D preferred stock is convertible into common stock at any time upon
the election of the holder. Each share of common stock into which the Series D
preferred stock is convertible has the same voting rights as one of your shares
of common stock.
5
HOW MANY VOTES DO OTHER SHAREHOLDERS HAVE?
As of [RECORD DATE], the holders of shares of our Series D preferred stock
are entitled to cast an aggregate of [ ] votes on each proposal.
The number of votes they are entitled to cast is equal to the number of shares
of common stock they would receive upon full conversion of their shares of
Series D preferred stock into common stock. As of [RECORD DATE], each share of
Series D preferred stock is convertible into [ ] shares of common
stock. All of the shares of our Series D preferred stock are held by members of
the General Atlantic Investors, members of the Cheung Kong Investors and Vectis
CP Holdings, LLC. As a result of their holdings of Series D preferred stock, the
General Atlantic Investors and the Cheung Kong Investors beneficially own
[ ] shares and [ ] shares, respectively, of our
outstanding voting securities as of [RECORD DATE]. The General Atlantic
Investors and the ]Cheung Kong Investors have agreed, solely in their capacity
as Critical Path shareholders, to vote their shares of our Series D preferred
stock in favor of both proposals.
WHAT IS A BROKER NON-VOTE?
A broker non-vote occurs when a broker holding shares for a beneficial
owner does not vote on a particular proposal because the broker does not have
discretionary voting power for that particular item and has not received
instructions from the beneficial owner.
HOW MANY VOTES ARE NEEDED TO APPROVE EACH PROPOSAL?
- To be approved, "Proposal 1 -- Approval of the Private Placement" must
receive a "For" vote from the majority of shares present and entitled to
vote either in person or by proxy. In addition, "Proposal 1 -- Approval
of the Private Placement" must receive a "For" vote from 50% of the
outstanding shares of Series D preferred stock, voting separately as a
class. Abstentions will be counted toward the tabulation of votes cast
and will have the same effect as an "Against" vote. Broker non-votes will
have no effect.
- To be approved, "Proposal 2 -- Approval of the Charter Amendments" must
receive a "For" vote from 50% of the outstanding shares either in person
or by proxy. In addition, "Proposal 2 -- Approval of the Charter
Amendments" must receive a "For" vote from 50% of the outstanding shares
of common stock and the votes represented by the Special Voting Share
(excluding the shares of Series D preferred stock), voting together as a
class, and the outstanding shares of Series D preferred stock, voting
separately as a class. If you do not vote or "Abstain" from voting, it
will have the same effect as an "Against" vote. Broker non-votes will
have the same effect as an "Against" vote. Completion of the charter
amendments described in Proposal 2 is a condition to consummation of the
private placement, so shareholders who vote to approve Proposal 1 should
also vote to approve Proposal 2 or the private placement cannot take
effect.
The approval of both proposals is a requirement for the closing of the
private placement and the proposed rights offering.
IF I PLAN TO ATTEND THE SPECIAL MEETING, SHOULD I STILL VOTE BY PROXY?
Whether or not you plan to attend the special meeting, we urge you to vote
by proxy. Returning the proxy card will not affect your right to attend the
special meeting and vote, but it will ensure that your vote will be cast if for
some reason you do not attend the special meeting. We will bear the entire cost
of preparing, assembling, printing and mailing this proxy statement and any
additional material that may be furnished to shareholders. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of stock held in the names of such
nominees. We have retained the services of an outside proxy solicitation firm,
Georgeson Shareholder Communications Inc., at an estimated cost of approximately
$23,000 and the reimbursement of out-of-pocket expenses. The solicitation of
proxies may be made in person or by the use of the Internet, facsimile,
telephone or mail or through direct communication with certain shareholders or
their representatives by our officers, directors
6
and employees, who will receive no additional compensation for such
solicitation. This proxy statement is being mailed to shareholders on or about
[ ], 2004.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
The board of directors recommends that you vote in favor of both proposals.
Mr. William E. McGlashan, Jr., who is referred to as the Management Director, is
the chief executive officer of Critical Path. Mr. McGlashan is also a managing
member of Vectis CP Holdings, LLC, an owner of shares of our Series D preferred
stock. Messrs. William E. Ford and Raul J. Fernandez are referred to as the
General Atlantic Directors. Mr. Ford is a managing member of General Atlantic
Partners, LLC, an affiliate of the General Atlantic Investors. Mr. Fernandez is
a special advisor to General Atlantic Partners, LLC. Neither the General
Atlantic Directors nor the Management Director participated in the voting with
respect to the proposed sale of securities to the General Atlantic Investors and
the Cheung Kong Investors. References in this proxy statement to the approval of
our board as to the proposed sale of securities to the General Atlantic
Investors and the Cheung Kong Investors and the proposed rights offering include
all members of our board of directors other than the Management Director and
General Atlantic Directors.
WHAT OTHER INFORMATION SHOULD I REVIEW BEFORE VOTING?
You should review the documents referred to under "Incorporation of Certain
Documents by Reference" on page 48 of this proxy statement or consult the
sources referenced under "Additional Information" on page 48 of this proxy
statement.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES AND WHO PAYS THEM?
All expenses of soliciting proxies, including clerical work, printing and
postage, will be paid by us. The solicitation of proxies may be made in person
or by the use of the Internet, facsimile, telephone or mail or through direct
communication with certain shareholders or their representatives by our
officers, directors and employees, who will receive no additional compensation
for such solicitation. We have retained Georgeson Shareholder Communications
Inc. to assist us in the solicitation of proxies and to assist in the
distribution of proxies. We expect to pay Georgeson Shareholder Communications
Inc. a fee of approximately $23,000 and reimburse them for out-of-pocket
expenses.
AM I ENTITLED TO APPRAISAL RIGHTS?
No. You have no right under California law to seek appraisal of the value
of your shares in connection with any of the matters being voted upon.
QUESTIONS AND ANSWERS ABOUT THE PRIVATE PLACEMENT
AND THE RIGHTS OFFERING
HOW IS THE PRIVATE PLACEMENT STRUCTURED?
On November 18, 2003, we entered into a convertible note purchase and
exchange agreement that provided for the issuance and sale by us to the General
Atlantic Investors of $10 million in principal amount of 10% convertible secured
notes that will, including $1 million of interest, convert into approximately
7.3 million shares of Series E preferred stock upon shareholder approval and
certain filings with the California Secretary of State. The convertible secured
notes were issued and sold to the General Atlantic Investors on November 26,
2003. In addition, pursuant to the convertible note purchase and exchange
agreement, the Cheung Kong Investors are obligated to exchange approximately
$32.8 million face value of our outstanding 5 3/4% convertible subordinated
notes for approximately 21.9 million shares of Series E preferred stock, also
upon receipt of shareholder approval and certain filings with the California
Secretary of State. The shares of Series E preferred stock will initially
convert into shares of common stock on a one-to-one basis, rank senior in
preference to all of our existing equity shares and accrue
7
dividends at an annual rate of 5 3/4% of the purchase price of $1.50 per share.
Accrued dividends will also convert into common stock at the purchase price of
$1.50 per share.
The terms of the convertible note purchase and exchange agreement also
provide that, for a period of 12 months following the date shares of Series E
preferred stock are first issued and as part of the private placement, we may
sell up to an additional 10 million shares of Series E preferred stock to
undetermined investors at a price per share equal to $1.50. We have engaged a
financial advisor to assist us in identifying qualified institutional investors
for the placement of those additional shares. The other terms of any such sale
of shares of Series E preferred stock shall be the same as those contained in
the certificate of determination of preferences of Series E preferred stock and
not more favorable than the terms and conditions set forth in the convertible
note purchase and exchange agreement.
The General Atlantic Investors and the Cheung Kong Investors are currently
our largest groups of shareholders. Assuming the conversion of approximately
$42.8 million principal amount of outstanding convertible notes held by the
General Atlantic Investors and the Cheung Kong Investors and the amendment of
the terms of our Series D preferred stock, both of which are a condition to the
consummation of the proposed rights offering, as of [RECORD DATE] the General
Atlantic Investors own [ ]% of our voting securities and the Cheung Kong
Investors own approximately [ ]% of our voting securities (on an as converted
to common stock basis and assuming exercise in full of the warrants to purchase
up to 625,000 shares of common stock held by members of the General Atlantic
Investors).
Under the terms of the convertible note purchase and exchange agreement,
the closing of the private placement is subject to a number of conditions,
including shareholder approval of Proposals 1 and 2.
We describe the terms of the private placement more fully below under
"Proposal 1 -- Approval of the Private Placement."
The General Atlantic Investors and the Cheung Kong Investors, who held
[ ] shares and [ ] shares, respectively, of our
Series D preferred stock (on an as converted to common stock basis), or
approximately [ ]% and [ ]%, respectively, of our outstanding voting
securities, as of [RECORD DATE], have agreed, solely in their capacity as
Critical Path shareholders, to vote their shares of our Series D preferred stock
in favor of both proposals. We describe the voting and the terms of these voting
arrangements more fully below under "Proposal 1 -- Approval of the Private
Placement."
HOW WOULD THE PRIVATE PLACEMENT AFFECT THE TERMS OF THE SERIES D PREFERRED
STOCK?
If our shareholders approve the proposals in this proxy statement, we will
file an amended and restated certificate of determination of preferences of
Series D preferred stock to amend the terms of the shares of Series D preferred
stock. The following discussion of the terms of the amended shares of Series D
preferred stock is qualified in its entirety by the certificate of determination
of preferences of Series D preferred stock attached to this proxy statement as
APPENDIX D and incorporated by reference herein.
The holders of Series D preferred stock have agreed to allow us to
eliminate the right of the Series D preferred stock to participate on a pro rata
basis with common shareholders in any remaining equity (after the full
preferential returns to the Series D preferred stock and the Series E preferred
stock). In addition, following the date shares of Series E preferred stock are
first issued, dividends on the shares of Series D preferred stock will accrue at
a simple annual rate of 5 3/4% whether or not declared by our board of
directors. The current right of the Series D preferred stock to cumulative
dividends at 8% will be eliminated going forward.
The Series D preferred stock will be amended to add a minimum liquidation
preference of 1.6 times the original purchase price of the Series D preferred
stock (or $22 per share). In addition, the amended and restated certificate of
determination of preferences of Series D preferred stock will reduce the
conversion price of the Series D preferred stock from $4.20 to $1.50. This will
provide the holders of the Series D preferred stock to convert their shares of
Series D preferred stock into a greater number of shares than they otherwise
could have prior to amending the terms of the Series D preferred stock.
8
See APPENDIX D to this proxy statement and the section entitled "Terms of
the amended and restated Series D preferred stock" on page 25 of this proxy
statement for more information about the terms of the terms of the amended and
restated Series D preferred stock.
WHY IS CRITICAL PATH DOING THE PRIVATE PLACEMENT?
On July 23, 2003, our board of directors established the strategic
alternatives committee of our board of directors, consisting of Messrs. Ross
Dove, Wm. Christopher Gorog and Steven R. Springsteel, to evaluate our strategic
alternatives for additional funding. Members of management began meeting with
institutions and persons to discuss investing in Critical Path. We focused our
efforts on a private placement to selected investors, and we evaluated the
likelihood of a sale of the company, and selected assets of the company, on
favorable terms, or at all. After our board of directors extensively discussed
the terms and conditions of the private placement, reviewed the absence of
alternative financing or other strategic prospects and received advice from Duff
& Phelps, LLC, our financial advisors, it approved the proposed private
placement. Our board of directors also approved the sale of up to an additional
10 million shares of Series E preferred stock other than in connection with the
proposed rights offering, and we have engaged a financial advisor to assist us
in identifying qualified institutional investors for the placement of those
additional shares. Our primary purpose of the private placement is to retire
approximately $5 million of our senior indebtedness, which we have already done,
and approximately $32.8 million of outstanding notes, both by raising capital
and through the exchange by the Cheung Kong Investors of their 5 3/4%
convertible subordinated notes for shares of Series E preferred stock, as well
as to provide additional capital for other general corporate purposes and
working capital.
WHY IS CRITICAL PATH DOING THE RIGHTS OFFERING?
One purpose of the proposed rights offering is to allow the holders of our
common stock an opportunity to further invest in Critical Path and restore a
portion, although not all, of their proportionate interest in our capital stock
at the same price per share of Series E preferred stock as was paid under the
convertible note purchase and exchange agreement. In addition, any funds raised
from the proposed rights offering are necessary to support our current operating
plan and spending beyond the end of the first quarter of 2004.
On November 18, 2003, we entered into a convertible note purchase and
exchange agreement with the General Atlantic Investors and the Cheung Kong
Investors pursuant to which, among other things, we issued $10 million in
principal amount of 10% convertible secured notes to the General Atlantic
Investors and, subject to and upon shareholder approval, we agreed that the $10
million convertible secured notes (including $1 million of interest) would
convert into approximately 7.3 million shares of Series E preferred stock and
that the approximately $32.8 million of our face value 5 3/4% convertible
subordinated notes held by the Cheung Kong Investors would be exchanged for
approximately 21.9 million shares of Series E preferred stock. In addition, the
terms of the convertible note purchase and exchange agreement provide that, for
a period of 12 months following the date shares of Series E preferred stock are
first issued and as part of the private placement, we may sell up to an
additional 10 million shares of Series E preferred stock to undetermined
investors at a price per share equal to $1.50, such amount in addition to the
shares of Series E preferred stock issued in the proposed rights offering. We
have engaged a financial advisor to assist us in identifying qualified
institutional investors for the placement of those additional shares.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on [RECORD DATE] will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on [RECORD DATE]. You should
note, however, that your ability to vote at the special meeting does not give
you the right to participate in the proposed rights offering. You will only be
entitled to participate in the proposed rights offering if you were a record
holder of shares of our common stock as of a date to be determined by our board
of directors.
9
WHY IS CRITICAL PATH SEEKING SHAREHOLDER APPROVAL OF THE PRIVATE PLACEMENT?
We are subject to Nasdaq's marketplace rules because our common stock is
currently listed on the Nasdaq National Market. These rules require shareholder
approval for an issuance of stock that is deemed to result in a "change of
control" of the issuer (based on certain criteria and presumptions established
by Nasdaq) or, in certain circumstances, is at a price that is less than the
greater of book or market value.
Nasdaq rules require us to obtain shareholder approval of the private
placement and the issuance of shares of Series E preferred stock, if any, to the
General Atlantic Investors and the Cheung Kong Investors, as the case may be, in
connection with the proposed rights offering because the private placement and
any issuance of shares to the General Atlantic Investors and the Cheung Kong
Investors in connection with the proposed rights offering will be considered a
change of control of Critical Path based on certain criteria and presumptions
established by Nasdaq. Upon consummation of the private placement, the General
Atlantic Investors and the Cheung Kong Investors would beneficially own
approximately [ ]% and approximately [ ]%, respectively, of our total
shares outstanding (on an as converted to common stock basis and assuming
exercise in full of the warrants to purchase up to 625,000 shares of common
stock held by members of the General Atlantic Investors as of [RECORD DATE]).
Following completion of the private placement and the issuance of shares of
Series E preferred stock, if any, to the General Atlantic Investors and the
Cheung Kong Investors, as the case may be, in connection with the proposed
rights offering, the investors would hold the requisite percentage of our
outstanding shares of stock so as to permit them, if they chose to act in
concert, to take actions requiring shareholder approval without obtaining the
approval of our other shareholders.
In addition, Nasdaq rules require us to obtain shareholder approval of the
private placement because the shares of Series D preferred stock, the shares of
Series E preferred stock and the warrants to purchase 625,000 shares of common
stock held by the General Atlantic Investors (and the shares of common stock
issuable upon conversion or exercise of the shares of Series D preferred stock,
shares of Series E preferred stock and the warrants) would be sold at or amended
to have a per-share price lower than the greater of the book or market value as
of the date on which we signed the convertible note purchase and exchange
agreement with respect to the private placement. Under applicable Nasdaq rules,
we are required to obtain shareholder approval for an issuance of shares of
stock in a private placement equal to or greater than 20% of our outstanding
shares of stock if the shares are sold at or amended to have a per-share price
lower than the greater of the book or market value.
Two of our directors, Messrs. William E. Ford and Raul J. Fernandez, have a
relationship with some of the investors in the private placement, the General
Atlantic Investors. Mr. McGlashan, one of our directors and our chief executive
officer, is also a managing member of Vectis CP Holdings, LLC, an owner of
shares of our Series D preferred stock. Nasdaq rules require shareholder
approval of the private placement because of these financial interests in our
investors, and the shares of stock proposed to be issued in the private
placement would be sold at a per-share price deemed to be below the book or
market value of our common stock. Under applicable Nasdaq rules and guidance, we
are required to obtain shareholder approval for issuances of shares indirectly
to directors if the shares are sold at or amended to have a per-share price
lower than the greater of the book or market value of our common stock.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the
amendment to our amended and restated articles of incorporation to increase the
authorized number of shares of common stock and preferred stock and the approval
and adoption of the amended and restated certificate of determination of
preferences of Series D preferred stock require the affirmative vote of the
holders of a majority of the outstanding shares of common stock and the votes
represented by the Special Voting Share (excluding the shares of Series D
preferred stock), voting together as a class, and the outstanding shares of
Series D preferred stock, voting separately as a class.
The General Atlantic Investors and the Cheung Kong Investors, who held
[ ] shares and [ ] shares, respectively, of our Series D
preferred stock (on an as converted to common stock basis), or approximately
[ ]% and [ ]%, respectively, of our outstanding voting
securities,
10
as of [RECORD DATE], have agreed, solely in their capacity as Critical Path
shareholders, to vote their shares of our Series D preferred stock in favor of
the amendment to our amended and restated articles of incorporation to increase
the authorized number of shares of common stock and preferred stock and the
amendment and restatement of the amended and restated certificate of
determination of preferences of Series D preferred stock.
WHAT HAPPENS IF EITHER OF THE PROPOSALS IS NOT APPROVED BY OUR SHAREHOLDERS?
The approval of both proposals is a requirement for the closing of the
private placement. In the event the private placement is not consummated due to
a failure to approve either of the proposals, the 10% convertible secured notes
held by the General Atlantic Investors issued on November 26, 2003 would remain
outstanding. See the section entitled "Proposal 1 -- Approval of the Private
Placement" for more information about the terms of the convertible secured notes
held by the General Atlantic Investors. The 5 3/4% convertible subordinated
notes held by the Cheung Kong Investors in principal amount of approximately
$32.8 million would not be converted into shares of Series E preferred stock
pursuant to the terms of the convertible note purchase and exchange agreement
and would remain outstanding and be due and payable on April 1, 2005. In
addition, neither the terms of the Series D preferred stock nor the exercise
price per share of the warrants to purchase 625,000 shares of common stock held
by members of the General Atlantic Investors would be amended. Finally, if the
private placement is not consummated we would not consummate the rights offering
nor sell the additional 10 million shares of Series E preferred stock.
WHAT IS THE ACCOUNTING EFFECT OF THE PRIVATE PLACEMENT AND THE PROPOSED RIGHTS
OFFERING?
If our shareholders approve the proposals at the special meeting, based on
our current estimates, the application of generally accepted accounting
principles to the consummation of the transactions contemplated by the private
placement and the rights offering will cause us to record charges that increase
our net loss attributable to common shares. If we issue Series E preferred stock
to the Cheung Kong Investors in exchange for the 5 3/4% notes that they hold, we
expect to record in our income statement a one-time charge that increases the
Company's net loss equal to the difference between the fair value of the Series
E preferred stock issued to the Cheung Kong Investors and the value at which we
are carrying the notes they exchange. Based on an estimated fair value of $2.59
per share for the Series E preferred stock as of November 18, 2003, we would
record a charge of approximately $24.2 million for the extinguishment of the
Cheung Kong Investors' 5 3/4% notes. The actual charge will differ depending
upon the fair value of our Series E preferred stock on the date of its issuance.
We expect that this charge will be material to our results of operations in the
period in which it is recorded.
Additionally, if we issue shares of Series E preferred stock to the General
Atlantic Investors in exchange for their convertible note and related interest,
we will record a one-time charge to interest expense of $5.7 million to reflect
the "beneficial conversion feature," based on the difference between the fair
value per share of $2.14 on November 26, 2003 of the common stock into which the
Series E preferred stock converts and the conversion price of $1.36 per share we
assume for accounting purposes.
Based on the difference between the fair value of the common stock, into
which the Series E preferred stock converts, which was $1.73 per share on
November 18, 2003, and the accounting conversion price of $1.50 per share of the
Series E preferred stock, we would also be required to record a beneficial
conversion feature of approximately $3.2 million for the rights offering if it
is fully subscribed. We would initially record the beneficial conversion feature
as additional paid-in capital on our balance sheet and also reduce the carrying
value of the Series E preferred stock. Over the four-year redemption period of
the Series E preferred stock, we would then increase the carrying value of the
Series E preferred stock to the extent of the beneficial conversion feature,
which would result in a charge that increases net loss attributable to common
shareholders for the corresponding period. In any period, this charge may be
material to our results of operations.
11
If we were to sell additional shares of Series E preferred stock other than
in the rights offering and the fair value of the common stock into which the
Series E preferred stock converts on the date of issuance is greater than the
accounting conversion price of the Series E preferred stock, then we would
record a beneficial conversion feature in connection with any private sale we
make. Assuming, as of November 18, 2003, we sold the maximum $15 million in
Series E preferred stock that our board of directors has approved, and assuming
the fair value on that date of the common stock into which the Series E
preferred stock converts was $2.59 per share and the accounting conversion price
of $1.50 per share, we would record an additional beneficial conversion feature
of $2.3 million. This charge will change based upon the fair value of the common
stock into which the Series E preferred stock converts on the date of the
issuance of the Series E preferred stock.
If our shareholders approve the proposals at the special meeting, then we
have agreed to modify the rights and preferences of our outstanding Series D
preferred stock, some of which would be favorable to the holders of Series D
preferred stock. The modification will require us to record a one-time charge to
net loss attributable to common shareholders equal to the increase in fair value
of the Series D preferred stock that is caused by the modifications. If the
modifications had occurred on November 18, 2003, we would have recognized a
charge of approximately $15 million. We have also agreed with some of the
holders of shares of our Series D preferred stock to convert a portion of their
shares of Series D preferred stock to Series E preferred stock. The conversion
of Series D preferred stock to Series E preferred stock would result in an
additional one-time charge that increases net loss attributable to common
shareholders equal to the difference between the fair value of the Series E
preferred stock and the carrying value of the Series D preferred stock. We
anticipate this one-time charge to be approximately $250,000.
Because the beneficial conversion feature and charges to net loss and net
loss attributable to common shareholders will be based in part on the fair value
of common stock and Series E preferred stock on the date that they are issued,
and on the fair value of Series D preferred stock on the date its rights and
preferences are modified, we are only able to estimate the charges that will
occur. Based on the assumptions provided above, we estimate that one-time
charges would total approximately $45 million, to be recorded in the period that
shareholders approve the transactions, and that additional charges totaling
approximately $5.5 million would be recorded over the four-year redemption
period of the Series E preferred stock. A change in the fair value of our common
stock, or our Series E preferred stock, as of the date or dates we issue the
Series E preferred stock, or our Series D preferred stock, as of the date we
amend the terms of the Series D preferred stock, would cause these estimates to
vary.
See the section entitled "Accounting effects of the private placement and
the proposed rights offering" on page 30 of this proxy statement for additional
information relating to the accounting effect of the private placement and the
proposed rights offering.
WHAT ARE THE TOTAL EXPENSES RELATED TO THE PRIVATE PLACEMENT AND THE PROPOSED
RIGHTS OFFERING AND HOW MUCH OF THE GROSS PROCEEDS FROM THE PROPOSED RIGHTS
OFFERING DO YOU EXPECT TO HAVE AFTER PAYING ANY REMAINING EXPENSES?
We estimate that the total aggregate costs of closing the private placement
and the proposed rights offering will be approximately $1 million (of which
approximately $250,000 had been paid as of December 23, 2003).
This $1 million in expenses includes:
- approximately $450,000 in expenses incurred in connection with the
private placement and obtaining shareholder consent and includes:
-- $125,000 fee that was paid to Duff & Phelps LLC at the time Duff &
Phelps LLC delivered its fairness opinion; and
-- $450,000 in legal, accounting and other transaction costs incurred in
connection with the negotiation and consummation of the private
placement and obtaining the necessary shareholder consent.
12
- approximately $450,000 in printing, legal, accounting and other expenses
directly related to the proposed rights offering.
In addition to the $250,000 in expenses that we have already incurred and
paid, we have incurred or expect to incur approximately $750,000 in additional
expenses related to these transactions as outlined above. Although our remaining
expenses could exceed our estimates, the investment represented by the private
placement should provide sufficient funds to pay the remaining estimated
transaction costs.
IF WE APPROVE THE PRIVATE PLACEMENT, HOW MANY SHARES WILL BE OUTSTANDING AFTER
THE PRIVATE PLACEMENT AND THE PROPOSED RIGHTS OFFERING, INCLUDING SHARES OWNED
BY THE GENERAL ATLANTIC INVESTORS AND THE CHEUNG KONG INVESTORS?
Table I summarizes information regarding the securities owned by the
General Atlantic Investors, the Cheung Kong Investors and our other shareholders
as of November 18, 2003 without giving effect to any of the transactions
contemplated by the convertible note purchase and exchange agreement.
Table II summarizes information regarding the securities owned by the
General Atlantic Investors, the Cheung Kong Investors and our other shareholders
as of November 18, 2003 and the percentage of our voting power represented by
these securities, assuming the conversion by the General Atlantic Investors of
their convertible secured notes into shares of Series E preferred stock, the
exchange by the Cheung Kong Investors of their 5 3/4% convertible subordinated
notes into shares of Series E preferred stock and the amendment of the
certificate of designation of the Series D preferred stock.
Tables III and IV adjust Table II to give effect to the closing of the
proposed rights offering based on two different assumptions. Table III assumes
that the holders of our common stock exercise their subscription rights to
purchase all of the approximately $21 million of Series E preferred stock
offered in the proposed rights offering. Table IV assumes that the holders of
our common stock do not participate in the proposed rights offering and the
General Atlantic Investors exercise their right to purchase 55% of the
unsubscribed portion of the proposed rights offering and the Cheung Kong
Investors exercise their right to purchase 45% of the unsubscribed portion of
the proposed rights offering in accordance with our agreement with them. In a
separate agreement, members of the Cheung Kong Investors have granted us an
option, which we may exercise in our sole discretion, to repurchase
approximately 10.9 million shares of the Series E preferred stock held by the
Cheung Kong Investors.
13
TABLE I
<Table>
<Caption>
SECURITIES OWNED AS OF NOVEMBER 18, 2003 -- PRIOR TO PRIVATE PLACEMENT
------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OUR VOTING
OUTSTANDING ON POWER
ACTUAL AN AS CONVERTED REPRESENTED
NUMBER TO COMMON BY SECURITIES
NAMES OF SECURITY HOLDERS CLASS OUTSTANDING STOCK BASIS OWNED(A)
- ------------------------- ----- ----------- --------------- -------------
General Atlantic Investors.... Series E Preferred Stock -- -- --
Series D Preferred Stock 2,545,455 9,678,976 26.6
Warrants to Purchase 625,000 625,000 1.7
Common Stock
---------- ----
Total......................... 10,303,976 28.3
========== ====
Cheung Kong Investors......... Series E Preferred Stock -- -- --
Series D Preferred Stock 872,727 3,318,504 9.1
---------- ----
Total......................... 3,318,504 9.1
========== ====
Other Holders(b).............. Series E Preferred Stock -- -- --
Series D Preferred Stock 581,818 2,212,336 6.1
Common Stock 20,538,794 20,538,794 56.5
Warrants and Options 14,004,803 14,004,803 --
---------- ----
Total......................... 36,755,933 62.6
========== ====
</Table>
- ---------------
(a) The percentage of voting power represented by the Series E preferred stock
reflects the initial one-to-one conversion ratio of the Series E preferred
stock into common stock. Pursuant to the terms of the Series E preferred
stock and Series D preferred stock, the number of shares of common stock
into which the Series E preferred stock and Series D preferred stock are
convertible and the percentage of voting power represented by the shares of
Series E preferred stock and Series D preferred stock will increase as
dividends accrue on the Series E preferred stock and Series D preferred
stock.
(b) These figures exclude 188,587 shares of Series D preferred stock and 553,914
shares of common stock issued to MBCP PeerLogic, LLC and its affiliates on
November 21, 2003.
14
TABLE II
<Table>
<Caption>
SECURITIES OWNED AS OF NOVEMBER 18, 2003 -- AFTER GIVING EFFECT TO PRIVATE PLACEMENT
--------------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OUR VOTING
OUTSTANDING ON POWER
ACTUAL AN AS CONVERTED REPRESENTED
NUMBER TO COMMON BY SECURITIES
NAMES OF SECURITY HOLDERS CLASS OUTSTANDING STOCK BASIS OWNED(A)
- ------------------------- ----- -------------- -------------------- ----------------
General Atlantic
Investors................. Series E Preferred Stock 7,333,333 7,333,333 7.9
Series D Preferred Stock 2,545,455 27,101,134 29.2
Warrants to Purchase Common 625,000 625,000 0.7
Stock
---------- ----
Total....................... 35,059,467 37.7
========== ====
Cheung Kong Investors....... Series E Preferred Stock 21,863,333 21,863,333 23.5
Series D Preferred Stock 872,727 9,291,813 10.0
---------- ----
Total....................... 31,155,146 33.5
========== ====
Other Holders(b)............ Series E Preferred Stock -- -- --
Series D Preferred Stock 581,818 6,194,542 6.7
Common Stock 20,538,794 20,538,794 22.1
Warrants and Options 14,004,803 14,004,803 --
---------- ----
Total....................... 40,738,139 28.8
========== ====
</Table>
- ---------------
(a) The percentage of voting power represented by the Series E preferred stock
reflects the initial one-to-one conversion ratio of the Series E preferred
stock into common stock. Pursuant to the terms of the Series E preferred
stock and Series D preferred stock, the number of shares of common stock
into which the Series E preferred stock and Series D preferred stock are
convertible and the percentage of voting power represented by the shares of
Series E preferred stock and Series D preferred stock will increase as
dividends accrue on the Series E preferred stock and Series D preferred
stock.
(b) These figures exclude 188,587 shares of Series D preferred stock and 553,914
shares of common stock issued to MBCP PeerLogic, LLC and its affiliates on
November 21, 2003.
15
TABLE III
<Table>
<Caption>
SECURITIES OWNED AFTER RIGHTS OFFERING -- APPROXIMATELY $21 MILLION SUBSCRIPTION BY
COMMON SHAREHOLDERS
-----------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OUR VOTING
OUTSTANDING ON POWER
ACTUAL AN AS CONVERTED REPRESENTED
NUMBER TO COMMON BY SECURITIES
NAMES OF SECURITY HOLDERS CLASS OUTSTANDING STOCK BASIS OWNED(A)
- ------------------------- ----- -------------- ----------------- ----------------
General Atlantic
Investors................. Series E Preferred Stock 7,333,333 7,333,333 6.7
Series D Preferred Stock 2,545,455 27,101,134 24.7
Warrants to Purchase Common 625,000 625,000 0.6
Stock
---------- ----
Total....................... 35,059,467 32.0
========== ====
Cheung Kong Investors....... Series E Preferred Stock 21,863,333 21,863,333 20.0
Series D Preferred Stock 872,727 9,291,813 8.5
---------- ----
Total....................... 31,155,146 28.5
========== ====
Other Holders(b)............ Series E Preferred Stock 14,733,333 14,733,333 13.5
Series D Preferred Stock 105,660 7,461,209 6.8
Common Stock 21,092,708 21,092,708 19.3
Warrants and Options 14,004,803 14,004,803 --
---------- ----
Total....................... 57,292,053 39.5
========== ====
</Table>
- ---------------
(a) The percentage of voting power represented by the Series E preferred stock
reflects the initial one-to-one conversion ratio of the Series E preferred
stock into common stock. Pursuant to the terms of the Series E preferred
stock and Series D preferred stock, the number of shares of common stock
into which the Series E preferred stock and Series D preferred stock are
convertible and the percentage of voting power represented by the shares of
Series E preferred stock and Series D preferred stock will increase as
dividends accrue on the Series E preferred stock and Series D preferred
stock.
(b) This table assumes the issuance of 553,914 shares of common stock and
188,587 shares of Series D preferred stock to MBCP PeerLogic, LLC and its
affiliates on November 21, 2003 and the further conversion of 82,927 shares
of Series D preferred stock into 733,333 shares of Series E preferred stock
in accordance with our settlement agreement with them.
16
TABLE IV
<Table>
<Caption>
SECURITIES OWNED AFTER RIGHTS OFFERING -- APPROXIMATELY $21 MILLION SUBSCRIPTION BY
GENERAL ATLANTIC INVESTORS AND CHEUNG KONG INVESTORS
-----------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OUR VOTING
OUTSTANDING ON POWER
ACTUAL AN AS CONVERTED REPRESENTED
NUMBER TO COMMON BY SECURITIES
NAMES OF SECURITY HOLDERS CLASS OUTSTANDING STOCK BASIS OWNED(A)
- ------------------------- ----- -------------- ------------------ ---------------
General Atlantic Investors.... Series E Preferred Stock 15,033,333 15,033,333 13.7
Series D Preferred Stock 2,545,455 27,101,134 24.7
Warrants to Purchase Common 625,000 625,000 0.6
Stock
---------- ----
Total......................... 42,759,467 39.0
========== ====
Cheung Kong Investors......... Series E Preferred Stock 28,163,333 28,163,333 25.7
Series D Preferred Stock 872,727 9,291,813 8.5
---------- ----
Total......................... 37,455,146 34.2
========== ====
Other Holders(b).............. Series E Preferred Stock 733,333 733,333 0.7
Series D Preferred Stock 105,660 7,461,209 6.8
Common Stock 21,092,708 21,092,708 19.3
Warrants and Options 14,004,803 14,004,803 --
---------- ----
Total......................... 43,292,053 26.7
========== ====
</Table>
- ---------------
(a) The percentage of voting power represented by the Series E preferred stock
reflects the initial one-to-one conversion ratio of the Series E preferred
stock into common stock. Pursuant to the terms of the Series E preferred
stock and Series D preferred stock, the number of shares of common stock
into which the Series E preferred stock and Series D preferred stock are
convertible and the percentage of voting power represented by the shares of
Series E preferred stock and Series D preferred stock will increase as
dividends accrue on the Series E preferred stock and Series D preferred
stock.
(b) This table assumes the issuance of 553,914 shares of common stock and
188,587 shares of Series D preferred stock to MBCP PeerLogic, LLC and its
affiliates on November 21, 2003 and the further conversion of 82,927 shares
of Series D preferred stock into 733,333 shares of Series E preferred stock
in accordance with our settlement agreement with them.
Following the consummation of the private placement and the proposed rights
offering, it is highly likely that the General Atlantic Investors and the Cheung
Kong Investors, collectively, will control a sufficient percentage of our voting
securities to elect all of our directors. Accordingly, the General Atlantic
Investors and the Cheung Kong Investors, collectively, thereafter will be able
to exert a controlling influence over the formulation and implementation of our
corporate strategies and policies. The General Atlantic Investors and the Cheung
Kong Investors are unaffiliated, unrelated and do not constitute a group.
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
All questions and requests for assistance in voting your shares may be
directed to Georgeson Shareholder Communications Inc. at [ ]
(toll-free) or [ ] (call collect) from 9 a.m. to 5 p.m., Mountain time,
Monday through Friday, until [ ].
17
PROPOSAL 1 -- APPROVAL OF THE PRIVATE PLACEMENT
NATURE OF THE PROPOSAL.
Our board of directors is asking you to vote upon a proposal, in connection
with the convertible note purchase and exchange agreement, to approve:
- the issuance of approximately 7.3 million shares of Series E preferred
stock with a price per share of $1.50 to the General Atlantic Investors,
issuable upon conversion of $11 million principal amount and interest of
convertible secured notes, and such additional shares of Series E
preferred stock as they may purchase in connection with the proposed
rights offering;
- the issuance of approximately 21.9 million shares of Series E preferred
stock with a price per share of $1.50 to the Cheung Kong Investors,
issuable upon exchange of approximately $32.8 million principal amount of
5 3/4% convertible subordinated notes, and such additional shares of
Series E preferred stock as they may purchase in connection with the
proposed rights offering, and
- the amendment of warrants to purchase 625,000 shares of common stock held
by members of the General Atlantic Investors that reduces the exercise
price per share from $4.20 to $1.50.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in the private placement. The General Atlantic Investors consist of
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC and GAPCO GmbH & Co. KG. The Cheung Kong Investors consist of Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited. Members of the General Atlantic Investors and
the Cheung Kong Investors are current shareholders of Critical Path. The General
Atlantic Investors and the Cheung Kong Investors are unaffiliated, unrelated and
do not constitute a group.
This proposal will not be implemented unless our shareholders also approve
"Proposal 2 -- Approval of Charter Amendments." In addition, the approval of
both proposals is a requirement for the closing of the proposed rights offering
to our common shareholders.
BACKGROUND.
On July 23, 2003, our board of directors established the strategic
alternatives committee of our board of directors, consisting of Messrs. Ross
Dove, Wm. Christopher Gorog and Steven R. Springsteel, to evaluate our strategic
alternatives for additional funding. The strategic alternatives committee met
together with representatives of our management on August 11, 2003, August 22,
2003 and October 2, 2003 to evaluate our financing and strategic alternatives.
We focused our efforts on a private placement to selected investors, and we
evaluated the likelihood of a sale of the company or the sale of selected assets
of the company.
In October 2003, we entered into negotiations with the investors in the
private placement. The negotiations were led by the General Atlantic Investors,
who asked whether the Cheung Kong Investors would also invest in the proposed
financing. The Cheung Kong Investors expressed an interest in investing in a
financing led by the General Atlantic Investors by exchanging their 5 3/4%
convertible subordinated notes for shares of our preferred equity.
In October 2003, we received a draft term sheet from the General Atlantic
Investors regarding the proposed private placement. Our board of directors met
together with representatives of our management and legal counsel on October 28,
2003 to evaluate the term sheet, our financing and strategic alternatives and
whether there were alternative transactions available to us.
Negotiations regarding the term sheet continued, and on November 14, 2003,
we reached preliminary agreement with the General Atlantic Investors on a term
sheet. On November 14, 2003, the strategic alternatives committee met again,
together with representatives of our management and legal counsel, to discuss
alternative terms of the private placement as described below and the proposed
rights offering. The strategic alternatives committee also considered whether
there were alternatives available to us.
18
In early November 2003, we engaged Duff & Phelps, LLC to deliver an opinion
that the private placement and the proposed rights offering is fair to our
public common shareholders from a financial point of view.
On November 17, 2003, our board of directors met together with
representatives of our management and legal counsel to consider the private
placement and the proposed rights offering described below. After extensive
discussion of the terms and conditions, a review of the absence of alternative
financing or other strategic prospects and the receipt of advice from Duff &
Phelps, LLC, our board of directors (excluding Mr. William E. McGlashan, who is
a managing member of Vectis CP Holdings, LLC, an owner of shares of our Series D
preferred stock, the chief executive officer of Critical Path and referred to as
the Management Director, and Messrs. William E. Ford and Raul J. Fernandez,
referred to as the General Atlantic Directors, who abstained because of their
relationship with the General Atlantic Investors) unanimously approved the
continued negotiation and finalization of the proposed private placement and,
subject to shareholder approval and the closing of the private placement, the
proposed rights offering. On November 17, 2003, our board of directors met again
to consider the private placement. After receiving the opinion of Duff & Phelps,
LLC that the private placement and the proposed rights offering is fair to our
public common shareholders from a financial point of view, the board of
directors (excluding the Management Director and the General Atlantic Directors)
unanimously approved the private placement and the proposed rights offering
described below.
On November 18, 2003, we entered into a definitive convertible note
purchase and exchange agreement with the General Atlantic Investors and the
Cheung Kong Investors that provided for the issuance and sale by us to the
General Atlantic Investors of $10 million in principal amount of 10% convertible
secured notes that will, including $1 million of interest, convert into
approximately 7.3 million shares of Series E preferred stock upon shareholder
approval and certain filings with the California Secretary of State. The
convertible secured notes were issued and sold to the General Atlantic Investors
on November 26, 2003. In addition, pursuant to the convertible note purchase and
exchange agreement, the Cheung Kong Investors are obligated to exchange
approximately $32.8 million face value of our outstanding 5 3/4% convertible
subordinated notes for approximately 21.9 million shares of Series E preferred
stock, also upon shareholder approval and certain filings with the California
Secretary of State.
OVERVIEW.
The primary purpose of the private placement is to retire approximately $5
million of our senior indebtedness, which we have already done, and
approximately $32.8 million of outstanding notes, both by raising capital and
through the exchange by the Cheung Kong Investors of their 5 3/4% convertible
subordinated notes for shares of Series E preferred stock, as well as to provide
additional capital for other general purposes and working capital. You should
review our financial statements for the year ended December 31, 2002 and the
quarter ended September 30, 2003 which are incorporated by reference into and
delivered with this proxy statement. See the section entitled "Incorporation of
Certain Documents by Reference" for more information about documents
incorporated by reference into this proxy statement.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in the private placement. The General Atlantic Investors consist of
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC and GAPCO GmbH & Co. KG. The Cheung Kong Investors consist of Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited. Members of the General Atlantic Investors and
the Cheung Kong Investors are current shareholders of Critical Path. The General
Atlantic Investors and the Cheung Kong Investors are unaffiliated, unrelated and
do not constitute a group. Mr. William E. Ford, a member of our board of
directors, is a managing member at General Atlantic Partners, LLC, an affiliate
of the General Atlantic Investors. Mr. Raul J. Fernandez, a member of our board
of directors, is a special advisor to General Atlantic Partners, LLC. Messrs.
Ford and Fernandez abstained from voting on the private placement and the
proposed rights offering described below because of their relationship with the
General Atlantic Investors.
19
As a condition to the execution of the convertible note purchase and
exchange agreement providing for the private placement, the General Atlantic
Investors and the Cheung Kong Investors agreed to vote all of their shares of
Series D preferred stock in favor of approval of Proposals 1 and 2.
REASONS FOR SHAREHOLDER APPROVAL.
Our common stock is listed on the Nasdaq National Market, and, as a result,
we are subject to Nasdaq's marketplace rules. We are required to seek
shareholder approval for the private placement and the issuance of shares of
Series E preferred stock, if any, to the General Atlantic Investors and the
Cheung Kong Investors, as the case may be, in connection with the proposed
rights offering to comply with Rule 4350 of the Nasdaq rules. Nasdaq Rule 4350
requires shareholder approval in connection with the issuance of securities that
could result in a "change of control" of an issuer. In addition, Nasdaq Rule
4350 requires shareholder approval prior to the issuance of securities under
certain circumstances, including in connection with a transaction involving the
sale or issuance of common stock at a price below the book value or market
value, where the amount of stock being issued is equal to 20% or more of the
issuer's common stock outstanding before such issuance. Finally, Nasdaq Rule
4350 also requires shareholder approval in connection with certain issuances of
securities to officers or directors of the issuer at a price below the book
value or market value. On December 23, 2003, the closing sale price for Critical
Path common stock on the Nasdaq National Market was $1.65. Because the shares of
Series E preferred stock issued in the private placement are convertible into
common stock, the private placement is considered an issuance of securities
below market value because the implied purchase price of $1.50 for a share of
Series E preferred stock was below the closing price of our common stock on
Nasdaq.
The shareholders are being asked to approve the issuance and sale by
Critical Path of approximately 7.3 million shares of Series E preferred to the
General Atlantic Investors that are issuable upon the conversion by the General
Atlantic Investors of their $11 million in principal amount and interest of
convertible secured notes and the issuance of shares of Series E preferred
stock, if any, to the General Atlantic Investors and the Cheung Kong Investors,
as the case may be, in connection with the proposed rights offering. The
shareholders are also being asked to approve the issuance and sale of
approximately 21.9 million shares of Series E preferred stock to the Cheung Kong
Investors that are issuable upon exchange of approximately $32.8 million face
value of our outstanding 5 3/4% convertible subordinated notes and the issuance
of shares of Series E preferred stock, if any, to the General Atlantic Investors
and the Cheung Kong Investors, as the case may be, in connection with the
proposed rights offering. The purchase price per share of Series E preferred
stock is $1.50. Finally, the shareholders are being asked to approve amendments
to warrants to purchase common stock held by members of the General Atlantic
Investors that reduce the exercise price per share of the warrants to $1.50.
These warrants were issued to members of the General Atlantic Investors in a
previous round of financing in December 2001.
First, the private placement and the issuance of shares of Series E
preferred stock, if any, to the General Atlantic Investors and the Cheung Kong
Investors, as the case may be, in connection with the proposed rights offering
would be considered a "change of control" of Critical Path as defined under
Nasdaq's rules and guidance. Second, because the shares issued in the private
placement are convertible into common stock, the private placement and the
issuance of shares of Series E preferred stock, if any, to the General Atlantic
Investors and the Cheung Kong Investors, as the case may be, in connection with
the proposed rights offering will result in the issuance of more than 20% of our
outstanding common stock at a price below the market value. The General Atlantic
Investors and the Cheung Kong Investors are currently our largest shareholders.
Assuming the conversion of approximately $42.8 million principal amount of
outstanding convertible notes held by the General Atlantic Investors and the
Cheung Kong Investors and the amendment of the terms of our Series D preferred
stock, both of which are a condition to the consummation of the proposed rights
offering, the General Atlantic Investors own 37.7% of our voting securities and
the Cheung Kong Investors own approximately 33.5% of our voting securities
(based on 20,538,794 shares of common stock outstanding as of November 18, 2003
and assuming exercise in full of the warrants to purchase up to 625,000 shares
of common stock held by members of the General Atlantic Investors). Following
completion of the private placement and the issuance of shares of Series E
20
preferred stock, if any, to the General Atlantic Investors and the Cheung Kong
Investors, as the case may be, in connection with the proposed rights offering,
the General Atlantic Investors and the Cheung Kong Investors would hold the
requisite percentage of our outstanding shares of stock so as to permit them, if
they chose to act in concert, to take actions requiring shareholder approval
without obtaining the approval of our other shareholders. The General Atlantic
Investors and the Cheung Kong Investors are unaffiliated, unrelated and do not
constitute a group. Third, two of our directors, Messrs. Ford and Fernandez,
have a relationship with the General Atlantic Investors, who are participating
in the private placement. Accordingly, we are seeking shareholder approval in
compliance with Nasdaq Rule 4350.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the
amendment to our amended and restated articles of incorporation to increase the
authorized number of shares of common stock and preferred stock and the approval
and adoption of the amended and restated certificate of determination of
preferences of Series D preferred stock require the affirmative vote of the
holders of a majority of the outstanding shares of common stock and the votes
represented by the Special Voting Share (excluding the shares of Series D
preferred stock), voting together as a class, and the outstanding shares of
Series D preferred stock, voting separately as a class. See the question
entitled "How many votes do the common shareholders have?" on page [ ] of this
proxy statement for further information on the common stock issuable upon the
conversion or exchange of specified securities.
The General Atlantic Investors and the Cheung Kong Investors, who held
[ ] shares and [ ] shares, respectively, of our Series D preferred stock
(on an as converted to common stock basis), or approximately [ ]% and
[ ]%, respectively, of our outstanding voting securities, as of [RECORD
DATE], have agreed, solely in their capacity as Critical Path shareholders, to
vote their shares of our Series D preferred stock in favor of the amendment to
our amended and restated articles of incorporation to increase the authorized
number of shares of common stock and preferred stock and the amendment and
restatement of the amended and restated certificate of determination of
preferences of Series D preferred stock.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on [RECORD DATE] will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on [RECORD DATE]. You should
note, however, that your ability to vote at the special meeting does not give
you the right to participate in the proposed rights offering. You will only be
entitled to participate in the proposed rights offering if you were a record
holder of shares of our common stock as of a date to be determined by our board
of directors.
SUMMARY OF THE TERMS OF THE PRIVATE PLACEMENT.
The following is a summary of the terms of the private placement and the
provisions of the transaction documents. The private placement of our Series E
preferred stock is intended to be exempt from the registration requirements of
the Securities Act of 1933, and we expect to rely upon Section 4(2) of the
Securities Act and Rule 506 of Regulation D promulgated under the Securities Act
for an exemption from registration.
THIS SUMMARY OF THE TERMS OF THE PRIVATE PLACEMENT IS INTENDED TO PROVIDE
YOU WITH BASIC INFORMATION CONCERNING THE TRANSACTION; HOWEVER, IT IS NOT A
SUBSTITUTE FOR REVIEWING THE TRANSACTION DOCUMENTS. YOU SHOULD READ THIS SUMMARY
IN CONJUNCTION WITH THE TRANSACTION DOCUMENTS ATTACHED TO THIS PROXY STATEMENT.
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT.
The following summary of the provisions of the convertible note purchase
and exchange agreement, dated as of November 18, 2003, between Critical Path,
the General Atlantic Investors and the Cheung
21
Kong Investors, is qualified in its entirety by the convertible note purchase
and exchange agreement attached to this proxy statement as APPENDIX A and
incorporated by reference herein.
On November 18, 2003, we entered into a convertible note purchase and
exchange agreement with investors that provided for the issuance and sale by us
to the General Atlantic Investors of $10 million in principal amount of
convertible secured notes that will, including $1 million of interest, convert
into approximately 7.3 million shares of Series E preferred stock upon
shareholder approval and certain filings with the California Secretary of State.
On November 26, 2003, we sold and issued convertible secured notes to the
General Atlantic Investors. Shortly thereafter, we repaid the outstanding amount
of $4.9 million on our credit facility with Silicon Valley Bank.
In addition, pursuant to the convertible note purchase and exchange
agreement, the Cheung Kong Investors are obligated to exchange approximately
$32.8 million face value of our outstanding 5 3/4% convertible subordinated
notes for approximately 21.9 million shares of Series E preferred stock, also
upon receipt of shareholder approval and certain filings with the California
Secretary of State.
On November 26, 2003, we sold and issued convertible secured notes to the
General Atlantic Investors. After receipt of shareholder approval at the special
meeting and after making certain filings with the California Secretary of State:
- the General Atlantic Investors will convert the $11 million in principal
amount and interest of the convertible secured notes into approximately
7.3 million shares of Series E preferred stock;
- the Cheung Kong Investors will exchange approximately $32.8 million face
value of our outstanding 5 3/4% convertible subordinated notes for
approximately 21.9 million shares of Series E preferred stock;
- we may sell up to an additional 10 million shares of Series E preferred
stock to undetermined investors at a price per share equal to $1.50, such
amount in addition to the shares of Series E preferred stock issued in
the proposed rights offering; and
- we will conduct a proposed rights offering of up to $21 million to our
common shareholders of shares of Series E preferred stock. The price per
share of the Series E preferred stock will be $1.50 in each circumstance.
The aggregate purchase price paid by the General Atlantic Investors to
Critical Path for the convertible secured notes on November 26, 2003 is $10
million. The aggregate purchase price to be paid by the Cheung Kong Investors to
Critical Path for the shares of Series E preferred stock at a subsequent closing
of the private placement is in the form of approximately $32.8 million face
value of our outstanding 5 3/4% convertible subordinated notes.
If our shareholders approve the proposals in this proxy statement, then, at
a subsequent closing, we will file an amended and restated certificate of
determination of preferences of Series D preferred stock to amend the terms of
the shares of Series D preferred stock as discussed below. In addition, we and
members of the General Atlantic Investors holding warrants to purchase up to
625,000 shares of common stock will enter into amendments that reduce the
exercise price per share of the warrants to $1.50.
The primary purpose of the private placement is to retire approximately $5
million of our senior indebtedness, which we have already done, and
approximately $32.8 million of outstanding notes, both by raising capital and
through the exchange by the Cheung Kong Investors of their 5 3/4% convertible
subordinated notes shares of Series E preferred stock, as well as to provide
additional capital for other general corporate purposes and working capital.
Shortly following November 26, 2003, we repaid the outstanding amount of $4.9
million on our credit facility with Silicon Valley Bank.
If our shareholders approve the proposals in this proxy statement, then,
for a period of 12 months following the date shares of Series E preferred stock
are first issued and as part of the private placement, we may sell up to an
additional 10 million shares of Series E preferred stock to undetermined
investors at a price per share equal to $1.50, such amount in addition to the
shares of Series E preferred stock issued
22
in the proposed rights offering. We have engaged a financial advisor to assist
us in identifying qualified institutional investors for the placement of those
additional shares. The other terms of any such sale of shares of Series E
preferred stock shall be the same as those contained in the certificate of
determination of preferences of Series E preferred stock and not more favorable
than the terms and conditions set forth in the convertible note purchase and
exchange agreement. The approval of both "Proposal 1 -- Approval of the Private
Placement" and "Proposal 2 -- Approval of Charter Amendments" is required for us
to be able to sell the additional 10 million shares of Series E preferred stock.
The General Atlantic Investors and the Cheung Kong Investors, who held
[ ] shares and [ ] shares, respectively, of our Series D preferred stock
(on an as converted to common stock basis), or approximately [ ]% and
[ ]%, respectively, of our outstanding voting securities, as of [RECORD
DATE], have agreed, solely in their capacity as Critical Path shareholders, to
vote their shares of our Series D preferred stock in favor of the amendment to
our amended and restated articles of incorporation to increase the authorized
number of shares of common stock and preferred stock and the amendment and
restatement of the amended and restated certificate of determination of
preferences of Series D preferred stock.
The General Atlantic Investors and the Cheung Kong Investors are currently
our largest groups of shareholders and they will hold, assuming the conversion
by the General Atlantic Investors of their convertible secured notes into shares
of Series E preferred stock and the exchange by the Cheung Kong Investors of
their 5 3/4% convertible subordinated notes into shares of Series E preferred
stock (and excluding the effect of the issuance of shares of Series E preferred
stock in the proposed rights offering), approximately [ ]% and [ ]%,
respectively, of our outstanding equity.
Representations, warranties and covenants. The convertible note purchase
and exchange agreement contains representations and warranties and covenants
that are customary in transactions of this kind.
Terms of the convertible secured notes issued to the General Atlantic
Investors. The following summary of the provisions of the convertible secured
notes issued to the General Atlantic Investors is qualified in its entirety by
the convertible secured note attached to this proxy statement as APPENDIX B and
incorporated by reference herein.
The convertible secured notes issued to the General Atlantic Investors
accrue interest at a simple annual interest rate of 10%. Upon shareholder
approval and certain filings with the California Secretary of State, the
convertible secured notes are convertible into shares of Series E preferred
stock at a price per share of $1.50. The convertible secured notes mature upon
the earlier of:
- an event of default;
- the closing of the sale of any of the assets of Critical Path or any of
its subsidiaries, except for sales of assets not in excess of $1 million,
in the ordinary course of business, where the proceeds are used to
purchase new assets and other similar exceptions;
- a change of control;
- any financing transaction where Critical Path raises an aggregate of at
least $40 million (excluding the proposed rights offering); or
- November 26, 2007.
A change of control includes, among others, any merger consolidation or
other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our Shareholder Rights Plan
(which issuance is not waived by our board of directors).
23
No prepayment of the convertible secured notes is allowed, and the
convertible secured notes are senior to all of our indebtedness, other than our
credit facility with Silicon Valley Bank. The convertible secured notes are
secured by all of our assets and the assets of one of our subsidiaries, Compass
Holding Corp. In addition, the convertible secured notes are guaranteed by
Compass Holding Corp.
The convertible note purchase and exchange agreement and the convertible
secured notes contain affirmative and negative covenants that are customary in
transactions of this kind, including a restrictions on the incurrence of
indebtedness, limitations on liens, restricted payments, financial covenants,
and other similar covenants. The convertible secured notes contain antidilution
protection with respect to their conversion into shares of Series E preferred
stock.
Terms of the Series E preferred stock. The following summary of the terms
of the shares of Series E preferred stock is qualified in its entirety by the
certificate of determination of preferences of Series E preferred stock attached
to this proxy statement as APPENDIX C and incorporated by reference herein.
If our shareholders approve the proposals in this proxy statement, then, at
a subsequent closing, we will file a certificate of determination of preferences
of Series E preferred stock, the terms of which are discussed below.
Each share of Series E preferred stock will be convertible at any time at
the option of the holder into the number of shares of common stock derived by
dividing (a) the purchase price of the Series E preferred stock plus all accrued
dividends by (b) $1.50, subject to certain antidilution provisions. The terms of
the Series E preferred stock contain protection against dilution if Critical
Path effects a subdivision or combination of common stock or in the event of a
reclassification, recapitalization, stock split, stock dividend or other
distribution payable in securities of Critical Path or any other company.
With respect to distributions upon a liquidation, the payment of dividends
or a change of control, the shares of Series E preferred stock rank senior to
all capital stock of Critical Path. In the event of a liquidation or change of
control, each share of Series E preferred stock will be paid, prior to the
payment of any other equity securities, payments equal to the greater of the
purchase price of the Series E preferred stock plus all accrued dividends or the
value that would be paid to the holder of the number of shares of common stock
into which such shares of Series E preferred stock are convertible immediately
prior to the closing of such liquidation or change of control. Dividends on the
shares of Series E preferred stock accrue at a simple annual rate of 5 3/4%
whether or not declared by our board of directors.
A change of control includes, among others, any merger consolidation or
other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our Shareholder Rights Plan
(which issuance is not waived by our board of directors).
The shares of Series E preferred stock are redeemable, at the option of
Critical Path upon the occurrence of specified events, on or after the third
anniversary of the date shares of Series E preferred stock are first issued. If
on any date after the third anniversary of the date shares of Series E preferred
stock are first issued, the average closing price per share of our common stock,
for any 60 consecutive trading days after such third anniversary date, equals or
exceeds 400% of the purchase price of the Series E preferred stock plus all
accrued dividends, Critical Path has the option to redeem, within 30 days
following such date, all, but not less than all, of the outstanding shares of
Series E preferred stock in cash, at a price per share equal to the purchase
price of the Series E preferred stock plus all accrued dividends.
We must redeem all the shares of Series E preferred stock on the fourth
anniversary of the date shares of Series E preferred stock are first issued for
an amount equal to the purchase price of the Series E preferred stock plus all
accrued dividends.
24
Each share of Series E preferred stock entitles its holder to vote at any
shareholders meeting, on any matter entitled to be voted on by holders of our
common stock, voting together as a single class with other shares entitled to
vote on such matters. In that event, each share of Series E preferred stock
entitles its holder to cast that number of votes per share equal to the number
of votes that the holder would be entitled to cast had the holder converted its
share of Series E preferred stock into shares of our common stock. In addition,
the holders of Series E preferred stock will have additional voting rights with
respect to:
- any amendment to the terms of the Series E preferred stock;
- any amendment to the number of authorized shares of Series E preferred
stock and any issuance of shares of equity securities ranking senior to
the Series E preferred stock; or
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders.
Terms of the amended and restated Series D preferred stock. The following
summary of the terms of the amended shares of Series D preferred stock is
qualified in its entirety by the certificate of determination of preferences of
Series D preferred stock attached to this proxy statement as APPENDIX D and
incorporated by reference herein.
In December 2001, we sold 2,162,582 shares of Series D preferred stock to
members of the General Atlantic Investors, members of the Cheung Kong Investors
and Vectis CP Holdings, LLC at $13.75 per share, for an aggregate of $29.7
million. The securities were sold to finance operations. As part of the same
transaction, members of the General Atlantic Investors also exchanged $64.63
million face value of its 5 3/4% convertible subordinated notes, which they had
purchased for on the open market for $25.3 million, for 1,837,418 shares of
Series D preferred stock. We also issued to members of the General Atlantic
Investors warrants to purchase up to an additional 625,000 shares of our common
stock.
If our shareholders approve the proposals in this proxy statement, then, at
a subsequent closing, we will file an amended and restated certificate of
determination of preferences of Series D preferred stock to amend the terms of
the shares of Series D preferred stock. The terms of the amended Series D
preferred stock are discussed below.
The holders of Series D preferred stock have agreed to allow us to
eliminate the right of the Series D preferred stock to participate on a pro rata
basis with common shareholders in any remaining equity (after the full
preferential returns to the Series D preferred stock and the Series E preferred
stock). In addition, following the date shares of Series E preferred stock are
first issued, dividends on the shares of Series D preferred stock will accrue at
a simple annual rate of 5 3/4% whether or not declared by our board of
directors. The rights of the Series D preferred stock to cumulative dividends at
8% will be eliminated going forward. Thus, assuming we file an amended and
restated certificate of determination of preferences of Series D preferred stock
to amend the terms of the shares of Series D preferred stock, the shares of
Series D preferred stock will have a preferential return consisting of
cumulative dividends at 8%, up to the date shares of Series E preferred stock
are first issued, and simple dividends at 5 3/4% thereafter. This is known as
Series D Accreted Value.
The Series D preferred stock contains a preferential return of equity
(subordinate to the Series E preferred stock liquidation preference), upon a
change of control or the optional redemption by Critical Path, that is equal to
the sum of the Series D Accreted Value plus all dividends that would have
accrued through the fourth anniversary of the date shares of Series E preferred
stock are first issued. This is referred to in this proxy statement as the
Series D Accelerated Preference.
A change of control includes, among others, any merger consolidation or
other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our Shareholder Rights Plan
(which issuance is not waived by our board of directors).
25
Subject to the rights and preferences of the Series E preferred stock, with
respect to distributions upon a liquidation, the payment of dividends or a
change of control, the shares of Series D preferred stock rank senior to all
capital stock of Critical Path. In the event of a liquidation, each share of
Series D preferred stock will be paid, prior to the payment of any other equity
securities (except for the Series E preferred stock), payments equal to the
greater of:
- the Series D Accreted Value;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the amount that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such liquidation.
In the event of a change of control, each share of Series D preferred stock
will be paid, prior to the payment of any other equity securities (except for
the Series E preferred stock), payments equal to the greater of:
- the Series D Accelerated Preference;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the amount that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such change of control.
The shares of Series D preferred stock are redeemable, at the option of
Critical Path upon the occurrence of specified events, on or after the third
anniversary of the date shares of Series E preferred stock are first issued. If
on any date after the third anniversary of the date shares of Series E preferred
stock are first issued, the average closing price per share of our common stock,
for any 60 consecutive trading days after such third anniversary date, equals or
exceeds 400% of the Series D Accelerated Preference, Critical Path has the
option to redeem, within 30 days following such date, all, but not less than
all, of the outstanding shares of Series D preferred stock in cash, at a price
per share equal to the Series D Accelerated Preference.
We must redeem all the shares of Series D preferred stock on the fourth
anniversary of the date shares of Series E preferred stock are first issued for
an amount equal to the Series D Accreted Value. The redemption rights of the
Series D preferred stock are subordinate to the redemption rights of the Series
E preferred stock.
The holders of Series D preferred stock are entitled to elect one member to
our board of directors. In addition, each share of Series D preferred stock
entitles its holder to vote at any shareholders meeting, on any matter entitled
to be voted on by holders of our common stock, voting together as a single class
with other shares entitled to vote on such matters. In that event, each share of
Series D preferred stock entitles its holder to cast that number of votes per
share equal to the number of votes that the holder would be entitled to cast had
the holder converted its share of Series D preferred stock into shares of our
common stock. In addition, the holders of a majority of outstanding shares of
Series D preferred stock must approve:
- any amendment to our articles of incorporation or bylaws;
- any issuance or authorization of shares of equity securities ranking
senior to the Series E preferred stock or any amendment to the number of
authorized shares of Series D preferred stock;
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders; or
- the incurrence of any indebtedness, subject to certain exceptions.
26
The amended and restated certificate of determination of preferences of
Series D preferred stock will reduce the conversion price of the Series D
preferred stock from $4.20 to $1.50. As a result, each share of Series D
preferred stock will be convertible at any time at the option of the holder into
the number of shares of common stock derived by dividing (a) the Series D
Accreted Value by (b) $1.50, subject to certain antidilution provisions. The
terms of the Series D preferred stock contain protection against dilution if
Critical Path effects a subdivision or combination of common stock or in the
event of a reclassification, recapitalization, stock split, stock dividend or
other distribution payable in securities of Critical Path or any other company.
Indemnification. In connection with the private placement and the
convertible note purchase and exchange agreement, we have agreed to indemnify
the General Atlantic Investors and the Cheung Kong Investors and their
respective members, agents and affiliates for any losses, liabilities, damages,
costs and expenses (including the reasonable fees and disbursements of counsel)
arising out of a breach by us of our representations, warranties and covenants
in the agreements relating to the private placement.
Closing conditions. The obligation of the General Atlantic Investors to
convert their convertible secured notes into shares of Series E preferred stock
and the Cheung Kong Investors to exchange their 5 3/4% convertible subordinated
notes for shares of Series E preferred stock is subject to our fulfillment of
certain closing conditions, including, but not limited to, the following:
- our delivery of amendments to warrants to purchase 625,000 shares of
common stock held by members of the General Atlantic Investors that
reduce the exercise price per share from $4.20 to $1.50, the form of
which is attached to this proxy statement as APPENDIX E;
- our delivery of an amendment to our preferred stock rights agreement to
permit the General Atlantic Investors and the Cheung Kong Investors to
participate in the private placement without causing the General Atlantic
Investors or the Cheung Kong Investors to trigger certain events in the
preferred stock rights agreement;
- our shareholders shall have approved "Proposal 1 -- Approval of the
Private Placement" and "Proposal 2 -- Charter Amendments;"
- we shall have filed with the California Secretary of State (a) an
amendment to our current amended and restated articles of incorporation
to increase the authorized number of shares of common stock and the
authorized number of shares of preferred stock, (b) an amended and
restated certificate of determination of preferences of Series D
preferred stock and (c) an certificate of determination of preferences of
Series E preferred stock; and
- the issuance of the Series E preferred stock pursuant to the private
placement will be legally permitted by all applicable laws and
regulations.
Any of these conditions may be waived in whole or in part by the General
Atlantic Investors and the Cheung Kong Investors.
Termination. Subject to certain limitations, the purchase agreement may be
terminated:
- mutually, by the written consent of Critical Path, the General Atlantic
Investors and the Cheung Kong Investors; or
- automatically, if our shareholders do not approve the proposals covered
by this proxy statement on the first attempt or, in any event, on or
prior to April 30, 2004.
None of Critical Path, the General Atlantic Investors or the Cheung Kong
Investors would have any liability arising out of a termination under these
circumstances.
Warrants. As part of the private placement, the warrants issued to the
General Atlantic Investors in the December 2001 financing will be amended to
reduce the exercise price per share from $4.20 to $1.50. The form of the
amendment to warrants is attached to this proxy statement as APPENDIX E.
27
Amended and restated registration rights agreement. The following summary
of the terms of the amended and restated registration rights agreement is
qualified in its entirety by the amended and restated registration rights
agreement attached to this proxy statement as APPENDIX F and incorporated by
reference herein.
As part of the private placement, upon the conversion by the General
Atlantic Investors of their convertible secured notes into shares of Series E
preferred stock and the exchange by the Cheung Kong Investors of their 5 3/4%
convertible subordinated notes into shares of Series E preferred stock, the
registration rights agreement, dated November 8, 2001, between Critical Path and
members of the General Atlantic Investors and the Cheung Kong Investors will be
amended and restated to include the shares of common stock issuable upon
conversion of the Series E preferred stock as "registrable securities." Pursuant
to the amended and restated registration rights agreement, the General Atlantic
Investors and the Cheung Kong Investors will be entitled to the same number of
"piggy-back" and "demand" registration rights. The agreement includes other
customary registration rights terms, including, without limitation, those
related to registration suspension periods, registration expenses,
indemnification and other similar provisions.
Amended and restated stockholders agreement. The following summary of the
terms of the amended and restated stockholders agreement is qualified in its
entirety by the amended and restated stockholders agreement attached to this
proxy statement as APPENDIX G and incorporated by reference herein.
As part of the private placement, upon the conversion by the General
Atlantic Investors of their convertible secured notes into shares of Series E
preferred stock and the exchange by the Cheung Kong Investors of their 5 3/4%
convertible subordinated notes into shares of Series E preferred stock, the
stockholders agreement, dated November 8, 2001, between Critical Path and
members of the General Atlantic Investors and the Cheung Kong Investors will be
amended and restated to include certain new members of the General Atlantic
Investors and the Cheung Kong Investors. As part of the agreement, the Cheung
Kong Investors will be entitled to receive the right to elect one member to our
board of directors. In addition, the Cheung Kong Investors will have additional
approval rights with respect to:
- any action that results in a deemed dividend to the Series E preferred
stock under Section 305 of the Internal Revenue Code of 1986, as amended;
and
- the incurrence of any indebtedness, subject to certain exceptions.
IMPACT OF THE PRIVATE PLACEMENT ON EXISTING SHAREHOLDERS -- ADVANTAGES AND
DISADVANTAGES.
The following is a summary of some of the advantages and disadvantages of
the private placement on existing holders of our common stock. This summary is
intended to provide you with basic information concerning the transaction;
however, it is not a substitute for reviewing the transaction documents. You
should carefully consider the following factors and other information presented
or incorporated by reference into this proxy statement before deciding how to
vote on the proposals in this proxy statement.
Advantages. Before voting, each shareholder should consider the fact that
the completion of the private placement will allow us to retire approximately
$42.8 million of indebtedness represented by outstanding notes and $5 million of
our senior indebtedness, which will be critically important to our efforts to
continue operations. It will also allow us to pursue the proposed rights
offering. You should consider the fact that our current capital resources are
very limited. We believe that our existing capital resources, excluding any
funds raised from the private placement or the proposed rights offering but
including anticipated payments under current collaborations, will be sufficient
to support our current operating plan and spending only through the end of the
first quarter of 2004. We will require additional financing to fund our
operations as currently planned beyond that date. Additionally, we will be
required to significantly scale back our operations by reducing our headcount
and significantly reducing all discretionary spending. Thus, if we do not
consummate the financing contemplated by the private placement, we would be
forced to immediately consider other financing or strategic options. An
alternative financing is unlikely to be available on acceptable terms, or at
all, and we cannot predict whether a
28
corporate partnering transaction would be available on acceptable terms, or at
all. In addition to other possibilities, we may be forced to consider selling
some or all of our assets. However, we could be unable to sell any of our
assets, or if we were able to sell some or all of our technology, we could be
unable to do so on favorable terms. If we are unable to consummate this proposed
rights offering or complete a financing or other strategic transaction on a
timely basis, we do not expect to be able to continue to operate beyond the
first quarter of 2004 without the protection of applicable bankruptcy laws.
Disadvantages. The private placement will have a highly dilutive effect on
current shareholders and optionholders. This consequence is exacerbated by the
fact that Critical Path will be issuing senior securities convertible into
common stock at a price lower than the current trading price of the common
stock. Current Critical Path shareholders' aggregate percentage ownership will
decline significantly as a result of the private placement. Amending the terms
of the Series D preferred stock and issuing the Series E preferred stock
pursuant to the private placement will increase the number of shares of common
stock issuable upon shares of preferred stock outstanding from 15,209,816 to
87,784,155. This means that our current shareholders will own a much smaller
interest in Critical Path as a result of the private placement.
For purposes of example only, a shareholder who owned approximately 5% of
our outstanding stock as of the [RECORD DATE] would own approximately [ ]%
of the shares outstanding immediately after the private placement, based on
shares of common stock outstanding as of the [RECORD DATE] and
assuming (i) the issuance, in the private placement, of 7,333,333 shares and
21,863,333 shares, respectively, of Series E preferred stock to the General
Atlantic Investors and the Cheung Kong Investors and an additional 10 million
shares of Series E preferred stock to undetermined investors and (ii) the
exercise in full of the warrants to purchase 625,000 shares of common stock held
by members of the General Atlantic Investors.
In the event of liquidation, dissolution, winding up or change of control
of Critical Path, the holders of Series E preferred stock would be entitled to
receive $1.50 per share of Series E preferred stock plus all accrued dividends
on such share before any proceeds from the liquidation, dissolution or winding
up of is paid to the holders of our Series D preferred stock and common stock.
Accordingly, the approximately 28.6 million shares of Series E preferred stock
that will be issued pursuant to the convertible note purchase and exchange
agreement upon shareholder approval will initially have an aggregate liquidation
preference of approximately $44 million. If all of the shares of Series E
preferred stock are purchased pursuant to the proposed rights offering, the
initial aggregate liquidation preference will increase to approximately $64
million. In addition, our board of directors has approved the issuance of up to
10 million shares of Series E preferred stock which, if issued, would increase
the initial aggregate liquidation preference to $79 million, and we have engaged
a financial advisor to assist us in identifying qualified institutional
investors for the placement of those additional shares. The aggregate amount of
the preference will increase as the shares of Series E preferred stock accrue
dividends at an annual rate of 5 3/4%. After all of the then outstanding shares
of Series E preferred stock have received payment of their liquidation
preference, the holders of Series D preferred stock would be entitled to
receive, at a minimum, $13.75 per share of Series D preferred stock plus all
accrued dividends on such share before any proceeds from the liquidation,
dissolution or winding up is paid to holders of our common stock. As of
September 30, 2003, the shares of Series D preferred stock have an aggregate
initial liquidation preference of approximately $63.2 million, which, as
amended, will increase on a daily basis at an annual rate of 5 3/4%. As amended,
the shares of Series D preferred stock have a maximum aggregate initial
liquidation preference of approximately $88 million. If we are acquired before
the fourth anniversary of the date the shares of Series E preferred stock are
first issued, the holders of Series D preferred stock will be entitled to
receive an initial preference payment equal to approximately $88 million,
regardless of the amount of dividends accrued at the time of the acquisition.
Holders of our common stock will not receive any proceeds from a liquidation,
winding up or dissolution, including from a change of control, until after the
liquidation preferences of the our Series E preferred stock and our Series D
preferred stock are paid in full. Consequently, the sale of all or substantially
all of the shares of Critical Path may result in
29
substantially all of the proceeds of such transaction being distributed to the
holders of our Series E preferred stock and Series D preferred stock.
In addition, before voting, each shareholder also should consider the
following disadvantages of the private placement:
- Following the private placement, the General Atlantic Investors and the
Cheung Kong Investors will control up to approximately 37.7% and 33.5%,
respectively, of our voting securities (based on 20,538,794 shares of
common stock outstanding as of November 18, 2003 and assuming exercise in
full of the warrants to purchase up to 625,000 shares of common stock
held by members of the General Atlantic Investors), and the Cheung Kong
Investors will be entitled to elect one member of our board of directors.
- The significant rights of the General Atlantic Investors and the Cheung
Kong Investors may make it more difficult for us to enter into other
transactions, including mergers, acquisitions or change of control
transactions.
- Although our common stock will continue to be quoted on a securities
exchange, we may differ in important respects from a publicly owned
corporation in that our activities could potentially be controlled by a
few investors.
- The Series E preferred stock will not be listed on a national securities
exchange in the United States. No party intends to make a market in the
Series E preferred stock. As a result, no assurance can be given that any
trading market for our Series E preferred stock will develop or, if
developed, how liquid that trading market for the Series E preferred
stock would be.
ACCOUNTING EFFECTS OF THE PRIVATE PLACEMENT AND THE PROPOSED RIGHTS OFFERING.
Based on our current estimates, the issuance of our Series E preferred
stock in the private placement and the rights offering and the amendment of our
Series D preferred stock will affect our results of operations as illustrated in
the following table, which sets forth our summary capitalization as of September
30, 2003:
- on an actual basis;
- on a pro forma basis to give effect to:
-- the issuance of the $10 million in principal amount of 10% convertible
secured notes to the General Atlantic Investors;
-- the repayment of the outstanding balance of the line of credit facility
with Silicon Valley Bank; and
-- the issuance of 553,914 shares of common stock and 188,587 shares of
Series D preferred stock on November 21, 2003 in connection with a $5.1
million settlement with MBCP PeerLogic, LLC and its affiliates.
- on a pro forma, as adjusted, basis to give effect to:
-- the conversion of $43.8 million principal and interest amount of
convertible notes held by the General Atlantic Investors and the Cheung
Kong Investors into Series E preferred stock;
-- the sale of an aggregate of approximately $21 million of our Series E
preferred stock, consisting of all shares offered in the rights
offering;
-- the amendment of the terms of the Series D preferred stock; and
-- the conversion of 82,927 shares of Series D preferred stock held by
MBCP PeerLogic, LLC and its affiliates into 733,333 shares of Series E
preferred stock.
30
Except for the pro forma, as adjusted, calculation for the issuance of
Series E preferred stock upon conversion of the 10% convertible secured note,
which takes into account the fair market value of our common stock on November
26, 2003, the date the note was funded, the pro forma, as adjusted, calculations
assume a fair market value of the Series D preferred stock and the Series E
preferred stock based on a fair market value of our common stock of $1.73 per
share which was the closing price of the common stock on the date the
convertible note purchase and exchange agreement was executed. Except for the
pro forma, as adjusted, calculation for the issuance of Series E preferred stock
upon conversion of the 10% convertible secured notes, the actual amounts will
depend on the fair market value of our common stock, Series D preferred stock,
and Series E preferred stock on the date each of the transactions contemplated
by the convertible note purchase and exchange agreement and the rights offering
are consummated. See the discussion under Questions and Answers -- "What is the
accounting effect of the private placement and the proposed rights
offering?" -- beginning on page 11. This table should be read in conjunction
with our financial statements and related notes incorporated by reference into
this proxy statement.
<Table>
<Caption>
SEPTEMBER 30, 2003
-------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
Line of credit facility....................... $ 4,900 $ -- $ --
Capital lease and other obligations,
current..................................... 2,823 2,823 2,823
$ 7,723 $ 2,823 $ 2,823
=========== =========== ===========
Long-term debt
10% convertible secured notes to the General
Atlantic Investors(a)....................... -- $ 10,000 --
5 3/4% convertible subordinated notes due
April 1, 2005(b)............................ $ 38,360 38,360 $ 5,565
Capital lease and other obligations,
long-term................................... 433 433 433
----------- ----------- -----------
$ 38,793 $ 48,793 $ 5,998
----------- ----------- -----------
Mandatorily redeemable preferred stock
Series E convertible preferred
stock(a)(b)(c).............................. -- -- 62,474
Series D convertible preferred stock(d)(e).... $ 47,909 $ 51,664 $ 65,039
----------- ----------- -----------
$ 47,909 $ 51,664 $ 127,514
----------- ----------- -----------
Shareholders' deficit
Common stock and additional paid-in capital... $ 2,158,277 $ 2,159,579 $ 2,177,369
Common stock warrants......................... 5,947 5,947 5,947
Notes receivable from shareholders............ (725) (725) (725)
----------- ----------- -----------
Accumulated deficit and other comprehensive
loss........................................ $(2,224,684) $(2,229,740) $(2,259,586)
----------- ----------- -----------
$ (61,185) $ (64,940) $ (76,995)
-----------
Total capitalization.......................... $ 33,240 $ 38,340 $ 59,340
=========== =========== ===========
</Table>
- ---------------
(a) If our shareholders approve the proposals in this proxy statement, the $10
million in principal amount of convertible secured notes held by the General
Atlantic Investors, plus interest, will convert into $11 million of Series E
preferred stock at $1.50 per share. As a result, interest expense of
approximately $5.7 million will be recognized as of the date of conversion
resulting from the beneficial conversion feature included in the Series E
preferred stock. Pro forma, as adjusted, assumes the Series E preferred
stock was issued on November 18, 2003, the date of the execution of the
convertible note purchase and exchange agreement.
31
(b) If our shareholders approve the proposals in this proxy statement, $32.8
million face value of 5 3/4% convertible subordinated notes held by the
Cheung Kong Investors will be exchanged for approximately 21.9 million
shares of Series E preferred stock. As a result, a charge equal to the fair
value of the Series E preferred stock less the carrying value of the
convertible subordinated notes, net of unamortized issuance costs, will be
recorded to arrive at net loss and net loss attributable to common
shareholders as of the date of the exchange. Pro forma, as adjusted,
reflects a loss on exchange equal to approximately $24.2 million and assumes
the Series E preferred stock was issued on November 18, 2003, the date of
the execution of the convertible note purchase and exchange agreement.
(c) If our shareholders approve the proposals in this proxy statement, the
issuance of Series E preferred stock pursuant to the proposed rights
offering will result in a beneficial conversion feature if the fair value of
the common stock into which the Series E preferred stock is convertible upon
issuance is greater than $1.50 per share. The amount of the beneficial
conversion feature is recorded in additional paid-in capital and reduces the
carrying value of the Series E preferred stock. The Series E preferred stock
carrying value will be increased for the beneficial conversion feature
amount through a charge to arrive at net loss attributable to common
shareholders over a four year period from the date of issuance using the
effective interest method. Pro forma, as adjusted, assumes the issuance of
Series E preferred stock in the rights offering on November 18, 2003, the
date of the execution of the convertible note purchase and exchange
agreement, which results in a beneficial conversion feature amount of
approximately $3.2 million.
(d) If our shareholders approve the proposals in this proxy statement, we will
amend the terms of our Series D preferred stock. As a result, we will record
a charge, as of the date of the amendment, equal to the incremental fair
value of the amended Series D preferred stock resulting from the
modifications to the terms of the Series D preferred stock to arrive at net
loss attributable to common shareholders with the offset to the Series D
preferred stock carrying value. Pro forma, as adjusted, assumes the
amendment occurred on November 18, 2003, the date of the execution of the
convertible note purchase and exchange agreement, and results in a charge
equal to $15.0 million.
(e) If our shareholders approve the proposals in this proxy statement, 82,927 of
the Series D preferred stock issued to MBCP PeerLogic, LLC and its
affiliates will be exchanged for Series E preferred stock, and a charge
equal to the fair value of the Series E preferred stock less the carrying
value of the Series D preferred stock will be recorded, as of the date of
the exchange, to arrive at net loss attributable to common shareholders. Pro
forma, as adjusted, assumes the exchange occurred on November 18, 2003, the
date of the execution of the convertible note purchase and exchange
agreement, and results in a charge equal to $248,000.
In addition, our board of directors has approved the issuance of an
additional 10 million shares of Series E preferred stock to private investors
which would raise proceeds of up to $15 million and has been excluded from the
table above. If we issue these shares, it will result in a beneficial conversion
feature if the fair value of the common stock into which the Series E preferred
stock is convertible upon issuance is greater than $1.50 per share. The amount
of the beneficial conversion feature is recorded in additional paid-in capital
and reduces the carrying value of the Series E preferred stock. The Series E
preferred stock carrying value will be increased for the beneficial conversion
feature amount through a charge resulting in a net loss attributable to common
shareholders over a four year period from the date of issuance using the
effective interest method. Assuming issuance of Series E preferred stock on
November 18, 2003, the date of the execution of the convertible note purchase
and exchange agreement such issuance would result in a beneficial conversion
feature amount of $2.3 million.
INTERESTS OF CERTAIN INVESTORS IN THE PRIVATE PLACEMENT.
Mr. William E. McGlashan, Jr., who is referred to as the Management
Director, is the chief executive officer of Critical Path. Mr. McGlashan is also
a managing member of Vectis CP Holdings, LLC, an owner of shares of our Series D
preferred stock. Messrs. William E. Ford and Raul J. Fernandez are referred to
as the General Atlantic Directors. Mr. Ford is a managing member of General
Atlantic
32
Partners, LLC, an affiliate of the General Atlantic Investors. Mr. Fernandez is
a special advisor to General Atlantic Partners, LLC. Neither the General
Atlantic Directors nor the Management Director participated in the voting with
respect to the proposed sale of securities to the General Atlantic Investors and
the Cheung Kong Investors. References in this proxy statement to the approval of
our board as to the proposed sale of securities to the General Atlantic
Investors and the Cheung Kong Investors and the proposed rights offering include
all members of our board of directors other than the Management Director and
General Atlantic Directors.
OPINION OF OUR FINANCIAL ADVISOR.
The strategic alternatives committee of our board of directors engaged Duff
& Phelps, LLC, referred to as Duff & Phelps, as its independent financial
advisor to advise our board of directors in connection with the private
placement and proposed rights offering as described below. Specifically, Duff &
Phelps has been asked to provide an opinion as to the fairness to our public
common shareholders, from a financial point of view, of the private placement
and proposed rights offering (without giving effect to any impacts of the
private placement and proposed rights offering on any particular shareholder
other than in its capacity as a shareholder). Previously, Duff & Phelps had not
provided financial advisory services to us.
Description of the private placement and rights offering. The private
placement provides for Critical Path to receive a $10 million capital infusion
to fund operations and repay certain indebtedness and the conversion of
approximately $32.8 million of subordinated indebtedness for shares of Series E
preferred stock. Duff & Phelps reviewed the private placement as a three step
process.
First, Critical Path issued $10 million principal amount of 10% convertible
secured notes to the General Atlantic Investors to fund operations and repay
$4.9 million outstanding on the Company's credit facility with Silicon Valley
Bank. This first step is known as the initial closing.
In the second step, shareholders of Critical Path vote to approve the
following:
- the conversion of the convertible secured notes by the General Atlantic
Investors and the exchange, by the Cheung Kong Investors, of
approximately $32.8 million 5 3/4% convertible subordinated notes for
shares of Series E preferred stock;
- the amendment of Critical Path's Series D preferred stock to eliminate
the participating feature, provide for the potential for an increased
liquidation and change of control preference of 1.6 times the original
price per share, decrease the price at which conversion to common stock
would occur from $4.20 to $1.50 per share, decrease the dividend rate to
5 3/4% and provide for a mandatory redemption in four years;
- the amendment of warrants to purchase 625,000 shares of common stock held
by members of the General Atlantic Investors that reduces the exercise
price per share from $4.50 to $1.50; and
- an offering of rights to existing common shareholders to purchase up to
$21 million of Series E preferred stock.
These approvals are covered by "Proposal 1 -- Approval of the Private
Placement" and "Proposal 2 -- Approval of Charter Amendments" in this proxy
statement. The holders of a majority of the outstanding shares of Series D
preferred stock, including the General Atlantic Investors and the Cheung Kong
Investors, have agreed to vote in the affirmative to approve the above.
Third, assuming stockholder approval, Critical Path would complete the
private placement and the proposed rights offering during the 120 days following
the initial closing. Further, the General Atlantic Investors and the Cheung Kong
Investors would have the right to participate in the proposed rights offering if
it was not fully subscribed by the existing common shareholders.
33
Scope of analysis. In conducting the analysis and arriving at their
opinion, Duff & Phelps reviewed and analyzed, among other things:
- the term sheet describing the private placement and the proposed rights
offering, correspondence from Critical Path's management describing the
private placement and the proposed rights offering, the convertible note
purchase and exchange agreement, the form of convertible secured note
issued to the General Atlantic Investors at the initial closing, the
amended and restated registration rights agreement, the amended and
restated Series D preferred stock certificate of determination, the
amended and restated stockholders agreement, the Series E preferred stock
certificate of determination, the form of amendment to warrants to
purchase 625,000 shares of common stock held by members of the General
Atlantic Investors and the form of legal opinion issued by outside
corporate counsel to Critical Path;
- Critical Path's financial statements and filings with the Securities and
Exchange Commission, including the Annual Reports on Form 10-K for the
years ended December 31, 2000 through 2002, and Quarterly Reports on Form
10-Q for the quarters ended March 31, 2003, June 30, 2003 and September
30, 2003;
- financial projections prepared by Critical Path's management for the
fiscal years ended December 31, 2003 through 2005;
- Critical Path's customer presentation prepared by management;
- market trading prices, historical financial statements and valuation
metrics for Critical Path and comparable public companies;
- a comparison of the financial terms of the private placement and proposed
rights offering with the financial terms of other transactions that Duff
& Phelps deemed relevant;
- other operating, financial and legal information regarding Critical Path;
- various transaction documents related to the Series D preferred stock
transaction in November 2001; and
- various loan documentation regarding the secured credit facility with
Silicon Valley Bank.
In addition, Duff & Phelps held in-person discussions with members of
senior management of Critical Path regarding the history, current business
operations, financial condition and future prospects of Critical Path. Duff &
Phelps also took into account its assessment of general economic, market and
financial conditions, as well as its experience in securities and business
valuation, in general, and with respect to merger, acquisition and financing
transactions, in particular.
Duff & Phelps did not make any independent evaluation, appraisal or
physical inspection of Critical Path's solvency or of any specific assets or
liabilities (contingent or otherwise). In addition, Duff & Phelps did not
express any opinion as to the market price or value of Critical Path's public
common shares after completion of the private placement and proposed rights
offering. Finally, Duff & Phelps made no independent investigation of any legal
matters involving Critical Path.
In rendering their opinion, Duff & Phelps:
- relied upon the accuracy, completeness, and fair presentation of all
information, data, advice, opinions and representations relating to the
private placement and proposed rights offering and did not attempt to
verify such information independently; and
- assumed that any estimates, evaluations and projections furnished to Duff
& Phelps by Critical Path's management were reasonably prepared and based
upon the last currently available information and good faith judgment of
the person furnishing them.
The opinion of Duff & Phelps further assumed that information supplied and
representations made by Critical Path's management were substantially accurate
regarding Critical Path, the private placement and
34
the proposed rights offering. Furthermore, Duff & Phelps assumed that there was
no material change in the assets, financial condition, business or prospects of
Critical Path since the date of the most recent financial statements made
available to them.
In the analysis of Duff & Phelps and in connection with the preparation of
their opinion, Duff & Phelps made numerous assumptions with respect to industry
performance, general business, market and economic conditions and other matters,
many of which are beyond the control of any party involved in the private
placement and proposed rights offering. Duff & Phelps also assumed that all of
the conditions precedent required to implement the private placement and the
proposed rights offering would be satisfied and that the private placement and
the proposed rights offering would be completed in accordance with its terms.
Duff & Phelps prepared their opinion effective as of November 17, 2003.
Their opinion is necessarily based upon market, economic, financial and other
conditions as they existed and can be evaluated as of such date. In addition,
Duff & Phelps disclaimed any undertaking or obligation to advise anyone of any
change in any fact or matter affecting their opinion which may come or be
brought to their attention after November 17, 2003.
The opinion of Duff & Phelps, LLC should not be construed as creating any
fiduciary duty on the part of Duff & Phelps, LLC to any party.
To the extent that any of the assumptions of Duff & Phelps, LLC or any of
the facts on which their opinion is based proves to be untrue in any material
respect, the opinion of Duff & Phelps, LLC cannot and should not be relied upon.
Conclusion. Based upon and subject to the assumptions and facts upon which
their opinion is based, Duff & Phelps, LLC was of the opinion that the private
placement and the proposed rights offering is fair to the public common
shareholders of Critical Path from a financial point of view (without giving
effect to any impacts of the private placement or the proposed rights offering
on any particular shareholder other than in its capacity as a shareholder.)
Duff & Phelps was not asked to opine and did not express any opinion as to:
- the tax or legal consequences of the private placement or the proposed
rights offering;
- the realizable value of our common stock or the prices at which our
common stock may trade; and
- the fairness of any aspect of the private placement or the proposed
rights offering not expressly addressed in their opinion.
The basis and methodology for the opinion of Duff & Phelps were designed
specifically for the express purposes of Critical Path and may not translate to
any other purposes. The opinion of Duff & Phelps does not address the underlying
business decision to effect the private placement or the proposed rights
offering or to enter into any related transactions; nor does it indicate that
the consideration received by Critical Path is the best possible attainable
under any circumstances; nor does it constitute a recommendation to any
shareholder (or any other person) as to whether the shareholder should vote in
favor of the portion of the private placement that are subject to shareholder
approval. Duff & Phelps has no obligation to update their opinion. Rather, the
opinion of Duff & Phelps merely states that the private placement and the
proposed rights offering are fair given current market conditions and the
situation in which Critical Path exists today. The decision as to whether to
proceed with the private placement, the proposed rights offering or any related
transaction may depend on an assessment of factors unrelated to the financial
analysis on which the opinion of Duff & Phelps is based. Furthermore, Duff &
Phelps did not negotiate any part of the private placement or the proposed
rights offering.
Under our engagement letter with Duff & Phelps, we agreed to pay Duff &
Phelps fees totaling $125,000. In addition, we have agreed, among other things,
to indemnify and hold harmless Duff & Phelps and other related parties from and
against various liabilities and expenses, which may include liabilities under
the federal securities laws, in connection with its engagement.
35
WARRANTS.
As part of this Proposal 1, and in connection with the private placement,
you are being asked to approve the amendment of warrants to purchase 625,000
shares of common stock issued to members of the General Atlantic Investors in
the December 2001 financing that reduce the exercise price per share from $4.20
to $1.50. The form of the amendment to warrants is attached to this proxy
statement as APPENDIX E.
PROPOSED RIGHTS OFFERING.
Assuming the approval of "Proposal 1 -- Approval of the Private Placement"
and "Proposal 2 -- Approval of Charter Amendments" and the closing of the
private placement, we intend to consummate an offer to our existing common
shareholders of transferable rights to purchase up to an aggregate of $21
million of shares of newly issued Series E preferred stock at a purchase price
of $1.50 per share, the same purchase price paid by the General Atlantic
Investors and the Cheung Kong Investors in the private placement.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on [RECORD DATE] will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on [RECORD DATE]. You should
note, however, that your ability to vote at the special meeting does not give
you the right to participate in the proposed rights offering. You will only be
entitled to participate in the proposed rights offering if you were a record
holder of shares of our common stock as of a date to be determined by our board
of directors.
In the event all or any portion of the subscription rights are not
exercised by the holders of common stock prior to the expiration of the proposed
rights offering, including through the exercise of over-subscription rights, the
General Atlantic Investors have the option, but not the obligation, to purchase
up to 55% of the unexercised subscription rights and the Cheung Kong Investors
have the option, but not the obligation, to purchase up to 45% of the
unexercised subscription rights. In addition, the General Atlantic Investors and
the Cheung Kong Investors have the option, but not the obligation, to purchase
any or all of the subscription rights not exercised by the other group, if any.
If we determine that we have raised adequate funds to meet anticipated operating
needs through the private placement, the proposed rights offering and other
capital raising transactions, we may use a portion of the proceeds from the
proposed rights offering up to approximately $16.4 million to repurchase shares
of Series E preferred stock held by the Cheung Kong Investors.
The proposed rights offering will have a highly dilutive effect on current
shareholders and optionholders. This consequence is exacerbated by the fact that
Critical Path will be issuing senior securities convertible into common stock at
a price lower than the current trading price of the common stock. Current
Critical Path shareholders' aggregate percentage ownership will decline
significantly as a result of the proposed rights offering. The number of shares
issued pursuant to the proposed rights offering will increase the number of
shares of common stock issuable upon shares of preferred stock outstanding from
[ ] to [ ]. This means that our current shareholders will own
a much smaller interest in Critical Path as a result of the proposed rights
offering.
For purposes of example only, a shareholder who owned approximately 5% of
our outstanding stock as of the [RECORD DATE] would own approximately [ ]%
of the shares outstanding immediately after the private placement, based on
[ ] shares of common stock outstanding as of the [RECORD DATE] and
assuming (i) the issuance, in the private placement, of 7,333,333 shares and
21,863,333 shares, respectively, of Series E preferred stock to the General
Atlantic Investors and the Cheung Kong Investors and an additional 10 million
shares of Series E preferred stock to undetermined investors, (ii) the exercise
in full of the warrants to purchase 625,000 shares of common stock held by
members of the General Atlantic Investors and (iii) that holders of our common
stock do not participate in the proposed rights offering and the General
Atlantic Investors exercise their right to purchase 55% of the unsubscribed
portion of the proposed rights offering and the Cheung Kong Investors exercise
their right to purchase 45% of the unsubscribed portion of the proposed rights
offering in accordance with our agreement with them.
36
As part of this Proposal 1, you are being asked to approve the issuance of
such additional shares of Series E preferred stock, if any, as the General
Atlantic Investors or the Cheung Kong Investors, as the case may be, may
purchase in connection with the proposed rights offering.
The approval of both "Proposal 1 -- Approval of the Private Placement" and
"Proposal 2 -- Approval of Charter Amendments" is a requirement for the closing
the proposed rights offering. Thus, in the event our shareholders fail to
approve both proposals, the proposed rights offering would not occur.
THE PROPOSED RIGHTS OFFERING WILL BE MADE ONLY BY MEANS OF A PROSPECTUS
ANTICIPATED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF A
REGISTRATION STATEMENT. THIS DESCRIPTION SHALL NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH STATE OR JURISDICTION.
USE OF PROCEEDS
If the shares of Series E preferred stock offered in the proposed rights
offering are purchased by the holders of our common stock or by the General
Atlantic Investors or the Cheung Kong Investors, or some combination thereof,
the aggregate net proceeds to Critical Path will be approximately $20.5 million
after deducting fees and estimated expenses of approximately $450,000. If the
additional 10 million shares of Series E preferred stock offered in connection
with the private placement are purchased by qualified institutional investors,
the aggregate net proceeds to Critical Path will be approximately $13.3 million
after deducting fees and estimated expenses of $1.7 million. The actual proceeds
will depend on the numbers of shares subscribed for in the private placement and
proposed rights offering.
We currently anticipate using the net proceeds for general corporate
purposes, including working capital, capital expenditures and general
operations; provided, if we determine that we have raised adequate funds to meet
anticipated operating needs through the private placement, the proposed rights
offering and other capital raising transactions, we may use a portion of these
proceeds up to approximately $16.4 million to repurchase shares of Series E
preferred stock held by the Cheung Kong Investors.
VOTE REQUIRED.
To be approved, "Proposal 1 -- Approval of the Private Placement" must
receive a "For" vote from the majority of shares present and entitled to vote
either in person or by proxy. In addition, "Proposal 1 -- Approval of the
Private Placement" must receive a "For" vote from 50% of the outstanding shares
of Series D preferred stock, voting separately as a class. Abstentions will be
counted toward the tabulation of votes cast and will have the same effect as an
"Against" vote. Broker non-votes will have no effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
1 -- Approval of the Private Placement." California law contemplates that
directors who have a personal, financial or other interest that is different
from, or in conflict with, those of the shareholders regarding a proposal may
abstain from voting to recommend such proposal. The board of directors
recommends that you vote in favor of this "Proposal 1 -- Approval of the Private
Placement." Mr. William E. McGlashan, Jr., who is referred to as the Management
Director, is the chief executive officer of Critical Path. Mr. McGlashan is also
a managing member of Vectis CP Holdings, LLC, an owner of shares of our Series D
preferred stock. Messrs. William E. Ford and Raul J. Fernandez, who are referred
to as the General Atlantic Directors, are affiliates of the General Atlantic
Investors. Neither the General Atlantic Directors nor the Management Director
participated in the voting with respect to the private placement. The remaining
four directors unanimously approved the private placement, and they unanimously
recommend a vote "For" approval of this "Proposal 1 -- Approval of the Private
Placement."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 1 -- APPROVAL OF THE PRIVATE PLACEMENT."
37
PROPOSAL 2 -- APPROVAL OF CHARTER AMENDMENTS
NATURE OF PROPOSAL.
You are being asked to vote upon a proposal, in connection with the
convertible note purchase and exchange agreement, to approve:
- an amendment to our current amended and restated articles of
incorporation to increase the authorized number of shares of common stock
from 125 million to 200 million and the authorized number of shares of
preferred stock from 5 million to 75 million; and
- an amended and restated certificate of determination of preferences of
Series D preferred stock to, among other things, amend the Series D
preferred stock liquidation preference upon a liquidation and change of
control, to eliminate the participation feature, to reduce the conversion
price from $4.20 to $1.50 and to reduce the amount of dividends to which
the holders of Series D preferred stock are entitled.
This proposal will not be implemented unless our shareholders approve
"Proposal 1 -- Approval of the Private Placement." In addition, the approval of
both proposals is a requirement for closing the private placement and the rights
offering.
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF
SHARES OF COMMON STOCK AND PREFERRED STOCK.
If our shareholders approve the proposals in this proxy statement and
assuming (i) we sell an additional 10 million shares of Series E preferred stock
in the private placement and (ii) the proposed rights offering is fully
subscribed, then immediately following the completion of the proposed rights
offering, we would have 119,185,116 shares of our common stock issued and
outstanding (assuming exercise in full of the warrants to purchase up to 625,000
shares of common stock held by members of the General Atlantic Investors and
based on 20,538,794 shares of common stock outstanding as of November 18, 2003),
4,188,587 shares of our Series D preferred stock issued and outstanding
(convertible into 43,844,879 shares of our common stock) and 53,622,529 shares
of our Series E preferred stock issued and outstanding. In that event, we would
not have enough shares of preferred stock authorized and we would not have
enough shares of common stock authorized for issuance upon conversion of shares
of the Series D preferred stock, shares of the Series E preferred stock,
pursuant to the employee stock purchase plan or upon the exercise of options or
warrants. The actual number of shares outstanding or reserved will depend on the
number of shares issued pursuant to the private placement and the proposed
rights offering.
If this proposal is approved by our shareholders, then the additional
shares of authorized common stock and preferred stock will become part of the
existing series and class of common stock or preferred stock, as the case may
be, and the additional shares, when issued, will have the same rights and
privileges as the shares of common stock or preferred stock outstanding.
Subject to the approval of the holders of Series D preferred stock and
Series E preferred stock, our board of directors will have the authority to
issue shares of the newly authorized common stock and preferred stock that are
not issued in connection with the proposed rights offering or the convertible
note purchase and exchange agreement, without additional approval by the holders
of common stock, except as required by the rules of the Nasdaq National Market.
These rules require shareholder approval in advance for, among other things, the
issuance of shares of common stock or securities convertible into or exercisable
for common stock that have or will have 20% or more of our voting power or that
represent or will represent 20% or more of our common stock outstanding or
issuable upon the conversion or exercise of outstanding securities. In the case
of issuances of securities to substantial security holders of a listed company,
such as the General Atlantic Investors and the Cheung Kong Investors, we will
need to seek shareholder approval in advance for, among other things, the
issuance of shares of common stock or securities convertible into or exercisable
for common stock that represent 1% or more of our voting power or that represent
or will represent 1% or more of our common stock outstanding or issuable upon
the conversion or exercise of outstanding securities.
38
If additional authorized shares are issued in the future, they will
decrease your percentage equity ownership of our company. This is known as
dilution.
If this proposal is approved by the shareholders, the additional shares of
common stock and preferred stock will become authorized and issuable upon the
filing of an amendment to our current amended and restated articles of
incorporation to increase the authorized number of shares of common stock from
125 million to 200 million and the authorized number of shares of preferred
stock from 5 million to 75 million. We intend to file and record the amendment
promptly after the special meeting. Our board of directors may make any and all
changes to the form of amendment that it deems necessary in order to file the
amendment with the California Secretary of State. Our board of directors may
also abandon or delay the amendment at any time before or after the special
meeting and prior to the effective date of the amendment if for any reason our
board of directors deems it advisable to do so, subject to the approval of the
General Atlantic Investors and the Cheung Kong Investors pursuant to the
convertible note purchase and exchange agreement.
The proposed increase in authorized common stock and preferred stock will
permit the conversion by the General Atlantic Investors of their convertible
secured notes into shares of Series E preferred stock and the exchange by the
Cheung Kong Investors of their 5 3/4% convertible subordinated notes into shares
of Series E preferred stock. It will also allow us, as part of the private
placement, to sell to undetermined investors up to an additional 10 million
shares of Series E preferred stock at a price per share equal to $1.50, in
addition to the shares of Series E preferred stock issued in the proposed rights
offering.
Finally, the amendment to our articles of incorporation to increase the
authorized number of shares of common stock and preferred stock is necessary to
allow us to conduct the private placement and proposed rights offering.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on [RECORD DATE] will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on [RECORD DATE]. You should
note, however, that your ability to vote at the special meeting does not give
you the right to participate in the proposed rights offering. You will only be
entitled to participate in the proposed rights offering if you were a record
holder of shares of our common stock as of a date to be determined by our board
of directors.
AMENDMENT AND RESTATEMENT OF CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES D PREFERRED STOCK.
Under the convertible note purchase and exchange agreement, we must receive
approval for and file an amended and restated certificate of determination of
preferences of Series D preferred stock.
Background. In December 2001, we sold 2,162,582 shares of Series D
preferred stock to members of the General Atlantic Investors, members of the
Cheung Kong Investors and Vectis CP Holdings, LLC at $13.75 per share, for an
aggregate of $29.7 million. The securities were sold to finance operations. As
part of the same transaction, members of the General Atlantic Investors also
exchanged $64.63 million face value of its 5 3/4% convertible subordinated
notes, which they had purchased for on the open market for $25.3 million, for
1,837,418 shares of Series D preferred stock. We also issued to members of the
General Atlantic Investors warrants to purchase up to an additional 625,000
shares of our common stock.
The General Atlantic Investors consist of General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG.
The Cheung Kong Investors consist of Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
The General Atlantic Investors and the Cheung Kong Investors are unaffiliated,
unrelated to each other and do not constitute a group.
Terms of the amended and restated Series D preferred stock. The following
summary of the terms of the amended shares of Series D preferred stock is
qualified in its entirety by the certificate of
39
determination of preferences of Series D preferred stock attached to this proxy
statement as APPENDIX D and incorporated by reference herein.
If this proposal is approved, then, at a subsequent closing of the private
placement, we will file an amended and restated certificate of determination of
preferences of Series D preferred stock to amend the terms of the shares of
Series D preferred stock. The terms of the amended Series D preferred stock are
discussed below.
The holders of Series D preferred stock have agreed to allow us to
eliminate the right of the Series D preferred stock to participate on a pro rata
basis with common shareholders in any remaining equity (after the full
preferential returns to the Series D preferred stock and the Series E preferred
stock). In addition, following the date shares of Series E preferred stock are
first issued, dividends on the shares of Series D preferred stock will accrue at
a simple annual rate of 5 3/4% whether or not declared by our board of
directors. The rights of the Series D preferred stock to cumulative dividends at
8% will be eliminated going forward. Thus, assuming we file an amended and
restated certificate of determination of preferences of Series D preferred stock
to amend the terms of the shares of Series D preferred stock, the shares of
Series D preferred stock will have a preferential return consisting of
cumulative dividends at 8%, up to the date shares of Series E preferred stock
are first issued, and simple dividends at 5 3/4% thereafter. This is known as
Series D Accreted Value.
The Series D preferred stock contains a preferential return of equity
(subordinate to the Series E preferred stock liquidation preference), upon a
change of control or the optional redemption by Critical Path, that is equal to
the sum of the Series D Accreted Value plus all dividends that would have
accrued through the fourth anniversary of the date shares of Series E preferred
stock are first issued. This is known as the Series D Accelerated Preference.
A change of control includes, among others, any merger consolidation or
other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our Shareholder Rights Plan
(which issuance is not waived by our board of directors).
Subject to the rights and preferences of the Series E preferred stock, with
respect to distributions upon a liquidation, the payment of dividends or a
change of control, the shares of Series D preferred stock rank senior to all
capital stock of Critical Path. In the event of a liquidation, each share of
Series D preferred stock will be paid, prior to the payment of any other equity
securities (except for the Series E preferred stock), payments equal to the
greater of:
- the Series D Accreted Value;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the value that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such liquidation.
In the event of a change of control, each share of Series D preferred stock
will be paid, prior to the payment of any other equity securities (except for
the Series E preferred stock), payments equal to the greater of:
- the Series D Accelerated Preference;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the amount that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such change of control.
40
The shares of Series D preferred stock are redeemable, at the option of
Critical Path upon the occurrence of specified events, on or after the third
anniversary of the date shares of Series E preferred stock are first issued. If
on any date after the third anniversary of the date shares of Series E preferred
stock are first issued, the average closing price per share of our common stock,
for any 60 consecutive trading days after such third anniversary date, equals or
exceeds 400% of the Series D Accelerated Preference, Critical Path has the
option to redeem, within 30 days following such date, all, but not less than
all, of the outstanding shares of Series D preferred stock in cash, at a price
per share equal to the Series D Accelerated Preference.
We must redeem all the shares of Series D preferred stock on the fourth
anniversary of the date shares of Series E preferred stock are first issued for
an amount equal to the Series D Accreted Value. The redemption rights of the
Series D preferred stock are subordinate to the redemption rights of the Series
E preferred stock.
The holders of Series D preferred stock are entitled to elect one member to
our board of directors. In addition, each share of Series D preferred stock
entitles its holder to vote at any shareholders meeting, on any matter entitled
to be voted on by holders of our common stock, voting together as a single class
with other shares entitled to vote on such matters. In that event, each share of
Series D preferred stock entitles its holder to cast that number of votes per
share equal to the number of votes that the holder would be entitled to cast had
the holder converted its share of Series D preferred stock into shares of our
common stock. In addition, the holders of a majority of outstanding shares of
Series D preferred stock must approve:
- any amendment to our articles of incorporation or bylaws;
- any issuance or authorization of shares of equity securities ranking
senior to the Series E preferred stock or any amendment to the number of
authorized shares of Series D preferred stock;
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders; or
- the incurrence of any indebtedness, subject to certain exceptions.
The amended and restated certificate of determination of preferences of
Series D preferred stock will reduce the conversion price of the Series D
preferred stock from $4.20 to $1.50. As a result, each share of Series D
preferred stock will be convertible at any time at the option of the holder into
the number of shares of common stock derived by dividing (a) the Series D
Accreted Value by (b) $1.50, subject to certain antidilution provisions. The
terms of the Series D preferred stock contain protection against dilution if
Critical Path effects a subdivision or combination of common stock or in the
event of a reclassification, recapitalization, stock split, stock dividend or
other distribution payable in securities of Critical Path or any other company.
REASONS FOR SHAREHOLDER APPROVAL.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the
amendment to our amended and restated articles of incorporation to increase the
authorized number of shares of common stock and preferred stock and the approval
and adoption of the amended and restated certificate of determination of
preferences of Series D preferred stock require the affirmative vote of the
holders of a majority of the outstanding shares of common stock and the votes
represented by the Special Voting Share (excluding the shares of Series D
preferred stock), voting together as a class, and the outstanding shares of
Series D preferred stock, voting separately as a class. See the question
entitled "How many votes do the common shareholders have?" on page 5 of this
proxy statement for further information on the common stock issuable upon the
conversion or exchange of specified securities.
The General Atlantic Investors and the Cheung Kong Investors, who held
[ ] shares and [ ] shares, respectively, of our Series D
preferred stock (on an as converted to common stock
41
basis), or approximately [ ]% and [ ]%, respectively, of our outstanding
voting securities, as of [RECORD DATE], have agreed, solely in their capacity as
shareholders, to vote their shares of our Series D preferred stock in favor of
the amendment to our amended and restated articles of incorporation to increase
the authorized number of shares of common stock and preferred stock and the
amendment and restatement of the amended and restated certificate of
determination of preferences of Series D preferred stock.
VOTE REQUIRED.
To be approved, "Proposal 2 -- Approval of the Charter Amendments" must
receive a "For" vote from 50% of the outstanding shares either in person or by
proxy. In addition, "Proposal 2 -- Approval of the Charter Amendments" must
receive a "For" vote from 50% of the outstanding shares of common stock and the
votes represented by the Special Voting Share (excluding the shares of Series D
preferred stock), voting together as a class, and the outstanding shares of
Series D preferred stock, voting separately as a class. If you do not vote or
"Abstain" from voting, it will have the same effect as an "Against" vote. Broker
non-votes will have the same effect as an "Against" vote. Completion of the
Charter Amendments is a condition to consummation of the private placement, so
shareholders who vote to approve Proposal 1 should also vote to approve Proposal
2 or the private placement cannot take effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
2 -- Approval of Charter Amendments." California law contemplates that directors
who have a personal, financial or other interest that is different from, or in
conflict with, those of the shareholders regarding a proposal may abstain from
voting to recommend such proposal. The board of directors recommends that you
vote in favor of this "Proposal 2 -- Approval of Charter Amendments." Mr.
William E. McGlashan, Jr., who is referred to as the Management Director, is the
chief executive officer Critical Path. Messrs. William E. Ford and Raul J.
Fernandez, who are referred to as the General Atlantic Directors, have a
relationship with the General Atlantic Investors. Neither the General Atlantic
Directors nor the Management Director participated in the voting with respect to
the private placement. The remaining four directors unanimously approved the
charter amendments, and they unanimously recommend a vote "For" approval of this
"Proposal 2 -- Approval of Charter Amendments."
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 2 -- APPROVAL OF CHARTER AMENDMENTS."
42
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND DIRECTORS
PRINCIPAL SHAREHOLDERS.
The following table sets forth certain information regarding beneficial
ownership of common stock as of December 1, 2003 by:
- each person or entity known to Critical Path to own beneficially more
than 5% of our common stock;
- each of Critical Path's directors;
- the chief executive officer of Critical Path as of December 31, 2002,
each of the three other most highly compensated executive officers of
Critical Path whose total salary and bonus exceeded $100,000 during the
year ended December 31, 2002, and two former executive officers whose
total salary and bonus exceeded $100,000 during the year ended December
31, 2002 but who were no longer employed with Critical Path on December
31, 2002, whom we refer to as named executive officers; and
- all executive officers and directors as a group.
<Table>
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
--------------------------------------------
RIGHT TO
ACQUIRE
BENEFICIAL
SHARES OF OWNERSHIP OF
SHARES OF SERIES D COMMON
COMMON PREFERRED STOCK WITHIN
STOCK STOCK 60 DAYS OF
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY DECEMBER 1,
BENEFICIAL OWNER(1) OWNED OWNED 2003
- ------------------- ------------ ------------ ------------
5% SHAREHOLDERS
Entities affiliated with
General Atlantic Partners,
LLC(3)...................... -- 2,545,455 10,457,020
3 Pickwick Plaza
Greenwich, CT
Scott Smith and affiliated
entities(4)................. 1,071,888 -- --
c/o Camelot Management Corp.
3 Pickwick Plaza
Greenwich, CT
Purnendu Chatterjee and
affiliated entities(5)...... 1,366,919 -- --
888 Seventh Avenue
New York, NY 10106
Cheung Kong (Holdings) Limited
and affiliated
entities(6)................. -- 872,727 3,370,977
8th Floor, Cheung Kong
Center
2 Queen's Road Central
Hong Kong
Vectis Group, LLC and
affiliated entities(7)...... -- 581,818 2,363,568
c/o BPM
600 California Street,
Suite 1300
San Francisco, CA 94180
DIRECTORS AND NAMED EXECUTIVE
OFFICERS
William E. McGlashan, Jr. .... 280,288(8) 581,818 2,986,739(9)
Paul Bartlett................. -- -- 145,829(10)
Bernard Harguindeguy.......... -- -- 205,728(11)
William S. Cohen.............. -- -- 25,000(12)
Ross Dove..................... -- -- 10,937(13)
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------------------
PERCENT OF CLASS BENEFICIALLY OWNED
----------------------------------------
COMMON AND
TOTAL OF SERIES D SERIES D
NAME AND ADDRESS OF COMMON COMMON PREFERRED PREFERRED STOCK
BENEFICIAL OWNER(1) STOCK STOCK(2) STOCK(2) (AS CONVERTED)(2)
- ------------------- ---------- -------- --------- -----------------
5% SHAREHOLDERS
Entities affiliated with
General Atlantic Partners,
LLC(3)...................... 10,457,020 2.9 60.8 27.6
3 Pickwick Plaza
Greenwich, CT
Scott Smith and affiliated
entities(4)................. 1,071,888 5.1 -- 2.9
c/o Camelot Management Corp.
3 Pickwick Plaza
Greenwich, CT
Purnendu Chatterjee and
affiliated entities(5)...... 1,366,919 6.5 -- 3.7
888 Seventh Avenue
New York, NY 10106
Cheung Kong (Holdings) Limited
and affiliated
entities(6)................. 3,370,977 -- 20.8 9.0
8th Floor, Cheung Kong
Center
2 Queen's Road Central
Hong Kong
Vectis Group, LLC and
affiliated entities(7)...... 2,363,568 * 13.9 6.3
c/o BPM
600 California Street,
Suite 1300
San Francisco, CA 94180
DIRECTORS AND NAMED EXECUTIVE
OFFICERS
William E. McGlashan, Jr. .... 3,267,027 5.2 13.9 8.6
Paul Bartlett................. 145,829 * -- *
Bernard Harguindeguy.......... 205,728 1.0 -- *
William S. Cohen.............. 25,000 * -- *
Ross Dove..................... 10,937 * -- *
</Table>
43
<Table>
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
--------------------------------------------
RIGHT TO
ACQUIRE
BENEFICIAL
SHARES OF OWNERSHIP OF
SHARES OF SERIES D COMMON
COMMON PREFERRED STOCK WITHIN
STOCK STOCK 60 DAYS OF
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY DECEMBER 1,
BENEFICIAL OWNER(1) OWNED OWNED 2003
- ------------------- ------------ ------------ ------------
Raul J. Fernandez............. 52,500(14) -- 60,937(15)
William E. Ford............... -- 2,545,455 10,517,957(16)
Wm. Christopher Gorog......... -- -- 12,500(17)
Steven R. Springsteel......... -- -- 10,937(18)
Laureen DeBuono............... -- -- 106,476(19)
David Hayden(20).............. 560,604 -- 1,549,315
Pierre Van Beneden............ -- -- 311,611(21)
All Named Executive Officers
and current directors,
nominees and executive
officers as a group (17
persons)(22)................ 896,105 3,127,273 15,997,014
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
-----------------------------------------------------
PERCENT OF CLASS BENEFICIALLY OWNED
----------------------------------------
COMMON AND
TOTAL OF SERIES D SERIES D
NAME AND ADDRESS OF COMMON COMMON PREFERRED PREFERRED STOCK
BENEFICIAL OWNER(1) STOCK STOCK(2) STOCK(2) (AS CONVERTED)(2)
- ------------------- ---------- -------- --------- -----------------
Raul J. Fernandez............. 113,437 * -- *
William E. Ford............... 10,517,957 3.1 60.8 27.7
Wm. Christopher Gorog......... 12,500 * -- *
Steven R. Springsteel......... 10,937 * -- *
Laureen DeBuono............... 106,476 * -- *
David Hayden(20).............. 2,109,919 9.3 -- *
Pierre Van Beneden............ 311,611 1.5 -- *
All Named Executive Officers
and current directors,
nominees and executive
officers as a group (17
persons)(22)................ 16,893,119 19.2 74.7 41.0
</Table>
- ---------------
* Amount represents less than 1% of the indicated class or classes of stock.
(1) Unless otherwise indicated, the address for each of the executive officers
and directors above is c/o Critical Path, Inc., 350 The Embarcadero, San
Francisco, California 94105-1204.
(2) Applicable percentage ownership of common stock is based on 21,092,708
shares of common stock issued and outstanding as of December 1, 2003
including 347,629 shares of common stock issuable upon exchange of
Exchangeable Shares as described under the question entitled "How many
votes do the common shareholders have?" on page 5. Applicable percentage
ownership of Series D preferred stock is based on 4,188,587 shares of
Series D preferred stock issued and outstanding on December 1, 2003.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). In computing
the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options or
convertible or exchangeable into such shares of common stock, held by that
person, that are currently exercisable or exercisable within 60 days of
December 1, 2003 are deemed outstanding. These shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of another person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each shareholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such shareholder's name.
(3) According to a Schedule 13D, dated as of December 21, 2001, filed jointly
by General Atlantic Partners, LLC (GAP), General Atlantic Partners 74, L.P.
(GAP 74), GapStar, LLC (GapStar) and GAP Coinvestment Partners II, L.P.
(GAPCO and, collectively with GAP, GAP 74 and GapStar, the Reporting
Persons), the Reporting Persons own no shares of the Company's common
stock. The Reporting Persons report collective beneficial ownership as to
2,545,455 shares of the Company's Series D preferred stock, which were
initially convertible into 8,333,333 shares of common stock, and warrants
to purchase 625,000 shares of common stock that are exercisable within 60
days of December 1, 2003. GAP is the general partner of GAP 74 and the sole
member of GapStar. The managing members of GAP (other than Klaus Esser) are
also the general partners of GAPCO. GAP and the managing members of GAP
report shared voting and dispositive power of the 2,545,455 shares of
Series D preferred stock and the warrants to purchase 625,000 shares of
common stock held by the Reporting Persons. GAP 74 owns 2,091,218 shares of
Series D preferred stock or 6,846,249 shares of common stock on an as
converted basis and owns warrants to purchase 513,468 shares of common
stock. GapStar owns 159,091 shares of Series D preferred stock or 520,833
shares of common stock on an as converted basis and owns warrants to
purchase 39,063 shares of common stock. GAPCO owns 295,146 shares of Series
D preferred stock or 966,251 shares of common stock on an as converted
basis and warrants to purchase 72,469 shares of
44
common stock. The number of shares of common stock into which the Series D
preferred stock convert as reflected in this footnote does not include the
accretion of dividends after the date of the applicable Schedule 13D. The
number of shares of common stock as reflected in the table does include
such accretion of dividends. The number of shares in this footnote have
been adjusted to reflect the stock split effected on August 1, 2003.
(4) Scott Smith filed a Schedule 13G/A, dated as of February 11, 2003, with the
SEC on behalf of himself and related parties described herein. According to
the Schedule 13G/A, shares are held for the account of Camelot Management
Corporation, Camelot Offshore Fund Limited and Scott Smith. Scott Smith is
an officer of Camelot Management Corporation and a director of Camelot
Offshore Fund Limited. Scott Smith reported beneficial ownership of
1,071,888 shares of common stock as of December 31, 2002. The shares held
consist of 268,325 shares of common stock held for the account of Camelot
Management Corporation, 268,325 shares of common stock held for the account
of Camelot Offshore Fund Limited and 1,071,888 shares of common stock held
for the account of Scott Smith. The reporting person reported shared voting
power over 1,071,888 shares and shared dispositive power over 1,071,888
shares. The number of shares in this footnote have been adjusted to reflect
the stock split effected on August 1, 2003.
(5) Purnendu Chatterjee filed a Schedule 13G, dated as of February 14, 2003,
with the SEC on behalf of himself and related parties. Mr. Chatterjee
reported beneficial ownership of 1,366,919 shares of common stock as of
December 31, 2002. Shares are held for the accounts of Winston Partners,
L.P., a Delaware limited partnership, Chatterjee Fund Management, L.P., a
Delaware limited partnership, a Cayman Islands Exempted Limited Partnership
and the reporting person. Chatterjee Fund Management, L.P. in the general
partner of Winston Partners, L.P. The reporting person is the sole general
partner of Chatterjee Fund Management, L.P. Chatterjee Management Company,
a Delaware corporation serves as investment manager of the Cayman Islands
Exempted Limited Partnership. Chatterjee Management Company is controlled
by the reporting person. The shares held consist of 703,219 shares of
common stock, held for the account of Winston Partners, L.P., 184,955
shares of common stock held for the account of Chatterjee Fund Management,
L.P. and 478,745 shares of common stock held for the account of the Cayman
Islands Exempted Limited Partnership. The reporting person reported sole
voting power and sole dispositive power over 1,366,919 shares. The number
of shares in this footnote have been adjusted to reflect the stock split
effected on August 1, 2003.
(6) According to a Schedule 13D/A, dated as of December 1, 2003, filed by
jointly by Cheung Kong (Holdings) Limited (Cheung Kong), Campina
Enterprises Limited, an indirect wholly owned subsidiary of Cheung Kong
(Campina), Hutchison Whampoa Limited (HWL), an entity in which Cheung Kong
holds a 49.97% interest, Cenwell Limited, an indirect wholly owned
subsidiary of HWL (Cenwell), CK Life Sciences Int'l., (Holdings) Inc. (CK
Life), an entity in which Cheung Kong holds a 44.01% interest, and Great
Affluent Limited (GAL), an indirect wholly owned subsidiary of CK Life,
Campina and Cenwell hold 436,363 and 436,364 shares of our Series D
preferred stock, respectively, collectively convertible into 3,317,782
shares of our common stock. Cheung Kong and Campina report shared voting
and dispositive power as to the shares held by Campina. Cheung Kong, HWL
and Cenwell reported shared voting and dispositive power as to the shares
held by Cenwell. Cheung Kong disclaims beneficial ownership of the
3,317,782 shares of common stock beneficially owned by Cenwell and Campina.
(7) Vectis Group LLC filed a Schedule 13D, dated as of August 8, 2003, with the
SEC on behalf of itself and related parties. According to the Schedule 13D,
shares are held for the account of Vectis, a Delaware limited liability
company, the reporting person. William E. McGlashan, Jr., Matthew Hobart
and Peter Kellner are the managing members of Vectis. The shares held
consist of (i) 2,363,568 shares of common stock issuable upon the
conversion of shares of Series D preferred stock, including the accretion
of dividends, and (ii) 116,250 shares of common stock issuable subject to
warrants currently exercisable in full. The shares exclude shares held
individually by the principals of Vectis and shares beneficially owned by
the principals of Vectis subject to options exercisable within 60 days of
December 1, 2003.
45
(8) Includes (i) 250,000 shares of common stock purchased by Mr. McGlashan
through an early option exercise pursuant to a promissory note and stock
pledge agreement with us, and subject to a lapsing right of repurchase by
us, (ii) 20,000 shares of common stock purchased by Mr. McGlashan's spouse
and (iii) 10,288 shares purchased under our employee stock purchase plan.
(9) Includes (i) 623,171 shares subject to options exercisable within 60 days
of December 1, 2003, (ii) 116,250 shares subject to warrants to purchase
shares of common stock held by Vectis and exercisable within 60 days of
December 1, 2003 and (iii) 2,363,568 shares of common stock issuable upon
the conversion of shares of Series D preferred stock. See footnote (7)
above. Mr. McGlashan disclaims beneficial ownership of the securities held
by Vectis and its affiliates within the meaning of Rule l3d-3 under the
Securities Exchange Act of 1934. The shares exclude all shares subject to
options issued to other Vectis principals as part of their individual
employment agreements with Critical Path and all shares individually owned
by other Vectis principals.
(10) Consists of 145,829 shares subject to options exercisable within 60 days of
December 1, 2003.
(11) Consists of 205,728 shares subject to options exercisable within 60 days of
December 1, 2003.
(12) Consists of 25,000 shares subject to options exercisable within 60 days of
December 1, 2003.
(13) Consists of 10,937 shares subject to options exercisable within 60 days of
December 1, 2003.
(14) Includes 2,500 shares of common stock held by Mr. Fernandez's spouse.
(15) Consists of 60,937 shares subject to options exercisable within 60 days of
December 1, 2003.
(16) Includes 10,457,020 shares issuable upon the conversion of the Series D
preferred stock and exercise of warrants to purchase shares of common
stock. See footnote (3) above. Mr. Ford disclaims beneficial ownership of
the securities described in footnote (3) above except to the extent of his
pecuniary interest therein. Also includes 60,937 shares subject to options
exercisable within 60 days of December 1, 2003.
(17) Consists of 12,500 shares subject to options exercisable within 60 days of
December 1, 2003.
(18) Consists of 10,937 shares subject to options exercisable within 60 days of
December 1, 2003.
(19) Consists of 106,476 shares subject to options exercisable within 6 days of
April 23, 2003.
(20) David C. Hayden filed a Schedule 13G, dated as of April 26, 2002, with the
SEC on behalf of himself. Mr. Hayden reported sole voting and dispositive
power over 560,604 shares. The beneficial ownership reported also includes
1,549,315 shares subject to options exercisable within 60 days of December
1, 2003. Mr. Hayden is our former executive chairman who terminated
employment in May 2002. The number of shares in this footnote have been
adjusted to reflect the stock split effected on August 1, 2003.
(21) Consists of 311,611 shares subject to options exercisable within 60 days of
December 1, 2003.
(22) Includes shares beneficially owned by the directors and executive officers
as a group consisting of the named executive officers and Messrs. Currie,
Zukerman, Serbinis, Twohig and Smartt. Includes an aggregate of 2,713
shares of common stock beneficially owned, 364,388 shares subject to
options exercisable within 60 days of December 1, 2003 held by Messrs.
Currie, Zukerman, Serbinis, Twohig and Smartt.
46
ADVANCE NOTICE PROCEDURES
Under our bylaws, no business may be brought before a special or annual
meeting except as specified in the notice of the meeting (which includes
shareholder proposals that we are required to set forth in our proxy statement
under SEC Rule 14a-8) or, with respect to annual meetings, as otherwise brought
before the meeting by or at the direction of the board of directors or by a
shareholder entitled to vote who has delivered notice to Critical Path
(containing certain information specified in the bylaws) not less than 120 days
prior to the first anniversary of the date that materials for the previous
year's annual meeting were mailed. These requirements are separate and apart
from, and in addition to, the SEC requirements that a shareholder must meet to
have a shareholder proposal included in the company's proxy statement under Rule
14a-8.
A copy of the full text of the bylaw provisions discussed above may be
obtained by written request to: Secretary, Critical Path, Inc., 350 The
Embarcadero, San Francisco, California 94105-1204.
If any matter should nevertheless come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote all proxies
(unless otherwise directed by shareholders) in accordance with their judgment on
such matter.
Whether or not you intend to be present at the special meeting, we urge you
to return your signed proxy promptly.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal intended for inclusion in our proxy statement and form of
proxy relating to our 2004 Annual Meeting of Shareholders should be sent to:
Secretary, Critical Path, Inc., 350 The Embarcadero, San Francisco, California
94105-1204, and must be received by January 23, 2004.
ATTENDANCE OF PRINCIPAL ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP are expected to be present at
the special meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
47
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. The SEC
allows us to "incorporate by reference" the information we file with it, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference into this proxy
statement is an important part of this proxy statement. Specifically, we are
incorporating by reference the documents listed below:
- Our Annual Report on Form 10-K for the year ended December 31, 2002, as
amended by our Forms 10-K/A dated April 30, 2003 and May 9, 2003, except
for Item 8., including Report of Independent Accountants, Consolidated
Financial Statements, Notes to Consolidated Financial Statements and
Financial Statement Schedule which are listed in the Index of
Consolidated Financial Statements and which appear beginning on page 70
of this the Form 10-K and are incorporated into Item 8.
- Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003,
June 30, 2003 and September 30, 2003; and
- Our Current Report on Form 8-K filed with the SEC on December 24, 2003.
OUR 2002 ANNUAL REPORT ON FORM 10-K, AS AMENDED, OUR QUARTERLY REPORT ON
FORM 10-Q FOR THE QUARTERS ENDED MARCH 31, 2003, JUNE 30, 2003 AND SEPTEMBER 30,
2003 AND OUR CURRENT REPORT ON FORM 8-K FILED WITH THE SEC ON DECEMBER 24, 2003
HAVE BEEN MAILED WITH THIS PROXY STATEMENT. WE WILL PROVIDE COPIES OF EXHIBITS
TO THESE DOCUMENTS, BUT WILL CHARGE A REASONABLE FEE PER PAGE TO ANY REQUESTING
SHAREHOLDER. SHAREHOLDERS OF RECORD MAY MAKE SUCH REQUEST IN WRITING TO THE
COMPANY AT:
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105
ATTENTION: INVESTOR RELATIONS
(415) 541-2500
THE REQUEST MUST INCLUDE A REPRESENTATION BY THE SHAREHOLDER THAT AS OF
[RECORD DATE], THE SHAREHOLDER WAS ENTITLED TO VOTE AT THE SPECIAL MEETING.
ADDITIONAL INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC public reference
rooms. You can request copies of these documents by writing to the SEC and
paying a fee for the copying costs. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference rooms. Our SEC
filings are also available at the SEC's website at www.sec.gov.
By Order of the Board of Directors,
Michael J. Zukerman
Senior Vice President, General Counsel
and Secretary
San Francisco, California
[ ], 2004
48
APPENDIX A
================================================================================
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT
among
CRITICAL PATH, INC.,
GENERAL ATLANTIC PARTNERS 74, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
GAPSTAR, LLC,
GAP-W, LLC,
GAPCO GMBH & CO. KG,
CAMPINA ENTERPRISES LIMITED,
CENWELL LIMITED,
GREAT AFFLUENT LIMITED,
DRAGONFIELD LIMITED
and
LION COSMOS LIMITED
--------------------------
Dated: November 18, 2003
--------------------------
================================================================================
Table of Contents
Page
----
ARTICLE I DEFINITIONS........................................................... 2
1.1 Definitions......................................................... 2
ARTICLE II PURCHASE AND SALE OF NOTES; CONVERSION; EXCHANGE..................... 11
2.1 Purchase and Sale of Notes.......................................... 11
2.2 Filings............................................................. 11
2.3 Exchange of CK Sub Notes............................................ 11
2.4 Certificates of Determination....................................... 11
2.5 Use of Proceeds..................................................... 11
2.6 Closings; Deliveries................................................ 12
2.7 Subsequent Sale of Shares of Series E Preferred Stock............... 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................... 14
3.1 Corporate Existence and Power....................................... 14
3.2 Authorization; No Contravention..................................... 15
3.3 Governmental Authorization; Third Party Consents.................... 15
3.4 Binding Effect...................................................... 15
3.5 Litigation.......................................................... 15
3.6 Compliance with Laws................................................ 16
3.7 Capitalization...................................................... 16
3.8 No Default or Breach; Contractual Obligations....................... 17
3.9 Title to Properties................................................. 18
3.10 Reports; Financial Statements....................................... 18
3.11 Taxes............................................................... 19
3.12 No Material Adverse Change; Ordinary Course of Business............. 19
3.13 Private Offering.................................................... 19
3.14 Labor Relations..................................................... 20
3.15 Employee Benefit Plans.............................................. 20
3.16 Liabilities......................................................... 21
3.17 Affiliate Transactions.............................................. 21
3.18 Intellectual Property............................................... 22
3.19 Privacy of Customer Information..................................... 23
3.20 Potential Conflicts of Interest..................................... 23
3.21 Trade Relations..................................................... 24
3.22 Outstanding Borrowing............................................... 24
3.23 Broker's, Finder's or Similar Fees.................................. 24
3.24 Stockholder Approval................................................ 24
3.25 CCC Section......................................................... 24
3.26 Disclosure.......................................................... 25
i
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDERS AND CK PURCHASERS...... 25
4.1 Existence and Power................................................. 25
4.2 Authorization; No Contravention..................................... 25
4.3 Governmental Authorization; Third Party Consents.................... 25
4.4 Binding Effect...................................................... 26
4.5 Purchase for Own Account............................................ 26
4.6 Restricted Securities............................................... 27
4.7 Accredited Investor................................................. 27
4.8 Experience.......................................................... 27
4.9 Access to Information............................................... 27
4.10 General Solicitation................................................ 27
4.11 Reliance............................................................ 27
ARTICLE V CONDITIONS TO INITIAL CLOSING......................................... 28
5.1 Conditions to Lenders' and CK Purchasers' Obligations............... 28
5.2 Conditions to Company's Obligations................................. 29
ARTICLE VI CONDITIONS TO SUBSEQUENT CLOSING..................................... 29
6.1 Conditions to CK Purchasers' Obligations............................ 29
6.2 Conditions to the Company's Obligations............................. 30
ARTICLE VII INDEMNIFICATION..................................................... 30
7.1 Indemnification..................................................... 30
7.2 Notification........................................................ 30
7.3 Contribution........................................................ 31
ARTICLE VIII COVENANTS.......................................................... 32
8.1 Financial Statements and Other Information.......................... 32
8.2 FIRPTA Certificate.................................................. 33
8.3 Reservation of Common Stock......................................... 33
8.4 Stockholder Approval................................................ 33
8.5 Financial Covenants................................................. 34
8.6 SVB Debt Matters.................................................... 34
ARTICLE IX TERMINATION OF AGREEMENT............................................. 36
9.1 Termination......................................................... 36
ARTICLE X MISCELLANEOUS......................................................... 36
10.1 Survival of Representations and Warranties.......................... 36
10.2 Notices............................................................. 37
10.3 Successors and Assigns; Third Party Beneficiaries................... 38
10.4 Amendment and Waiver................................................ 39
10.5 Counterparts........................................................ 39
10.6 Headings............................................................ 39
10.7 Governing Law....................................................... 39
10.8 Severability........................................................ 39
ii
10.9 Rules of Construction............................................... 39
10.10 Entire Agreement.................................................... 40
10.11 Fees................................................................ 40
10.12 Publicity; Confidentiality.......................................... 40
10.13 Further Assurances.................................................. 41
10.14 Legal Representation................................................ 41
EXHIBITS
A Form of Note
B Form of Amended and Restated Registration Rights Agreement
C Form of Amended and Restated Series D Certificate of Determination
D Form of Amended and Restated Stockholders Agreement
E Articles of Incorporation
F By-laws
G Form of Series E Certificate of Determination
H Form of Warrant Amendment
I Form of Pillsbury Winthrop LLP Opinion
SCHEDULES
2.1 Purchased Notes
2.3 CK Purchasers
3.3 Government Authorizations; Consents
3.5 Litigation
3.7(a) Capitalization
3.17 Affiliate Transactions
3.20 Potential Conflicts of Interest
3.22 Outstanding Borrowing
3.23 Fees
3.27 Investments
8.5 Financial Covenants
iii
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT, dated
November 18, 2003 (this "Agreement"), among Critical Path, Inc., a California
corporation (the "Company"), General Atlantic Partners 74, L.P., a Delaware
limited partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware
limited partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited
liability company ("GapStar"), GAP-W, LLC, a Delaware limited liability company
("GAP-W"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH
Coinvestment") and Campina Enterprises Limited ("Campina"), Cenwell Limited
("Cenwell"), Great Affluent Limited ("GAL"), Dragonfield Limited ("Dragonfield")
and Lion Cosmos Limited ("Lion" and together with Campina, Cenwell, GAL and
Dragonfield, each a "CK Purchaser" and, collectively, the "CK Purchasers"),
WHEREAS, upon the terms and conditions set forth in this
Agreement, the Company proposes to issue and sell, at the Initial Closing,
convertible notes, substantially in the form attached hereto as Exhibit A (each
a "Note" and, collectively, the "Notes") having an aggregate principal amount of
ten million dollars ($10,000,000), in the face amount set forth opposite such
Lender's (as hereinafter defined) name on Schedule 2.1 hereto, that are, upon
requisite stockholder approval and upon the terms and conditions set forth in
this Agreement, convertible into shares, par value $0.001 per share, of Series E
Redeemable Convertible Preferred Stock of the Company (the "Series E Preferred
Stock"); and
WHEREAS, upon Stockholder Approval (as hereinafter defined)
and upon the terms and conditions set forth in this Agreement and the Notes, the
Lenders shall convert such Notes into that number of shares of Series E
Preferred Stock issuable upon the conversion thereof (in accordance with the
terms set forth therein), in exchange for the surrender to the Company by such
Lender of its Notes; and
WHEREAS, upon Stockholder Approval and upon the terms and
conditions set forth in this Agreement, the Company proposes to issue to each of
the CK Purchasers, on the Subsequent Closing Date, the aggregate number of
shares of Series E Preferred Stock set forth opposite such CK Purchaser's name
on Schedule 2.3 hereto in exchange for the surrender to the Company by such CK
Purchaser of its CK Sub Notes (as hereinafter defined);
WHEREAS, upon Stockholder Approval and upon the terms and
conditions set forth in this Agreement, the Company proposes to amend and
restate the terms of the Cumulative Redeemable Convertible Series D Preferred
Stock (the "Series D Preferred Stock"), substantially as set forth in the
Amended and Restated Series D Certificate of Determination; and
WHEREAS, upon Stockholder Approval, the Company may issue
additional shares of Series E Preferred Stock as permitted by Section 2.7 below
and the Company will initiate and consummate the Rights Offering (as hereinafter
defined):
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless
the context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Amended and Restated Registration Rights Agreement" means the
Amended and Restated Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B.
"Amended and Restated Series D Certificate of Determination"
means the Amended and Restated Certificate of Determination of Preferences of
Series D Cumulative Redeemable Convertible Preferred Stock, substantially in the
form attached hereto as Exhibit C, which shall be duly filed with the Secretary
of State of the State of California as soon as practicable following Stockholder
Approval.
"Amended and Restated Stockholders Agreement" means the
Amended and Restated Stockholders Agreement, substantially in the form attached
hereto as Exhibit D.
"Amendment to Preferred Stock Rights Agreement" means an
amendment to the Company's Preferred Stock Rights Agreement to permit the
Lenders and the CK Purchasers to purchase securities being offered by the
Company hereunder without causing such Lenders or CK Purchasers to become
Acquiring Persons (as defined in the Preferred Stock Rights Agreement).
"Articles of Incorporation" means the Amended and Restated
Articles of Incorporation of the Company in effect on the Initial Closing Date
and attached hereto as Exhibit E.
"Basic Subscription Privilege" has the meaning set forth in
Section 8.7(b) of this Agreement.
2
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the
Initial Closing Date and attached hereto as Exhibit F.
"Campina" has the meaning set forth in the preamble to this
Agreement.
"Cenwell" has the meaning set forth in the preamble to this
Agreement.
"CK Purchasers" has the meaning set forth in the preamble to
this Agreement.
"CK Sub Notes" means the 5 3/4% Convertible Subordinated
Notes, due April 1, 2005, issued by the Company pursuant to the Company's
Indenture, dated March 31, 2000, and purchased by the CK Purchasers and held by
the CK Purchasers as of the Subsequent Closing Date.
"Claims" has the meaning set forth in Section 3.5 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute thereto.
"Commission" means the United States Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act and Exchange Act.
"Common Stock" means the common stock of the Company, par
value $0.001 per share.
"Commonly Controlled Entity" means any entity which is under
common control with the Company within the meaning of Code Section 414(b), (c),
(m), (o) or (t).
"Company" has the meaning set forth in the preamble to this
Agreement.
"Company Plans" has the meaning set forth in Section 3.15 of
this Agreement.
"Condition of the Company" means the assets, business,
properties, operations or condition (financial or otherwise) of the Company and
its Subsidiaries, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary
3
obligation") of another Person (the "primary obligor"), whether or not
contingent, (a) to purchase, repurchase or otherwise acquire such primary
obligations or any property constituting direct or indirect security therefor,
(b) to advance or provide funds (i) for the payment or discharge of any such
primary obligation, or (ii) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligations" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"Conversion" has the meaning set forth in Section 2.1(a).
"Copyrights" means any foreign or United States copyright
registrations and applications for registration thereof, and any non-registered
copyrights.
"Dragonfield" has the meaning set forth in the preamble to
this Agreement.
"Environmental Laws" means federal, state, local and foreign
laws, principles of common laws, civil laws, regulations, and codes, as well as
orders, decrees, judgments or injunctions, issued, promulgated, approved or
entered thereunder relating to pollution, protection of the environment or
public health and safety.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange" has the meaning set forth in Section 2.3 of this
Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Exchange Shares" has the meaning set forth in Section 2.3 of
this Agreement.
"Financial Statements" has the meaning set forth in Section
3.10 of this Agreement.
4
"GAAP" means United States generally accepted accounting
principles in effect from time to time.
"GAL" has the meaning set forth in the preamble to this
Agreement.
"GAP Coinvestment" has the meaning set forth in the preamble
to this Agreement.
"GAP LP" has the meaning set forth in the preamble to this
Agreement.
"GAP-W" has the meaning set forth in the preamble to this
Agreement.
"GapStar" has the meaning set forth in the preamble to this
Agreement.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (c) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person under leases which have been
or should be, in accordance with GAAP, recorded as capital leases, (f) all
indebtedness secured by any Lien (other than Permitted Liens) on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is non-recourse to the
credit of that Person, and (g) any Contingent Obligation of such Person.
"Indemnified Party" has the meaning set forth in Section 7.1
of this Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1
of this Agreement.
"Initial Closing" has the meaning set forth in Section 2.6(a)
of this Agreement.
5
"Initial Closing Date" has the meaning set forth in Section
2.6(a) of this Agreement.
"Intellectual Property" has the meaning set forth in Section
3.18 of this Agreement.
"Internet Assets" means any Internet domain names and other
computer user identifiers and any rights in and to sites on the worldwide web,
including rights in and to any text, graphics, audio and video files and html or
other code incorporated in such sites.
"Investment" means (i) the acquisition (whether for cash,
property, services, assumption of Indebtedness, securities or otherwise) of
assets (other than equipment, inventory, supplies or other assets acquired in
the ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or other
securities of any Person, (ii) any deposit with, or advance, loan or other
extension of credit to, or on behalf of, any Person (other than deposits made in
connection with the purchase of equipment, inventory, services, leases, supplies
or other assets in the ordinary course of business of the Company), (iii) any
other capital contribution to or investment in such Person, including, without
limitation, any guaranty obligation incurred for the benefit of such Person. For
the sake of clarity, Investments shall include any transfer of property or
assets by the Company to any of its Subsidiaries or by any Subsidiary of the
Company to any other Subsidiary.
"IP Agreements" has the meaning set forth in Section
3.18(a)(iii) of this Agreement.
"Issuable Shares" has the meaning set forth in Section 2.1(a)
of this Agreement.
"Knowledge" means the knowledge of the Company and Paul
Bartlett, Tracy Currie, Matthew Hobart, William E. McGlashin, Jr. and Michael J.
Zukerman after due inquiry.
"Lenders" means GAP LP, GAP Coinvestment, GapStar, GAP-W and
GmbH Coinvestment and any transferees to whom the Notes purchased by any of the
foregoing are transferred after the date hereof and in accordance with the terms
of such Notes.
"Liabilities" has the meaning set forth in Section 3.16 of
this Agreement.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences).
"Lion" has the meaning set forth in the preamble to this
Agreement.
6
"Losses" has the meaning set forth in Section 7.1 of this
Agreement.
"Material Contractual Obligations" has the meaning set forth
in Section 3.8 of this Agreement.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Notes" has the meaning set forth in the recitals to this
Agreement.
"Orders" has the meaning set forth in Section 3.2 of this
Agreement.
"Patents" means any foreign or United States patents and
patent applications, including any divisions, continuations,
continuations-in-part, substitutions or reissues thereof, whether or not patents
are issued on such applications and whether or not such applications are
modified, withdrawn or resubmitted.
"Permitted Investments" means (i) Investments in cash or cash
equivalents, (ii) accounts receivable created, acquired or made in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; (iii) Investments existing on the Initial Closing Date, and listed
on Schedule 3.27 hereto, (iv) guaranty obligations permitted by Section 5.3 of
the Security Agreement, (v) loans to employees, directors or officers of the
Company in connection with the award of convertible bonds or capital stock under
a stock incentive plan, stock option plan or other equity-based compensation
plan or arrangement, (vi) other advances or loans to employees, directors,
officers or agents of the Company in the ordinary course of business not to
exceed $500,000 in the aggregate at any time outstanding; (vii) loans, advances
and Investments in or by foreign Subsidiaries; (viii) any acquisition for which
the prior written consent of the Lenders holding a majority of the outstanding
principal amount of all of the Notes has been obtained, (ix) other loans,
advances and investments of a nature not contemplated by the foregoing sections
in an amount not to exceed $500,000 in the aggregate at any time outstanding or
(x) Investments by the Company in the Guarantor (as defined in the Security
Agreement).
"Permitted Liens" has the meaning set forth in the Note.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Plan" means any employee benefit plan, arrangement, policy,
program, agreement or commitment (whether or not an employee plan within the
meaning of Section 3(3) of ERISA), including, without limitation, any
employment, consulting or deferred compensation agreement, executive
compensation, bonus, incentive, pension, profit-sharing, savings, retirement,
stock option, stock purchase or severance pay plan, any life, health, disability
or accident insurance plan, whether oral or written, whether or
7
not subject to ERISA, as to which the Company or any Commonly Controlled Entity
has or in the future could have any direct or indirect, actual or contingent
liability.
"Proportionate Percentage" has the meaning set forth in
Section 8.7 of this Agreement.
"Proxy Statement" has the meaning set forth in Section 8.4 of
this Agreement.
"Purchaser Subscription Privilege" has the meaning set forth
in Section 8.7 of this Agreement.
"Record Date" shall mean the date of this Agreement.
"Requirements of Law" means, as to any Person, any law
(including Environmental Laws), statute, treaty, rule, regulation, right,
privilege, qualification, license or franchise or determination of an arbitrator
or a court or other Governmental Authority or stock exchange, in each case
applicable or binding upon such Person or any of its property or to which such
Person or any of its property is subject or pertaining to any or all of the
transactions contemplated or referred to herein.
"Retiree Welfare Plan" means any welfare plan (as defined in
Section 3(1) of ERISA) that provides benefits to current or former employees
beyond their retirement or other termination of service (other than coverage
mandated by Section 4980A of the Code, commonly referred to as "COBRA," the cost
of which is fully paid by the current or former employee or his or her
dependents).
"Rights Offering" shall mean a rights offering for an
aggregate amount of up to $21,000,000 of shares of Series E Preferred Stock
pursuant to which the Company will distribute transferable rights to the
Company's holders of Common Stock as of the Record Date.
"Rights Shares" means the shares of Series E Preferred Stock
issuable upon exercise of the Series E Purchase Rights and the shares of the
Common Stock issuable upon conversion of such shares of Series E Preferred
Stock.
"SEC Reports" has the meaning set forth in Section 3.10 of
this Agreement.
"Securities" has the meaning set forth in Section 4.8 of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"Security Agreement" has the meaning set forth in the Notes.
"Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
8
"Series E Certificate of Determination" means the Certificate
of Determination of Preferences of Series E Redeemable Convertible Preferred
Stock, substantially in the form attached hereto as Exhibit G, which shall be
duly filed with the Secretary of State of the State of California as soon as
practicable following Stockholder Approval.
"Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Series E Price Per Share" means $1.50 per share of Series E
Preferred Stock (subject to anti-dilution adjustments for a subdivision,
consolidation or reclassification of Common Stock).
"Series E Purchase Rights" means those rights to purchase
Series E Preferred Stock issued in the Rights Offering.
"Subscription Price" means $1.50 (subject to anti-dilution
adjustments for a subdivision, consolidation or reclassification of Common
Stock).
"Software" means any computer software programs, source code,
object code, data and documentation, including, without limitation, any computer
software programs that incorporate and run the Company's pricing models,
formulae and algorithms.
"Stock Equivalents" means any security or obligation which is
by its terms convertible into or exchangeable or execrable for shares of common
stock or other capital stock of the Company, and any option, warrant or other
subscription or purchase right with respect to common stock or such other
capital stock.
"Stock Option Plans" means the Company's stock option plans
and employee purchase plans pursuant to which shares of restricted stock and
options to purchase shares of Common Stock are reserved and available for grant
to officers, directors, employees and consultants of the Company.
"Stockholder Approval" has the meaning set forth in Section
3.24 of this Agreement.
"Subject Shares" has the meaning set forth in Section 2.3 of
this Agreement.
"Subsequent Closing" has the meaning set forth in Section
2.6(f) of this Agreement.
"Subsequent Closing Date" has the meaning set forth in Section
2.6(f) of this Agreement.
"Subsidiaries" means, as of the relevant date of
determination, with respect to any Person, a corporation or other Person of
which 50% or more of the voting
9
power of the outstanding voting equity securities or 50% or more of the
outstanding economic equity interest is held, directly or indirectly, by such
Person. Unless otherwise qualified, or the context otherwise requires, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Company.
"SVB Debt" has the meaning set forth in Section 2.5 of this
Agreement.
"Taxes" means any federal, state, provincial, county, local,
foreign and other taxes (including, without limitation, income, profits,
windfall profits, alternative, minimum, accumulated earnings, personal holding
company, capital stock, premium, estimated, excise, sales, use, occupancy, gross
receipts, franchise, ad valorem, severance, capital levy, production, transfer,
withholding, employment, unemployment compensation, payroll and property taxes,
import duties and other governmental charges and assessments), whether or not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect thereto, and
including expenses associated with contesting any proposed adjustments related
to any of the foregoing.
"Trade Secrets" means any trade secrets, research records,
processes, procedures, manufacturing formulae, technical know-how, technology,
blue prints, designs, plans, inventions (whether patentable and whether reduced
to practice), invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks,
service marks, trade dress, trade names, brand names, designs and logos,
corporate names, product or service identifiers, whether registered or
unregistered, and all registrations and applications for registration thereof.
"Transaction Documents" means, collectively, this Agreement,
the Amended and Restated Stockholders Agreement, the Amended and Restated
Registration Rights Agreement, the Notes, the Security Agreement, the Warrant
Amendments, the Waiver and the Amendment to the Preferred Stock Rights
Agreement.
"Waiver" means the Waiver of the Preemptive Rights and
Standstill, dated the date hereof, pursuant to which the Company and each of the
other parties thereto shall have waived the provisions set forth in Section 2
and Section 4, as applicable, of that certain Stockholders Agreement, dated as
of November 8, 2001, among the Company and each of the other parties thereto.
"Warrant" or "Warrants," as the case may be, means those
certain warrants to purchase Common Stock issued to the Lenders by the Company
pursuant to that certain Stock and Warrant Purchase and Exchange Agreement,
dated as of November 8, 2001.
"Warrant Amendment" or "Warrant Amendments," as the case may
be, has the meaning set forth in Section 2.6(g)(i) of this Agreement.
10
ARTICLE II
PURCHASE AND SALE OF NOTES; CONVERSION; EXCHANGE
2.1 Purchase and Sale of Notes.
(a) Subject to the terms and conditions of this
Agreement, on the Initial Closing Date, each of the Lenders, severally and not
jointly, agrees to purchase, and the Company agrees to sell and issue to each
Lender, a Note, in the principal amount set opposite such Lender's name on
Schedule 2.1 hereto. Each of the Notes shall be due and payable upon the terms
and conditions set forth in the Notes and herein. Subject to Stockholder
Approval and the terms and conditions of this Agreement, on the Subsequent
Closing Date, the Notes shall convert into shares of Series E Preferred Stock in
accordance with the terms thereof, and the Company shall issue to each Lender
that number of shares of Series E Preferred Stock issuable upon such conversion,
in exchange for the surrender to the Company by each Lender of its Notes (the
"Conversion") (all of the shares of Series E Preferred Stock issuable upon
conversion of the Notes referred to herein as the "Issuable Shares").
(b) All payments by the Company under the Notes of
principal and interest shall be as set forth in the Notes.
2.2 Filings. As promptly as practicable following the
Stockholder Approval and upon the terms and conditions of this Agreement, on or
before the Subsequent Closing Date, the Company shall file with the Secretary of
State of the State of California: (a) an amendment to the Amended and Restated
Articles of Incorporation to increase the authorized common stock and preferred
stock of the Company; (b) the Amended and Restated Series D Certificate of
Determination; and (c) the Series E Certificate of Determination.
2.3 Exchange of CK Sub Notes. Subject to Stockholder
Approval and the terms and conditions of this Agreement, on the Subsequent
Closing Date, the Company shall issue to each CK Purchaser that number of shares
of Series E Preferred Stock set forth opposite such CK Purchaser's name on
Schedule 2.3 hereto, in exchange for the surrender to the Company by such CK
Purchaser of its CK Sub Notes in the principal face amount set forth opposite
such CK Purchaser's name on Schedule 2.3 hereto (the "Exchange") (all of the
shares of Series E Preferred Stock being issued pursuant to the Exchange, the
"Exchange Shares" and, together with the Issuable Shares, the "Subject Shares").
2.4 Certificates of Determination. The Subject Shares
shall have the preferences and rights set forth in the Series E Certificate of
Determination. The shares of Series D Preferred Stock shall have the preferences
and rights set forth in the Amended and Restated Series D Certificate of
Determination.
2.5 Use of Proceeds. The Company shall use the proceeds
from the sale of the Notes to the Lenders to first (a) repay four million nine
hundred thousand
11
dollars ($4,900,000) of the indebtedness owed by the Company to Silicon Valley
Bank (the "SVB Debt") (immediately after which only a two million five hundred
thousand dollar ($2,500,000) letter of credit shall be outstanding under the SVB
Debt) and then (b) fund the Company's working capital.
2.6 Closings; Deliveries.
(a) Initial Closing. The purchase and sale of the Notes
under this Agreement (the "Initial Closing") shall be held as soon as
practicable following the date of this Agreement, but in any event not earlier
than November 26, 2003 (the "Initial Closing Date"), at the offices of Pillsbury
Winthrop LLP, 50 Fremont Street, San Francisco, California, or at such other
time and place as the Company and the Lenders may mutually agree. At the Initial
Closing, signature pages transmitted by facsimile will be acceptable, with
originals to immediately follow.
(b) Deliveries by the Company, the Lenders and the CK
Purchasers on the Date Hereof. On the date hereof, (i) the Company shall execute
and deliver to each Lender and each CK Purchaser this Agreement and the Waiver
and (ii) each Lender and each CK Purchaser shall execute and deliver to the
Company this Agreement and the Waiver. Signature pages transmitted by facsimile
will be acceptable, with originals to immediately follow.
(c) Deliveries by the Company at the Initial Closing. At
the Initial Closing, subject to the terms and conditions hereof, the Company
shall execute and deliver:
(i) to each Lender and CK Purchaser:
(B) the Amended and Restated
Registration Rights Agreement;
(C) the Amended and Restated
Stockholders Agreement; and
(D) such other documentation required
to be provided by the Company
pursuant to Section 5.1.
(ii) to each Lender:
(A) a Note, in the form attached hereto
as Exhibit A, in the principal
amount set forth opposite such
Lender's name on Schedule 2.1; and
(B) the Security Agreement and the
related security documents required
or contemplated by the Security
Agreement.
12
(d) Deliveries by each Lender at the Initial Closing. At
the Initial Closing, subject to the terms and conditions hereof, each Lender
shall:
(i) execute and deliver to the Company and each
CK Purchaser the Amended and Restated Registration Rights Agreement;
(ii) execute and deliver to the Company and each
CK Purchaser the Amended and Restated Stockholders Agreement; and
(iii) loan to the Company, in the form of a check
or wire transfer, that amount set forth opposite such Lender's name on
Schedule 2.1.
(e) Deliveries by each CK Purchaser at the Initial
Closing. At the Initial Closing, subject to the terms and conditions hereof,
each CK Purchaser shall execute and deliver to the Company and each Lender:
(i) the Amended and Restated Registration Rights
Agreement; and
(ii) the Amended and Restated Stockholders
Agreement.
(f) Subsequent Closing. The consummation of the Exchange
and the Conversion (the "Subsequent Closing") shall take place as soon as
practicable following the satisfaction of the closing conditions set forth in
Article VI (the "Subsequent Closing Date"), at the offices of Pillsbury Winthrop
LLP, 50 Fremont Street, San Francisco, California, or at such other time and
place as the Company, the Lenders and the CK Purchasers may mutually agree. At
the Subsequent Closing, signature pages transmitted by facsimile will be
acceptable, with originals to immediately follow.
(g) Deliveries by the Company at the Subsequent Closing.
At the Subsequent Closing, subject to the terms and conditions hereof, the
Company shall execute and deliver to:
(i) each Lender, an amendment to such Lender's
Warrant, in substantially the form attached hereto as Exhibit H, such
that the exercise price of such Warrant shall be reduced to an amount
equal to the Series E Price Per Share (each a "Warrant Amendment" and,
collectively, the "Warrant Amendments");
(ii) each Lender, a certificate or certificates
in definitive form and registered in the name of each Lender,
representing such Lender's Issuable Shares;
(iii) each CK Purchaser, a certificate or
certificates in definitive form and registered in the name of each CK
Purchaser, representing such CK Purchaser's Exchange Shares;
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(iv) each Lender and CK Purchaser, an executed
copy of the Amendment to Preferred Stock Rights Agreement, in form
satisfactory to such Lender and CK Purchaser; and
(v) each Lender and CK Purchaser, such other
documentation evidencing the satisfaction of the conditions set forth
in Section 6.1.
(h) Deliveries by each Lender at the Subsequent Closing.
At the Subsequent Closing, subject to the terms and conditions hereof, each
Lender shall execute and deliver to the Company (i) its Warrant Amendment and
(ii) its Notes together with duly executed note powers for such Notes.
(i) Deliveries by each CK Purchaser at the Subsequent
Closing. At the Subsequent Closing, subject to the terms and conditions hereof,
each CK Purchaser shall deliver to the Company its CK Sub Notes together with
duly executed note powers for such CK Sub Notes.
2.7 Subsequent Sales. For a period of twelve (12) months
following the Subsequent Closing Date, the Company may sell up to 10,000,000
shares of Series E Preferred Stock to such Persons as the Company may determine
at a price equal to the Series E Price Per Share, such amount in addition to and
not including (a) the Subject Shares, (b) shares of Series E Preferred Stock
issued upon exercise of the Series E Purchase Rights or (c) shares of Series E
Preferred Stock issued in connection with the settlement of Claims. The other
terms of any such sale of shares of Series E Preferred Stock shall be the same
as those contained in the Series E Certificate of Determination and not more
favorable than the terms and conditions set forth in this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Lenders and
the CK Purchasers as follows:
3.1 Corporate Existence and Power. The Company and each
of its Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation; (b) has
all requisite corporate power and authority to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged; (c) is duly qualified as a foreign corporation, licensed
and in good standing under the laws of each jurisdiction in which its ownership,
lease or operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a material adverse effect on the Condition of the Company
and (d) has the corporate power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Transaction
Documents. No jurisdiction, other than those referred to in clause (c) above,
has claimed, in writing or otherwise, that the Company or any of its
Subsidiaries is required to qualify as a foreign corporation or other
14
entity therein, and the Company or any of its Subsidiaries does not file any
franchise, income or other tax returns in any other jurisdiction based upon the
ownership or use of property therein or the derivation of income therefrom.
3.2 Authorization; No Contravention. The execution,
delivery and performance by the Company of this Agreement and each of the other
Transaction Documents and the transactions contemplated hereby and thereby (a)
subject to Stockholder Approval with respect to the matters set forth in Section
3.24, have been duly authorized by all necessary corporate action of the
Company; (b) subject to Stockholder Approval with respect to the matters set
forth in Section 3.24, do not contravene the terms of the Articles of
Incorporation or the By-laws; (c) do not violate, conflict with or result in any
breach, default or contravention of (or with due notice or lapse of time or both
would result in any breach, default or contravention of), or the creation of any
Lien under, any Contractual Obligation of the Company or any of its Subsidiaries
or any Requirement of Law applicable to the Company or any of its Subsidiaries
except such violations or conflicts that would not reasonably be expected to
have a material adverse effect on the Condition of the Company; and (d) do not
violate any judgment, injunction, writ, award, decree or order of any nature
(collectively, "Orders") of any Governmental Authority against, or binding upon,
the Company or any of its Subsidiaries.
3.3 Governmental Authorization; Third Party Consents.
Except for the Stockholder Approval and as set forth in Schedule 3.3, no
approval, consent, compliance, exemption, authorization or other action by, or
notice to, or filing with, any Governmental Authority or any other Person, and
no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance (including,
without limitation, the sale, issuance and delivery of the Subject Shares) by,
or enforcement against, the Company of this Agreement and the other Transaction
Documents or the transactions contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and each of the other
Transaction Documents (other than the Warrant Amendments and the Amendment to
the Preferred Stock Rights Agreement) have been, and as of the Subsequent
Closing Date, each of the Warrant Amendments and Amendment to the Preferred
Stock Rights Agreement, will have been, duly executed and delivered by the
Company, and this Agreement and each of the other Transaction Documents (other
than the Warrant Amendments and the Amendment to the Preferred Stock Rights
Agreement) constitute, and as of the Subsequent Closing Date, each of the
Warrant Amendments and Amendment to the Preferred Stock Rights Agreement will
constitute, the legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance or transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability (regardless of whether considered in a proceeding at law or in
equity).
3.5 Litigation. Except as set forth on Schedule 3.5 or as
disclosed in the SEC Reports, there are no actions, suits, proceedings, claims,
complaints, disputes,
15
arbitrations or investigations (collectively, "Claims") pending or, to the
Knowledge of the Company, threatened, at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its Subsidiaries
that seeks in excess of $50,000 in damages nor is the Company aware that there
is any basis for any of the foregoing. The foregoing includes, without
limitation, Claims pending or, to the Knowledge of the Company, threatened or
any basis therefor known by the Company involving the prior employment of any
employee of the Company or any of its Subsidiaries, their use in connection with
the business of the Company or any of its Subsidiaries of any information or
techniques allegedly proprietary to any of their former employers or their
obligations under any agreements with prior employers. No Order has been issued
by any court or other Governmental Authority against the Company or any of its
Subsidiaries purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any of the other Transaction Documents.
3.6 Compliance with Laws. The Company and each of its
Subsidiaries is in compliance in all material respects with all Requirements of
Law and all Orders issued by any court or Governmental Authority against the
Company in all respects. To the Company's Knowledge, there are no Requirements
of Law which could reasonably be expected to prohibit or restrict the Company or
any of its Subsidiaries from, or otherwise materially adversely effect the
Company or any of its Subsidiaries in, conducting its business in any
jurisdiction in which it now conducts its business.
3.7 Capitalization.
(a) (i) As of the date of this Agreement, the
authorized capital stock of the Company consists of (A) 125,000,000
shares of Common Stock, of which 20,538,794 shares are issued and
outstanding, (B) one share of Special Voting Stock, par value $0.001
per share, of the Company, which is issued and outstanding, (C) 75,000
shares of Series C Preferred Stock, par value $0.001 per share, of the
Company, of which no shares are issued and outstanding, (D) 4,000,000
shares of Series D Preferred Stock, all of which are issued and
outstanding, and (E) 925,000 shares of undesignated "blank check"
preferred stock. As of the date of this Agreement, the aggregate number
of shares of restricted stock and options to purchase shares of Common
Stock which may be issued under the Stock Option Plans are 19,842,011,
of which 12,615,017 have been granted. The Company has reserved an
aggregate of 29,263,333 shares of Common Stock for issuance upon
conversion of the Subject Shares and 2,024,350 shares of Common Stock
for issuance upon exercise of the Warrants.
(ii) As of the Subsequent Closing Date, the
authorized capital stock of the Company shall consist of (A) 21,092,708
shares of Common Stock, (B) one share of Special Voting Stock, par
value $0.001 per share, of the Company (C) 75,000 shares of Series C
Preferred Stock, par value $0.001 per share, of the Company, (D)
4,188,587 shares of Series D Preferred Stock, (E) a sufficient number
of shares of Series E Preferred Stock to settle certain claims and to
consummate the Conversion, the Exchange, the Rights Offering and the
transactions contemplated by Section 2.7 of this Agreement, and (F) a
number of
16
shares of undesignated "blank check" preferred stock agreed upon by the
Company, the Lenders and the CK Purchasers.
(iii) Except as set forth on Schedule 3.7(a) and
except for the Warrants, there are no options, warrants, conversion
privileges, subscription or purchase rights or other rights presently
outstanding to purchase or otherwise acquire (A) any authorized but
unissued, unauthorized or treasury shares of the Company's capital
stock, (B) any Stock Equivalents or (C) any other securities of the
Company and there are no commitments, contracts, agreements,
arrangements or understandings to which the Company is a party to issue
any shares of the Company's capital stock or any Stock Equivalents or
other securities of the Company.
(b) Upon the Initial Closing Date, the Notes shall be
duly authorized, and assuming the accuracy of the representations and warranties
of the Lenders set forth in Article IV of this Agreement, will be issued in
compliance with the registration and qualification requirements of all
applicable federal, state and foreign securities laws and will be free and clear
of all other Liens.
(c) Upon the Subsequent Closing Date, the Subject Shares
shall be duly authorized, and when issued and delivered to the Lenders and the
CK Purchasers and upon the consummation of the Conversion and the Exchange on
the Subsequent Closing Date, will be validly issued, fully paid and
non-assessable, and assuming the accuracy of the representations and warranties
of the Lenders and the CK Purchasers set forth in Article IV of this Agreement,
will be issued in compliance with the registration and qualification
requirements of all applicable federal, state and foreign securities laws and
will be free and clear of all other Liens. Upon the Subsequent Closing Date, the
shares of Common Stock issuable upon conversion of the Subject Shares and the
shares of Series D Preferred Stock and upon exercise of the Warrants, shall have
been duly reserved for issuance and will be validly issued, fully paid and
non-assessable and not subject to any preemptive rights or similar rights that
have not been satisfied, will be issued in compliance with the registration and
qualification requirements of all applicable federal and state securities laws
and will be free and clear of all other Liens. None of the issued and
outstanding shares of Common Stock were issued in violation of any preemptive
rights.
3.8 No Default or Breach; Contractual Obligations. All of
the Contractual Obligations to which the Company or any of its Subsidiaries is a
party, whether written or oral, which are required by the Exchange Act to be
disclosed in the SEC Reports (collectively, "Material Contractual Obligations")
are valid, subsisting, in full force and effect and binding upon the Company or
its Subsidiary, as the case may be, and the other parties thereto, and the
Company or its Subsidiary, as the case may be, has paid in full or accrued all
amounts due thereunder and has satisfied in full or provided for all of its
liabilities and obligations thereunder, except for such amounts as are being
contested by the Company in good faith. Neither the Company nor any of its
Subsidiaries has received notice of a default and is not in default under, or
with respect to, any Material Contractual Obligation nor, to the Knowledge of
the Company, does any
17
condition exist that with notice or lapse of time or both would constitute a
default thereunder. To the Knowledge of the Company, no other party to any such
Contractual Obligation is in default thereunder, nor does any condition exist
that with notice or lapse of time or both would constitute a default by such
other party thereunder.
3.9 Title to Properties. The Company and each of its
Subsidiaries has good, record and marketable title in fee simple to, or holds
interests as lessee under leases in full force and effect in, all real property
used in connection with its business or otherwise owned or leased by it. The
Company and each of its Subsidiaries owns and has good, valid and marketable
title to all of its properties and assets used in its business or reflected as
owned on the Financial Statements, in each case free and clear of all Liens,
except for Permitted Liens, or that would required to be described in the notes
to the Financial Statements.
3.10 Reports; Financial Statements.
(a) As of the respective dates of their filing with the
Commission, all reports, registration statements and other filings, together
with any amendments thereto, filed by the Company with the Commission since June
30, 2000 (the "SEC Reports"), complied in all material respects with the
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations of the Commission promulgated thereunder, except as disclosed in
the SEC Reports. Except as disclosed in the SEC Reports, the SEC Reports did not
at the time they were filed with the Commission, or will not at the time they
are filed with the Commission, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading. The Company has (i) delivered to the
Lenders and CK Purchasers true and complete copies of, or will make available at
each Lender's or CK Purchaser's request, (x) all correspondence relating to the
Company between the Commission, Nasdaq and the United States Attorneys Office
and the Company or its legal counsel and, to the Company's Knowledge,
accountants since January 1, 2003 (other than routine Commission filing package
cover letters) and (y) all correspondence between the Company or its counsel and
the Company's auditors since January 1, 2003, relating to any audit, financial
review or preparation of financial statements of the Company (other than
correspondence which the Company reasonably believes is subject to a privilege),
and (ii) disclosed to the Lenders and the CK Purchasers the content of all
material discussions between the Commission, Nasdaq and the United States
Attorneys Office on the one hand and the Company or its legal counsel, on the
other hand, and, to the Company's Knowledge, accountants concerning the adequacy
or form of any SEC Report filed with the Commission since January 1, 2003. The
Company is not aware of any issues raised by the Commission with respect to any
of the SEC Reports, other than those disclosed in the SEC Reports.
(b) Except as disclosed in the SEC Reports, the
consolidated financial statements (including, in each case, any related
schedules or notes thereto) contained in or incorporated by reference in the SEC
Reports and any such reports, registration statements and other filings to be
filed by the Company with the Commission prior to the
18
Initial Closing Date or the Subsequent Closing Date, as the case may be (the
"Financial Statements"), (i) have been or will be prepared in accordance with
the published rules and regulations of the Commission and GAAP consistently
applied during the periods involved (except as may be indicated in the notes
thereto) and (ii) fairly present or will fairly present in all material respects
the consolidated financial position of the Company and its Subsidiaries as of
the respective dates thereof and the consolidated results of operations,
statements of stockholders' equity and cash flows for the periods indicated,
except that any unaudited interim financial statements were or will be subject
to normal and recurring year-end adjustments and may omit footnote disclosure as
permitted by regulations of the Commission.
3.11 Taxes. (a) The Company and each of its Subsidiaries
has paid all Taxes which have come due and are required to be paid by it through
the date hereof, and all deficiencies or other additions to Tax, interest and
penalties owed by it in connection with any such Taxes, other than Taxes being
disputed by the Company in good faith for which adequate reserves have been made
in accordance with GAAP; (b) the Company and each of its Subsidiaries has timely
filed or caused to be filed all returns for Taxes that it is required to file on
and through the date hereof (including all applicable extensions), and all such
Tax returns are accurate and complete in all material respects; (c) with respect
to all Tax returns of the Company and each of its Subsidiaries, (i) there is no
unassessed Tax deficiency proposed or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries and (ii) no audit is
in progress with respect to any return for Taxes, no extension of time is in
force with respect to any date on which any return for Taxes was or is to be
filed and no waiver or agreement is in force for the extension of time for the
assessment or payment of any Tax; (d) all provisions for Tax liabilities of the
Company and each of its Subsidiaries have been disclosed in the Financial
Statements and made in accordance with GAAP consistently applied, and all
liabilities for Taxes of the Company and each of its Subsidiaries attributable
to periods prior to or ending on the Initial Closing Date or the Subsequent
Closing Date, as the case may be, have been adequately disclosed in the
Financial Statements; and (e) there are no Liens for Taxes on the assets of the
Company or any of its Subsidiaries, other than Permitted Liens.
3.12 No Material Adverse Change; Ordinary Course of
Business. Since December 31, 2002, except as disclosed in or incorporated by
reference in the SEC Reports, (a) there has not been any material adverse change
in the Condition of the Company, (b) neither the Company nor any of its
Subsidiaries has participated in any transaction material to the Condition of
the Company, including, without limitation, declaring or paying any dividend or
declaring or making any distribution to its stockholders except out of the
earnings of the Company or its Subsidiary, as the case may be, (c) neither the
Company nor any of its subsidiaries has entered into any Material Contractual
Obligation, other than in the ordinary course of business and (d) there has not
occurred a material change in the accounting principles or practice of the
Company or any of its Subsidiaries except as required by reason of a change in
GAAP.
3.13 Private Offering. Neither the Company nor any
authorized Person acting on its behalf has, in connection with the offer, sale,
exchange or issuance of the
19
Notes or the Subject Shares, engaged in (a) any form of general solicitation or
general advertising (as those terms are used within the meaning of Rule 502(c)
under the Securities Act), (b) any action involving a public offering within the
meaning of Section 4(2) of the Securities Act, or (c) any action that would
require the registration under the Securities Act of the offering, sale,
exchange or issuance of the Notes and the Subject Shares pursuant to this
Agreement or that would violate applicable state securities or "blue sky" laws.
The Company has not made and will not prior to the Initial Closing Date or the
Subsequent Closing Date, as the case may be, make, directly or indirectly, any
offer or sale of the Notes or the Subject Shares or of securities of the same or
similar class as the Notes or the Subject Shares if, as a result, the offer and
sale contemplated hereby would fail to be entitled to exemption from the
registration requirements of the Securities Act. As used herein, the terms
"offer" and "sale" have the meanings specified in Section 2(3) of the Securities
Act.
3.14 Labor Relations. Except as could not reasonably be
expected to have a material adverse effect on the Condition of the Company: (a)
neither the Company nor any of its Subsidiaries is engaged in any unfair labor
practice; (b) there is no strike, labor dispute, slowdown or stoppage pending
or, to the Knowledge of the Company, threatened against the Company or any of
its Subsidiaries; (c) neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement or contract; and (d) no union organizing
activities are taking place. To the Knowledge of the Company, no officer or key
employee, or any group of key employees, intends to terminate their employment
with the Company or any of its Subsidiaries. To the Knowledge of the Company,
each of the officers and key employees of the Company and each of its
Subsidiaries spends all, or substantially all, of his business time on the
business of the Company or its Subsidiary, as the case may be. To the Knowledge
of the Company, none of the employees of the Company or any of its Subsidiaries
is resident in the United States in violation of any Requirement of Law.
3.15 Employee Benefit Plans.
(a) The SEC Reports list or describe each Plan that the
Company or any of its Subsidiaries maintains or to which the Company or any of
its Subsidiaries contributes (the "Company Plans"). Neither the Company nor any
of its Subsidiaries has any liability under any Plans other than the Company
Plans. Except as described in or incorporated by reference in the SEC Reports,
neither the Company nor any Commonly Controlled Entity maintains or contributes
to, or has within the preceding six years maintained or contributed to, or may
have any liability with respect to any Plan subject to Title IV of ERISA or
Section 412 of the Code or any "multiple employer plan" within the meaning of
the Code or ERISA. Each Company Plan (and related trust, insurance contract or
fund) has been established and administered in accordance with its terms, and
complies in form and in operation with the applicable requirements of ERISA and
the Code and other applicable Requirements of Law. All contributions (including
all employer contributions and employee salary reduction contributions) which
are due have been paid to each Company Plan.
20
(b) No Claim with respect to the administration or the
investment of the assets of any Company Plan (other than routine claims for
benefits) is pending.
(c) Except as could not reasonably be expected to have a
material adverse effect on the Condition of the Company, each Company Plan that
is intended to be qualified under Section 401(a) of the Code is so qualified and
has been so qualified during the period since its adoption; each trust created
under any such Plan is exempt from tax under Section 501(a) of the Code and has
been so exempt since its creation.
(d) No Company Plan is a Retiree Welfare Plan.
(e) Neither the consummation of the transactions
contemplated by this Agreement nor any termination of employment following such
transactions will accelerate the time of the payment or vesting of, or increase
the amount of, compensation due to any employee or former employee whether or
not such payment would constitute an "excess parachute payment" under Section
280G of the Code.
(f) There are no unfunded obligations under any Company
Plan which are not fully reflected in the Financial Statements.
(g) Except as could not reasonably be expected to have a
material adverse effect on the Condition of the Company, the Company has no
liability, whether absolute or contingent, including any obligations under any
Company Plan, with respect to any misclassification of any person as an
independent contractor rather than as an employee.
3.16 Liabilities. Neither the Company nor any of its
Subsidiaries has any direct or indirect obligation or liability (the
"Liabilities") which are not fully reflected or reserved against in the
Financial Statements, other than Liabilities not exceeding $1,000,000 in the
aggregate incurred since September 30, 2003 in the ordinary course of business.
The Company has no Knowledge of any circumstance, condition, event or
arrangement that could reasonably be expected to give rise hereafter to any
Liabilities of the Company or any of its Subsidiaries that, individually or in
the aggregate, could have a material adverse effect on the Condition of the
Company.
3.17 Affiliate Transactions. In the twelve (12) months
preceding the date hereof, neither the Company nor any of its Subsidiaries has
sold, leased or otherwise transferred any property or assets to, or purchased,
leased or otherwise acquired any property or assets from, or otherwise engaged
in any other transactions with, any of its Affiliates, except in (a)
transactions that are at prices and on terms and conditions not less favorable
to the Company or such Subsidiary than could be obtained on an arm's length
basis from unrelated third parties, (b) transactions exclusively between the
Company and one or more if its Subsidiaries, or between two or more Subsidiaries
of the Company, and which do not involve any other Affiliate and (c)
transactions under the agreements listed on Schedule 3.17 hereto.
21
3.18 Intellectual Property.
(a) (i) The Company and each of its Subsidiaries is
the owner of all, or has the license or right to use, sell and license all of,
the Copyrights, Patents, Trade Secrets, Trademarks, Internet Assets, Software
and other proprietary rights (collectively, "Intellectual Property") that are
used in connection with its business as presently conducted, free and clear of
all Liens, other than Permitted Liens.
(i) None of the Intellectual Property is subject
to any outstanding Order, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand is pending or, to the
Knowledge of the Company, threatened, which challenges the validity,
enforceability, use or ownership of the item.
(ii) The Company and each of its Subsidiaries has
substantially performed all obligations imposed upon it under all
Intellectual Property licenses, sublicenses, distributor agreements and
other agreements under which the Company or any of its Subsidiaries is
either a licensor, licensee or distributor, except such licenses,
sublicenses and other agreements relating to off-the-shelf software
which is commercially available on a retail basis and used solely on
the computers of the Company or its Subsidiaries (collectively, the "IP
Agreements"). The Company and each of its Subsidiaries is not, nor to
the Knowledge of the Company is any other party thereto, in breach of
or default thereunder in any respect, nor is there any event which with
notice or lapse of time or both would constitute a default thereunder.
All of the IP Agreements are valid, enforceable and in full force and
effect, and will continue to be so on identical terms immediately
following the Initial Closing and the Subsequent Closing, as the case
may be, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity
relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
(iii) None of the Intellectual Property currently
sold or licensed by the Company or any of its Subsidiaries to any
Person or used by or licensed to the Company or any of its Subsidiaries
by any Person infringes upon or otherwise violates any Intellectual
Property rights of others, except as could not reasonably be expected
to have a material adverse effect on the Condition of the Company.
(b) No litigation is pending and no Claim has been made
against the Company or any of its Subsidiaries or, to the Knowledge of the
Company, is threatened, contesting the right of the Company or any of its
Subsidiaries to sell or license to any Person or use the Intellectual Property
presently sold or licensed to such Person or used by the Company or any of its
Subsidiaries. To the Knowledge of the Company, no Person is infringing upon or
otherwise violating the Intellectual Property rights of the Company or any of
its Subsidiaries.
22
(c) No former employer of any employee of the Company or
any of its Subsidiaries has made a claim against the Company or any of its
Subsidiaries or, to the Knowledge of the Company, against any other Person, that
such employee or such consultant is utilizing Intellectual Property of such
former employer.
(d) To the Knowledge of the Company, none of the Trade
Secrets, wherever located, the value of which is contingent upon maintenance of
confidentiality thereof, has been disclosed to any Person other than employees,
representatives and agents of the Company or any of its Subsidiaries, except as
required pursuant to the filing of a patent application by the Company or any of
its Subsidiaries.
(e) It is not necessary for the business of the Company
or any of its Subsidiaries to use any Intellectual Property owned by any
director, officer, employee or consultant of the Company or any of its
Subsidiaries (or persons the Company or any of its Subsidiaries presently
intends to hire). To the Company's Knowledge, at no time during the conception
or reduction to practice of any of the Intellectual Property of the Company or
any of its Subsidiaries was any developer, inventor or other contributor to such
Intellectual Property operating under any grants from any Governmental Authority
or subject to any employment agreement, invention assignment, nondisclosure
agreement or other Contractual Obligation with any Person that could materially
adversely affect the rights of the Company or any of its Subsidiaries to its
Intellectual Property.
3.19 Privacy of Customer Information. Neither the Company
nor any of its Subsidiaries use any of the customer information it receives
through its website or otherwise in an unlawful manner, or in a manner violative
of the privacy policy of the Company or its Subsidiary, as the case may be, or
the privacy rights of its customers. Neither the Company nor any of its
Subsidiaries has collected any customer information through its website in an
unlawful manner or in violation of its privacy policy. The Company and each of
its Subsidiaries has adequate security measures in place to protect the customer
information it receives through its website and which it stores in its computer
systems from illegal use by third parties or use by third parties in a manner
violative of the rights of privacy of its customers. The Company and each of its
Subsidiaries represents to its customers that it assures complete security as to
the customer information it receives through its website.
3.20 Potential Conflicts of Interest. Except as set forth
on Schedule 3.20 no officer, director or stockholder beneficially owning more
than five percent (5%) of the outstanding shares of Common Stock, to the
Knowledge of the Company, no spouse of any such officer, director or
stockholder, and, to the Knowledge of the Company, no Affiliate of any of the
foregoing (a) owns, directly or indirectly, any interest in (excepting less than
one percent (1%) stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director, employee or
consultant of, any Person which is, or is engaged in business as, a competitor,
lessor, lessee, supplier, distributor, or customer of, or lender to or borrower
from, the Company or any of its Subsidiaries; (b) owns, directly or indirectly,
in whole or in part, any tangible or intangible property that the Company or any
of its Subsidiaries use, in the conduct of business; or (c) has any cause of
action or other claim whatsoever against, or
23
owes or has advanced any amount to, the Company or any of its Subsidiaries,
except for claims in the ordinary course of business such as for accrued
vacation pay, accrued benefits under employee benefit plans, and similar matters
and agreements existing on the date hereof.
3.21 Trade Relations. There exists no actual or, to the
Knowledge of the Company, threatened termination, cancellation or limitation of,
or any material adverse modification or change in, the business relationship of
the Company or any of its Subsidiaries, or the business of the Company or any of
its Subsidiaries, with any customer or supplier or any group of customers or
suppliers whose purchases or inventories provided to the business of the Company
or any of its Subsidiaries are individually or in the aggregate material to the
Condition of the Company.
3.22 Outstanding Borrowing. Schedule 3.22 sets forth the
amount of all Indebtedness of the Company and each of its Subsidiaries as of the
date hereof, the Liens that relate to such Indebtedness and that encumber the
Assets and the name of each lender thereof. No Indebtedness is entitled to any
voting rights in any matters voted upon by the holders of the Common Stock.
3.23 Broker's, Finder's or Similar Fees. Except as set
forth on Schedule 3.23, there are no brokerage commissions, finder's fees or
similar fees or commissions payable by the Company or any of its Subsidiaries in
connection with the transactions contemplated hereby based on any agreement,
arrangement or understanding with the Company or any of its Subsidiaries or any
action taken by any such Person.
3.24 Stockholder Approval. The approval on the first
attempt of (a) more than fifty percent (50%) of the outstanding shares of Common
Stock and the votes represented by the Special Voting Stock, voting together as
a class, and (b) more than fifty percent (50%) of the outstanding shares of
Series D Preferred Stock, voting separately as a class, such stockholders
present in person or proxy at a properly convened meeting of the Company's
stockholders ("Stockholder Approval") are the stockholders' consents required
for the (i) filing of (A) the Amended and Restated Series D Certificate of
Determination and (B) the Series E Certificate of Determination; (ii) the
issuance of shares of Series E Preferred Stock authorized for issuance in the
Series E Certificate of Determination; (iii) the reservation and issuance of
shares of Common Stock upon conversion of the shares of Series D Preferred Stock
and the shares of Series E Preferred Stock and upon exercise of the Warrants;
(iv) an amendment to the Amended and Restated Articles of Incorporation to
increase the authorized shares of common stock and preferred stock; and (v) the
Warrant Amendment.
3.25 CCC Section. The Board of Directors has received the
opinion of Duff & Phelps, LLC, financial advisor to the Company, that the
transactions contemplated by this Agreement are fair from a financial point of
view and has taken all action necessary to exempt from the provisions of Section
1203 of the California Corporations Code, to the extent applicable, this
Agreement, any acquisition by the Lenders and the CK Purchasers of Notes and
Subject Shares pursuant to this Agreement
24
and the Series E Certificate of Determination and any conversion by the Lenders
and the CK Purchasers of Subject Shares into shares of Common Stock.
3.26 Disclosure. This Agreement and the documents and
certificates furnished to the Lenders and the CK Purchasers by the Company do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which they were made, not misleading.
3.27 Investments. As of the date hereof, except as set
forth on Schedule 3.27 hereto, neither the Company nor any of its Subsidiaries
has made an Investment in any Person, other than a Permitted Investment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDERS
AND CK PURCHASERS
Each of the Lenders and CK Purchasers, as the case may be,
hereby represents and warrants, severally and not jointly, to the Company as
follows:
4.1 Existence and Power. Such Lender or CK Purchaser (a)
is a limited partnership, corporation, partnership or limited liability company
duly organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite partnership, corporate or limited liability
company, as the case may be, power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Transaction Documents
to which it is a party.
4.2 Authorization; No Contravention. The execution,
delivery and performance by such Lender or CK Purchaser of this Agreement and
each of the other Transaction Documents to which it is a party and the
transactions contemplated hereby and thereby, (a) have been duly authorized by
all necessary partnership, corporate or limited liability company, as the case
may be, action, (b) do not contravene the terms of such Lender's or CK
Purchaser's organizational documents, or any amendment thereof, (c) do not
violate, conflict with or result in any breach or contravention of, or the
creation of any Lien under, any Contractual Obligation of such Lender or CK
Purchaser or any Requirement of Law applicable to such Lender or CK Purchaser,
and (d) do not violate any Orders of any Governmental Authority against, or
binding upon, such Lender or CK Purchaser.
4.3 Governmental Authorization; Third Party Consents.
Except for the Stockholder Approval, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person, and no lapse of a waiting period
under any Requirement of Law, is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, such Lender or CK
Purchaser of this Agreement and each of the other
25
Transaction Documents to which it is a party or the transactions contemplated
hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other
Transaction Documents (other than the Warrant Amendments) to which such Lender
or CK Purchaser, as the case may be, is a party, have been, and as of the
Subsequent Closing Date, each of the Warrant Amendments to which such Lender is
a party will have been, duly executed and delivered by such Lender or CK
Purchaser, as the case may be, and this Agreement and each of the other
Transaction Documents (other than the Warrant Amendments) to which such Lender
or CK Purchaser, as the case may be, is a party, constitute and, as of the
Subsequent Closing Date, each of the Warrant Amendments to which such Lender is
a party will constitute, the legal, valid and binding obligations of such Lender
or CK Purchaser, enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability (regardless of whether considered in a
proceeding at law or in equity).
4.5 Purchase for Own Account. The Notes and the Subject
Shares to be acquired by such Lender or CK Purchaser, respectively, are being or
will be acquired for its own account and with no intention of distributing or
reselling such Notes or Subject Shares or any part thereof in any transaction
that would be in violation of the securities laws of the United States of
America, any state of the United States or any foreign jurisdiction, without
prejudice, however, to the rights of such Lender or CK Purchaser at all times to
sell or otherwise dispose of all or any part of such Notes or Subject Shares
under an effective registration statement under the Securities Act, or under an
exemption from such registration available under the Securities Act, and
subject, nevertheless, to the disposition of such Lender's or CK Purchaser's
property being at all times within its control. If such Lender or CK Purchaser
should in the future decide to dispose of any of such Notes or Subject Shares,
such Lender or CK Purchaser understands and agrees that it may do so only in
compliance with the Securities Act and applicable state and foreign securities
laws, as then in effect. Such Lender or CK Purchaser agrees to the imprinting at
the Initial Closing and the Subsequent Closing, as the case may be, and for so
long as required by law, of a legend on certificates representing all of its
Notes, Subject Shares and shares of Common Stock issuable upon conversion of its
Subject Shares to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY FOREIGN JURISDICTION. THE SECURITIES MAY NOT BE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN
SECURITIES LAWS OR PURSUANT TO AN
26
APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS.
4.6 Restricted Securities. Such Lender or CK Purchaser
understands that the Notes and the Subject Shares will not be registered at the
time of their issuance under the Securities Act for the reason that the sale
provided for in this Agreement is exempt pursuant to Section 4(2) of the
Securities Act and that the reliance of the Company on such exemption is
predicated in part on such Lender's or CK Purchaser's representations set forth
herein.
4.7 Accredited Investor. Such Lender or CK Purchaser is
an "Accredited Investor" within the meaning of Rule 501 of Regulation D under
the Securities Act, as presently in effect.
4.8 Experience. Such Lender or CK Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in its Notes and Subject
Shares (the "Securities"), and has so evaluated the merits and risks of such
investment. Such Lender or CK Purchaser is able to bear the economic risk of an
investment in the Securities and, at the present time, is able to afford a
complete loss of such investment.
4.9 Access to Information. Such Lender or CK Purchaser
acknowledges that it has received the SEC Reports and has been afforded: (a) the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities and the merits and risks of investing in the
Securities; (b) access to publicly available information about the Company and
the Subsidiaries and the Condition of the Company sufficient to enable it to
evaluate its investment; and (c) the opportunity to obtain such additional
publicly available information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Lender or CK Purchaser or its
representatives or counsel shall modify, amend or affect such Lender's or CK
Purchaser's right to rely on the truth, accuracy and completeness of the SEC
Reports and the Company's representations and warranties contained in the
Transaction Documents.
4.10 General Solicitation. Such Lender or CK Purchaser is
not purchasing the Securities as a result of any advertisement, article, notice
or other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
4.11 Reliance. Such Lender or CK Purchaser understands and
acknowledges that: (a) the Securities are being offered and sold to it without
registration under the Securities Act in a private placement that is exempt from
the registration
27
provisions of the Securities Act and (b) the availability of such exemption
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Lender or CK Purchaser hereby
consents to such reliance.
ARTICLE V
CONDITIONS TO INITIAL CLOSING
5.1 Conditions to Lenders' and CK Purchasers'
Obligations. Each of the Lenders' and CK Purchasers' obligation to consummate
the transactions contemplated by the Initial Closing pursuant to this Agreement
is subject to the fulfillment at or prior to the Initial Closing of the
following conditions, any of which may be waived in whole or in part by such
Lender or CK Purchaser:
(a) Representations and Warranties. The representations
and warranties made by the Company in Article III hereof shall be true and
correct on the Initial Closing Date.
(b) Performance. All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior to the
Initial Closing Date shall have been performed or complied with.
(c) Compliance Certificate. The Company shall have
delivered to the Lenders and CK Purchasers a certificate of the Company,
executed by the Chief Executive Officer of the Company and dated as of the
Initial Closing Date, certifying to the fulfillment of the conditions specified
in Section 5.1(a) and Section 5.1(b) hereof.
(d) Secretary's Certificate. The Company shall have
delivered to the Lenders and CK Purchasers a certificate from the Company, in
form and substance satisfactory to the Lenders and CK Purchasers, dated as of
the Initial Closing Date and signed by the Secretary or an Assistant Secretary
of the Company, certifying (i) that the Company is in good standing with the
Secretary of State of the State of California and (ii) that the attached copies
of the Articles of Incorporation, the By-laws, and resolutions of the Board of
Directors of the Company approving this Agreement and each of the applicable
Transaction Documents and the transactions contemplated hereby and thereby, are
all true, complete and correct and remain unamended and in full force and
effect.
(e) Satisfactory Release of Liens. The Company shall have
delivered to the Lenders satisfactory evidence of the release of all Liens,
except for Permitted Liens, on the assets of the Company and its Subsidiaries in
order to ensure the Lender's first priority security interests upon the filing
of applicable UCC-1's.
(f) Opinion of Counsel. The Company shall have caused the
opinion of Pillsbury Winthrop LLP, dated the Initial Closing Date, relating to
the transactions contemplated by the Initial Closing, substantially in the form
attached hereto as Exhibit I to be delivered to the Lenders and CK Purchasers.
28
(g) SVB Consent. The Company shall have delivered to the
Lenders and the CK Purchasers the written consent of Silicon Valley Bank to the
execution, delivery and performance of the Transaction Documents and all of the
transactions contemplated therein.
5.2 Conditions to Company's Obligations. The Company's
obligation to consummate the transactions contemplated by the Initial Closing
pursuant to this Agreement is subject to the fulfillment at or prior to the
Initial Closing of the following conditions, any of which may be waived in whole
or in part by the Company:
(a) Representations and Warranties. The representations
and warranties made by the Lenders and CK Purchasers in Article IV hereof shall
be true and correct on the Initial Closing Date.
(b) Performance. All covenants, agreements and conditions
contained in this Agreement to be performed by the Lenders and CK Purchasers on
or prior to the Initial Closing Date shall have been performed or complied with.
ARTICLE VI
CONDITIONS TO SUBSEQUENT CLOSING
6.1 Conditions to Lenders' and CK Purchasers'
Obligations. Each of the Lenders' the CK Purchasers' obligation to consummate
the Conversion and the Exchange at the Subsequent Closing pursuant to this
Agreement is subject to the fulfillment at or prior to the Subsequent Closing of
the following conditions:
(a) Compliance with Laws. The issuance of the Subject
Shares by the Company hereunder shall be legally permitted by all laws and
regulations to which the Company is subject.
(b) Stockholder Approval. The Company shall have
delivered to the Lenders and CK Purchasers satisfactory evidence of the
Stockholder Approval.
(c) Amendment to the Amended and Restated Articles of
Incorporation. The Company shall have duly filed with the Secretary of State of
the State of California an amendment to the Amended and Restated Articles of
Incorporation to increase the authorized common stock and preferred stock of the
Company.
(d) Certificates of Determination. The Company shall have
duly filed with the Secretary of State of the State of California the Amended
and Restated Series D Certificate of Determination and the Series E Certificate
of Determination.
(e) SVB Debt Matters. The Company shall used the proceeds
from the Initial Closing to repay four million nine hundred thousand dollars
($4,900,000) of the SVB Debt.
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6.2 Conditions to the Company's Obligations. The
Company's obligation to consummate the Conversion and the Exchange at the
Subsequent Closing pursuant to this Agreement is subject to the fulfillment at
or prior to the Subsequent Closing of the following condition:
(a) Stockholder Approval. The Company shall have received
satisfactory evidence of the Stockholder Approval.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. Except as otherwise provided in this
Article VII, the Company (the "Indemnifying Party") agrees to indemnify, defend
and hold harmless each of the Lenders and the CK Purchasers and their Affiliates
and their respective officers, directors, agents, employees, subsidiaries,
partners, members and controlling persons (each, an "Indemnified Party") to the
fullest extent permitted by law from and against any and all losses, Claims, or
written threats thereof (including, without limitation, any Claim by a third
party), damages, expenses (including reasonable fees, disbursements and other
charges of counsel incurred by the Indemnified Party in any action between the
Indemnifying Party and the Indemnified Party or between the Indemnified Party
and any third party or otherwise) or other liabilities (collectively, "Losses")
resulting from or arising out of any breach of any representation or warranty,
covenant or agreement by the Company in this Agreement, the Notes, the Security
Agreement or the Amended and Restated Stockholders Agreement. The amount of any
payment to any Indemnified Party herewith in respect of any Loss shall be of
sufficient amount to make such Indemnified Party whole for any diminution in
value of the Subject Shares directly caused by such breach. In connection with
the obligation of the Indemnifying Party to indemnify for expenses as set forth
above, the Indemnifying Party shall, upon presentation of appropriate invoices
containing reasonable detail, reimburse each Indemnified Party for all such
expenses (including reasonable fees, disbursements and other charges of counsel
incurred by the Indemnified Party in any action between the Indemnifying Party
and the Indemnified Party or between the Indemnified Party and any third party)
as they are incurred by such Indemnified Party; provided, however, that if an
Indemnified Party is reimbursed under this Article VII for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct or gross negligence of such Indemnified Party.
7.2 Notification. Each Indemnified Party under this
Article VII shall, promptly after the receipt of notice of the commencement of
any Claim against such Indemnified Party in respect of which indemnity may be
sought from the Indemnifying Party under this Article VII, notify the
Indemnifying Party in writing of the commencement thereof. The omission of any
Indemnified Party to so notify the Indemnifying Party of any such action shall
not relieve the Indemnifying Party from any liability which it may have to such
Indemnified Party (a) other than pursuant to this Article VII or (b) under this
Article VII unless, and only to the extent that, such omission
30
results in the Indemnifying Party's forfeiture of substantive rights or
defenses. In case any such Claim shall be brought against any Indemnified Party,
and it shall notify the Indemnifying Party of the commencement thereof, the
Indemnifying Party shall be entitled to assume the defense thereof at its own
expense, with counsel satisfactory to such Indemnified Party in its reasonable
judgment; provided, however, that any Indemnified Party may, at its own expense,
retain separate counsel to participate in such defense at its own expense.
Notwithstanding the foregoing, in any Claim in which both the Indemnifying
Party, on the one hand, and an Indemnified Party, on the other hand, are, or are
reasonably likely to become, a party, such Indemnified Party shall have the
right to employ separate counsel and to control its own defense of such Claim
if, in the reasonable opinion of counsel to such Indemnified Party, either (x)
one or more defenses are available to the Indemnified Party that are not
available to the Indemnifying Party or (y) a conflict or potential conflict
exists between the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable; provided, however, that the Indemnifying Party (i) shall not be
liable for the fees and expenses of more than one counsel to all Indemnified
Parties and (ii) shall reimburse the Indemnified Parties for all of such fees
and expenses of such counsel incurred in any action between the Indemnifying
Party and the Indemnified Parties or between the Indemnified Parties and any
third party, as such expenses are incurred; provided, however, that if an
Indemnified Party is reimbursed under this Article VII for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct or gross negligence of such Indemnified Party. The
Indemnifying Party agrees that it will not, without the prior written consent of
the Indemnified Party, settle, compromise or consent to the entry of any
judgment in any pending or threatened Claim relating to the matters contemplated
hereby (if any Indemnified Party is a party thereto or has been actually
threatened to be made a party thereto) unless such settlement, compromise or
consent includes an unconditional release of each Indemnified Party from all
liability arising or that may arise out of such Claim. The Indemnifying Party
shall not be liable for any settlement of any Claim effected against an
Indemnified Party without the Indemnifying Party's written consent, which
consent shall not be unreasonably withheld. The rights accorded to an
Indemnified Party hereunder shall be in addition to any rights that any
Indemnified Party may have at common law, by separate agreement or otherwise;
provided, however, that notwithstanding the foregoing or anything to the
contrary contained in this Agreement, nothing in this Article VII shall restrict
or limit any rights that any Indemnified Party may have to seek equitable
relief.
7.3 Contribution. If the indemnification provided for in
this Article VII from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any Losses referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such Losses, as well as any other relevant equitable
considerations. The relative faults of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question,
31
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the Losses referred to above shall be deemed to include, subject to
the limitations set forth in Section 7.1 and Section 7.2, any reasonable legal
or other fees, charges or expenses reasonably incurred by such party in
connection with any investigation or proceeding.
ARTICLE VIII
COVENANTS
The Company hereby covenants and agrees with the Lenders and
CK Purchasers as follows:
8.1 Financial Statements and Other Information. If any
time the Company is not subject to the periodic disclosure obligations of the
Exchange Act, the Company shall deliver to each Lender and CK Purchaser, in form
and substance satisfactory to such Lender and CK Purchaser:
(a) as soon as available, but not later than ninety (90)
days after the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the end of
such fiscal year and the related statements of operations and cash flows for
such fiscal year, setting forth in each case in comparative form the figures for
the previous year, all in reasonable detail and accompanied by a management
summary and analysis of the operations of the Company for such fiscal year and
by the opinion of a nationally recognized independent certified public
accounting firm which report shall state without qualification that such
financial statements present fairly the financial condition as of such date and
results of operations and cash flows for the periods indicated in conformity
with GAAP applied on a consistent basis;
(b) as soon as available, but in any event not later than
forty-five (45) days after the end of each of the first three fiscal quarters of
each fiscal year, the unaudited consolidated balance sheet of the Company and
its Subsidiaries, and the related statements of operations and cash flows for
such quarter and for the period commencing on the first day of the fiscal year
and ending on the last day of such quarter, all certified by an appropriate
officer of the Company as presenting fairly the consolidated financial condition
as of such date and results of operations and cash flows for the periods
indicated in conformity with GAAP applied on a consistent basis, subject to
normal year-end adjustments and the absence of footnotes required by GAAP; and
(c) as soon as available, but in any event not later than
ten (10) days after the end of each month of each fiscal year, the unaudited
consolidated balance sheet of the Company and its Subsidiaries, and the related
statements of operations and cash flows for such month and for the period
commencing on the first day of the fiscal year
32
and ending on the last day of such month, all certified by an appropriate
officer of the Company as presenting fairly the consolidated financial condition
as of such date and results of operations and cash flows for the periods
indicated in conformity with GAAP applied on a consistent basis, subject to
normal year-end adjustments and the absence of footnotes required by GAAP.
8.2 FIRPTA Certificate. If requested by any of the
Lenders or CK Purchasers, as promptly as practicable, but not later than five
(5) days after the end of each fiscal year of the Company, the Company shall
deliver to such Lender or CK Purchaser, in form and substance satisfactory to
such Lender or CK Purchaser, a certificate signed by the Chief Executive Officer
of the Company in customary form certifying that the Company is not a "foreign
person" within the meaning of Section 1445 of the Code.
8.3 Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issue or delivery upon conversion of the Subject
Shares and the shares of Series D Preferred Stock and upon exercise of the
Warrants, as provided in the Series E Certificate of Determination, the Amended
and Restated Series D Certificate of Determination and the Warrants,
respectively, the maximum number of shares of Common Stock that may be issuable
or deliverable upon such conversion or exercise. Such shares of Common Stock are
duly authorized and, when issued or delivered in accordance with the Amended and
Restated Series D Certificate of Determination, the Series E Certificate of
Determination and the Warrants, shall be validly issued, fully paid and
non-assessable. The Company shall issue such shares of Common Stock, in
accordance with the terms of the Amended and Restated Series D Certificate of
Determination, the Series E Certificate of Determination and the Warrants, and
otherwise comply with the terms hereof and thereof.
8.4 Stockholder Approval. As soon as practicable
following the Initial Closing Date, the Company will prepare and file with the
Commission a proxy statement to be distributed to the Company's stockholders in
connection with the solicitation of votes in favor of the matters set forth in
Section 3.24 that require Stockholder Approval, including any amendments or
supplements thereto (the "Proxy Statement"). The Company will use all reasonable
commercial efforts to have or cause the Proxy Statement to be cleared by the
Commission as promptly as practicable. The Company agrees to provide the Lenders
and the CK Purchasers and their respective counsel with any written comments the
Company or its counsel may receive from the Commission with respect to the Proxy
Statement promptly after the receipt of such comments. The Company will use all
reasonable commercial efforts to cause the Proxy Statement (a) not to contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
and (b) to comply as to form in all material respects with the applicable
provisions of the Exchange Act and the rules and regulations thereunder.
Following clearance by the Commission of the Proxy Statement, the Company shall
promptly distribute the Proxy Statement to its stockholders and call and arrange
for a special meeting of stockholders and take such other actions as are
required
33
or necessary in order to obtain the Stockholder Approval as promptly as
practicable. The Board of Directors shall recommend that the Company's
stockholders vote in favor of the Stockholder Approval.
8.5 Financial Covenants. The Company hereby covenants and
agrees that on and after the Initial Closing and until all of the obligations
under the Notes, including, without limitation, the repayment or conversion of
the principal amount and all accrued interest outstanding thereunder, have been
satisfied in full, the Company shall at all times comply with the financial and
other covenants set forth on Schedule 8.5.
8.6 SVB Debt Matters. Following the Initial Closing, the
Company shall use reasonable commercial efforts to renegotiate the terms of the
SVB Debt on terms satisfactory to the Lenders and the CK Purchasers, which terms
are anticipated to include reducing the line of credit to a five million dollar
($5,000,000) line (such amount comprising approximately two million eight
hundred thousand dollars ($2,800,000) in letters of credit and a two million two
hundred thousand dollar ($2,200,000) line of credit). In the event that such
renegotiated terms of the SVB Debt are not satisfactory to the Lenders or the CK
Purchasers, the Lenders or the CK Purchasers may demand that the Company
terminate and pay off all agreements and letters of credit with Silicon Valley
Bank and upon such demand, the Company shall effect such termination and pay
off. Upon the Subsequent Closing, the CK Purchasers shall be entitled to the
rights set forth in Section 3.5 of the Amended and Restated Stockholders
Agreement.
8.7 Rights Offering.
(a) As promptly as practicable after the date hereof, the
Company will prepare and file with the Commission a registration statement on
Form S-3 as adopted pursuant to the Securities Act (or, if Form S-3 is not then
available to the Company, on Form S-1 as adopted pursuant to the Securities Act)
(together with the Prospectus included in such registration statement, the
"Registration Statement") covering the issuance of the Series E Purchase Rights
and the Rights Shares. The consummation of the Rights Offering shall be subject
to the Company obtaining Stockholder Approval. The Lenders, the CK Purchasers
and their respective counsel will be given the opportunity to participate in all
drafting sessions and other discussions with respect to such Registration
Statement, and the Company will provide the Lenders, the CK Purchasers and their
respective counsel with any written comments or other written communications
that the Company or its counsel receives from time to time from the Commission
or its staff with respect to the Registration Statement promptly after such
communications are received by the Company. The Registration Statement will (i)
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading and (ii) comply in all material respects with the provisions of
applicable federal securities laws. The Company promptly will correct any
information provided by it for use in the Registration Statement if and to the
extent that such information becomes false or misleading in any material respect
or omits to state any material fact, and the Company will take all steps
necessary to cause the Registration Statement, as so corrected, to be filed with
the Commission and
34
to be disseminated to the distributees of the Series E Purchase Rights, in each
case as and to the extent required by applicable federal securities Laws. The
Company will use its reasonable commercial efforts to cause the Registration
Statement to be filed pursuant to this Section 8.7(a) to be declared effective
by the Commission as soon as possible after the Registration Statement is filed
with the Commission.
(b) Promptly following the effective date of the
Registration Statement, the Company will commence the Rights Offering (the date
the Rights Offering is commenced is referred to herein as the "Commencement
Date"). In the Rights Offering, the Company will distribute to each holder of
Common Stock as of the Record Date, at no cost to such holder, one Series E
Purchase Right for each share of Common Stock held as of the Record Date. Each
Series E Purchase Right will entitle the holder thereof, in such holder's sole
discretion (the "Basic Subscription Privilege"), to purchase, at the
Subscription Price, such holder's pro rata portion of the number of shares of
Series E Preferred Stock equal to up to $21,000,000 divided by the Subscription
Price. The Company shall not, without the express prior written consent of the
Lenders and the CK Purchasers, sell shares of Series E Preferred Stock in the
Rights Offering at any price other than the Subscription Price. If any Person
who holds a Series E Purchase Right exercises more than one Series E Purchase
Right in connection with the Rights Offering, such Person shall receive the
number of shares of Series E Preferred Stock resulting from aggregating all such
exercises, rounded down to the nearest whole share. The Rights Offering will
remain open until the 20th Business Day following the Commencement Date (the
"Expiration Date"), and the Series E Purchase Rights will expire at 5:00 p.m.,
New York, New York local time on the Expiration Date, except as otherwise
required by applicable law.
(c) Each of the Lenders severally, and not jointly, and
each of the CK Purchasers severally, and not jointly, will have the right and
option to subscribe for (but will not be obligated to subscribe for) their
Proportionate Percentage (as hereinafter defined) of those Rights Shares that
are not subscribed for through the Basic Subscription Privilege at the
Subscription Price (the "Purchaser Subscription Privilege"). "Proportionate
Percentage" means (i) in the case of the Lenders, 55% and (ii) in the case of
the CK Purchasers, 45%. If (x) the Lenders subscribe in full for their
Proportionate Percentage of the Purchaser Subscription Privilege and the CK
Purchasers do not subscribe in full for their Proportionate Percentage of the
Purchaser Subscription Privilege, then the Lenders will have the right and
option to subscribe for (but will not be obligated to subscribe for) that
portion of the CK Purchasers' Proportionate Percentage of the Purchaser
Subscription Privilege not subscribed for by the CK Purchasers and (y) the CK
Purchasers subscribe in full for their Proportionate Percentage of the Purchaser
Subscription Privilege and the Lenders do not subscribe in full for their
Proportionate Percentage of the Purchaser Subscription Privilege, then the CK
Purchasers will have the right and option to subscribe for (but will not be
obligated to subscribe for) that portion of the Lenders' Purchasers'
Proportionate Percentage of the Purchaser Subscription Privilege not subscribed
for by the Lenders. The Lenders' Proportionate Percentage shall be allocated
among the Lenders as determined by the Lenders in their sole discretion. The CK
Purchasers' Proportionate Percentage shall be allocated among the CK Purchasers
as determined by the CK Purchasers in their sole discretion.
35
(d) The Company will notify in writing the Lenders and
the CK Purchasers immediately following the Expiration Date (by no later than
9:00 am, New York, New York local time on the next succeeding Business Day
following the Expiration Date) of the amount of Rights Shares not subscribed for
in the Basic Subscription Privilege and the Lenders and the CK Purchasers shall
notify the Company by 5:00 p.m., New York, New York local time on the second
Business Day following the date such notice is delivered by the Company to the
Lenders and the CK Purchasers, of the amount of Rights Shares the Lenders and
the CK Purchasers elect to purchase pursuant to the Purchaser Subscription
Privilege. The closing of the exercise of the Purchaser Subscription Privilege
will occur on or before the 15th Business Day following the Expiration Date. At
such closing, the Lenders and the CK Purchasers shall deliver by wire transfer
the purchase price for the Rights Shares being purchased and the Company shall
deliver certificates representing the shares of Series E Preferred Stock being
acquired pursuant to the Purchaser Subscription Privilege. The Company
represents and warrants that the Purchaser Subscription Privilege complies with,
and the Company agrees to take all actions reasonably required to ensure that
the Purchaser Subscription Privilege will continue to comply with, applicable
federal securities laws. The Lenders may assign their rights under this Section
8.7 to any of their Affiliated investment entities and the CK Purchasers may
assign their assign their rights under this Section 8.7 to any of their
Affiliated investment entities.
(e) The Company will pay all expenses associated with the
Registration Statement and the Rights Offering and registration of the Rights
Shares and the Series E Purchase Rights, including, without limitation, filing
and printing fees, fees and expenses of the subscription agent, counsel and
accounting fees and expenses, costs associated with clearing the Rights Shares
and the Series E Purchase Rights for sale under applicable federal and state
securities laws, listing fees.
ARTICLE IX
TERMINATION
9.1 Termination. The Lenders' obligation to consummate
the Conversion and the CK Purchasers' obligations to consummate the Exchange
under this Agreement including, but not limited to, Sections 2.6(f), 2.6(g),
2.6(h) and 2.6(i) and Article VI of this Agreement, shall terminate in the event
that the Company is unable to obtain Stockholder Approval pursuant to Section
8.4 on the first attempt, but in any event on April 30, 2004, if Stockholder
Approval is not obtained by such date. None of the Company, the CK Purchasers or
the Lenders shall have any liability arising out of such termination.
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties. All of
the representations and warranties made herein shall survive the execution and
delivery of
36
this Agreement until the date that is ninety (90) days after the receipt by the
Lenders and the CK Purchasers of audited financial statements of the Company for
the fiscal year ending December 31, 2004 (or, if such fiscal year changes and no
such audited consolidated financial statements are available, then the successor
fiscal year), except for (a) Sections 3.1, 3.2, 3.4, 3.7, 3.13 and 3.23, which
representations and warranties shall survive until the third anniversary of the
Initial Closing Date, and (b) Section 3.11, which shall survive until the later
to occur of (i) the lapse of the statute of limitations with respect to the
assessment of any Tax to which such representation and warranty relates
(including any extensions or waivers thereof) and (ii) sixty (60) days after the
final administrative or judicial determination of the Taxes to which such
representation and warranty relates, and no claim with respect to Section 3.11
may be asserted thereafter with the exception of claims arising out of any fact,
circumstance, action or proceeding to which the party asserting such claim shall
have given notice to the other parties to this Agreement prior to the
termination of such period of reasonable belief that a tax liability will
subsequently arise therefrom.
10.2 Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first-class mail, return receipt requested,
telecopier, courier service or personal delivery:
if to the Company:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
with a copy to, which shall not constitute notice to the
Company:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg Vignos, Esq.
if to the Lenders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 618-9207
Attention: Matthew Nimetz
Thomas J. Murphy
37
with a copy to, which shall not constitute notice:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
if to the CK Purchasers:
c/o Campina Enterprises Limited
Great Affluent Limited
Dragonfield Limited
Lion Cosmos Limited
7th Floor
Cheung Kong Center
2 Queen's Road Central
Hong Kong
Telecopy: (852) 2845-2057
Attention: Mr. Edmond Ip
and
c/o Cenwell Limited
22nd Floor
Hutchison House
10 Harcourt Road
Hong Kong
(852) 2128-1778
Attention: Company Secretary
All such notices, demands and other communications shall be
deemed to have been duly given when delivered by hand, if personally delivered;
when delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 10.2 designate another address or
Person for receipt of notices hereunder.
10.3 Successors and Assigns; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto. Subject to applicable securities
laws and the terms and conditions thereof, the Lenders and the CK Purchasers may
assign any of their rights under this Agreement or the other Transaction
Documents to any of their respective Affiliates. The Company may not assign any
of its rights under this Agreement without the written consent of the Lenders.
Except as provided in Article VII, no Person other than the parties hereto and
their successors and permitted assigns is intended to be a beneficiary of this
Agreement.
38
10.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company, the
CK Purchasers or the Lenders in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company, the CK Purchasers or the Lenders at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to
any provision of this Agreement, any waiver of any provision of this Agreement,
and any consent to any departure by the Company, the CK Purchasers or the
Lenders from the terms of any provision of this Agreement, shall be effective
(i) only if it is made or given in writing and signed by the Company, the CK
Purchasers and the Lenders, and (ii) only in the specific instance and for the
specific purpose for which made or given; provided, however, that to the extent
any amendment or waiver adversely affects any of the Lenders or the CK
Purchasers, such amendment or waiver shall require the prior written consent of
each Lender or CK Purchaser so adversely affected. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
in any case shall entitle the Company to any other or further notice or demand
in similar or other circumstances.
10.5 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
10.6 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
10.7 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
regard to the principles of conflicts of law thereof.
10.8 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
10.9 Rules of Construction. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.
39
10.10 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto, and the other Transaction Documents are intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, representations, warranties or
undertakings, other than those set forth or referred to herein or therein. This
Agreement, together with the exhibits and schedules hereto, and the other
Transaction Documents supersede all prior agreements and understandings between
the parties with respect to such subject matter.
10.11 Fees. The Company shall reimburse each of the Lenders
and the CK Purchasers for their fees, disbursements and other charges of counsel
incurred in connection with the transactions contemplated by this Agreement
(including, but without limitation, to advise on reporting obligations of the
Lenders and/or the CK Purchasers and filings with Commission); provided, that
the aggregate amount of all such reimbursements in respect of each of the
Lenders and the CK Purchasers shall not exceed $12,500.
10.12 Publicity; Confidentiality. Except as may be required
by applicable Requirements of Law, none of the parties hereto shall issue a
publicity release or public announcement or otherwise make any disclosure
concerning this Agreement, the transactions contemplated hereby, or the Lenders
or CK Purchasers or the business, technology and financial affairs of the
Company, without prior approval by the other parties hereto; provided, however,
that nothing in this Agreement shall restrict any of the Lenders or CK
Purchasers from disclosing information (a) that is already publicly available,
(b) that was known to such Lender or CK Purchaser on a non-confidential basis
prior to its disclosure by the Company, (c) that may be required or appropriate
in response to any summons or subpoena or in connection with any litigation,
provided that such Lender or CK Purchaser will use reasonable efforts to notify
the Company in advance of such disclosure so as to permit the Company to seek a
protective order or otherwise contest such disclosure, and such Lender or CK
Purchaser will use reasonable efforts to cooperate, at the expense of the
Company, with the Company in pursuing any such protective order, (d) to the
extent that such Lender or CK Purchaser reasonably believes it appropriate in
order to comply with any Requirement of Law, (e) to such Lender's or CK
Purchaser's or the Company's officers, directors, shareholders, advisors,
employees, members, partners, controlling persons, auditors or counsel or (f) to
Persons from whom releases, consents or approvals are required, or to whom
notice is required to be provided, pursuant to the transactions contemplated by
the Transaction Documents; and provided, further, that after the Initial Closing
and the Subsequent Closing, as the case may be, GAP LLC may disclose on its
worldwide web page, www.gapartners.com, the name of the Company, the name of the
Chief Executive Officer of the Company, a brief description of the business of
the Company, the Company's logo and the aggregate amount of the Lenders'
investment in the Company. If any announcement is required by any Requirement of
Law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties reasonable opportunity to comment thereon.
40
10.13 Further Assurances. Each of the parties shall execute
such documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
10.14 Legal Representation. It is acknowledged by each of
the CK Purchasers that the Lenders have retained Paul, Weiss, Rifkind, Wharton &
Garrison LLP to act as their counsel in connection with the transactions
contemplated by the Transaction Documents and that Paul, Weiss, Rifkind, Wharton
& Garrison LLP has not acted as counsel for any of the CK Purchasers in
connection with the transaction contemplated by the Transaction Documents and
that none of the CK Purchasers has the status of a client of Paul, Weiss,
Rifkind, Wharton & Garrison LLP for conflict of interest or any other purposes
as a result thereof.
10.15 Voting. At any meeting of the stockholders of the
Company at which, or for any written stockholder consent in which, the Company
is seeking stockholder approval for any of the matters encompassed in the
Stockholder Approval, each of the Lenders and each of the CK Purchasers shall,
and shall cause its Affiliates to, vote all of the shares held by such Lender,
CK Purchaser or Affiliate, as the case may be, in favor of such matters if it is
permitted by the Requirements of Law, regulations or rules.
10.16 Waiver. The Lenders and the CK Purchasers hereby
unconditionally waive any rights to an adjustment of shares of Series D
Preferred Stock and shares of Series E Preferred Stock with respect to the
Rights Offering, the issuance of Series E Purchase Rights and the issuance of
the Rights Shares issuable upon exercise of the Rights Shares that such Lenders
or CK Purchasers, as the case may be, may otherwise be entitled to pursuant to
Section 7(c) of the Amended and Restated Series D Certificate of Determination
or Section 7(c) the Series E Certificate of Determination, respectively.
[the remainder of this page intentionally left blank]
41
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Convertible Note Purchase and Exchange Agreement on
the date first written above.
CRITICAL PATH, INC.,
a California corporation
By: /s/ Michael J. Zukerman
----------------------------------------
Name: Michael J. Zukerman
Title: Senior Vice President
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ Matthew Nimetz
----------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ Matthew Nimetz
----------------------------------------
Name: Matthew Nimetz
Title: A General Partner
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: /s/ Matthew Nimetz
----------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP-W, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Manager
By: /s/ Matthew Nimetz
----------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: /s/ Matthew Nimetz
----------------------------------------
Name: Matthew Nimetz
Title: Managing Director
CENWELL LIMITED
By: /s/ Edmond Ip Tak Chuen
----------------------------------------
Name: Mr. Edmond Ip Tak Chuen
Title: Authorized Signatory
CAMPINA ENTERPRISES LIMITED
By: /s/ Edmond Ip Tak Chuen
----------------------------------------
Name: Mr. Edmond Ip Tak Chuen
Title: Director
GREAT AFFLUENT LIMITED
By: /s/ Edmond Ip Tak Chuen
----------------------------------------
Name: Mr. Edmond Ip Tak Chuen
Title: Director
DRAGONFIELD LIMITED
By: /s/ Ezra Pau Yee Wan
----------------------------------------
Name: Ezra Pau Yee Wan
Title: Authorized Signatory
LION COSMOS LIMITED
By: /s/ Ezra Pau Yee Wan
----------------------------------------
Name: Ezra Pau Yee Wan
Title: Director
APPENDIX B
FORM OF NOTE
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR
FOR SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR
SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
CRITICAL PATH, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$___________________ San Francisco, California
November ____, 2003
Critical Path, Inc., a California corporation (the "Company"),
the principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of _____________________________,
or its registered assigns ("Holder"), the sum of _______________________________
dollars ($_________), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter. The
outstanding principal amount hereof and all accrued and unpaid interest hereon,
as set forth below, shall be due and payable on the earlier to occur of (i)
November ____, 2007, (ii) when declared due and payable by Holder upon the
occurrence of an Event of Default (as defined below), (iii) consummation of a
Qualified Asset Sale, (iv) a Change of Control, or (v) any sale of capital stock
or Stock Equivalents by the Company, any cash capital contribution from any
third person or any other debt or equity financing consummated by the Company
after the date of issuance of this Note which, in the case of (v), individually
or in the aggregate raises proceeds of at least forty million dollars
($40,000,000) in cash or cash equivalents (the earliest of the events set forth
in items (i)-(v) immediately above, the "Maturity Date"); provided, however,
that in the event that the Maturity Date is on or before November ____, 2004,
the Company shall also make an additional payment to Holder equal to the amount
of interest which would have otherwise accrued on the outstanding principal
amount of the Note on the Maturity Date between the Maturity Date and November
____, 2004.
The following is a statement of the rights of the Holder of
this Note and the conditions to which this Note is subject, and to which the
Holder hereof, by the acceptance of this Note, agrees:
1. Definitions. Except as otherwise defined herein, each
capitalized
2
term used herein shall have the meaning assigned to it in the Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Purchase Agreement. All other references to the Purchase
Agreement in this Note refer to the Purchase Agreement as in effect on the date
hereof, and without regard to any subsequent termination of the Purchase
Agreement. As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:
1.1 "Affiliate" means any Person who is an
"affiliate" as defined in Rule 12b-2 of the General Rules and Regulations of the
Securities Exchange Act of 1934, as amended.
1.2 "Capitalized Lease Obligations" means, with
respect to any Person, all rental obligations of such Person which, under GAAP,
are or will be required to be capitalized on the books of such Person, in each
case taken at the amount thereof accounted for as indebtedness in accordance
with such principles.
1.3 "Change of Control" shall mean (i) any
merger, consolidation or other business combination transaction (or series of
related transactions) in which the stockholders owning a majority of the voting
securities of the Company prior to such transaction do not own a majority of the
voting securities of the surviving entity, (ii) any tender offer, exchange offer
or other transaction whereby any Person or "group" (as defined in Rule 13d-3 of
the General Rules and Regulations of the Securities Exchange Act of 1934, as
amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment
Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided
that Affiliates shall be deemed not to include any portfolio companies of any of
the foregoing) obtains a majority of the outstanding shares of capital stock
entitled to vote in the election of directors, (iii) any proxy contest in which
a majority of the Board of Directors of the Company (or persons appointed by
such Board of Directors) prior to such contest do not constitute a majority of
the Company's Board of Directors after such contest or (iv) any other
transaction described in any stockholder rights agreement or "poison pill," if
any, to which the Company is party, which may permit the holders of any rights
or similar certificates to exercise the rights evidenced thereby.
1.4 "Company" shall have the meaning set forth
in the recitals hereto, and includes any corporation that shall succeed to or
assume the obligations of the Company under this Note.
1.5 "Conversion Date" shall mean the Subsequent
Closing Date.
1.6 "Designated Preferred Stock" shall mean the
Series D Preferred Stock, par value $0.001, of the Company and the Series E
Preferred Stock.
1.7 "Domestic Subsidiary" shall have the meaning
set forth in Section 5.10 hereof.
3
1.8 "Event of Default" shall have the meaning
set forth in Section 6 hereof.
1.9 "Guaranteed Interest" shall mean the total
amount of interest that would accrue on this Note, at the Interest Rate
specified in Section 2, from the date of this Note until the one year
anniversary of the date of this Note.
1.10 "Guarantor" shall have the meaning set forth
in the Security Agreement.
1.11 "Holder" shall mean the registered holder of
this Note from time to time, and in the plural, shall mean all registered
holders of Notes from time to time issued by the Company pursuant to the
Purchase Agreement.
1.12 "Interest Amount" shall have the meaning set
forth in Section 3.1 hereof.
1.13 "Investment" means (i) the acquisition
(whether for cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets (other than equipment, inventory, supplies or other assets
acquired in the ordinary course of business of the Company), capital stock,
bonds, notes, debentures, partnership, joint venture or other ownership
interests or other securities of any Person, (ii) any deposit with, or advance,
loan or other extension of credit to, or on behalf of, any Person (other than
deposits made in connection with the purchase of equipment, inventory, services,
leases, supplies or other assets in the ordinary course of business of the
Company), (iii) any other capital contribution to or investment in such Person,
including, without limitation, any guaranty obligation incurred for the benefit
of such Person. For the sake of clarity, Investments shall include any transfer
of property or assets by the Company to any of its Subsidiaries or by any
Subsidiary of the Company to any other Subsidiary.
1.14 "Loan Documents" shall have the meaning set
forth in the Security Agreement.
1.15 "Note" shall mean this note, and in the
plural, shall mean all notes issued to the Lenders pursuant to the terms of the
Purchase Agreement, including this Note, and all amendments, modifications and
extensions thereto.
1.16 "Permitted Investments" means (i)
Investments in cash or cash equivalents, (ii) accounts receivable created,
acquired or made in the ordinary course of business and payable or dischargeable
in accordance with customary trade terms; (iii) Investments existing on the
closing date, and listed on Schedule ___ to the Purchase Agreement, (iv)
guaranty obligations permitted by Section 5.3 of this Agreement, (v) loans to
employees, directors or officers of the Company in connection with the award of
convertible bonds or capital stock under a stock incentive plan, stock option
plan or other equity-based compensation plan or arrangement, (vi) other advances
or loans to employees, directors, officers or agents of the Company in the
ordinary course of business not to exceed $500,000 in the aggregate at any time
outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that
are not incorporated or otherwise
4
organized under the laws of the United States of America or any state thereof)
in an amount not to exceed $1,000,000 in the aggregate at any time outstanding;
(viii) any acquisition for which the prior written consent of the Holders of a
majority of the outstanding principal amount of all of the Notes issued by the
Company pursuant to the Purchase Agreement has been obtained, (ix) other loans,
advances and investments of a nature not contemplated by the foregoing sections
in an amount not to exceed $500,000 in the aggregate at any time outstanding or
(x) Investments by the Company in the Guarantor.
1.17 "Permitted Liens" shall have the meaning set
forth in Section 5.4.
1.18 "Person" means any individual, firm,
corporation, partnership, trust, joint venture, joint stock company, limited
liability company, Governmental Authority or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
1.19 "Price Per Share" shall have the meaning
attributed to such term in the Series E Certificate of Determination, as filed
with the Secretary of State of the State of California.
1.20 "Purchase Agreement" means that certain
Convertible Note Purchase and Exchange Agreement, dated November 18, 2003, among
the Company, the Holder and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.
1.21 "Qualified Asset Sale" means the sale,
transfer or other disposition of any of the assets of the Company or any of its
Subsidiaries, other than (a) sales of assets in the ordinary course of business,
(b) sales of assets where the proceeds are used to repay Indebtedness owing to
SVB, (c) the sale, transfer or other disposition of assets of the Company where
the proceeds are applied to the purchase price or traded in for credit against
the purchase price of other assets, provided that any such purchase is made, or
credit issued, within 90 days of the sale, transfer or other disposition, and
(d) one or more sales of the Company's assets (other than sales otherwise
included in clauses (a), (b), and (c) immediately above) which collectively
yield up to an aggregate of one million dollars ($1,000,000) in gross proceeds
to the Company while this Note is outstanding.
1.22 "Restricted Payment" means (a) any dividend
or other distribution (whether in cash, securities or other property) with
respect to any shares of any class of capital stock of the Company or any of its
Subsidiaries or (b) any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any shares
of any class of capital stock of the Company or any Subsidiary or any option,
warrant or other right to acquire any such shares of capital stock of the
Company or any Subsidiary.
5
1.23 "Security Agreement" means that certain
Guaranty and Security Agreement, of even date herewith between the Company,
Compass Holding Corp., the Lenders and the other parties thereto from time to
time, and all amendments, modifications and extensions thereto.
1.24 "Series E Conversion Price" shall have the
meaning set forth in the Series E Certificate of Determination.
1.25 "Series E Preferred Stock" means the Series
E Preferred Stock, par value $0.001, of the Company.
1.26 "Subordination Agreement" shall have the
meaning set forth in Section 5.3.
1.27 "SVB" means Silicon Valley Bank, a
California chartered bank, or any Affiliates thereof.
1.28 "UCC" shall have the meaning set forth in
Section 5.4.
2. Interest. Simple interest shall accrue at the rate of
ten percent (10%) per annum (or such lesser amount as shall equal the highest
rate of interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.
3. Conversion.
3.1 Conversion. On the Conversion Date, the
principal amount of this Note plus the greater of (i) the accrued and unpaid
interest thereon and (ii) the Guaranteed Interest (the greater of clause (i) and
(ii), the "Interest Amount"), shall be automatically converted into the number
of fully paid and nonassessable shares of Series E Preferred Stock equal to the
quotient obtained by dividing (a) the entire principal amount of this Note plus
the Interest Amount by (b) the Price Per Share.
3.2 Notice of Conversion. Upon conversion of
this Note as provided in Section 3.1, Holder shall surrender this Note to the
Company and shall state the name or names in which the certificate or
certificates for such shares of Series E Preferred Stock are to be issued. The
Person or Persons entitled to receive the shares of Series E Preferred Stock
issuable upon such conversion shall be treated for all purposes
6
as the record holder or holders of such shares of Series E Preferred Stock as of
the Conversion Date.
3.3 Delivery of Stock Certificates. On the
Conversion Date, the Company at its expense will issue and deliver to Holder of
this Note a certificate or certificates (bearing such legends as are required by
applicable state and federal securities laws in the opinion of counsel to the
Company) for the number of full shares of Series E Preferred Stock issuable upon
such conversion.
3.4 Mechanics and Effect of Conversion. No
fractional shares of Series E Preferred Stock shall be issued upon conversion of
this Note. In lieu of the Company issuing any fractional shares to Holder upon
the conversion of this Note, the Company shall pay to Holder the amount of
outstanding principal and interest that is not so converted. Upon conversion of
all amounts due under this Note, the Company shall be released from all of its
obligations under this Note.
4. Adjustments. The number of shares of Series E
Preferred Stock convertible hereunder are subject to adjustment from time to
time as follows:
4.1 Merger, Sale of Assets, Etc. Subject to
Section 4.2, if at any time while this Note remains outstanding and unexpired
there shall be (a) a reorganization (other than a combination, reclassification,
exchange or subdivision of shares otherwise provided for herein), (b) a merger
or consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the
7
provisions of this Note shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon conversion of this Note. The Company shall be obligated to
retain and set aside, or otherwise make fair provision for exercise of the right
of the Holder to receive, the shares of stock and/or other securities, cash or
other property provided for in this Section 4.1.
4.2 Election of Holder upon Merger or Sale of
Assets. Notwithstanding anything to the contrary contained herein, if an event
shall occur as provided in Section 4.1 hereof that would otherwise result in the
occurrence of the Maturity Date pursuant to clause (iii) or (iv) of the first
paragraph of this Note, then the Holder may, in its sole discretion, by written
notice to the Company elect to convert the principal amount of this Note plus
the Interest Amount into the number of shares of stock or other securities or
property described in Section 4.1, in lieu of receiving payment in full of all
amounts outstanding under this Note. The number of shares of stock or other
securities or property to be issued upon such conversion shall be determined in
accordance with Section 4.1 hereof, taking into account the occurrence of such
event.
4.3 Reclassification, Etc. If the Company shall,
at any time while this Note, or any portion thereof, remains outstanding and
unexpired, by reclassification of securities or otherwise, change any of the
securities as to which conversion rights under this Note exist into the same or
a different number of securities of any other class or classes, this Note shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable with respect to the securities that were subject to the
conversion rights under this Note immediately prior to such reclassification or
other change, and the Price Per Share shall be appropriately adjusted, all
subject to further adjustment as provided in this Section 4.
4.4 Split, Subdivision or Combination of Shares.
If the Company at any time while this Note, or any portion thereof, remains
outstanding and unexpired shall split, subdivide or combine the shares of Series
E Preferred Stock into a different number of securities of the same class, the
Price Per Share shall be proportionately adjusted.
4.5 Series E Adjustments. The initial Series E
Conversion Price of the shares of Series E Preferred Stock issued upon
conversion of this Note pursuant to Section 3.1 shall equal the Series E
Conversion Price in effect on the Conversion Date, subject to the adjustment of
such Series E Conversion Price from time to time thereafter as provided in the
Series E Certificate of Determination.
4.6 Certificate as to Adjustments. Upon the
occurrence of each adjustment or readjustment pursuant to this Section 4, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to Holder a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based.
4.7 No Impairment. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be
8
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.
5. Covenants. The Company covenants and agrees that
until the earlier of (i) the date on which all Obligations (as defined in the
Security Agreement) have been paid in full or (ii) the Conversion Date:
5.1 Financial Statements and Other Information.
The Company shall deliver to the Holder of this Note the financial statements
and other information required to be delivered under Section 8.1 of the Purchase
Agreement.
5.2 Financial Covenants. The Company shall at
all times comply with the financial and other covenants set forth in Schedule
8.5 to the Purchase Agreement as if such covenants were set forth herein.
5.3 Indebtedness. The Company shall not, and
shall not permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness, provided, however, that the foregoing shall not
restrict nor operate to prevent:
(a) Indebtedness in favor of the
Holders under the Loan Documents;
(b) Indebtedness existing on the date
hereof, and as set forth on Schedule 3.22 to the Purchase Agreement;
(c) Indebtedness for accounts payable
incurred in the ordinary course of business by the Company;
(d) Indebtedness incurred solely for
the purpose of financing the acquisition of any equipment, machinery, software,
improvements or any other similar property, or extensions, renewals or
replacements of any of the foregoing for the same or a lesser amount; provided,
that the aggregate outstanding principal amount of all Indebtedness permitted
pursuant to this clause (d) outstanding for more than sixty (60) days after the
incurrence of such Indebtedness shall not at any time exceed $500,000;
(e) Indebtedness of the Company
evidenced by Capitalized Lease Obligations, provided, that in no event shall the
aggregate principal amount of Capitalized Lease Obligations permitted by this
clause (e) exceed $500,000 at any time outstanding; and
(f) Any extension renewal, refinancing,
refunding, or replacement (each, a "refinancing") of Indebtedness permitted by
clauses (b) and (e) above, on such terms and conditions as are, on the whole,
not materially more onerous to the Company than the terms and conditions of such
original Indebtedness on the date of
9
such refinancing (including that the principal amount of such refinancing
Indebtedness does not exceed the principal amount of, plus the amount of accrued
and unpaid interest on, the Indebtedness so refinanced (plus the amount of
reasonable premium and fees and expenses incurred in connection therewith)),
provided that, in the case of a refinancing of Indebtedness owed by the Company
or any Subsidiary to SVB, this clause (f) shall only apply to the extent
consistent with the Subordination Agreement, dated as of the date hereof, by and
among SVB, the Holders and the Company (the "Subordination Agreement").
5.4 Liens. The Company shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon or with respect to any property or assets (real or personal, tangible
or intangible) of the Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable), or assign any right to
receive income or permit the filing of any financing statement under the Uniform
Commercial Code, as from time to time in effect in the relevant jurisdiction
(the "UCC"), or any other similar notice of Lien under any similar recording or
notice statute; provided, that the provisions of this Section 5.4 shall not
prevent the creation, incurrence, assumption or existence of the following:
(a) Liens arising in the ordinary course of
business by statute in connection with worker's compensation, unemployment
insurance, old age benefits, social security obligations, statutory obligations
or other similar charges (other then Liens arising under ERISA), good faith cash
deposits in connection with tenders, contracts or leases to which the Company or
any Subsidiary is a party or other cash deposits required to be made in the
ordinary course of business, provided, that such Liens do not have a material
adverse effect on the ability of the Company to repay amounts due under the
Notes;
(b) inchoate Liens for taxes, assessments or
governmental charges or levies not yet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by appropriate
proceedings for which adequate reserves have been established in accordance with
GAAP;
(c) Liens in respect of property or assets
of the Company or its Subsidiaries imposed by law, which were incurred in the
ordinary course of business and do not secure Indebtedness for borrowed money,
such as carriers', warehousemen's, materialmen's and mechanics' liens and other
similar Liens arising in the ordinary course of business, and (i) which do not
in the aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect on the Condition of the Company or (ii) which are being contested
in good faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to any such
Lien;
(d) the pledge of assets for the purpose of
securing an appeal, stay or discharge in the course of any legal proceeding,
provided that the
10
aggregate amount of liabilities of the Company and its Subsidiaries secured by a
pledge of assets permitted under this subsection, including interest and
penalties thereon, if any, shall not be in excess of $500,000 at any one time
outstanding;
(e) any interest or title of a lesser under
any operating lease;
(f) easements, rights-of-way, restrictions
and other similar encumbrances against real property incurred in the ordinary
course of business;
(g) the Liens existing on the date hereof
identified on Schedule 3.22 to the Purchase Agreement;
(h) Liens on cash deposited with account
debtors to secure performance by the Company or any Subsidiary in the ordinary
course of business subject to customary and reasonable terms;
(i) Liens upon assets of the Company or its
Subsidiaries subject to Capitalized Lease Obligations, provided, that (A) such
Liens only serve to secure the payment of Indebtedness permitted by Section
5.3(e) arising under such Capitalized Lease Obligation and (B) the Lien
encumbering the asset giving rise to the Capitalized Lease Obligation does not
encumber any other asset of the Company or its Subsidiaries;
(j) Liens placed upon equipment, machinery,
software, improvements or any other similar property, used in the ordinary
course of business of the Company or any of its Subsidiaries at the time of the
acquisition thereof by the Company or any of its Subsidiaries or within ninety
(90) days thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any other
asset of the Company or its Subsidiaries;
(k) set-off rights of depository
institutions; and
(l) Liens created by the Security Agreement
(collectively with clauses (a) through (k) hereof, the "Permitted Liens").
5.5 Fundamental Changes. The Company will not,
and will not permit any Subsidiary to, merge into or consolidate with any other
Person, or permit any other Person to merge into or consolidate with it, or
sell, transfer, lease or otherwise dispose of (in one transaction or a series of
transactions) all or substantially all of its assets, or all or substantially
all of the stock of any of its Subsidiaries (in each case, whether now owned or
hereafter acquired), or liquidate or dissolve, except that, if at the time and
immediately after giving effect thereto no Event of Default shall have occurred
and be continuing (i) the Company or any of its Subsidiaries may, with the prior
written consent of the Holders, merge with or into any other Person; (ii) any
wholly-owned Subsidiary of the Company (other than the Guarantor) may merge with
or into the Company or any other wholly-owned Subsidiary of the Company; (iii)
any Subsidiary
11
(other than the Guarantor, and except as otherwise prohibited by this Note) may
sell, transfer, lease or otherwise dispose of its assets to the Company or to
another wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may
liquidate or dissolve if the board of directors of the Company determine in good
faith that such liquidation or dissolution is in its best interests and is not
disadvantageous to the Holders.
5.6 Restricted Payments. The Company will not,
and the Company will not permit any Subsidiary to, declare or make, or agree to
pay or make, directly or indirectly, any Restricted Payment, except that (i) any
Subsidiary may make a Restricted Payment to the Company or any of its
wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries may
make any Restricted Payment required by the terms of the Purchase Agreement and
the other documents executed in connection therewith.
5.7 Transactions with Affiliates. The Company
will not, and the Company will not permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) transactions that are at
prices and on terms and conditions not less favorable to the Company or such
Subsidiary than could be obtained on an arm's length basis from unrelated third
parties, (b) transactions exclusively between the Company and the Guarantor and
(c) transactions under the agreements listed on Schedule 3.17 to the Purchase
Agreement.
5.8 Investments. The Company will not, and the
Company will not permit any Domestic Subsidiary (as hereinafter defined) to,
make an Investment in any Person, except for Permitted Investments.
5.9 Nature of Business. The Company will not,
and the Company will not permit any Subsidiary to, engage in any business other
than that conducted on the date hereof and any businesses reasonably related
thereto.
5.10 Property of Existing Domestic Subsidiaries.
The Company will not permit, or suffer to allow, any Subsidiary that is
incorporated or otherwise organized under the laws of the United States of
America or any state thereof (a "Domestic Subsidiary"), excluding the Guarantor,
to (i) own, hold, lease, license, purchase or otherwise acquire any personal or
real property (excluding any material intellectual property) in excess of
$50,000 for all property held by such Subsidiary, or $250,000 in the aggregate
for all property held by all Domestic Subsidiaries (ii) maintain any deposit
account in its name, (iii) own or otherwise hold any rights to any material
intellectual property or (iv) otherwise conduct any business or maintain
operations.
5.11 Formation of Subsidiaries. The Company will
not, and will not cause or permit any of its Subsidiaries to, form, acquire or
permit the existence of any new domestic Subsidiary, without causing such
domestic Subsidiary to execute and deliver to the Holders a secured guaranty of
the Notes and related security document, in form and substance satisfactory to
the Holders.
12
5.12 Books and Records. The Company shall keep
proper books of record and account, in which full and correct entries shall be
made of all financial transactions and the assets and business of the Company
and its Subsidiaries in accordance with GAAP consistently applied.
5.13 Inspection. The Company shall, and shall
cause each of its Subsidiaries to, permit representatives of the Holders to
visit and inspect any of its properties, to examine its corporate, financial and
operating records and make copies thereof or abstracts therefrom, and to discuss
its affairs, finances and accounts with their respective directors, officers and
independent public accountants, all at such reasonable times during normal
business hours and as often as may be reasonably requested upon notice to the
Company.
5.14 Maintenance of Business. The Company shall,
and shall cause each Subsidiary to, preserve and maintain its existence. The
Company shall, and shall cause each Subsidiary to, preserve and keep in force
and effect all licenses, permits, franchises, approvals, patents, trademarks,
trade names, trade styles, copyrights, and other property rights necessary to
the proper conduct of its business, except where the failure to do so could not
reasonably be expected to have a material adverse effect on the Condition of the
Company or on the prospects of repayment of the Notes.
5.15 Maintenance of Properties. The Company
shall, and shall cause each Subsidiary to, maintain, preserve and keep its
property and equipment in good repair, working order and condition (ordinary
wear and tear excepted) and shall from time to time make all needful and proper
repairs, renewals, replacements, additions and betterments thereto so that at
all times the efficiency thereof shall by fully preserved and maintained, except
in each case to the extent that, in the reasonable business judgment of such
Person, any such property or equipment is no longer necessary for the proper
conduct of the business of such Person.
6. The occurrence of any one or more of the following
events shall constitute an "Event of Default":
6.1 Failure To Pay. (i) The failure of the
Company to pay any principal due under any of the Notes when due and payable
(whether by acceleration, declaration, extension or otherwise), or (ii) the
failure of the Company to pay any other amounts due under any of the Notes when
due and payable if such failure is not cured within five (5) days of Company's
receipt of notice thereof from any of the Holders.
6.2 Financial Covenants. The failure of Company
or any of its Subsidiaries to perform, observe or comply with any of the
Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2.
6.3 Other Covenants and Agreements. The failure
of Company or any of its Subsidiaries to perform, observe or comply with any of
the covenants of this Note, the Security Agreement or any of the other Loan
Documents (other than the
13
Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2), if such failure is not
cured within sixty (60) days.
6.4 Representations and Warranties. If any
representation or warranty made by the Company or any of its Subsidiaries in the
Loan Documents is not true and correct in all material respects on the Initial
Closing Date.
6.5 Default on Other Obligations. The occurrence
of any condition or default under any other indebtedness for borrowed money of
the Company or any of its Subsidiaries with a principal amount of at least five
hundred thousand dollars ($500,000) that results in the acceleration of such
indebtedness which is not cured within sixty (60) days.
6.6 Involuntary Bankruptcy. There shall be filed
against the Company or any of its Subsidiaries an involuntary petition or other
pleading seeking the entry of a decree or order for relief under the United
States Bankruptcy Code or any similar federal or state insolvency or similar
laws ordering: (a) the liquidation of the Company or any of its Subsidiaries or
(b) a reorganization of the Company or any of its Subsidiaries or the business
and affairs of the Company or any of its Subsidiaries or (c) the appointment of
a receiver, liquidator, assignee, custodian, trustee or similar official for the
Company or any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.
6.7 Voluntary Bankruptcy. The commencement by
the Company or any of its Subsidiaries of a voluntary case under the federal
bankruptcy laws or any federal or state insolvency or similar laws or the
consent by the Company or any of its Subsidiaries to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian or
similar official for the Company or any of its Subsidiaries of any of the
property of the Company or any of its Subsidiaries or the making by the Company
or any of its Subsidiaries of an assignment for the benefit of creditors, or the
failure by Company or any of its Subsidiaries generally to pay its debts as the
debts become due.
6.8 Judgments, Awards. Any judgment or order for
the payment of money is rendered against the Company or any of its Subsidiaries
in an amount in excess of five hundred thousand dollars ($500,000) individually
or in the aggregate and either (i) enforcement proceedings are commenced by any
creditor upon such judgment or order and not stayed, or (ii) there is any period
of sixty (60) consecutive days during which such judgment has not been paid in
full or a stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, is not in effect.
6.9 Attachment by Lenders. Any assets of the
Company or any of its Subsidiaries shall be attached, levied upon, seized or
repossessed, or come into the possession of a trustee, receiver or other
custodian and a determination by any Holder, in good faith but in its sole
discretion, that the same could have a material adverse effect on
14
the prospect for the Holders to fully and punctually realize the full benefits
conferred on the Holders by the Loan Documents.
6.10 Adverse Change in Financial Condition. Any
event having a material adverse effect on the business, operations, assets,
properties or condition of the Company and its Subsidiaries taken as a whole
shall have occurred and be continuing or a material adverse effect on the
validity or enforceability of this or any of the other Loan Documents or the
rights or remedies of the Holders hereunder or thereunder.
7. Remedies. Upon and after the occurrence of an Event
of Default, the Holder shall be entitled to the exercise the rights and remedies
set forth in the Security Agreement, the other Loan Documents and under
applicable law, all such rights and remedies being cumulative and enforceable
alternatively, successively or concurrently.
8. Prepayment. The Company may not prepay this Note
prior to the Maturity Date without the prior written consent of the Holders.
9. Seniority. Except as set forth in the Subordination
Agreement, the Notes will rank senior in right of payment to all other
indebtedness of the Company.
10. Assignment. Subject to the restrictions on transfer
described in Section 12 below, the rights and obligations of the Company and
Holder shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties. The Company shall not be
permitted to assign this Note without the prior written consent of the Holders.
11. Waiver of Notice. The Company hereby waives notice,
presentment, demand, protest and notice of dishonor.
12. Transfer of This Note. With respect to any offer,
sale or other disposition of this Note, Holder will give written notice to the
Company prior thereto, describing briefly the manner thereof, together with a
written opinion of such Holder's counsel, to the effect that such offer, sale or
other distribution may be effected without registration or qualification (under
any federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon
delivering such written notice and opinion, if so required, Holder may sell or
otherwise dispose of this Note, all in accordance with the terms of the notice
delivered to the Company. Each Note thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions. Notwithstanding the foregoing, the Holder
shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i)
15
the obtaining of Stockholder Approval, (ii) the receipt of written notice from
the Company that Stockholder Approval cannot be obtained, or the occurrence of
an actual vote of the Company's shareholders entitled to vote (whether by
written consent or at a meeting specially called for such purpose), the result
of which is a decision by a majority of the Company's shareholders entitled to
vote to decline to grant Stockholder Approval, (iii) six (6) months from the
date hereof and (iv) the occurrence of an Event of Default.
13. Treatment of Note. To the extent permitted by
generally accepted accounting principles, the Company will treat, account and
report the Note as debt and not equity for accounting purposes and with respect
to any returns filed with federal, state or local tax authorities.
14. Notices. Any notice, request or other communication
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if personally delivered or if sent by nationally recognized
courier service or mailed by registered or certified mail, postage prepaid, to
the respective addresses of the parties as set forth on the signature pages
hereto or if sent by facsimile to the respective facsimile numbers of the
parties set forth on the signature pages hereto. Any party hereto may by notice
so given change its address for future notice hereunder. Notice shall
conclusively be deemed to have been given and received when personally delivered
or three (3) business days after deposited in the mail or one business day after
sent by courier or upon confirmation of facsimile delivery in the manner set
forth above.
15. No Stockholder Rights. Nothing contained in this Note
shall be construed as conferring upon Holder or any other Person the right to
vote or to consent or to receive notice as a stockholder in respect of meetings
of stockholders for the election of directors of the Company or any other
matters or any rights whatsoever as a stockholder of the Company.
16. Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of California, excluding that
body of law relating to conflict of laws.
17. Amendments and Waivers. No amendments or waivers of
any provision of this Note, and no consent by the Holder to any departure by the
Company, shall in any event be effective unless the same shall be in writing,
and signed by the Holders of a majority of the outstanding principal amount of
all of the Notes issued by the Company pursuant to the Purchase Agreement, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
18. Severability. Any provision of this Note that is
prohibited or unenforceable in a jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
19. WAIVER OF JURY TRIAL. THE COMPANY AND THE
16
HOLDER HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR
PROCEEDING TO WHICH THE COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF,
IN CONNECTION WITH OR IN ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN
DOCUMENTS AND/OR ANY TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR
UNDERSTANDINGS (OR THE LACK OF ANY OF THE FOREGOING) RELATING IN ANY WAY TO
DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE PARTIES. IT IS UNDERSTOOD AND AGREED
THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL
PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE
NOT PARTIES TO THIS NOTE. THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN,
KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE
COMPANY AND THE HOLDER HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION
HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY
AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT
MATTER AND THE COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF
SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER
REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS
OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL.
20. Heading; References. All headings used herein are
used for convenience only and shall not be used to construe or interpret this
Note. Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.
[the remainder of this page intentionally left blank]
17
IN WITNESS WHEREOF, the Company has caused this Note to be
issued this ___ day of November, 2003.
COMPANY:
CRITICAL PATH, INC.,
a California corporation
By:
----------------------------------
Name:
Title:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
With a copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg Vignos, Esq.
Name of Holder: __________________________
Address: ______________________________
______________________________
Telephone ______________________________
Facsimile ______________________________
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Douglas A. Cifu, Esq.
Telephone: (212) 373-3436
Fax: (212) 757-3990
APPENDIX C
CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES E REDEEMABLE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.001 PER SHARE, OF
CRITICAL PATH, INC.,
a California corporation
Pursuant to Section 401 of the California Corporations Code,
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, do
hereby certify that:
1. They are the duly elected and acting Chief Executive Officer
and Chairman of the Board of Directors and Senior Vice President, General
Counsel and Secretary, respectively, of Critical Path, Inc., a California
corporation (the "Corporation").
2. Pursuant to authority given in the Corporation's Amended and
Restated Articles of Incorporation, the following recitals and resolutions,
creating a series of [___________] ([__________]) shares of Series E Redeemable
Convertible Preferred Stock were duly adopted by the Corporation's Board of
Directors on [__________].
WITNESSETH
WHEREAS, the Board of Directors is authorized, within the limitations
and restrictions stated in the Amended and Restated Articles of Incorporation of
the Corporation, to provide by resolution or resolutions for the issuance of
shares of Preferred Stock, par value $0.001 per share, of the Corporation, in
one or more classes or series with such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions as shall be stated and expressed in the resolution or resolutions
providing for the issuance thereof adopted by the Board of Directors, and as are
not stated and expressed in the Amended and Restated Articles of Incorporation,
or any amendment thereto, including (but without limiting the generality of the
foregoing) such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the California Corporations Code; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of Preferred
Stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby
created and established a series of Preferred Stock designated as "Series E
Redeemable Convertible Preferred Stock" (the "Series E Preferred Stock"). The
authorized number of shares of Series E Preferred Stock shall be [___________]
([__________]). Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in Section 10 below.
2. Rank. The Series E Preferred Stock shall with respect to the
payment of the Series E Liquidation Payment in the event of Liquidation or
Change of Control and with respect to dividend and redemption rights rank senior
to (i) all classes of common stock of the Corporation (including, without
limitation, the Common Stock, par value $0.001 per share, of the Corporation
(the "Common Stock")), (ii) all classes of preferred stock of the Corporation
(including, without limitation, the Series C Participating Preferred Stock, par
value $0.001 per share, and the Series D Preferred Stock) and (iii) each other
class or series of Capital Stock of the Corporation hereafter created which does
not expressly rank pari passu with or senior to the Series E Preferred Stock
(clauses (i), (ii) and (iii), together, the "Junior Stock").
3. Dividends.
(a) Dividend Rate. The holders of shares of Series E
Preferred Stock shall accrue dividends at an annual rate equal to five and
three-fourths percent (5 3/4%) of the Price Per Share, calculated on the basis
of a 360-day year, consisting of twelve 30-day months, and shall accrue on a
daily basis from the date of issuance thereof, whether or not the Corporation
has earnings or profits, whether or not there are funds legally available for
the payment of dividends and whether or not declared by the Board of Directors.
Such dividends shall not be paid in cash and shall instead be added to the
Series E Accreted Value on a semi-annual basis on December 31st and June 30th of
each year (each such date, a "Series E Accrual Date"). If the Corporation
declares and pays any dividends on the Common Stock, then, in that event, the
holders of shares of Series E Preferred Stock shall be entitled to share in such
dividends on a pro rata basis, as if their shares had been converted into shares
of Common Stock pursuant to Section 7(a) below immediately prior to the record
date for determining the stockholders of the Corporation eligible to receive
such dividends.
(b) Other Dividends. The Corporation shall not declare or
pay any dividends on, or make any other distributions with respect to or redeem,
purchase or otherwise acquire for consideration, any other shares of Capital
Stock unless and until all accrued and unpaid dividends on the Series E
Preferred Stock have been paid in full. Notwithstanding Section 2 or this
Section 3(b), dividends shall accrue on the Series D Preferred Stock as provided
in Section 3 of the Amended and Restated Series D Certificate of Determination.
4. Liquidation and Change of Control.
(a) Series E Liquidation Payment. Upon the occurrence of
a Liquidation, the holders of shares of Series E Preferred Stock shall be paid
in cash for each share of Series E Preferred Stock held thereby, out of, but
only to the extent of, the assets of the Corporation legally available for
distribution to its stockholders, an amount equal to greater of (i) the sum of
2
(A) the Series E Accreted Value of such share of Series E Preferred Stock on the
date of such Liquidation plus (B) all dividends accrued since the previous
Series E Accrual Date or (ii) the aggregate consideration that would be paid to
the holder of the number of shares of Common Stock into which such share of
Series E Preferred Stock is convertible immediately prior to such Liquidation.
If the assets of the Corporation available for distribution to the holders of
shares of Series E Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of
shares of Series E Preferred Stock shall be distributed among and paid to such
holders ratably in proportion to the amounts that would be payable to such
holders if such assets were sufficient to permit payment in full.
(b) Change of Control. In the event of a Change of
Control, the holders of shares of Series E Preferred Stock shall be paid for
each share of Series E Preferred Stock held thereby, an amount equal to greater
of (i) the sum of (A) the Series E Accreted Value of such share of Series E
Preferred Stock on the date of such Change of Control plus (B) all dividends
accrued since the previous Series E Accrual Date or (ii) the aggregate
consideration that would be paid to the holder of the number of shares of Common
Stock into which such share of Series E Preferred Stock is convertible
immediately prior to the closing of such Change of Control. Such amount shall be
paid in the form of consideration paid in such Change of Control on the closing
date of such Change of Control.
5. Redemption.
(a) Optional Redemption.
(i) Series E Optional Redemption Period. The
Corporation shall not have any right to redeem any shares of the Series E
Preferred Stock on or prior to the third anniversary of the Series E Closing
Date. If on any date after the third anniversary of the Series E Closing Date,
but prior to the Series E Automatic Redemption Date, the average closing price
per share of the Common Stock, as reported on NASDAQ or other nationally
recognized securities exchange on which the shares of Common Stock trade, for
any sixty (60) consecutive trading days after such third anniversary date,
equals or exceeds four hundred percent (400%) of the Series E Accreted Value
(the "Series E Optional Redemption Measurement Window"), the Corporation shall
have the right, at its sole option and election, to redeem (unless otherwise
prevented by law) within thirty (30) days following such Series E Optional
Redemption Measurement Window (the "Series E Optional Redemption Period"), all,
but not less than all, of the outstanding shares of Series E Preferred Stock in
cash, at a price per share (the "Series E Optional Redemption Price") equal to
the sum of the Series E Accreted Value plus all dividends accrued since the
previous Series E Accrual Date.
(ii) Optional Redemption Payment. Written notice
of any election by the Corporation to redeem the shares of Series E Preferred
Stock pursuant to Section 5(a) (with a closing date prior to the expiration of
the Series E Optional Redemption Period selected for such redemption (the
"Series E Optional Redemption Date")), shall be delivered in person, mailed by
certified mail, return receipt requested, mailed by overnight mail or sent by
telecopier not less than ten (10), nor more than thirty (30), days prior to such
Series E Optional Redemption Date to the holders of record of the shares of
Series E Preferred Stock, such notice to be addressed to
3
each such holder at its address as shown in the records of the Corporation. The
Series E Optional Redemption Price shall be made with respect to each share of
Series E Preferred Stock by wire transfer of immediately available funds or
check as promptly as practicable and, in any event, within seven (7) days after
receipt by the Corporation of the Series E Preferred Stock certificates to
accounts designated in writing by the holders of such shares of Series E
Preferred Stock (in the case of wire transfer) after surrender of the Series E
Preferred Stock certificates pursuant to the following sentence. Upon notice
from the Corporation, each holder of shares of Series E Preferred Stock so
redeemed shall promptly surrender to the Corporation, at any place where the
Corporation shall maintain a transfer agent for its shares of Series E Preferred
Stock, certificates representing the shares so redeemed, duly endorsed in blank
or accompanied by proper instruments of transfer. Notwithstanding anything to
the contrary set forth in this Certificate of Determination, any holder of
Series E Preferred Stock may convert its shares of Series E Preferred Stock
pursuant to Section 7(a) until the Series E Optional Redemption Price has been
paid in full by the Corporation to such holder.
(iii) Termination of Rights. If shares of Series E
Preferred Stock are redeemed in full on the Series E Optional Redemption Date,
then after the Series E Optional Redemption Date, all rights of any holder of
shares of Series E Preferred Stock shall cease and terminate, and such shares of
Series E Preferred Stock shall no longer be deemed to be outstanding; provided,
however, that, if the Corporation defaults in the payment in full of the Series
E Optional Redemption Price, then, subject to Section 5(b), the Corporation may
not redeem the shares of Series E Preferred Stock until the next Series E
Optional Redemption Measurement Window.
(b) Automatic Redemption.
(i) Automatic Redemption Date and Payment. On
the fourth anniversary of the Series E Closing Date (the "Series E Automatic
Redemption Date"), all of the shares of Series E Preferred Stock shall
automatically, with no further action required to be taken by the Corporation or
the holder thereof, be redeemed (unless otherwise prevented by law) in cash, at
a redemption price per share (the "Series E Redemption Price") equal to the sum
of the Series E Accreted Value plus all dividends accrued since the previous
Series E Accrual Date. Written notice of the Series E Automatic Redemption Date
shall be delivered in person, mailed by certified mail, return receipt
requested, mailed by overnight mail or sent by telecopier not less than thirty
(30), nor more than sixty (60), days prior to the Series E Automatic Redemption
Date to the holders of record of the shares of Series E Preferred Stock, such
notice to be addressed to each such holder at its address as shown in the
records of the Corporation. The Series E Redemption Price shall be made with
respect to each share of Series E Preferred Stock by wire transfer of
immediately available funds or check as promptly as practicable and, in any
event, within seven (7) days after receipt by the Corporation of the Series E
Preferred Stock certificates to accounts designated (in the case of wire
transfer) in writing by the holders of such shares of Series E Preferred Stock
after surrender of the Series E Preferred Stock certificates pursuant to the
following sentence. Upon notice from the Corporation, each holder of such shares
of Series E Preferred Stock so redeemed shall promptly surrender to the
Corporation, at any place where the Corporation shall maintain a transfer agent
for its shares of Series E Preferred Stock, certificates representing the shares
so redeemed, duly endorsed in blank or accompanied by proper instruments of
transfer. Notwithstanding anything to the contrary set forth in this
4
Certificate of Determination, any holder of Series E Preferred Stock may convert
its shares of Series E Preferred Stock pursuant to Section 7(a) hereof until the
Series E Redemption Price has been paid in full by the Corporation to any such
holder.
(ii) Termination of Rights. If the shares of
Series E Preferred Stock are redeemed in full on the Series E Automatic
Redemption Date, then after the Series E Automatic Redemption Date, all rights
of any holder of such shares of Series E Preferred Stock shall cease and
terminate, and such shares of Series E Preferred Stock shall no longer be deemed
to be outstanding, whether or not the certificates representing such shares have
been received by the Corporation; provided, however, that, if the Corporation
defaults in the payment in full of the Series E Redemption Price, the rights of
the holders of shares of Series E Preferred Stock shall continue until the
Corporation cures such default.
(iii) Insufficient Funds for Redemption. If the
funds of the Corporation available for redemption of the shares of Series E
Preferred Stock on the Series E Automatic Redemption Date are insufficient to
redeem in full the shares of Series E Preferred Stock, the holders of shares of
Series E Preferred Stock shall share ratably in any funds available by law for
redemption of such shares according to the respective amounts which would be
payable with respect to the number of shares owned by them if the shares to be
so redeemed on such Series E Automatic Redemption Date were redeemed in full.
Any shares of Series E Preferred Stock that the Corporation does not redeem on
the Series E Automatic Redemption Date due to insufficient funds shall continue
to be outstanding until redeemed and dividends on such shares shall continue to
accrue and cumulate until redeemed. The Corporation shall in good faith use all
commercially reasonable efforts as expeditiously as possible to eliminate, or
obtain an exception, waiver or exemption from, any and all restrictions that
prevented the Corporation from paying the Series E Redemption Price and
redeeming all of the shares of Series E Preferred Stock. At any time thereafter
when additional funds of the Corporation are available by law for the redemption
of the shares of Series E Preferred Stock, such funds shall be used as promptly
as practicable to redeem the balance of such shares, or such portion thereof for
which funds are available, on the basis set forth above.
6. Voting Rights.
(a) General. In addition to the voting rights to which
the holders of Series E Preferred Stock are entitled under or granted by
California law, the holders of Series E Preferred Stock shall be entitled to
vote, in person or by proxy, at a special or annual meeting of stockholders on
all matters entitled to be voted on by holders of shares of Common Stock voting
together as a single class with the Common Stock (and with other shares entitled
to vote thereon, if any), including, without limitation, the election of all of
the directors of the Corporation other than the director elected solely by the
holders of the shares of Series D Preferred Stock pursuant to Section 6(b) of
the Amended and Restated Series D Certificate of Determination. With respect to
any such vote, each share of Series E Preferred Stock shall entitle the holder
thereof to cast that number of votes as is equal to the number of votes that
such holder would be entitled to cast had such holder converted its shares of
Series E Preferred Stock into shares of Common Stock pursuant to Section 7(a)
below on the record date for determining the stockholders of the Corporation
eligible to vote on any such matters.
5
(b) Series E Actions. At any meeting of the holders of
shares of Series E Preferred Stock held for the purpose of voting upon any
resolutions requiring the approval of the holders of shares of Series E
Preferred Stock, voting as a separate class or series, the presence in person or
by proxy of the holders of a majority of the shares of Series E Preferred Stock
then outstanding shall constitute a quorum of the Series E Preferred Stock; the
holders of shares of Series E Preferred Stock shall be entitled to cast one vote
per share of Series E Preferred Stock; and such resolution shall be deemed
approved upon the affirmative vote of the holders of a majority of the
outstanding shares of Series E Preferred Stock present in person or represented
by proxy at such meeting.
(c) Action Without a Meeting. Any action required by the
California Corporations Code to be taken at any annual or special meeting of
holders of Series E Preferred Stock, voting as a separate class or series, may
be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding shares of Series E Preferred Stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting of the holders of Series E Preferred Stock
pursuant to Section 6(b) and shall be delivered (by hand or certified or
registered mail, return receipt requested) to the Corporation by delivery to its
registered office in the State of California, its principal place of business,
or any officer or agent of the Corporation having custody of the book in which
proceedings of meetings of the holders of Series E Preferred Stock are recorded.
Every written consent shall bear the date of signature of each holder of Series
E Preferred Stock who signs the consent. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall,
to the extent, required by applicable law, be given to those holders of Series E
Preferred Stock who have not consented in writing, and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents signed
by a sufficient number of holders to take the action were delivered to the
Corporation.
(d) Major Actions. Notwithstanding anything to the
contrary set forth in the Amended and Restated Articles of Incorporation or the
By-laws of the Corporation, the affirmative vote of the holders of the
outstanding shares of Series E Preferred Stock acting in accordance with Section
6(b) or 6(c), voting as a separate class, shall be a prerequisite to:
(i) any amendment to, restatement of or waiver
of the terms of the Series E Preferred Stock, including, without limitation, by
merger, consolidation, business combination or otherwise that is not a Change of
Control;
(ii) the issuance, reservation for issuance or
authorization of any Capital Stock of the Corporation or any right or option to
acquire shares of Capital Stock ranking senior to the shares of Series E
Preferred Stock or any increase or decrease in the authorized number of shares
of Series E Preferred Stock; provided, that the Corporation may issue (w)
options or shares pursuant to the Stock Option Plans, (x) shares of Series E
Preferred Stock (A) upon conversion of those certain convertible promissory
notes, with an aggregate principal amount of ten million dollars ($10,000,000),
issued by the Corporation on November [__], 2003, (B) in exchange for those
certain 5 -3/4% Convertible Subordinated Notes, due April 1, 2005, in the
principal face amount of thirty-two million seven hundred ninety-five thousand
dollars
6
($32,795,000), issued by the Corporation pursuant to the Corporation's
Indenture, dated March 31, 2000 and (C) issuable pursuant to agreements entered
into prior to the Series E Closing Date, (y) up to ten million (10,000,000)
shares of Series E Preferred Stock issuable at the Price Per Share (excluding
the shares of Series E Preferred Stock issued or authorized pursuant to clause
(A), (B) or (C) above) and (z) issue of the Series E Purchase Rights and the
Rights Shares;
(iii) the redemption of any Junior Stock other
than the repurchase of unvested stock options or restricted stock from
employees, officers, directors or consultants of the Corporation upon
termination of service or in accordance with the Stock Option Plans;
(iv) prior to the payment in full of the Series E
Liquidation Payment, any distribution or payment of any dividend or other
distribution to any Junior Stock, provided that, no consent of the holders of
Series E Preferred Stock shall be required for the accrual of dividends on the
Series D Preferred Stock as provided in Section 3 of the Amended and Restated
Certificate of Determination of Preferences of Series D Preferred Stock; and
(v) any amendment to this Section 6(d).
7. Conversion.
(a) Optional Conversion. Any holder of shares of Series E
Preferred Stock shall have the right, at its option, at any time and from time
to time, to convert, subject to the terms and provisions of this Section 7, any
or all of such holder's shares of Series E Preferred Stock into such number of
fully paid and non-assessable shares of Common Stock as is equal to the product
of (i) the number of shares of Series E Preferred Stock being so converted
multiplied by (ii) the quotient of (x) the Series E Accreted Value divided by
(y) the Series E Conversion Price, subject to adjustment as provided in Section
7(c) below. Such conversion right shall be exercised by the surrender of
certificate(s) representing the shares of Series E Preferred Stock to be
converted to the Corporation at any time during usual business hours at its
principal place of business maintained by it (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of shares of Series E Preferred Stock), accompanied by written notice
that the holder elects to convert such shares of Series E Preferred Stock and
specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Corporation) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds therefor,
if required pursuant to Section 7(i) below. All certificates representing shares
of Series E Preferred Stock surrendered for conversion shall be delivered to the
Corporation for cancellation and canceled by it. As promptly as practicable
after the surrender of any shares of Series E Preferred Stock, in any event
within seven (7) days of the receipt of such certificates, the Corporation shall
(subject to compliance with the applicable provisions of federal and state
securities laws) deliver to the holder of such shares so surrendered
certificate(s) representing the number of fully paid and nonassessable shares of
Common Stock into which such shares are entitled to be converted. At the time of
the surrender of such certificate(s), the Person in whose name any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to be the holder of record of such shares of Common Stock on
such date,
7
notwithstanding that the share register of the Corporation shall then be closed
or that the certificates representing such Common Stock shall not then be
actually delivered to such Person.
(b) Termination of Rights. On the date of such optional
conversion pursuant to Section 7(a) above all rights with respect to the shares
of Series E Preferred Stock so converted, including the rights, if any, to
receive notices and vote, shall terminate, except only the rights of holders
thereof to (i) receive certificates for the number of shares of Common Stock
into which such shares of Series E Preferred Stock have been converted and (ii)
exercise the rights to which they are entitled as holders of Common Stock.
(c) (i) Dividend, Subdivision, Combination or
Reclassification of Common Stock. In the event that the Corporation shall at any
time or from time to time, prior to conversion of shares of Series E Preferred
Stock (w) pay a dividend or make a distribution on the outstanding shares of
Common Stock payable in Capital Stock of the Corporation, (x) subdivide the
outstanding shares of Common Stock into a larger number of shares, (y) combine
the outstanding shares of Common Stock into a smaller number of shares or (z)
issue any shares of its Capital Stock in a reclassification of the Common Stock
(other than any such event for which an adjustment is made pursuant to another
clause of this Section 7(c)), then, and in each such case, the Series E
Conversion Price in effect immediately prior to such event shall be adjusted
(and any other appropriate actions shall be taken by the Corporation) so that
the holder of any share of Series E Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock or
other securities of the Corporation that such holder would have owned or would
have been entitled to receive upon or by reason of any of the events described
above, had such share of Series E Preferred Stock been converted immediately
prior to the occurrence of such event. An adjustment made pursuant to this
Section 7(c)(i) shall become effective retroactively (x) in the case of any such
dividend or distribution, to a date immediately following the close of business
on the record date for the determination of holders of Common Stock entitled to
receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
(ii) Certain Distributions. In case the
Corporation shall at any time or from time to time, prior to conversion of
shares of Series E Preferred Stock, distribute to all holders of shares of the
Common Stock (including any such distribution made in connection with a merger
or consolidation in which the Corporation is the resulting or surviving Person
and the Common Stock is not changed or exchanged) cash, evidences of
indebtedness of the Corporation or another issuer, securities of the Corporation
or another issuer or other assets (excluding cash dividends in which holders of
shares of Series E Preferred Stock participate, in the manner provided in
Section 3(b); dividends payable in shares of Common Stock for which adjustment
is made under another paragraph of this Section 7(c); and any distribution in
connection with an Excluded Transaction) or rights or warrants to subscribe for
or purchase of any of the foregoing, then, and in each such case, the Series E
Conversion Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) by multiplying the Series E
Conversion Price in effect immediately prior to the date of such distribution by
a fraction (x) the numerator of which shall be the Current Market Price of the
Common Stock immediately prior to the date of distribution less the then fair
market value (as determined by the Board of Directors in the exercise of their
fiduciary duties) of the portion of the cash, evidences of indebtedness,
8
securities or other assets so distributed or of such rights or warrants
applicable to one share of Common Stock and (y) the denominator of which shall
be the Current Market Price of the Common Stock immediately prior to the date of
distribution (but such fraction shall not be greater than one); provided,
however, that no adjustment shall be made with respect to any distribution of
rights or warrants to subscribe for or purchase securities of the Corporation if
the holder of shares of Series E Preferred Stock would otherwise be entitled to
receive such rights or warrants upon conversion at any time of shares of Series
E Preferred Stock into Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iii) Other Changes. In case the Corporation at
any time or from time to time, prior to the conversion of shares of Series E
Preferred Stock, shall take any action affecting its Common Stock similar to or
having an effect similar to any of the actions described in Sections 7(c)(i) or
(ii) above or Section 7(f) below (but not including any action described in any
such Section) and the Board of Directors in good faith determines that it would
be equitable in the circumstances to adjust the Series E Conversion Price as a
result of such action, then, and in each such case, the Series E Conversion
Price shall be adjusted in such manner and at such time as the Board of
Directors in good faith determines would be equitable in the circumstances (such
determination to be evidenced in a resolution, a certified copy of which shall
be mailed to the holders of shares of Series E Preferred Stock).
(iv) No Adjustment. Notwithstanding anything
herein to the contrary, no adjustment under this Section 7(c) need be made to
the Series E Conversion Price if the Corporation receives written notice from
holders of a majority of the outstanding shares of Series E Preferred Stock that
no such adjustment is required.
(d) Abandonment. If the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to pay or deliver
such dividend or distribution, then no adjustment in the Series E Conversion
Price shall be required by reason of the taking of such record.
(e) Certificate as to Adjustments. Upon any adjustment in
the Series E Conversion Price, the Corporation shall within a reasonable period
(not to exceed ten (10) Business Days) following any of the foregoing
transactions deliver to each registered holder of shares of Series E Preferred
Stock a certificate, signed by (i) the Chief Executive Officer of the
Corporation and (ii) the Chief Financial Officer of the Corporation, setting
forth in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or decreased
Series E Conversion Price then in effect following such adjustment.
(f) Reorganization, Reclassification. In case of any
merger or consolidation of the Corporation (other than a Change of Control) or
any capital reorganization, reclassification or other change of outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value) (each, a "Transaction"), the
holder of each share of Series E Preferred Stock shall have the right to receive
in such
9
Transaction, in exchange for each share of Series E Preferred Stock, a security
identical to (and not less favorable than) the Series E Preferred Stock, and
provision shall be made therefor in the agreement, if any, relating to such
Transaction.
(g) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available for issuance upon the conversion of shares
of Series E Preferred Stock, such number of its authorized but unissued shares
of Common Stock as will from time to time be sufficient to permit the conversion
of all outstanding shares of Series E Preferred Stock, and shall take all action
to increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
E Preferred Stock; provided, that the holders of shares of Series E Preferred
Stock shall vote such shares in favor of any such action that requires a vote of
stockholders.
(h) No Conversion Tax or Charge. The issuance or delivery
of certificates for Common Stock upon the conversion of shares of Series E
Preferred Stock shall be made without charge to the converting holder of shares
of Series E Preferred Stock for such certificates or for any tax in respect of
the issuance or delivery of such certificates or the securities represented
thereby, and such certificates shall be issued or delivered in the respective
names of, or (subject to compliance with the applicable provisions of federal
and state securities laws) in such names as may be directed by, the holders of
the shares of Series E Preferred Stock converted; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the holder of the shares of Series E Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
(i) Limitations on Conversions. Each holder of the Series
E Preferred Stock's right to convert its shares of Series E Preferred Stock into
shares of Common Stock shall not be limited by any notice delivered by the
Corporation of any proposed redemption, Change of Control or any other event
that notwithstanding this subsection (i) shall purport to limit such conversion
right.
8. Certain Remedies. Any registered holder of shares of Series E
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Determination and to enforce
specifically the terms and provisions of this Certificate of Determination in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity.
9. Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
10
10. Definitions. As used in this Certificate of Determination, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Amended and Restated Series D Certificate of Determination"
means the Corporation's Certificate of Determination of Preference of Series D
Cumulative Redeemable Convertible Preferred Stock, as amended from time to time.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or
other day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock
(including, without limitation, common stock and preferred stock) and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock.
"Certificate of Determination" means this Certificate of
Determination of Preferences of Series E Redeemable Convertible Preferred Stock,
as amended from time to time.
"Change of Control" means (i) any merger, consolidation or
other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the
Corporation prior to such transaction do not own a majority of the voting
securities of the surviving entity, (ii) any tender offer, exchange offer or
other transaction whereby any person or "group" other than the Investors obtains
a majority of the outstanding shares of capital stock entitled to vote in the
election of the Board of Directors, (iii) any proxy contest in which a majority
of the Board of Directors (or persons appointed by such Board of Directors)
prior to such contest do not constitute a majority of the Board of Directors
after such contest or (iv) any other transaction described in any stockholder
rights agreement or "poison pill", if any, to which the Corporation is a party,
which permits the holders of any rights or similar certificates to exercise the
rights evidenced thereby and pursuant to which the Board of Directors does not
waive the application of such stockholder rights agreement or "poison pill."
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning ascribed to it in
Section 2(a) hereof.
"Common Stock Equivalent" shall mean any security or
obligation which is by its terms convertible, exchangeable or exercisable into
or for shares of Common Stock, including, without limitation, shares of Series D
Preferred Stock, shares of Series E Preferred Stock and any
11
option, warrant or other subscription or purchase right with respect to Common
Stock or any Common Stock Equivalent.
"Corporation" shall have the meaning ascribed to it in the
first paragraph of this Certificate of Determination.
"Current Market Price" per share of Capital Stock of any
Person shall mean, as of the date of determination, (a) the average of the daily
Market Price under clause (a), (b) or (c) of the definition thereof of such
Capital Stock during the immediately preceding thirty (30) trading days ending
on such date, and (b) if such Capital Stock is not then listed or admitted to
trading on any national securities exchange or quoted in the over-the-counter
market, then the Market Price under clause (d) of the definition thereof on such
date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Excluded Transaction" means (a) any issuance of shares of
stock or options to purchase shares of Series E Preferred Stock or Common Stock
pursuant to the Stock Option Plans, (b) any issuance of Common Stock (i) upon
the conversion of shares of Series E Preferred Stock or shares of Series D
Preferred Stock, (ii) as a dividend on shares of Series E Preferred Stock or
shares of Series D Preferred Stock or (iii) upon conversion or exercise of any
Common Stock Equivalents, (c) any issuance of Common Stock in connection with
any Series E Liquidation Payment or Series D Liquidation Payment, (d) Capital
Stock issued in consideration of an acquisition, approved by the Board of
Directors, of another Person, (e) shares of Common Stock and Common Stock
Equivalents issued in strategic transactions (which may not be private equity or
venture capital financing transactions), approved by the Board of Directors, to
Persons that are not principally engaged in financial investing, (f) up to ten
million (10,000,000) shares of Series E Preferred Stock issuable at the Price
Per Share, (g) the issuance of the Series E Purchase Rights and the Rights
Shares and (h) shares of Series E Preferred Stock issuable pursuant to
agreements entered into prior to the Series E Closing Date.
"GAAP" means United States generally accepted accounting
principles in effect from time to time.
"Investors" means General Atlantic Partners 74, L.P., GAP
Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG,
Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited,
Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing,
provided that Affiliates shall be deemed not to include any portfolio companies
of any of the foregoing.
"Junior Stock" shall have the meaning ascribed to it in
Section 2(a) hereof.
"Liquidation" shall mean the voluntary or involuntary
liquidation under applicable bankruptcy or reorganization legislation, or the
dissolution or winding up of the Corporation.
12
"Market Price" shall mean, with respect to the Capital Stock
of any Person, as of the date of determination, (a) if such Capital Stock is
listed on a national securities exchange, the closing price per share of such
Capital Stock on such date published in The Wall Street Journal (National
Edition) or, if no such closing price on such date is published in The Wall
Street Journal (National Edition), the average of the closing bid and asked
prices on such date, as officially reported on the principal national securities
exchange on which such Capital Stock is then listed or admitted to trading; or
(b) if such Capital Stock is not then listed or admitted to trading on any
national securities exchange but is designated as a national market system
security by the National Association of Securities Dealers, Inc., the last
trading price of such Capital Stock on such date; or (c) if there shall have
been no trading on such date or if such Capital Stock is not designated as a
national market system security by the National Association of Securities
Dealers, Inc., the average of the reported closing bid and asked prices of such
Capital Stock on such date as shown by the National Market System of the
National Association of Securities Dealers, Inc. Automated Quotations System and
reported by any member firm of the New York Stock Exchange selected by the
Corporation; or (d) if none of (a), (b) or (c) is applicable, a market price per
share determined by the Board of Directors.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Price Per Share" means $1.50 (subject to anti-dilution
adjustment for stock splits of , combinations of and capital reorganizations
with respect to the Series E Preferred Stock).
"Rights Offering" shall mean a rights offering for an
aggregate amount of up to $21,000,000 of shares of Series E Preferred Stock
pursuant to which the Corporation will distribute transferable rights to the
Corporation's holders of Common Stock as contemplated by the Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Corporation
and certain other parties thereto.
"Rights Shares" means the shares of Series E Preferred Stock
issuable upon exercise of the Series E Purchase Rights and the shares of the
Common Stock issuable upon conversion of such shares of Series E Preferred
Stock.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Series D Liquidation Payment" shall have the meaning ascribed
to it in the Amended and Restated Certificate of Determination of Preferences of
Series D Preferred Stock if and when approved by the requisite stockholders of
the Corporation and duly filed with the Secretary of State of the State of
California.
"Series D Preferred Stock" shall have the meaning ascribed to
it in the Amended and Restated Certificate of Determination of Preferences of
Series D Preferred Stock if and when
13
approved by the requisite stockholders of the Corporation and duly filed with
the Secretary of State of the State of California.
"Series E Accreted Value" shall mean as of any date, with
respect to each share of Series E Preferred Stock, the Price Per Share plus the
amount of dividends that have accrued from the Series E Closing Date to the then
most recent Series E Accrual Date pursuant to Section 3(a) of this Certificate
of Determination.
"Series E Automatic Redemption Date" shall have the meaning
ascribed to it in Section 5(b) hereof.
"Series E Closing Date" means _____________, 2003.
"Series E Conversion Price" shall mean $1.50, as adjusted
pursuant to Section 7(c).
"Series E Liquidation Payment" shall mean, with respect to
each share of Series E Preferred Stock, those amounts payable pursuant to
Section 4(a)(i) or Section 4(b)(i), as the case may be.
"Series E Optional Redemption Date" shall have the meaning
ascribed to it in Section 5(a)(ii) hereof.
"Series E Optional Redemption Measurement Window" shall have
the meaning ascribed to it in Section 5(a)(i) hereof.
"Series E Optional Redemption Period" shall have the meaning
ascribed to it in Section 5(a)(i) hereof.
"Series E Optional Redemption Price" shall have the meaning
ascribed to it in Section 5(a)(i) hereof.
"Series E Preferred Stock" shall have the meaning ascribed to
it in Section 1 hereof.
"Series E Purchase Rights" means those rights to purchase
Series E Preferred Stock issued in the Rights Offering.
"Series E Redemption Price" shall have the meaning ascribed to
it in Section 5(b) hereof.
"Stock Option Plans" means the Corporation's stock option
plans and employee purchase plans approved by the Board of Directors, pursuant
to which shares of restricted stock and options to purchase shares of Series E
Preferred Stock and/or Common Stock are reserved and available for grant to
officers, directors, employees and consultants of the Corporation.
* * * * * *
14
3. This Certificate of Determination has been duly approved by
the Board of Directors. The authorized number of shares of Preferred Stock of
the Corporation is [__________], of which one share constitutes the Special
Voting Share, which share has been issued, 75,000 shares constitute Series C
Participating Preferred Stock, none of which has been issued, [___________]
shares of Series D Preferred Stock, [all] of which have been issued, and
[__________] shares of Series E Preferred Stock, none of which has been issued.
The number of shares voting in favor of this Certificate of Determination
equaled or exceeded the vote required. The percentage vote required under the
Amended and Restated Articles of Incorporation in effect at the time of this
Certificate of Determination was more than 50% of the outstanding shares of
Series D Preferred Stock, voting separately as a class.
[the remainder of this page intentionally left blank]
15
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, the
Chief Executive Officer and Chairman of the Board of Directors and Vice
President and Secretary, respectively, of Critical Path, Inc., declare under
penalty of perjury that the matters set out in the foregoing Certificate are
true of their own knowledge.
Executed at San Francisco, California on this [__] day of [__________],
[____].
_________________________________
William E. McGlashan, Jr.,
Chief Executive Officer and
Chairman of the Board of Directors
_________________________________
Michael J. Zukerman,
Senior Vice President, General Counsel
and Secretary
APPENDIX D
AMENDED AND RESTATED
CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES D CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.001 PER SHARE, OF
CRITICAL PATH, INC.,
a California corporation
Pursuant to Section 401 of the California Corporations Code,
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, do
hereby certify that:
1. They are the duly elected and acting Chief Executive Officer
and Chairman of the Board of Directors and Senior Vice President, General
Counsel and Secretary, respectively, of Critical Path, Inc., a California
corporation (the "Corporation").
2. Pursuant to the authority given in the Corporation's Amended
and Restated Articles of Incorporation, the Corporation filed a Certificate of
Determination of Preferences of Series D Cumulative Redeemable Convertible
Participating Preferred Stock on November 9, 2001.
3. Pursuant to Section 907 of the California Corporations Code,
the Certificate of Determination of Preferences of Series D Cumulative
Redeemable Convertible Participating Preferred Stock is amended and restated to
read in full as follows:
WITNESSETH
WHEREAS, it is the desire of the Board of Directors, upon requisite
approval of the stockholders of the Corporation, to alter the terms of the
Series D Cumulative Redeemable Convertible Participating Preferred Stock and
amend and restate the Certificate of Determination of Preferences for such
series:
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby
created and established a series of preferred stock designated as "Series D
Cumulative Redeemable Convertible Preferred Stock" (the "Series D Preferred
Stock"). The authorized number of shares of Series D Preferred Stock shall be
four million one hundred eighty-eight thousand five hundred eighty-seven
(4,188,587). Capitalized terms used herein and not otherwise defined shall have
the meanings set forth in Section 10 below.
2. Rank.
(a) Notwithstanding anything to the contrary in this
Certificate of Determination, the Series D Preferred Stock shall not be entitled
to the payment of dividends, the Series D Liquidation Payment, the Series D
Optional Redemption Price or the Series D Redemption Price until the issued and
outstanding shares of Series E Preferred Stock shall have received all
dividends, the Series E Liquidation Payment, the Series E Optional Redemption
Price and the Series E Redemption Price due and owing under the terms thereof;
provided, however, that notwithstanding the foregoing and for the avoidance of
doubt, dividends shall accrue on the Series D Preferred Stock as provided in
Section 3 below. Subject to the foregoing sentence, the Series D Preferred Stock
shall with respect to the payment of the Series D Liquidation Payment in the
event of Liquidation or Change of Control and with respect to dividend and
redemption rights rank senior to (i) all classes of common stock of the
Corporation (including, without limitation, the Common Stock, par value $0.001
per share, of the Corporation (the "Common Stock")), (ii) all classes of
preferred stock of the Corporation (excluding any shares of Series E Preferred
Stock but including, without limitation, the Series C Participating Preferred
Stock, par value $0.001 per share) and (iii) each other class or series of
Capital Stock of the Corporation hereafter created which does not expressly rank
pari passu with or senior to the Series D Preferred Stock (clauses (i), (ii) and
(iii), together, the "Junior Stock").
(b) Notwithstanding anything to the contrary contained in
the Amended and Restated Articles of Incorporation of the Corporation, the vote
of the holders of a majority of the Series D Preferred Stock shall be a
prerequisite to the designation or issuance of any shares of Capital Stock of
the Corporation ranking pari passu with or senior to the Series D Preferred
Stock in the event of a Liquidation or with respect to the payment of the Series
D Liquidation Payment.
3. Dividends.
(a) Dividend Rate. During the period beginning on the
date of issuance of such shares of Series D Preferred Stock and ending on the
Series E Closing Date, the holders of shares of Series D Preferred Stock shall
accrue dividends at an annual rate equal to eight percent (8%) of the Series D
Accreted Value, calculated on the basis of a 360-day year, consisting of twelve
30-day months, and shall accrue on a daily basis from the date of issuance of
such shares of Series D Preferred Stock until the Series E Closing Date, whether
or not the Corporation has earnings or profits, whether or not there are funds
legally available for the payment of dividends and whether or not declared by
the Board of Directors. During the period beginning on the date of issuance
thereof and ending on the Series E Closing Date, such accrued and unpaid
dividends shall compound to the Series D Accreted Value on a semi-annual basis
on December 31st and June 30th of each year (each such date, the "Series D
Accrual Date") whether or not declared by the Board of Directors. Following the
Series E Closing Date, the holders of shares of Series D Preferred Stock shall
accrue, out of funds legally available therefor, dividends at an annual rate
equal to five and three-fourths percent (5-3/4%) of the Price Per Share with
respect to each share of Series D Preferred Stock, calculated on the basis of a
360-day year, consisting of twelve 30-day months, and shall accrue on a daily
basis from the Series E Closing Date, whether or not the Corporation has
earnings or profits, whether or not there are funds legally available for the
payment of dividends and whether or not declared by the Board of Directors. Such
dividends
2
shall not be paid in cash and shall instead be added to the Series D Accreted
Value on the Series D Accrual Date. If the Corporation declares and pays any
dividends on the Common Stock, then, in that event, the holders of shares of
Series D Preferred Stock shall be entitled to share in such dividends on a pro
rata basis, as if their shares had been converted into shares of Common Stock
pursuant to Section 7(a) below immediately prior to the record date for
determining the stockholders of the Corporation eligible to receive such
dividends.
(b) Change of Control; Optional Redemption. In the event
of the occurrence of a Change of Control or an optional redemption of the shares
of Series D Preferred Stock pursuant to Section 5(a) below, the sum of (i) any
dividends accrued at the rate and in the manner specified in Section 3(a) since
the previous Series D Accrual Date and prior to the date of the occurrence of a
Change of Control or the Series D Optional Redemption Date plus (ii) any and all
dividends that would have accrued at the rate and in the manner specified in
Section 3(a) from the closing date of such Change of Control or the Series D
Optional Redemption Date through and until the Series D Automatic Redemption
Date shall be added to the Series D Accreted Value on the closing date of such
Change of Control or the Series D Optional Redemption Date, as the case may be.
(c) Other Dividends. The Corporation shall not declare or
pay any dividends on, or make any other distributions with respect to or redeem,
purchase or otherwise acquire for consideration, any other shares of Capital
Stock unless and until all accrued and unpaid dividends on the Series D
Preferred Stock have been paid in full.
4. Liquidation and Change of Control.
(a) Series D Liquidation Payment. Upon the occurrence of
a Liquidation, after the payment of the full Series E Liquidation Payment of the
issued and outstanding shares of Series E Preferred Stock, the holders of shares
of Series D Preferred Stock shall be paid in cash for each share of Series D
Preferred Stock held thereby, out of, but only to the extent of, the assets of
the Corporation legally available for distribution to its stockholders, an
amount equal to greater of (i) the sum of (A) the Series D Accreted Value of
such share of Series D Preferred Stock on the date of such Liquidation plus (B)
all dividends accrued since the previous Series D Accrual Date, (ii) the product
of (x) 1.6 multiplied by (y) the Price Per Share or (iii) the aggregate
consideration that would be paid to the holder of the number of shares of Common
Stock into which such share of Series D Preferred Stock is convertible
immediately prior to such Liquidation. If, after the payment of the full Series
E Liquidation Payment of the issued and outstanding shares of Series E Preferred
Stock, the assets of the Corporation available for distribution to the holders
of shares of Series D Preferred Stock shall be insufficient to permit payment in
full to such holders of the sums which such holders are entitled to receive in
such case, then all of the assets available for distribution to holders of
shares of Series D Preferred Stock shall be distributed among and paid to such
holders ratably in proportion to the amounts that would be payable to such
holders if such assets were sufficient to permit payment in full.
(b) Change of Control. In the event of a Change of
Control, after the payment of the full Series E Liquidation Payment of the
issued and outstanding shares of Series E Preferred Stock, the holders of shares
of Series D Preferred Stock shall be paid for each share of Series D Preferred
Stock held thereby, an amount equal to greater of (i) the sum of (A) the
3
Series D Accreted Value of such share of Series D Preferred Stock on the date of
such Change of Control plus (B) all dividends that accrue and are payable
pursuant to Section 3(b), (ii) the product of (x) 1.6 multiplied by (y) the
Price Per Share or (iii) the aggregate consideration that would be paid to the
holder of the number of shares of Common Stock into which such share of Series D
Preferred Stock is convertible immediately prior to the closing of such Change
of Control. Such amount shall be paid in the form of consideration paid in such
Change of Control on the closing date of such Change of Control.
(c) Notice. Written notice of a Liquidation or Change of
Control stating a payment or payments and the place where such payment or
payments shall be payable, shall be delivered in person, mailed by certified
mail, return receipt requested, mailed by overnight mail or sent by telecopier,
not less than ten (10) days prior to the earliest payment date stated therein,
to the holders of record of shares of Series D Preferred Stock, such notice to
be addressed to each such holder at its address as shown by the records of the
Corporation.
5. Redemption.
(a) Optional Redemption.
(i) Series D Optional Redemption Period. The
Corporation shall not have any right to redeem any shares of the Series D
Preferred Stock on or prior to the third anniversary of the Series E Closing
Date. If on any date after the third anniversary of the Series E Closing Date,
but prior to the Series D Automatic Redemption Date, the average closing price
per share of the Common Stock, as reported on NASDAQ or other nationally
recognized securities exchange on which the shares of Common Stock trade, for
any sixty (60) consecutive trading days after such third anniversary date,
equals or exceeds four hundred percent (400%) of the Series D Accreted Value
(the "Series D Optional Redemption Measurement Window"), the Corporation shall
have the right, at its sole option and election, to redeem (unless otherwise
prevented by law) within thirty (30) days following such Series D Optional
Redemption Measurement Window (the "Series D Optional Redemption Period"), all,
but not less than all, of the outstanding shares of Series D Preferred Stock in
cash, at a price per share (the "Series D Optional Redemption Price") equal to
the sum of the Series D Accreted Value plus all dividends that accrue and are
payable pursuant to Section 3(b).
(ii) Optional Redemption Payment. Written notice
of any election by the Corporation to redeem the shares of Series D Preferred
Stock pursuant to Section 5(a) (with a closing date prior to the expiration of
the Series D Optional Redemption Period selected for such redemption (the
"Series D Optional Redemption Date")), shall be delivered in person, mailed by
certified mail, return receipt requested, mailed by overnight mail or sent by
telecopier not less than ten (10), nor more than thirty (30), days prior to such
Series D Optional Redemption Date to the holders of record of the shares of
Series D Preferred Stock, such notice to be addressed to each such holder at its
address as shown in the records of the Corporation. The Series D Optional
Redemption Price shall be made with respect to each share of Series D Preferred
Stock by wire transfer of immediately available funds as promptly as practicable
and, in any event, within seven (7) days after receipt by the Corporation of the
Series D Preferred Stock certificates to accounts designated in writing by the
holders of such shares of Series D Preferred Stock after surrender of the Series
D Preferred Stock certificates pursuant to the following sentence. Upon
4
notice from the Corporation, each holder of shares of Series D Preferred Stock
so redeemed shall promptly surrender to the Corporation, at any place where the
Corporation shall maintain a transfer agent for its shares of Series D Preferred
Stock, certificates representing the shares so redeemed, duly endorsed in blank
or accompanied by proper instruments of transfer. Notwithstanding anything to
the contrary set forth in this Certificate of Determination, any holder of
Series D Preferred Stock may convert its shares of Series D Preferred Stock
pursuant to Section 7(a) until the Series D Optional Redemption Price has been
paid in full by the Corporation to such holder.
(iii) Termination of Rights. If shares of Series D
Preferred Stock are redeemed in full on the Series D Optional Redemption Date,
then after the Series D Optional Redemption Date, all rights of any holder of
shares of Series D Preferred Stock shall cease and terminate, and such shares of
Series D Preferred Stock shall no longer be deemed to be outstanding; provided,
however, that, if the Corporation defaults in the payment in full of the Series
D Optional Redemption Price, then, subject to Section 5(b), the Corporation may
not redeem the shares of Series D Preferred Stock until the next Series D
Optional Redemption Measurement Window.
(b) Automatic Redemption.
(i) Automatic Redemption Date and Payment. On
the fourth anniversary of the Series E Closing Date (the "Series D Automatic
Redemption Date"), all of the shares of Series D Preferred Stock shall
automatically, with no further action required to be taken by the Corporation or
the holder thereof, be redeemed (unless otherwise prevented by law) in cash, at
a redemption price per share (the "Series D Redemption Price") equal to the sum
of the Series D Accreted Value plus all dividends accrued since the previous
Series D Accrual Date. Written notice of the Series D Automatic Redemption Date
shall be delivered in person, mailed by certified mail, return receipt
requested, mailed by overnight mail or sent by telecopier not less than thirty
(30), nor more than sixty (60), days prior to the Series D Automatic Redemption
Date to the holders of record of the shares of Series D Preferred Stock, such
notice to be addressed to each such holder at its address as shown in the
records of the Corporation. The Series D Redemption Price shall be made with
respect to each share of Series D Preferred Stock by wire transfer of
immediately available funds as promptly as practicable and, in any event, within
seven (7) days after receipt by the Corporation of the Series D Preferred Stock
certificates to accounts designated in writing by the holders of such shares of
Series D Preferred Stock after surrender of the Series D Preferred Stock
certificates pursuant to the following sentence. Upon notice from the
Corporation, each holder of such shares of Series D Preferred Stock so redeemed
shall promptly surrender to the Corporation, at any place where the Corporation
shall maintain a transfer agent for its shares of Series D Preferred Stock,
certificates representing the shares so redeemed, duly endorsed in blank or
accompanied by proper instruments of transfer. Notwithstanding anything to the
contrary set forth in this Certificate of Determination, any holder of Series D
Preferred Stock may convert its shares of Series D Preferred Stock pursuant to
Section 7(a) hereof until the Series D Redemption Price has been paid in full by
the Corporation to any such holder.
5
(ii) Termination of Rights. If the shares of
Series D Preferred Stock are redeemed in full on the Series D Automatic
Redemption Date, then after the Series D Automatic Redemption Date, all rights
of any holder of such shares of Series D Preferred Stock shall cease and
terminate, and such shares of Series D Preferred Stock shall no longer be deemed
to be outstanding, whether or not the certificates representing such shares have
been received by the Corporation; provided, however, that, if the Corporation
defaults in the payment in full of the Series D Redemption Price, the rights of
the holders of shares of Series D Preferred Stock shall continue until the
Corporation cures such default.
(iii) Insufficient Funds for Redemption. If the
funds of the Corporation available for redemption of the shares of Series D
Preferred Stock on the Series D Automatic Redemption Date are insufficient to
redeem in full the shares of Series D Preferred Stock, the holders of shares of
Series D Preferred Stock shall share ratably in any funds available by law for
redemption of such shares according to the respective amounts which would be
payable with respect to the number of shares owned by them if the shares to be
so redeemed on such Series D Automatic Redemption Date were redeemed in full.
Any shares of Series D Preferred Stock that the Corporation does not redeem on
the Series D Automatic Redemption Date due to insufficient funds shall continue
to be outstanding until redeemed and dividends on such shares shall continue to
accrue and cumulate until redeemed. The Corporation shall in good faith use all
commercially reasonable efforts as expeditiously as possible to eliminate, or
obtain an exception, waiver or exemption from, any and all restrictions that
prevented the Corporation from paying the Series D Redemption Price and
redeeming all of the shares of Series D Preferred Stock. At any time thereafter
when additional funds of the Corporation are available by law for the redemption
of the shares of Series D Preferred Stock, such funds shall be used as promptly
as practicable to redeem the balance of such shares, or such portion thereof for
which funds are available, on the basis set forth above.
(c) Rank. Notwithstanding anything to the contrary in
this Section 5, no redemption of shares Series D Preferred Stock pursuant to
this Section 5 shall occur (i) if there are any shares of Series E Preferred
Stock issued and outstanding or (ii) unless and until the issued and outstanding
shares of Series E Preferred Stock shall have received all payments due and
owing under the terms thereof.
6. Voting Rights; Election of Directors.
(a) General. In addition to the voting rights to which
the holders of Series D Preferred Stock are entitled under or granted by
California law, the holders of Series D Preferred Stock shall be entitled to
vote, in person or by proxy, at a special or annual meeting of stockholders on
all matters entitled to be voted on by holders of shares of Common Stock voting
together as a single class with the Common Stock (and with other shares entitled
to vote thereon, if any). With respect to any such vote, each share of Series D
Preferred Stock shall entitle the holder thereof to cast that number of votes as
is equal to the number of votes that such holder would be entitled to cast had
such holder converted its shares of Series D Preferred Stock into shares of
Common Stock pursuant to Section 7(a) below on the record date for determining
the stockholders of the Corporation eligible to vote on any such matters.
6
(b) Directors. As long as at least 500,000 shares of
Series D Preferred Stock are outstanding, if General Atlantic Partners 74, L.P.,
GAP Coinvestment Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG and/or any
Affiliate thereof in the aggregate own at least a majority of the outstanding
shares of Series D Preferred Stock, then the holders of shares of Series D
Preferred Stock, voting as a separate class, shall be entitled to elect one (1)
director of the Corporation.
(c) Elections. As long as at least 500,000 shares of
Series D Preferred Stock are outstanding, the Series D Preferred Stock shall
vote together as a single class with the Common Stock (and all other classes and
series of stock of the Corporation entitled to vote thereon, if any) with
respect to the election of all of the other directors of the Corporation other
than the director elected solely by the holders of shares of Series E Preferred
Stock pursuant to Section 6(b) of the Series E Certificate of Determination of
Preferences. If the conditions set forth in Section 6(b) necessary for the
holders of shares of Series D Preferred Stock to vote as a separate class for
the election of one director are not satisfied, then the Series D Preferred
Stock shall vote together as a single class with the Common Stock (and all other
classes and series of stock of the Corporation entitled to vote thereon, if any)
with respect to the election of all of the directors of the Corporation other
than the director elected solely by the holders of shares of Series E Preferred
Stock pursuant to Section 6(b) of the Series E Certificate of Determination of
Preferences. At any meeting held for the purpose of electing directors pursuant
to Section 6(b) at a time when the holders of shares of Series D Preferred Stock
are entitled to vote as a separate class for the election of one director, the
presence in person or by proxy of the holders of a majority of the shares of
Series D Preferred Stock then outstanding shall constitute a quorum of the
Series D Preferred Stock for the election of the director to be elected solely
by the holders of shares of Series D Preferred Stock; the holders of shares of
Series D Preferred Stock shall be entitled to cast one vote per share of Series
D Preferred Stock in any such election; and the director to be elected
exclusively by the holders of shares of Series D Preferred Stock shall be
elected by the affirmative vote of the holders of a majority of the outstanding
shares of Series D Preferred Stock. A vacancy in a directorship filled by the
holders of the Series D Preferred Stock voting as a separate class pursuant to
Section 6(b) shall be filled only by vote or written consent of the holders of
shares of Series D Preferred Stock. The director elected pursuant to Section
6(b) may not be removed without the consent of a majority of the holders of
shares of Series D Preferred Stock, except as otherwise provided by law.
(d) Major Actions. Notwithstanding anything to the
contrary set forth in the Amended and Restated Articles of Incorporation or the
By-laws of the Corporation, the affirmative vote of the holders of a majority of
the outstanding shares of Series D Preferred Stock, voting as a separate class,
shall be a prerequisite to:
(i) any amendment, modification or restatement
of the Articles of Incorporation or the By-Laws of the Corporation, including,
without limitation, by merger, consolidation, business combination or otherwise
that is not a Change of Control;
(ii) the issuance, reservation for issuance or
authorization of any Capital Stock of the Corporation or any right or option to
acquire shares of Capital Stock ranking senior to the shares of Series D
Preferred Stock or any increase or decrease in the authorized number of shares
of Series D Preferred Stock; provided, that the Corporation may issue
7
(w) options or shares pursuant to the Stock Option Plans, (x) shares of Series E
Preferred Stock (A) upon conversion of those certain convertible promissory
notes, with an aggregate principal amount of ten million dollars ($10,000,000),
issued by the Corporation on November [___], 2003, (B) in exchange for those
certain 5 3/4% Convertible Subordinated Notes, due April 1, 2005, in the
principal face amount of thirty-two million seven hundred ninety-five thousand
dollars ($32,795,000), issued by the Corporation pursuant to the Corporation's
Indenture, dated March 31, 2000 and (C) issuable pursuant to agreements entered
into prior to the Series E Closing Date, (y) up to ten million (10,000,000)
shares of Series E Preferred Stock at a price per share equal to $1.50 (subject
to anti-dilution adjustment for stock splits, combinations and capital
reorganizations) (excluding the shares of Series E Preferred Stock issued or
authorized pursuant to clause (A), (B) or (C) above) and (z) issue of the Series
E Purchase Rights and the Rights Shares;
(iii) the redemption of any Junior Stock other
than the repurchase of unvested stock options or restricted stock from
employees, officers, directors or consultants of the Corporation upon
termination of service or in accordance with the Stock Option Plans;
(iv) any declaration, distribution or payment of
any dividend or other distribution to any Junior Stock;
(v) the issuance, incurrence, assumption or
guarantee by the Corporation or any Subsidiary of the Corporation of any funded
Indebtedness (excluding capital leases incurred in the ordinary course of
business but including the incurrence of any debt in connection with any
borrowing arrangements with Silicon Valley Bank, provided that, with respect to
the incurrence of any debt in connection with any borrowing arrangements with
Silicon Valley Bank, if the holders of Series D Preferred Stock do not respond
to a written request for consent by the Company within two Business Days of
receiving such request, such holder shall be deemed to have consented); and
(vi) any amendment to this Section 6(d).
7. Conversion.
(a) Optional Conversion. Any holder of shares of Series D
Preferred Stock shall have the right, at its option, at any time and from time
to time, to convert, subject to the terms and provisions of this Section 7, any
or all of such holder's shares of Series D Preferred Stock into such number of
fully paid and non-assessable shares of Common Stock as is equal to the product
of (i) the number of shares of Series D Preferred Stock being so converted
multiplied by (ii) the quotient of (x) the sum of the Series D Accreted Value
plus all dividends accrued since the previous Series D Accrual Date divided by
(y) the Series D Conversion Price, subject to adjustment as provided in Section
7(c) below. Such conversion right shall be exercised by the surrender of
certificate(s) representing the shares of Series D Preferred Stock to be
converted to the Corporation at any time during usual business hours at its
principal place of business maintained by it (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of shares of Series D Preferred Stock), accompanied by written notice
that the holder elects to convert such shares of Series D Preferred Stock and
specifying the name or names (with address) in which a certificate or
certificates for shares of
8
Common Stock are to be issued and (if so required by the Corporation) by a
written instrument or instruments of transfer in form reasonably satisfactory to
the Corporation duly executed by the holder or its duly authorized legal
representative and transfer tax stamps or funds therefor, if required pursuant
to Section 7(i) below. All certificates representing shares of Series D
Preferred Stock surrendered for conversion shall be delivered to the Corporation
for cancellation and canceled by it. As promptly as practicable after the
surrender of any shares of Series D Preferred Stock, in any event within seven
(7) days of the receipt of such certificates, the Corporation shall (subject to
compliance with the applicable provisions of federal and state securities laws)
deliver to the holder of such shares so surrendered certificate(s) representing
the number of fully paid and nonassessable shares of Common Stock into which
such shares are entitled to be converted. At the time of the surrender of such
certificate(s), the Person in whose name any certificate(s) for shares of Common
Stock shall be issuable upon such conversion shall be deemed to be the holder of
record of such shares of Common Stock on such date, notwithstanding that the
share register of the Corporation shall then be closed or that the certificates
representing such Common Stock shall not then be actually delivered to such
Person.
(b) Termination of Rights. On the date of such optional
conversion pursuant to Section 7(a) above all rights with respect to the shares
of Series D Preferred Stock so converted, including the rights, if any, to
receive notices and vote, shall terminate, except only the rights of holders
thereof to (i) receive certificates for the number of shares of Common Stock
into which such shares of Series D Preferred Stock have been converted and (ii)
exercise the rights to which they are entitled as holders of Common Stock.
(c) (i) Dividend, Subdivision, Combination or
Reclassification of Common Stock. In the event that the Corporation shall at any
time or from time to time, prior to conversion of shares of Series D Preferred
Stock (w) pay a dividend or make a distribution on the outstanding shares of
Common Stock payable in Capital Stock of the Corporation, (x) subdivide the
outstanding shares of Common Stock into a larger number of shares, (y) combine
the outstanding shares of Common Stock into a smaller number of shares or (z)
issue any shares of its Capital Stock in a reclassification of the Common Stock
(other than any such event for which an adjustment is made pursuant to another
clause of this Section 7(c)), then, and in each such case, the Series D
Conversion Price in effect immediately prior to such event shall be adjusted
(and any other appropriate actions shall be taken by the Corporation) so that
the holder of any share of Series D Preferred Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock or
other securities of the Corporation that such holder would have owned or would
have been entitled to receive upon or by reason of any of the events described
above, had such share of Series D Preferred Stock been converted immediately
prior to the occurrence of such event. An adjustment made pursuant to this
Section 7(c)(i) shall become effective retroactively (x) in the case of any such
dividend or distribution, to a date immediately following the close of business
on the record date for the determination of holders of Common Stock entitled to
receive such dividend or distribution or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
day upon which such corporate action becomes effective.
(ii) Certain Distributions. In case the
Corporation shall at any time or from time to time, prior to conversion of
shares of Series D Preferred Stock, distribute to all holders of shares of the
Common Stock (including any such distribution made in connection with
9
a merger or consolidation in which the Corporation is the resulting or surviving
Person and the Common Stock is not changed or exchanged) cash, evidences of
indebtedness of the Corporation or another issuer, securities of the Corporation
or another issuer or other assets (excluding cash dividends in which holders of
shares of Series D Preferred Stock participate, in the manner provided in
Section 3(c); dividends payable in shares of Common Stock for which adjustment
is made under another paragraph of this Section 7(c); and any distribution in
connection with an Excluded Transaction) or rights or warrants to subscribe for
or purchase of any of the foregoing, then, and in each such case, the Series D
Conversion Price then in effect shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) by multiplying the Series D
Conversion Price in effect immediately prior to the date of such distribution by
a fraction (x) the numerator of which shall be the Current Market Price of the
Common Stock immediately prior to the date of distribution less the then fair
market value (as determined by the Board of Directors in the exercise of their
fiduciary duties) of the portion of the cash, evidences of indebtedness,
securities or other assets so distributed or of such rights or warrants
applicable to one share of Common Stock and (y) the denominator of which shall
be the Current Market Price of the Common Stock immediately prior to the date of
distribution (but such fraction shall not be greater than one); provided,
however, that no adjustment shall be made with respect to any distribution of
rights or warrants to subscribe for or purchase securities of the Corporation if
the holder of shares of Series D Preferred Stock would otherwise be entitled to
receive such rights or warrants upon conversion at any time of shares of Series
D Preferred Stock into Common Stock. Such adjustment shall be made whenever any
such distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iii) Other Changes. In case the Corporation at
any time or from time to time, prior to the conversion of shares of Series D
Preferred Stock, shall take any action affecting its Common Stock similar to or
having an effect similar to any of the actions described in Sections 7(c)(i) or
(ii) above or Section 7(f) below (but not including any action described in any
such Section) and the Board of Directors in good faith determines that it would
be equitable in the circumstances to adjust the Series D Conversion Price as a
result of such action, then, and in each such case, the Series D Conversion
Price shall be adjusted in such manner and at such time as the Board of
Directors in good faith determines would be equitable in the circumstances (such
determination to be evidenced in a resolution, a certified copy of which shall
be mailed to the holders of shares of Series D Preferred Stock).
(iv) No Adjustment. Notwithstanding anything
herein to the contrary, no adjustment under this Section 7(c) need be made to
the Series D Conversion Price if the Corporation receives written notice from
holders of a majority of the outstanding shares of Series D Preferred Stock that
no such adjustment is required.
(d) Abandonment. If the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or other distribution, and shall thereafter and before the
distribution to stockholders thereof legally abandon its plan to pay or deliver
such dividend or distribution, then no adjustment in the Series D Conversion
Price shall be required by reason of the taking of such record.
10
(e) Certificate as to Adjustments. Upon any adjustment in
the Series D Conversion Price, the Corporation shall within a reasonable period
(not to exceed ten (10) Business Days) following any of the foregoing
transactions deliver to each registered holder of shares of Series D Preferred
Stock a certificate, signed by (i) the Chief Executive Officer of the
Corporation and (ii) the Chief Financial Officer of the Corporation, setting
forth in reasonable detail the event requiring the adjustment and the method by
which such adjustment was calculated and specifying the increased or decreased
Series D Conversion Price then in effect following such adjustment.
(f) Reorganization, Reclassification. In case of any
merger or consolidation of the Corporation (other than a Change of Control) or
any capital reorganization, reclassification or other change of outstanding
shares of Common Stock (other than a change in par value, or from par value to
no par value, or from no par value to par value) (each, a "Transaction"), the
Corporation shall execute and deliver to each holder of shares of Series D
Preferred Stock at least ten (10) Business Days prior to effecting such
Transaction a certificate, signed by (i) the Chief Executive Officer of the
Corporation and (ii) the Chief Financial Officer of the Corporation, stating
that the holder of each share of Series D Preferred Stock shall have the right
to receive in such Transaction, in exchange for each share of Series D Preferred
Stock, a security identical to (and not less favorable than) the Series D
Preferred Stock, and provision shall be made therefor in the agreement, if any,
relating to such Transaction. Any certificate delivered pursuant to this Section
7(f) shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The provisions of
this Section 7(f) and any equivalent thereof in any such certificate similarly
shall apply to successive transactions.
(g) Notices. In case at any time or from time to time:
(w) the Corporation shall declare a dividend (or
any other distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the granting
to the holders of its Common Stock rights or warrants to subscribe for or
purchase any shares of Capital Stock of any class or of any other rights or
warrants; or
(y) there shall be any Transaction;
then the Corporation shall mail to each holder of shares of Series D Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least ten (10) days
prior to the applicable date hereinafter specified, a notice stating (A) the
date on which a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or granting of rights or warrants are to be
determined, or (B) the date on which such Transaction is expected to become
effective and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their Common Stock for shares of stock
or other securities or property or cash deliverable upon such Transaction.
Notwithstanding the foregoing, in the case of any event to which Section 7(f)
above is applicable, the Corporation shall also deliver the
11
certificate described in Section 7(f) above to each holder of shares of Series D
Preferred Stock at least ten (10) Business Days' prior to effecting such
reorganization or reclassification as aforesaid.
(h) Reservation of Common Stock. The Corporation shall at
all times reserve and keep available for issuance upon the conversion of shares
of Series D Preferred Stock, such number of its authorized but unissued shares
of Common Stock as will from time to time be sufficient to permit the conversion
of all outstanding shares of Series D Preferred Stock, and shall take all action
to increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
D Preferred Stock; provided, that (x) the holders of shares of Series D
Preferred Stock shall vote such shares in favor of any such action that requires
a vote of stockholders and (y) such holders shall cause any directors elected by
them pursuant to Section 6(b) above to vote in favor of any such action that
requires a vote of the Board of Directors.
(i) No Conversion Tax or Charge. The issuance or delivery
of certificates for Common Stock upon the conversion of shares of Series D
Preferred Stock shall be made without charge to the converting holder of shares
of Series D Preferred Stock for such certificates or for any tax in respect of
the issuance or delivery of such certificates or the securities represented
thereby, and such certificates shall be issued or delivered in the respective
names of, or (subject to compliance with the applicable provisions of federal
and state securities laws) in such names as may be directed by, the holders of
the shares of Series D Preferred Stock converted; provided, however, that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the holder of the shares of Series D Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
(j) Limitations on Conversions. Each holder of the Series
D Preferred Stock's right to convert its shares of Series D Preferred Stock into
shares of Common Stock shall not be limited by any notice delivered by the
Corporation of any proposed redemption, Change of Control or any other event
that notwithstanding this subsection (j) shall purport to limit such conversion
right.
8. Certain Remedies. Any registered holder of shares of Series D
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Determination and to enforce
specifically the terms and provisions of this Certificate of Determination in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity.
9. Business Day. If any payment shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment shall be
made on the immediately succeeding Business Day.
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10. Definitions. As used in this Certificate of Determination, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Board of Directors" means the Board of Directors of the
Corporation.
"Business Day" means any day except a Saturday, a Sunday, or
other day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital stock
(including, without limitation, common stock and preferred stock) and any and
all rights, warrants or options exchangeable for or convertible into such
capital stock.
"Certificate of Determination" means this Amended and Restated
Certificate of Determination of Preferences of Series D Cumulative Redeemable
Convertible Preferred Stock, as amended from time to time.
"Change of Control" means (i) any merger, consolidation or
other business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the
Corporation prior to such transaction do not own a majority of the voting
securities of the surviving entity, (ii) any tender offer, exchange offer or
other transaction whereby any person or "group" other than the Investors obtains
a majority of the outstanding shares of capital stock entitled to vote in the
election of the Board of Directors, (iii) any proxy contest in which a majority
of the Board of Directors (or persons appointed by such Board of Directors)
prior to such contest do not constitute a majority of the Board of Directors
after such contest or (iv) any other transaction described in any stockholder
rights agreement or "poison pill", if any, to which the Corporation is a party,
which permits the holders of any rights or similar certificates to exercise the
rights evidenced thereby and pursuant to which the Board of Directors does not
waive the application of such stockholder rights agreement or "poison pill."
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning ascribed to it in
Section 2(a) hereof.
"Common Stock Equivalent" shall mean any security or
obligation which is by its terms convertible, exchangeable or exercisable into
or for shares of Common Stock, including, without limitation, shares of Series D
Preferred Stock, shares of Series E Preferred Stock, and any option, warrant or
other subscription or purchase right with respect to Common Stock or any Common
Stock Equivalent.
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"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or discharge or
any such primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Corporation" shall have the meaning ascribed to it in the
first paragraph of this Certificate of Determination.
"Current Market Price" per share of Capital Stock of any
Person shall mean, as of the date of determination, (a) the average of the daily
Market Price under clause (a), (b) or (c) of the definition thereof of such
Capital Stock during the immediately preceding thirty (30) trading days ending
on such date, and (b) if such Capital Stock is not then listed or admitted to
trading on any national securities exchange or quoted in the over-the-counter
market, then the Market Price under clause (d) of the definition thereof on such
date.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder.
"Excluded Transaction" means (a) any issuance of shares of
stock or options to purchase shares of Series E Preferred Stock or Common Stock
pursuant to the Stock Option Plans and (b) any issuance of Common Stock (i) upon
the conversion of shares of Series D Preferred Stock or shares of Series E
Preferred Stock, (ii) as a dividend on shares of Series D Preferred Stock or
shares of Series E Preferred Stock or (iii) upon conversion or exercise of any
Common Stock Equivalents, or (c) any issuance of Common Stock in connection with
any Series D Liquidation Payment or Series E Liquidation Payment, (d) Capital
Stock issued in consideration of an acquisition, approved by the Board of
Directors, by the Company of another Person, (e) shares of Common Stock and
Common Stock Equivalents issued in strategic transactions (which may not be
private equity or venture capital financing transactions) approved by the Board
of Directors to Persons that are not principally engaged in financial investing,
(f) up to 10,000,000 shares of Series E Preferred Stock issuable at $1.50 per
share (subject to anti-dilution adjustment for stock splits, combinations and
capital reorganizations), (g) the issuance of the Series E Purchase Rights and
the Rights Shares and (h) shares of Series E Preferred Stock issuable pursuant
to agreements entered into prior to the Series E Closing Date.
"GAAP" means United States generally accepted accounting
principles in effect from time to time.
14
"Indebtedness" means, as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (c) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person under leases which have been
or should be, in accordance with GAAP, recorded as capital leases, (f) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (e)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of that
Person and (g) any Contingent Obligation of such Person.
"Investors" means General Atlantic Partners 74, L.P., GAP
Coinvestment Partners II, L.P., CapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG,
Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited,
Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the foregoing,
provided that Affiliates shall be deemed not to include any portfolio companies
of any of the foregoing.
"Junior Stock" shall have the meaning ascribed to it in
Section 2(a) hereof.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences).
"Liquidation" shall mean the voluntary or involuntary
liquidation under applicable bankruptcy or reorganization legislation, or the
dissolution or winding up of the Corporation.
"Market Price" shall mean, with respect to the Capital Stock
of any Person, as of the date of determination, (a) if such Capital Stock is
listed on a national securities exchange, the closing price per share of such
Capital Stock on such date published in The Wall Street Journal (National
Edition) or, if no such closing price on such date is published in The Wall
Street Journal (National Edition), the average of the closing bid and asked
prices on such date, as officially reported on the principal national securities
exchange on which such Capital Stock is then listed or admitted to trading; or
(b) if such Capital Stock is not then listed or admitted to trading on any
national securities exchange but is designated as a national market system
security by the National Association of Securities Dealers, Inc., the last
trading price of such Capital Stock on such date; or (c) if there shall have
been no trading on such date or if such Capital Stock is not designated as a
national market system security by the National Association of Securities
Dealers, Inc., the average of the reported closing bid and asked prices of such
Capital
15
Stock on such date as shown by the National Market System of the National
Association of Securities Dealers, Inc. Automated Quotations System and reported
by any member firm of the New York Stock Exchange selected by the Corporation;
or (d) if none of (a), (b) or (c) is applicable, a market price per share
determined by the Board of Directors.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental body or other entity of any
kind.
"Price Per Share" means $13.75 (subject to anti-dilution
adjustment for stock splits of, combinations of and capital reorganizations with
respect to the Series D Preferred Stock).
"Rights Offering" shall mean a rights offering for an
aggregate amount of up to $21,000,000 of shares of Series E Preferred Stock
pursuant to which the Corporation will distribute transferable rights to the
Corporation's holders of Common Stock as contemplated by the Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Corporation
and certain other parties thereto.
"Rights Shares" means the shares of Series E Preferred Stock
issuable upon exercise of the Series E Purchase Rights and the shares of the
Common Stock issuable upon conversion of such shares of Series E Preferred
Stock.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Series D Accreted Value" shall mean as of any date, with
respect to each share of Series D Preferred Stock, the Price Per Share plus the
amount of dividends that have accrued and compounded thereto during the period
beginning on the date of issuance of such share of Series D Preferred Stock and
ending on the Series E Closing Date plus, during the period beginning on the
first day after the Series E Closing Date and from and after such date, the
amount of dividends that have accrued from the Series E Closing Date to the then
most recent Series D Accrual Date pursuant to Section 3(a) of this Certificate
of Determination.
"Series D Automatic Redemption Date" shall have the meaning
ascribed to it in Section 5(b) hereof.
"Series D Conversion Price" shall mean $1.50, as adjusted
pursuant to Section 7(c).
"Series D Liquidation Payment" shall mean, with respect to
each share of Series D Preferred Stock, those amounts payable pursuant to
Section 4(a)(i), Section 4(a)(ii), Section 4(b)(i), or Section 4(b)(ii) as the
case may be.
16
"Series D Optional Redemption Date" shall have the meaning
ascribed to it in Section 5(a)(ii) hereof.
"Series D Optional Redemption Measurement Window" shall have
the meaning ascribed to it in Section 5(a)(i) hereof.
"Series D Optional Redemption Period" shall have the meaning
ascribed to it in Section 5(a)(i) hereof.
"Series D Optional Redemption Price" shall have the meaning
ascribed to it in Section 5(a)(i) hereof.
"Series D Preferred Stock" shall have the meaning ascribed to
it in Section 1 hereof.
"Series D Redemption Price" shall have the meaning ascribed to
it in Section 5(b) hereof.
"Series E Certificate of Determination" means the
Corporation's Certificate of Determination of Preferences of Series E Preferred
Stock, as amended from time to time.
"Series E Closing Date" means [__________], 2003.
"Series E Liquidation Payment" shall have the meaning ascribed
to it in the Certificate of Determination of Preferences of Series E Preferred
Stock if and when approved by the requisite stockholders of the Corporation and
duly filed with the Secretary of State of the State of California.
"Series E Optional Redemption Price" shall have the meaning
ascribed to it in the Certificate of Determination of Preferences of Series E
Preferred Stock if and when approved by the requisite stockholders of the
Corporation and duly filed with the Secretary of State of California.
"Series E Preferred Stock" shall have the meaning ascribed to
it in the Certificate of Determination of Preferences of Series E Redeemable
Convertible Preferred Stock if and when approved by the requisite stockholders
of the Corporation and duly filed with the Secretary of State of the State of
California.
"Series E Purchase Rights" means those rights to purchase
Series E Preferred Stock issued in the Rights Offering.
"Series E Redemption Price" shall have the meaning ascribed to
it in the Certificate of Determination of Preferences of Series E Preferred
Stock if and when approved by the requisite stockholders of the Corporation and
duly filed with the Secretary of State of California.
"Stock Option Plans" means the Company's stock option plans
and employee purchase plans approved by the Board of Directors, pursuant to
which shares of restricted stock
17
and options to purchase shares of Series E Preferred Stock and/or Common Stock
are reserved and available for grant to officers, directors, employees and
consultants of the Corporation.
"Transaction" shall have the meaning ascribed to it in Section
7(f) hereof.
* * * * * *
4. This Certificate of Determination has been duly approved by
the Board of Directors. This Certificate of Determination has been duly approved
by the required vote of stockholders in accordance with Section 903 of the
California Corporations Code. As of the record date for the meeting of the
stockholders in which the Certificate of Designation was approved, the total
number of shares of outstanding shares of the Corporation was [__________]
shares of Common Stock,[___________] million (__________) shares of Series D
Preferred Stock, and one (1) share of Special Voting Stock. The number of shares
voting in favor of the amendment equaled or exceeded the vote required. The
percentage vote required under the law and the Amended and Restated Articles of
Incorporation in effect at the time of this amendment is more than fifty percent
(50%) of the outstanding shares of Common Stock, the votes represented by the
Special Voting Share and the outstanding shares of preferred stock, voting
together as a class, and more than fifty percent (50%) of the outstanding shares
of Series D Preferred Stock, voting separately as a class.
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18
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, the
Chief Executive Officer and Chairman of the Board and Senior Vice President,
General Counsel and Secretary of Critical Path, Inc., respectively, declare
under penalty of perjury that the matters set out in the foregoing Certificate
are true of their own knowledge.
Executed at San Francisco, California on this [__] day of [__________],
[____].
____________________________________________
William E. McGlashan, Jr.,
Chief Executive Officer and Chairman of the
Board
____________________________________________
Michael J. Zukerman,
Senior Vice President, General Counsel and
Secretary
APPENDIX E
FORM OF AMENDMENT TO
COMMON STOCK PURCHASE WARRANT
AMENDMENT, dated as of [___________], 2003 (this "Amendment"), to
Common Stock Purchase Warrant, dated as of November 8, 2001 (the "Warrant"),
entered into by and between Critical Path, Inc., a California corporation (the
"Company"), and [____________] ("Warrantholder"),
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock and Warrant Purchase and
Exchange Agreement, dated as of November 8, 2001, the Company granted the
Warrant to Warrantholder; and
WHEREAS, pursuant to that certain Convertible Note Purchase and
Exchange Agreement, dated as of November 18, 2003, the Company and Warrantholder
desire to amend the terms of the Warrant in the manner set forth below:
NOW, THEREFORE, the Company and Warrantholder hereby agree as of the
day and year first above written as follows:
Section 1. Capitalized Terms. Capitalized terms not defined herein
shall have the meanings ascribed to them in the Warrant.
Section 2. Amendment to First Paragraph of the Warrant. The first
paragraph of the Warrant is hereby deleted and amended and restated to read in
its entirety as follows:
"This certifies that, for good and valuable consideration,
Critical Path, Inc., a California corporation (the "Company"), grants
to [____________], a Delaware limited partnership (the
"Warrantholder"), the right to subscribe for and purchase from the
Company, during the Exercise Period (as hereinafter defined),
[_______________] (__________) validly issued, fully paid and
nonassessable shares, par value $0.001, of Common Stock of the Company
(the "Warrant Shares"), at the exercise price of $[Series E Price Per
Share] per share (the "Exercise Price"), all subject to the terms,
conditions and adjustments herein set forth. Capitalized terms used
herein shall have the meanings ascribed to such terms in Section 9
below."
Section 3. Continuing Agreement. Except as specifically amended hereby,
all of the terms of the Warrant shall remain and continue in full force and
effect and are hereby confirmed in all respects.
Section 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law thereof.
Section 5. Counterparts. This Amendment may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
[the remainder of this page intentionally left blank]
2
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
COMPANY:
CRITICAL PATH, INC.,
a California corporation
By: ________________________________
Name:
Title:
WARRANTHOLDER:
[____________________]
By: ________________________________
Name:
Title:
APPENDIX F
================================================================================
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
among
CRITICAL PATH, INC.
GENERAL ATLANTIC PARTNERS 74, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
GAPSTAR, LLC,
GAP-W, LLC,
GAPCO GMBH & CO. KG
and
THE OTHER PARTIES LISTED HEREIN
------------------------------------------------------
Dated: November __, 2003
------------------------------------------------------
================================================================================
TABLE OF CONTENTS
Page
----
1. Definitions.................................................................................... 2
2. General; Securities Subject to this Agreement.................................................. 5
(a) Grant of Rights....................................................................... 5
(b) Registrable Securities................................................................ 5
(c) Holders of Registrable Securities..................................................... 5
3. Demand Registration............................................................................ 5
(a) Request for Demand Registration....................................................... 5
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand Registration............... 6
(c) Effective Demand Registration......................................................... 7
(d) Expenses.............................................................................. 7
(e) Underwriting Procedures............................................................... 7
(f) Selection of Underwriters............................................................. 8
4. Incidental or "Piggy-Back" Registration........................................................ 8
(a) Request for Incidental Registration................................................... 8
(b) Expenses.............................................................................. 9
5. Holdback Agreements............................................................................ 9
(a) Restrictions on Public Sale by Designated Holders..................................... 9
(b) Restrictions on Public Sale by the Company............................................ 9
6. Registration Procedures........................................................................ 9
(a) Obligations of the Company............................................................ 9
(b) Seller Information.................................................................... 12
(c) Notice to Discontinue................................................................. 12
(d) Registration Expenses................................................................. 13
7. Indemnification; Contribution.................................................................. 13
(a) Indemnification by the Company........................................................ 13
(b) Indemnification by Designated Holders................................................. 14
(c) Conduct of Indemnification Proceedings................................................ 14
(d) Contribution.......................................................................... 15
8. Rule 144....................................................................................... 15
9. Miscellaneous.................................................................................. 16
(a) Recapitalizations, Exchanges, etc..................................................... 16
(b) No Inconsistent Agreements............................................................ 16
(c) Remedies.............................................................................. 16
(d) Amendments and Waivers................................................................ 16
(e) Notices............................................................................... 16
(f) Successors and Assigns; Third Party Beneficiaries..................................... 18
i
Page
----
(g) Counterparts................................................................................... 19
(h) Headings....................................................................................... 19
(i) Governing Law.................................................................................. 19
(j) Severability................................................................................... 19
(k) Rules of Construction.......................................................................... 19
(l) Entire Agreement............................................................................... 19
(m) Further Assurances............................................................................. 19
(n) Other Agreements............................................................................... 19
(o) Effective Date and Termination................................................................. 20
ii
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated November __,
2003 (this "Agreement"), among Critical Path, Inc., a California corporation
(the "Company"), General Atlantic Partners 74, L.P., a Delaware limited
partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability
company ("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"),
GAPCO GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), Cenwell
Limited ("Cenwell"), Campina Enterprises Limited ("Campina"), Great Affluent
Limited ("Great Affluent"), Dragonfield Limited ("Dragonfield"), Lion Cosmos
Limited ("Lion Cosmos") and Vectis CP Holdings, LLC, a Delaware limited
liability company ("Vectis").
WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated
November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"),
among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and
Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment,
GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series
D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants to purchase shares of Common Stock (as hereinafter defined) (the
"Warrants");
WHEREAS, pursuant to the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, Campina,
Cenwell, Great Affluent, Dragonfield and Lion Cosmos, (i) the Company has issued
and sold to GAP LP, GAP Coinvestment, GapStar, GAP-W and GmbH Coinvestment
convertible promissory notes (the "Notes") which are convertible into shares,
par value $0.001 per share, of Series E Redeemable Convertible Preferred Stock
of the Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock; and
WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment,
GapStar, GAP-W and GmbH Coinvestment to purchase the Notes and (ii) Campina,
Cenwell, Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub
Notes for shares of Series E Preferred Stock, the Company has agreed to grant
registration rights with respect to the Registrable Securities (as hereinafter
defined) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Agreement" mean this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Amended and Restated Stockholders Agreement" shall mean the
Amended and Restated Stockholders Agreement, dated the date hereof, among the
Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GmbH Coinvestment and the
Persons listed therein as "Coinvestors."
"Approved Underwriter" has the meaning set forth in Section
3(f) of this Agreement.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Campina" has the meaning set forth in the preamble to this
Agreement.
"Cenwell" has the meaning set forth in the preamble to this
Agreement.
"Coinvestor Stockholders" means Cenwell, Campina, Great
Affluent, Dragonfield, Lion Cosmos and any Affiliate thereof that, after the
date hereof, acquires Registrable Securities.
"CK Sub Notes" means the 5 3/4 % Convertible Subordinated
Notes due April 1, 2005 issued by the Company in the principal face amount of
thirty-two million seven hundred ninety-five thousand dollars ($32,795,000),
pursuant to the Company's Indenture, dated March 31, 2000.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $0.001 per
share, of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Company Underwriter" has the meaning set forth in Section
4(a) of this Agreement.
2
"Convertible Note Purchase and Exchange Agreement" has the
meaning set forth in the recitals to this Agreement.
"Demand Registration" has the meaning set forth in Section
3(a) of this Agreement.
"Designated Holder" means each of the General Atlantic
Stockholders, the Coinvestor Stockholders and the Vectis Stockholders and any
transferee of any of them to whom Registrable Securities have been transferred
in accordance with Section 9(f) of this Agreement, other than a transferee to
whom Registrable Securities have been transferred pursuant to a Registration
Statement under the Securities Act or Rule 144 (or any successor rule thereto).
"Dragonfield" has the meaning set forth in the recitals to
this Agreement.
"Exchange" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"GAP Coinvestment" has the meaning set forth in the preamble
to this Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and the managing
member of GapStar, and any successor to such entity.
"GAP LP" has the meaning set forth in the preamble to this
Agreement.
"GAP-W" has the meaning set forth in the preamble to this
Agreement.
"GapStar" has the meaning set forth in the preamble to this
Agreement.
"General Atlantic Stockholders" means GAP LP, GAP
Coinvestment, GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC
that, after the date hereof, acquires Registrable Securities.
"GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German
limited partnership.
"Great Affluent" has the meaning set forth in the recitals to
this Agreement.
"Holders' Counsel" has the meaning set forth in Section
6(a)(i) of this Agreement.
"Incidental Registration" has the meaning set forth in Section
4(a) of this Agreement.
3
"Indemnified Party" has the meaning set forth in Section 7(c)
of this Agreement.
"Indemnifying Party" has the meaning set forth in Section 7(c)
of this Agreement.
"Initiating Holders" has the meaning set forth in Section 3(a)
of this Agreement.
"Inspector" has the meaning set forth in Section 6(a)(vii) of
this Agreement.
"Liability" has the meaning set forth in Section 7(a) of this
Agreement.
"Lion Cosmos" has the meaning set forth in the recitals to
this Agreement.
"NASD" means the National Association of Securities Dealers,
Inc.
"Person" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and shall
include any successor (by merger or otherwise) of such entity.
"Public Offering" means any public offering of the shares of
Common Stock of the Company pursuant to an effective Registration Statement
filed under the Securities Act.
"Records" has the meaning set forth in Section 6(a)(vii) of
this Agreement.
"Registrable Securities" means each of the following: (a) any
and all shares of Common Stock issued or issuable upon conversion of shares of
Series D Preferred Stock, Series E Preferred Stock or exercise of the Warrants,
(b) any other shares of Common Stock acquired or owned by any of the Designated
Holders after the date hereof if such Designated Holder is an Affiliate of the
Company and (c) any shares of Common Stock issued or issuable to any of the
Designated Holders with respect to the Registrable Securities by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization or otherwise and
any shares of Common Stock or voting common stock issuable upon conversion,
exercise or exchange thereof.
"Registration Expenses" has the meaning set forth in Section
6(d) of this Agreement.
"Registration Statement" means a Registration Statement filed
pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
4
"Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.
"Stockholder Approval" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.
"Valid Business Reason" has the meaning set forth in Section
3(a) of this Agreement.
"Vectis" has the meaning set forth in the preamble of this
Agreement.
"Vectis Stockholders" means Vectis and any Affiliate thereof
that, after the date hereof, acquires Registrable Securities.
"Warrants" has the meaning set forth in the recitals to this
Agreement.
2. General; Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants
registration rights to the Designated Holders upon the terms and conditions set
forth in this Agreement.
(b) Registrable Securities. For the purposes of this
Agreement, Registrable Securities will cease to be Registrable Securities, when
(i) a Registration Statement covering such Registrable Securities has been
declared effective under the Securities Act by the Commission and such
Registrable Securities have been disposed of pursuant to such effective
Registration Statement, (ii) (x) the entire amount of the Registrable Securities
owned by a Designated Holder may be sold in a single sale, in the opinion of
counsel satisfactory to the Company and such Designated Holder, each in their
reasonable judgment, without any limitation as to volume pursuant to Rule 144
(or any successor provision then in effect) under the Securities Act and (y)
such Designated Holder owning such Registrable Securities owns less than one
percent (1%) of the outstanding shares of Common Stock on a fully diluted basis,
or (iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed
to be a holder of Registrable Securities whenever such Person owns of record
Registrable Securities, or holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities
whether or not such acquisition or conversion has actually been effected. If the
Company receives conflicting instructions, notices or elections from two or more
Persons with respect to the same Registrable Securities, the Company may act
upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities. Registrable Securities issuable
upon exercise of an option or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time
commencing one year after the date hereof, either the General Atlantic
Stockholders or the Coinvestor Stockholders
5
(the "Initiating Holders"), may each make a written request to the Company to
register, and the Company shall register, under the Securities Act and on an
appropriate registration statement form as reasonably determined by the Company
and approved by the Initiating Holders (a "Demand Registration"), the number of
Registrable Securities stated in such request; provided, however, that the
Company shall not be obligated to effect more than one such Demand Registration
for the General Atlantic Stockholders (subject to Section 3(e)(ii) below) and
more than one such Demand Registration for the Coinvestor Stockholders (subject
to Section 3(e)(ii) below). If following receipt of a written request for a
Demand Registration the Board of Directors, in its good faith judgment,
determines that any registration of Registrable Securities should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other material transaction
involving the Company (a "Valid Business Reason"), the Company may (x) postpone
filing a Registration Statement relating to a Demand Registration until such
Valid Business Reason no longer exists, but in no event for more than ninety
(90) days, and (y) in case a Registration Statement has been filed relating to a
Demand Registration, if the Valid Business Reason has not resulted from actions
taken by the Company, the Company, upon the approval of a majority of the Board
of Directors, such majority to include at least one Director appointed by the
General Atlantic Stockholders, may cause such Registration Statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such Registration Statement. The Company shall give written notice
of its determination to postpone or withdraw a Registration Statement and of the
fact that the Valid Business Reason for such postponement or withdrawal no
longer exists, in each case, promptly after the occurrence thereof.
Notwithstanding anything to the contrary contained herein, the Company may not
postpone or withdraw a filing under this Section 3(a) more than once in any
twelve (12) month period. Each request for a Demand Registration by the
Initiating Holders shall state the amount of the Registrable Securities proposed
to be sold and the intended method of disposition thereof.
(b) Incidental or "Piggy-Back" Rights with Respect to a
Demand Registration. Each of the Designated Holders (other than Initiating
Holders which have requested a registration under Section 3(a)) may offer its or
his Registrable Securities under any Demand Registration pursuant to this
Section 3(b). Within five (5) days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of the Registrable Securities
held by such Designated Holders from whom the Company has received a written
request for inclusion therein within ten (10) days of the receipt by such
Designated Holders of such written notice referred to in clause (i) above. Each
such request by such Designated Holders shall specify the number of Registrable
Securities proposed to be registered. The failure of any Designated Holder to
respond within such 10 day period referred to in clause (ii) above shall be
deemed to be a waiver of such Designated Holder's rights under this Section 3
with respect to such Demand Registration. Any Designated Holder may waive its
rights under this Section 3 prior to the expiration of such 10-day period by
giving written notice to the Company, with a copy to the Initiating Holders. If
a Designated Holder sends the Company a written request for inclusion of part or
all of such Designated Holder's Registrable Securities in a registration, such
Designated Holder shall not be entitled to withdraw or revoke such request
without the prior written consent of the Company in its sole discretion unless,
as a result of facts or circumstances arising after the date on which such
request was
6
made relating to the Company or to market conditions, such Designated Holder
reasonably determines that participation in such registration would have a
material adverse effect on such Designated Holder.
(c) Effective Demand Registration. The Company shall use
all commercially reasonable efforts to cause any such Demand Registration to be
filed not later than thirty (30) days after it receives a request under Section
3(a) hereof and to become and remain effective as soon as practicable thereafter
but, in any event, not later than ninety (90) days after such filing. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for the lesser of (i) the period
during which all Registrable Securities registered in the Demand Registration
are sold and (ii) one hundred twenty (120) days; provided, however, that a
registration shall not constitute a Demand Registration if (x) after such Demand
Registration has become effective, such registration or the related offer, sale
or distribution of Registrable Securities thereunder is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Initiating
Holders and such interference is not thereafter eliminated or (y) the conditions
specified in the underwriting agreement, if any, entered into in connection with
such Demand Registration are not satisfied or waived, other than by reason of a
failure by the Initiating Holder.
(d) Expenses. The Company shall pay all Registration
Expenses in connection with a Demand Registration, whether or not such Demand
Registration becomes effective.
(e) Underwriting Procedures.
(i) If the Company or the Initiating Holders
holding a majority of the Registrable Securities held by all of the Initiating
Holders so elect, the Company shall use all commercially reasonable efforts to
cause such Demand Registration to be in the form of a firm commitment
underwritten offering and the managing underwriter or underwriters selected for
such offering shall be the Approved Underwriter selected in accordance with
Section 3(f). In connection with any Demand Registration under this Section 3
involving an underwritten offering, none of the Registrable Securities held by
any Designated Holder making a request for inclusion of such Registrable
Securities pursuant to Section 3(b) hereof shall be included in such
underwritten offering unless such Designated Holder accepts the terms of the
offering as agreed upon by the Company, the Initiating Holders and the Approved
Underwriter, and then only in such quantity as will not, in the opinion of the
Approved Underwriter, jeopardize the success of such offering by the Initiating
Holders. If the Approved Underwriter advises the Company in its reasonable
opinion that the aggregate amount of such Registrable Securities requested to be
included in such offering is sufficiently large to have a material adverse
effect on the success of such offering, then the Company shall include in such
registration only the aggregate amount of Registrable Securities that the
Approved Underwriter believes may be sold without any such material adverse
effect and shall reduce the amount of Registrable Securities to be included in
such registration by removing from such registration securities owned, first by
the Company and second by the Designated Holders (including the Initiating
Holders) pro rata based on the number of Registrable Securities owned by each
such Designated Holder.
7
(ii) If an Initiating Holder makes a request for
a Demand Registration and, pursuant to Section 3(e)(i) above, the Approved
Underwriter advises the Company to reduce the aggregate amount of Registrable
Securities requested to be included in such offering such that less than
seventy-five percent (75%) of the Registrable Securities requested to be
included by any Initiating Holder are ultimately included in and sold pursuant
to such Demand Registration, the Initiating Holder shall have the right to
require the Company to effect an additional Demand Registration; provided,
however, that in no event shall the aggregate number of Demand Registrations to
be effected by the Company for any one Initiating Holder exceed two (2).
(f) Selection of Underwriters. If any Demand Registration
of Registrable Securities is in the form of an underwritten offering, the
Company shall select and obtain an investment banking firm of national
reputation to act as the managing underwriter of the offering (the "Approved
Underwriter"); provided, however, that the Approved Underwriter shall, in any
case, also be approved by the Initiating Holders.
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. If at any time
the Company proposes to file a Registration Statement under the Securities Act
with respect to an offering by the Company for its own account (other than a
Registration Statement on Form S-4 or S-8 or any successor thereto) or for the
account of any stockholder of the Company other than the Designated Holders,
then the Company shall give written notice of such proposed filing to each of
the Designated Holders at least twenty (20) days before the anticipated filing
date, and such notice shall describe the proposed registration and distribution
and offer such Designated Holders the opportunity to register the number of
Registrable Securities as each such Designated Holder may request (an
"Incidental Registration"). The Company shall use all commercially reasonable
efforts (within twenty (20) days of the notice provided for in the preceding
sentence) to cause the managing underwriter or underwriters in the case of a
proposed underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 4(a) involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwritten offering as agreed upon
between the Company, such other stockholders, if any, and the Company
Underwriter, and then only in such quantity as the Company Underwriter believes
will not jeopardize the success of the offering by the Company. If the Company
Underwriter determines that the registration of all or part of the Registrable
Securities which the Designated Holders have requested to be included would
materially adversely affect the success of such offering, then the Company shall
be required to include in such Incidental Registration, to the extent of the
amount that the Company Underwriter believes may be sold without causing such
adverse effect, first, all of the securities to be offered for the account of
the Company or on the account of the selling stockholder that caused the
registration statement that has triggered the Incidental Registration to be
filed, as the case may be; second, the Registrable Securities to be offered for
the account of the Designated Holders pursuant to this Section 4, pro rata based
on the number of
8
Registrable Securities owned by each such Designated Holder; and third, any
other securities requested to be included in such offering.
(b) Expenses. The Company shall bear all Registration
Expenses in connection with any Incidental Registration pursuant to this Section
4, whether or not such Incidental Registration becomes effective.
5. Holdback Agreements.
(a) Restrictions on Public Sale by Designated Holders. To
the extent (i) requested (A) by the Company or the Initiating Holders, as the
case may be, in the case of a non-underwritten public offering and (B) by the
Approved Underwriter or the Company Underwriter, as the case may be, in the case
of an underwritten public offering and (ii) all of the Company's officers,
directors and holders in excess of one percent (1%) of its outstanding capital
stock execute agreements identical to those referred to in this Section 5(a),
each Designated Holder agrees (x) not to effect any public sale or distribution
of any Registrable Securities or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Securities Act, or offer to sell, contract to
sell (including without limitation any short sale), grant any option to purchase
or enter into any hedging or similar transaction with the same economic effect
as a public sale any Registrable Securities and (y) not to make any request for
a Demand Registration under this Agreement, during the ninety (90) day period or
such shorter period, if any, mutually agreed upon by such Designated Holder and
the requesting party beginning on the effective date of the Registration
Statement (except as part of such registration) for such public offering. No
Designated Holder of Registrable Securities subject to this Section 5(a) shall
be released from any obligation under any agreement, arrangement or
understanding entered into pursuant to this Section 5(a) unless all other
Designated Holders of Registrable Securities subject to the same obligation are
also released. All Designated Holders of Registrable Securities shall be
automatically released from any obligations under any agreement, arrangement or
understanding entered into pursuant to this Section 5(a) immediately upon the
expiration of the 90 day period.
(b) Restrictions on Public Sale by the Company. The
Company agrees not to effect any public sale or distribution of any of its
securities, or any securities convertible into or exchangeable or exercisable
for such securities (except pursuant to registrations on Form S-4 or S-8 or any
successor thereto), during the period beginning on the effective date of any
Registration Statement in which the Designated Holders of Registrable Securities
are participating and ending on the earlier of (i) the date on which all
Registrable Securities registered on such Registration Statement are sold and
(ii) 120 days after the effective date of such Registration Statement (except as
part of such registration).
6. Registration Procedures.
(a) Obligations of the Company. Whenever registration of
Registrable Securities has been requested pursuant to Section 3 or Section 4 of
this Agreement, the Company shall use all commercially reasonable efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended method of distribution thereof as quickly
9
as practicable, and in connection with any such request, the Company shall, as
expeditiously as possible:
(i) prepare and file with the Commission a
Registration Statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof, and cause such Registration Statement to become
effective; provided, however, that (x) before filing a Registration Statement or
prospectus or any amendments or supplements thereto, the Company shall provide
counsel selected by the Designated Holders holding a majority of the Registrable
Securities being registered in such registration ("Holders' Counsel") with an
adequate opportunity to review and comment on such Registration Statement and
each prospectus included therein (and each amendment or supplement thereto) to
be filed with the Commission, subject to such documents being under the
Company's control, and (y) the Company shall notify the Holders' Counsel and
each seller of Registrable Securities of any stop order issued or threatened by
the Commission and take all action required to prevent the entry of such stop
order or to remove it if entered;
(ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the lesser of (x) 120 days and (y) such shorter period
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such Registration
Statement;
(iii) furnish to each seller of Registrable
Securities, prior to filing a Registration Statement, at least one copy of such
Registration Statement as is proposed to be filed, and thereafter such number of
copies of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the prospectus included in such
Registration Statement (including each preliminary prospectus) and any
prospectus filed under Rule 424 under the Securities Act as each such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(iv) register or qualify such Registrable
Securities under such other securities or "blue sky" laws of such jurisdictions
as any seller of Registrable Securities may request, and to continue such
qualification in effect in such jurisdiction for as long as permissible pursuant
to the laws of such jurisdiction, or for as long as any such seller requests or
until all of such Registrable Securities are sold, whichever is shortest, and do
any and all other acts and things which may be reasonably necessary or advisable
to enable any such seller to consummate the disposition in such jurisdictions of
the Registrable Securities owned by such seller; provided, however, that the
Company shall not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 6(a)(iv), (y) subject itself to taxation in any such jurisdiction or (z)
consent to general service of process in any such jurisdiction;
10
(v) notify each seller of Registrable Securities
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller of Registrable Securities a reasonable number of copies
of such supplement to or an amendment of such prospectus as may be necessary so
that, after delivery to the purchasers of such Registrable Securities, such
prospectus shall not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(vi) enter into and perform customary agreements
(including an underwriting agreement containing representations, warranties,
covenants and indemnities for securities law matters and otherwise in customary
form with the Approved Underwriter or Company Underwriter, if any, selected as
provided in Section 3 or Section 4, as the case may be) and take such other
actions as are prudent and reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities, including causing its
officers to participate in "road shows" and other information meetings organized
by the Approved Underwriter or Company Underwriter;
(vii) make available at reasonable times for
inspection by any seller of Registrable Securities, any managing underwriter
participating in any disposition of such Registrable Securities pursuant to a
Registration Statement, Holders' Counsel and any attorney, accountant or other
agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause the
Company's and its subsidiaries' officers, directors and employees, and the
independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors (and the Inspectors shall confirm their agreement in
writing in advance to the Company if the Company shall so request) unless (x)
the disclosure of such Records is necessary, in the Company's judgment, to avoid
or correct a misstatement or omission in the Registration Statement, (y) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction after exhaustion of all appeals therefrom or (z)
the information in such Records was known to the Inspectors on a
non-confidential basis prior to its disclosure by the Company or has been made
generally available to the public. Each seller of Registrable Securities agrees
that it shall, upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(viii) if such sale is pursuant to an underwritten
offering, obtain a "cold comfort" letters dated the effective date of the
Registration Statement and the date of the closing
11
under the underwriting agreement from the Company's independent public
accountants in customary form and covering such matters of the type customarily
covered by "cold comfort" letters as the managing underwriter reasonably
requests;
(ix) furnish, at the request of any seller of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration or, if such securities are
not being sold through underwriters, on the date the Registration Statement with
respect to such securities becomes effective, an opinion, if reasonably
available, dated such date, of counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the
underwriters, if any, and such seller may reasonably request and are customarily
included in such opinions;
(x) comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable but no later than fifteen (15) months after the
effective date of the Registration Statement, an earnings statement covering a
period of twelve (12) months beginning after the effective date of the
Registration Statement, in a manner which satisfies the provisions of Section
11(a) of the Securities Act and Rule 158 thereunder;
(xi) cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, provided that the applicable listing requirements are
satisfied;
(xii) cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the NASD; and
(xiii) take all other steps reasonably necessary to
effect the registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require each
seller of Registrable Securities as to which any registration is being effected
to furnish, and such seller shall furnish, to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.
(c) Notice to Discontinue. Each Designated Holder agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 6(a)(v), such Designated Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Designated Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 6(a)(v) and, if so directed by the Company, such Designated Holder shall
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Designated Holder's possession, of the
prospectus covering such Registrable Securities which is current at the time of
receipt of such notice. If the Company shall give any such notice, the Company
shall extend the period during which such Registration Statement shall be
maintained effective pursuant to this Agreement (including, without limitation,
the period
12
referred to in Section 6(a)(ii)) by the number of days during the period from
and including the date of the giving of such notice pursuant to Section 6(a)(v)
to and including the date when sellers of such Registrable Securities under such
Registration Statement shall have received the copies of the supplemented or
amended prospectus contemplated by and meeting the requirements of Section
6(a)(v).
(d) Registration Expenses. The Company shall pay all
expenses arising from or incident to its performance of, or compliance with,
this Agreement, including, without limitation, (i) Commission, stock exchange
and NASD registration and filing fees, (ii) all fees and expenses incurred in
complying with securities or "blue sky" laws (including reasonable fees, charges
and disbursements of counsel to any underwriter incurred in connection with
"blue sky" qualifications of the Registrable Securities as may be set forth in
any underwriting agreement), (iii) all printing, messenger and delivery expenses
and (iv) the fees, charges and expenses of counsel to the Company and of its
independent public accountants and any other accounting fees, charges and
expenses incurred by the Company (including, without limitation, any expenses
arising from any "cold comfort" letters or any special audits incident to or
required by any registration or qualification) and any reasonable legal fees,
charges and expenses incurred by one counsel for the General Atlantic
Stockholders. All of the expenses described in the preceding sentence of this
Section 6(d) are referred to herein as "Registration Expenses." The Designated
Holders of Registrable Securities sold pursuant to a Registration Statement
shall bear the expense of any underwriter's discount or commission relating to
registration and sale of such Designated Holders' Registrable Securities.
7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Designated Holder, its partners, directors,
officers, affiliates and each Person who controls (within the meaning of Section
15 of the Securities Act) such Designated Holder from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs of
investigation) (each, a "Liability" and collectively, "Liabilities"), arising
out of or based upon any untrue, or allegedly untrue, statement of a material
fact contained in any Registration Statement, prospectus or preliminary
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which such statements were made, except insofar as
such Liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission contained in such Registration
Statement, preliminary prospectus or final prospectus in reliance and in
conformity with information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein,
including, without limitation, the information furnished to the Company pursuant
to Section 7(b). The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
Section 15 of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Designated Holders of Registrable
Securities.
13
(b) Indemnification by Designated Holders. In connection
with any Registration Statement in which a Designated Holder is participating
pursuant to Section 3 or Section 4 hereof, each such Designated Holder shall
promptly furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such Registration Statement or prospectus and
all information required to be disclosed in order to make the information
previously furnished to the Company by such Designated Holder not materially
misleading or necessary to cause such Registration Statement not to omit a
material fact with respect to such Designated Holder necessary in order to make
the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the Registration Statement, any underwriter retained by
the Company and each Person who controls the Company or such underwriter (within
the meaning of Section 15 of the Securities Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with information with respect to such Designated
Holder furnished in writing to the Company by such Designated Holder expressly
for use in such Registration Statement or prospectus, including, without
limitation, the information furnished to the Company pursuant to this Section
7(b); provided, however, that the total amount to be indemnified by such
Designated Holder pursuant to this Section 7(b) shall be limited to the net
proceeds (after deducting the underwriters' discounts and commissions) received
by such Designated Holder in the offering to which the Registration Statement or
prospectus relates.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder (the "Indemnified Party") agrees to give
prompt written notice to the indemnifying party (the "Indemnifying Party") after
the receipt by the Indemnified Party of any written notice of the commencement
of any action, suit, proceeding or investigation or threat thereof made in
writing for which the Indemnified Party intends to claim indemnification or
contribution pursuant to this Agreement; provided, however, that the failure so
to notify the Indemnifying Party shall not relieve the Indemnifying Party of any
Liability that it may have to the Indemnified Party hereunder (except to the
extent that the Indemnifying Party is materially prejudiced or otherwise
forfeits substantive rights or defenses by reason of such failure). If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume
the
14
defense of such action on behalf of such Indemnified Party, it being
understood, however, that the Indemnifying Party shall not be liable for the
fees and expenses of more than one separate firm of attorneys (in addition to
any local counsel) for all Indemnified Parties. No Indemnifying Party shall be
liable for any settlement entered into without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the consent of such Indemnified Party, effect any settlement of any pending or
threatened proceeding in respect of which such Indemnified Party is a party and
indemnity has been sought hereunder by such Indemnified Party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability for claims that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in
this Section 7 from the Indemnifying Party is unavailable to an Indemnified
Party hereunder in respect of any Liabilities referred to herein, then the
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Liabilities in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions which resulted in such Liabilities, as well as any other relevant
equitable considerations. The relative faults of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Liabilities referred to above shall be
deemed to include, subject to the limitations set forth in Sections 7(a), 7(b)
and 7(c), any legal or other fees, charges or expenses reasonably incurred by
such party in connection with any investigation or proceeding; provided that the
total amount to be contributed by such Designated Holder shall be limited to the
net proceeds (after deducting the underwriters' discounts and commissions)
received by such Designated Holder in the offering.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 7(d) were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
8. Rule 144. The Company covenants that it shall (a) file any
reports required to be filed by it under the Exchange Act and (b) take such
further action as each Designated Holder may reasonably request (including
providing any information necessary to comply with Rule 144 under the Securities
Act), all to the extent required from time to time to enable such Designated
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such rule may be amended from time to time or (ii) any
similar rules or regulations hereafter adopted by the Commission. The Company
shall, upon the request of any Designated Holder, deliver to such Designated
Holder a written statement as to whether it has complied with such requirements.
15
9. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of
this Agreement shall apply to the full extent set forth herein with respect to
(i) the shares of Common Stock, (ii) any and all shares of voting common stock
of the Company into which the shares of Common Stock are converted, exchanged or
substituted in any recapitalization or other capital reorganization by the
Company and (iii) any and all equity securities of the Company or any successor
or assign of the Company (whether by merger, consolidation, sale of assets or
otherwise) which may be issued in respect of, in conversion of, in exchange for
or in substitution of, the shares of Common Stock and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. The Company
shall use all commercially reasonable efforts to cause any successor or assign
(whether by merger, consolidation, sale of assets or otherwise) to enter into a
new registration rights agreement with the Designated Holders on terms
substantially the same as this Agreement as a condition of any such transaction.
(b) No Inconsistent Agreements. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Designated Holders in this Agreement or grant any
additional registration rights to any Person or with respect to any securities
which are not Registrable Securities which are prior in right to or inconsistent
with the rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive in any action for specific
performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided
herein, the provisions of this Agreement may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless consented to in writing by (i) the Company and (ii) the
General Atlantic Stockholders, Coinvestor Stockholders and Vectis Stockholders
holding Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders, Coinvestor
Stockholders and Vectis Stockholders; provided, however, that to the extent any
amendment or waiver shall adversely affect any of the Stockholders, such
amendment or waiver shall require the prior written consent of each Stockholder
so adversely affected. Any such written consent shall be binding upon the
Company and all of the Designated Holders.
(e) Notices. All notices, demands and other
communications provided for or permitted hereunder shall be made in writing and
shall be made by registered or certified first-class mail, return receipt
requested, telecopier, courier service or personal delivery:
16
(i) if to the Company:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
with a copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg F. Vignos, Esq.
(ii) if to the General Atlantic Stockholders:
c/o General Atlantic Service Company
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 622-8818
Attention: Matthew Nimetz
Thomas J. Murphy
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
(iii) if to Campina, Great Affluent, Dragonfield
or Lion Cosmos:
c/o 7th Floor
Cheung Kong Center
2 Queen's Road Central
Hong Kong
Telecopy: (852) 2845-2057
Attention: Mr. Edmond Ip
17
(iv) if to Cenwell:
c/o 22nd Floor
Hutchison House
10 Harcourt Road
Hong Kong
Telecopy: (852) 2128-1778
Attention: Company Secretary
(v) if to Vectis:
c/o Vectis Group, LLC
117 Greenwich Street
San Francisco, CA 94111
Telecopy: 415-352-5310
Attention: Matthew Hobart
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Telecopy: 212-446-4900
Attention: Michael Movsovich, Esq.
(vi) if to any other Designated Holder, at its
address as it appears on the record books of
the Company.
All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 9(e) designate another address or
Person for receipt of notices hereunder.
(f) Successors and Assigns; Third Party Beneficiaries.
This Agreement shall inure to the benefit of and be binding upon the successors
and permitted assigns of the parties hereto as hereinafter provided. The Demand
Registration rights and related rights of the General Atlantic Stockholders or
the Coinvestor Stockholders contained in Section 3 hereof shall be (i) with
respect to any Registrable Security that is transferred to an Affiliate of a
General Atlantic Stockholder or a Coinvestor Stockholder, automatically
transferred to such Affiliate and (ii) with respect to any Registrable Security
that is transferred in all cases to a non-Affiliate, transferred only with the
consent of the Company which consent shall not be unreasonably withheld,
conditioned or delayed. The incidental or "piggy-back" registration rights of
the Designated Holders contained in Sections 3(b) and 4 hereof and the other
rights of each of the Designated Holders with respect thereto shall be, with
respect to any Registrable Security, automatically transferred to any Person who
is the transferee of such Registrable Security so long as such
18
transferee agrees to be bound by this Agreement. All of the obligations of the
Company hereunder shall survive any such transfer. Except as provided in Section
7, no Person other than the parties hereto and their successors and permitted
assigns is intended to be a beneficiary of this Agreement.
(g) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(j) Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
(k) Rules of Construction. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.
(l) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
with respect to the subject matter contained herein. There are no restrictions,
promises, representations, warranties or undertakings with respect to the
subject matter contained herein, other than those set forth or referred to
herein. Subject to Section 9(o), upon the Subsequent Closing (as defined in the
Convertible Note Purchase and Exchange Agreement), this Agreement shall
supersede all prior agreements and understandings among the parties with respect
to such subject matter.
(m) Further Assurances. Each of the parties shall execute
such documents and perform such further acts as may be reasonably required or
desirable to carry out or to perform the provisions of this Agreement.
(n) Other Agreements. Nothing contained in this Agreement
shall be deemed to be a waiver of, or release from, any obligations any party
hereto may have under, or any restrictions on the transfer of Registrable
Securities or other securities of the Company imposed by, any other agreement
including, but not limited to, the Stock Purchase Agreement, the Convertible
Note Purchase and Exchange Agreement or the Amended and Restated Stockholders
Agreement.
19
(o) Effective Date and Termination. Notwithstanding
anything in this Agreement to the contrary, this Agreement shall become
effective immediately following the Subsequent Closing. If the Subsequent
Closing does not occur and the obligation to consummate the Conversion and the
Exchange (each as defined in the Convertible Note Purchase Agreement) has been
terminated pursuant to Article IX of the Convertible Note Purchase and Exchange
Agreement, this Agreement shall immediately terminate and be of no further force
or effect.
[the remainder of this page intentionally left blank]
20
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.
CRITICAL PATH, INC.
By: _____________________________________
Name:
Title:
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: _____________________________________
Name:
Title:
GAP COINVESTMENT PARTNERS II, L.P.
By: _____________________________________
Name:
Title:
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: _________________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
GAP-W, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Manager
By: _________________________________
Name:
Title:
CAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: _________________________________
Name:
Title:
VECTIS CP HOLDINGS, LLC,
a Delaware limited liability company
By: VECTIS GROUP, LLC
its Managing Member
By: _____________________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
CENWELL LIMITED
By: _____________________________________
Name:
Title:
CAMPINA ENTERPRISES LIMITED
By: _____________________________________
Name:
Title:
GREAT AFFLUENT LIMITED
By: _____________________________________
Name:
Title:
DRAGONFIELD LIMITED
By: _____________________________________
Name:
Title:
LION COSMOS LIMITED
By: _____________________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
APPENDIX G
================================================================================
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
among
CRITICAL PATH, INC.,
GENERAL ATLANTIC PARTNERS 74, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
GAPSTAR, LLC,
GAP-W, LLC,
GAPCO GMBH & CO. KG,
CAMPINA ENTERPRISES LIMITED,
CENWELL LIMITED,
GREAT AFFLUENT LIMITED,
DRAGONFIELD LIMITED,
LION COSMOS LIMITED
and
VECTIS CP HOLDINGS, LLC
Dated: November __, 2003
================================================================================
TABLE OF CONTENTS
Page
----
1. Definitions.................................................................................... 2
2. Future Issuance of Shares; Preemptive Rights................................................... 6
2.1 Offering Notice....................................................................... 6
2.2 Preemptive Rights; Exercise........................................................... 7
2.3 Closing............................................................................... 8
2.4 Sale to Subject Purchaser............................................................. 8
3. Corporate Governance........................................................................... 8
3.1 Board of Directors; Number and Composition............................................ 8
3.2 Reimbursement of Expenses; D&O Insurance.............................................. 9
3.3 Meetings of the Board of Directors.................................................... 9
3.4 Annual Budget......................................................................... 9
4. Standstill; Nasdaq Matters..................................................................... 9
4.1 Standstill............................................................................ 9
4.2 Nasdaq Matters........................................................................ 11
5. Miscellaneous.................................................................................. 11
5.1 Notices............................................................................... 11
5.2 Successors and Assigns; Third Party Beneficiary....................................... 13
5.3 Amendment and Waiver.................................................................. 13
5.4 Counterparts.......................................................................... 13
5.5 Specific Performance.................................................................. 13
5.6 Headings.............................................................................. 13
5.7 Governing Law......................................................................... 13
5.8 Severability.......................................................................... 13
5.9 Rules of Construction................................................................. 14
5.10 Entire Agreement...................................................................... 14
5.11 Term of Agreement..................................................................... 14
5.12 Further Assurances.................................................................... 14
Schedule Coinvestors
EXHIBITS
A Articles of Incorporation
B By-laws
i
Schedule
Coinvestors
Vectis CP Holdings, LLC
Campina Enterprises Limited
Cenwell Limited
Great Affluent Limited
Dragonfield Limited
Lion Cosmos Limited
i
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement"), dated
November __, 2003, among Critical Path, Inc., a California corporation (the
"Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership
("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company
("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"), GAPCO
GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), and the
Persons listed on the Schedule hereto (the "Coinvestors").
WHEREAS, pursuant to the Stock and Warrant Purchase and Exchange
Agreement, dated November 8, 2001, as amended from time to time (the "Stock
Purchase Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar and
the Coinvestors, the Company has (i) issued and sold to GAP LP, GAP
Coinvestment, GapStar and the Coinvestors an aggregate of 708,037 shares of
Series D Cumulative Redeemable Convertible Participating Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants (the "Warrants") to purchase shares of Common Stock; and
WHEREAS, pursuant to the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GAPCO
GmbH Coinvestment, Campina Enterprises Limited ("Campina Enterprises Limited"),
Cenwell Limited ("Cenwell Limited"), Great Affluent Limited ("Great Affluent
Limited"), Dragonfield Limited ("Dragonfield Limited") and Lion Cosmos Limited
("Lion Cosmos Limited"), (i) the Company has issued and sold to GAP LP, GAP
Coinvestment, GapStar, GAP-W and GAPCO GmbH Coinvestment convertible promissory
notes in the principal amount of $10,000,000 (the "Notes"), which are
convertible into shares, par value $0.001 per share, of Series E Convertible
Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock; and
WHEREAS, the parties hereto wish to provide for, among other things,
preemptive rights, corporate governance rights and standstill obligations and
certain other rights under certain conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as
defined in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"Campina Enterprises Limited" has the meaning set forth in the
recitals of this Agreement.
"Cenwell Limited" has the meaning set forth in the recitals of
this Agreement.
"Charter Documents" means the Articles of Incorporation and
the By-laws of the Company as in effect on the date hereof after giving effect
to the filing of the Amended and Restated Certificate of Determination with
respect to the Series D Preferred Stock and the Certificate of Determination
with respect to the Series E Preferred Stock with the Secretary of State of the
State of California, copies of which are attached hereto as Exhibit A and
Exhibit B, respectively.
"CK Sub Notes" means the 5 3/4% Convertible Subordinated
Notes, due April 1, 2005, issued by the Company in the principal face amount of
$32,795,000 pursuant to the Company's Indenture, dated March 31, 2000, and
standing in the name of Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited or Lion Cosmos Limited on the books of the
Company.
"Coinvestor Stockholders" means the Coinvestors and any
Affiliate of a Coinvestor that, after the date hereof, acquires Shares, and the
term "Coinvestor Stockholder" shall mean any such person.
"Coinvestors" has the meaning set forth in the preamble to
this Agreement.
"Coinvestors Sub-group" has the meaning set forth in Section
4.1(c) of this Agreement.
"Commission" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.001 per
share, of the Company and any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.
2
"Common Stock Equivalents" means any security or obligation
which is by its terms convertible, exchangeable or exercisable into or for
shares of Common Stock, including, without limitation the Series D Preferred
Stock, Series E Preferred Stock and any option, warrant or other subscription or
purchase right with respect to Common Stock or any Common Stock Equivalent.
"Company" has the meaning set forth in the preamble to this
Agreement.
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability of that Person with respect to any Indebtedness,
lease, dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary obligor"),
whether or not contingent, (a) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, (b) to advance or provide funds (i) for the payment or discharge or
any such primary obligor or otherwise to maintain the net worth or solvency or
any balance sheet item, level of income or financial condition of the primary
obligor, (c) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (d) otherwise
to assure or hold harmless the owner of any such primary obligation against loss
or failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof.
"Convertible Note Purchase and Exchange Agreement" has the
meaning set forth in the recitals to this Agreement.
"Dragonfield Limited" has the meaning set forth in the
recitals of this Agreement.
"Escrow Agreement" has the meaning set forth in the recitals
to this Agreement.
"Excess New Securities" has the meaning set forth in Section
2.2(a) of this Agreement.
"Exchange" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Exempt Issuances" has the meaning set forth in Section 2.1 of
this Agreement.
"GAP Coinvestment" has the meaning set forth in the preamble
to this Agreement.
3
"GAP LLC" means General Atlantic Partners, LLC, a Delaware
limited liability company and the general partner of GAP LP and the managing
member of GapStar, and any successor to such entity.
"GAP LP" has the meaning set forth in the preamble to this
Agreement.
"GAP-W" has the meaning set forth in the preamble to this
Agreement.
"GapStar" has the meaning set forth in the preamble to this
Agreement.
"General Atlantic Director" has the meaning set forth in
Section 3.2(a) of this Agreement.
"General Atlantic Stockholders" means GAP LP, GAP
Coinvestment, GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC
that, after the date hereof, acquires Shares, and the term "General Atlantic
Stockholder" shall mean any such Person.
"GmbH Coinvestment" has the meaning set forth in the preamble
to this Agreement.
"Governmental Authority" means the government of any nation,
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Great Affluent Limited" has the meaning set forth in the
recitals of this Agreement.
"Indebtedness" means, as to any Person, (a) all obligations of
such Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except trade
accounts payable and accrued commercial or trade liabilities arising in the
ordinary course of business, (c) all interest rate and currency swaps, caps,
collars and similar agreements or hedging devices under which payments are
obligated to be made by such Person, whether periodically or upon the happening
of a contingency, (d) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person under leases which have been
or should be, in accordance with United States generally accepted accounting
principles in effect from time to time, recorded as capital leases, (f) all
indebtedness secured by any Lien (other than Liens in favor of lessors under
leases other than leases included in clause (e)) on any property or asset owned
or held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of that
Person and (g) any Contingent Obligation of such Person.
4
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever (excluding preferred stock and equity related
preferences).
"Lion Cosmos Limited" has the meaning set forth in the
recitals of this Agreement.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"New Issuance Notice" has the meaning set forth in Section 2.1
of this Agreement.
"New Securities" has the meaning set forth in Section 2.1 of
this Agreement.
"Notes" has the meaning set forth in the recitals to this
Agreement.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"Preemptive Rightholder(s)" has the meaning set forth in
Section 2.1 of this Agreement.
"Proportionate Percentage" has the meaning set forth in
Section 2.2(a) of this Agreement.
"Proposed Price" has the meaning set forth in Section 2.1 of
this Agreement.
"Requirement of Law" means, as to any Person, any law,
statute, treaty, rule, regulation, right, privilege, qualification, license or
franchise or determination of an arbitrator or a court or other governmental
authority or stock exchange, in each case applicable or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Series D Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Series E Preferred Stock" has the meaning set forth in the
recitals to this Agreement.
"Shares" means, with respect to each Stockholder, all shares,
whether now owned or hereafter acquired, of Common Stock, Series D Preferred
Stock and Series E Preferred Stock, and any other Common Stock Equivalents owned
thereby; provided, however, for the purposes
5
of any computation of the number of Shares pursuant to Sections 2.2 and 5.3, all
outstanding Common Stock Equivalents shall be deemed converted, exercised or
exchanged as applicable and the shares of Common Stock issuable upon such
conversion, exercise or exchange shall be deemed outstanding, whether or not
such conversion, exercise or exchange has actually been effected.
"Standstill Ceiling" has the meaning set forth in Section
4.1(a) of this Agreement.
"Standstill Expiration Date" means November 8, 2008.
"Stock Option Plans" means the Company's stock option plans
and employee purchase plans pursuant to which shares of restricted stock and
options to purchase shares of Common Stock are reserved and available for grant
to officers, directors, employees and consultants of the Company.
"Stock Purchase Agreement" has the meaning set forth in the
recitals to this Agreement.
"Stockholder Approval" has the meaning set forth in the
Convertible Note Purchase and Exchange Agreement.
"Stockholders" means the General Atlantic Stockholders and the
Coinvestor Stockholders.
"Stockholders Meeting" has the meaning set forth in Section
4.2 of this Agreement.
"Subject Purchaser" has the meaning set forth in Section 2.1
of this Agreement.
"Vectis Stockholders" has the meaning set forth in Section
4.1(c) of this Agreement.
"Warrants" has the meaning set forth in the recitals to this
Agreement.
"Written Consent" has the meaning set forth in Section 4.2 of
this Agreement.
2. Future Issuance of Shares; Preemptive Rights.
2.1 Offering Notice. Except for (a) options to purchase
Series E Preferred Stock or Common Stock or restricted stock which may be issued
pursuant to the Stock Option Plans, (b) a subdivision of the outstanding shares
of Common Stock into a larger number of shares of Common Stock, (c) capital
stock issued upon exercise, conversion or exchange of any Common Stock
Equivalent either (x) previously issued or (y) issued in accordance with the
terms of this Agreement or the Convertible Note Purchase and Exchange Agreement,
(d) capital stock of the Company issued in consideration of an acquisition,
approved by the Board of Directors, by the Company of another Person, (e) shares
of Common Stock issued as a dividend on the Series D Preferred Stock or Series E
Preferred Stock, (f) shares of Common Stock or Common Stock Equivalents issued
in strategic transactions (which may not be private equity or venture
6
capital financing transactions) approved by the Board of Directors to Persons
that are not principally engaged in financial investing and (g) up to 10,000,000
shares of Series E Preferred Stock which may be issued pursuant to Section 2.7
of the Convertible Note Purchase and Exchange Agreement ((a)-(g) being referred
to collectively as "Exempt Issuances"), if the Company wishes to issue any
capital stock or any other securities convertible into or exchangeable for
capital stock of the Company pursuant to a private placement exempt from
registration under the Securities Act, other than any such private placement
that is made solely to Qualified Institutional Buyers (as defined in the
Securities Act) in reliance on Rule 144A promulgated under the Securities Act
(collectively, "New Securities") to any Person (the "Subject Purchaser"), then
the Company shall offer such New Securities first to each of the General
Atlantic Stockholders and the Coinvestor Stockholders (each, a "Preemptive
Rightholder" and collectively, the "Preemptive Rightholders") by sending written
notice (the "New Issuance Notice") to the Preemptive Rightholders, which New
Issuance Notice shall state (x) the number of New Securities proposed to be
issued and (y) the proposed purchase price per security of the New Securities
(the "Proposed Price"). Upon delivery of the New Issuance Notice, such offer
shall be irrevocable unless and until the rights provided for in Section 2.2
shall have been waived or shall have expired.
2.2 Preemptive Rights; Exercise.
(a) For a period of twenty (20) days after the
giving of the New Issuance Notice pursuant to Section 2.1, each of the
Preemptive Rightholders shall have the right to purchase its Proportionate
Percentage (as hereinafter defined) of the New Securities at a purchase price
equal to the Proposed Price and upon the same terms and conditions set forth in
the New Issuance Notice. Each Preemptive Rightholder shall have the right to
purchase that percentage of the New Securities determined by dividing (x) the
total number of Shares then owned by such Preemptive Rightholder by (y) the
total number of Shares owned by all of the Preemptive Rightholders (the
"Proportionate Percentage"). If any Preemptive Rightholder does not fully
subscribe for the number or amount of New Securities that it or he is entitled
to purchase pursuant to the preceding sentence, then each Preemptive Rightholder
which elected to purchase New Securities shall have the right for a five (5) day
period to purchase that percentage of the remaining New Securities not so
subscribed for (for the purposes of this Section 2.2(a), the "Excess New
Securities") determined by dividing (x) the total number of Shares then owned by
such fully participating Preemptive Rightholder by (y) the total number of
Shares then owned by all fully participating Preemptive Rightholders who elected
to purchase Excess New Securities. Each of the Stockholders may transfer all or
any portion of its rights to purchase New Securities under this Section 2 to any
of its Affiliates.
(b) The right of each Preemptive Rightholder to
purchase the New Securities or Excess New Securities, as the case may be, under
subsection (a) above shall be exercisable by delivering written notice of the
exercise thereof, prior to the expiration of the 20-day period referred to in
subsection (a) above with respect to New Securities or prior to the expiration
of the 5-day period referred to in subsection (a) above with respect to Excess
New Securities, to the Company, which notice shall state the amount of New
Securities that such Preemptive Rightholder elects to purchase pursuant to
Section 2.2(a). The failure of a Preemptive Rightholder to respond within such
20-day or 5-day period shall be deemed to be a
7
waiver of such Preemptive Rightholder's rights under Section 2.2(a), provided
that each Preemptive Rightholder may waive its rights under Section 2.2(a) prior
to the expiration of such 20-day or 5-day period by giving written notice to the
Company.
2.3 Closing. The closing of the purchase of New
Securities or Excess New Securities subscribed for by the Preemptive
Rightholders under Section 2.2 shall be held at the executive office of the
Company at 11:00 a.m., local time, on (a) the 30th day after the giving of the
New Issuance Notice pursuant to Section 2.1, if the Preemptive Rightholders
elect to purchase all of the New Securities under Section 2.2, (b) the date of
the closing of the sale to the Subject Purchaser made pursuant to Section 2.4 if
the Preemptive Rightholders elect to purchase some, but not all, of the New
Securities under Section 2.2 or (c) at such other time and place as the parties
to the transaction may agree. At such closing, the Company shall deliver
certificates representing the New Securities, and such New Securities shall be
issued free and clear of all Liens (other than those attributable to actions by
the purchasers thereof) and the Company shall so represent and warrant, and
further represent and warrant (in addition to other customary representations
and warranties) that such New Securities shall be, upon issuance thereof to the
Preemptive Rightholders and after payment therefor, duly authorized, validly
issued, fully paid and non-assessable. Each Preemptive Rightholder purchasing
the New Securities shall deliver at the closing payment in full in immediately
available funds for the New Securities purchased by him or it. At such closing
all of the parties to the transaction shall execute such additional documents as
are customary for transactions of this type.
2.4 Sale to Subject Purchaser. The Company may sell to
the Subject Purchaser all of the New Securities not purchased by the Preemptive
Rightholders pursuant to Section 2.2 on terms and conditions that are no more
favorable to the Subject Purchaser than those set forth in the New Issuance
Notice; provided, however, that such sale is bona fide and made pursuant to a
contract entered into within ninety (90) days following the earlier to occur of
(i) the waiver by the Preemptive Rightholders of their option to purchase New
Securities or Excess New Securities pursuant to Section 2.2, or (ii) the
expiration of the 20-day or 5-day period referred to in Section 2.2. If such
sale is not consummated within such 90-day period for any reason, then the
restrictions provided for herein shall again become effective, and no issuance
and sale of New Securities may be made thereafter by the Company without again
offering the same in accordance with this Section 2. The closing of any issuance
and sale pursuant to this Section 2.4 shall be held at a time and place as the
parties to the transaction may agree within such 90-day period.
3. Corporate Governance.
3.1 Board of Directors; Number and Composition.
(a) The Company shall take all actions
reasonably necessary to cause the nomination to the Board of Directors of one
(1) individual designated by the General Atlantic Stockholders but only if the
General Atlantic Stockholders are not entitled to elect one director of the
Company by virtue of their rights as the holders of a majority of the shares of
Series D Preferred Stock (the "General Atlantic Director").
8
(b) If so requested by the Coinvestor Sub-group,
the Company shall cause the nomination to the Board of Directors of one (1)
individual designated by the Coinvestor Sub-group but only if the Coinvestor
Sub-group is not entitled to elect one director of the Company by virtue of
their rights as the holders of a majority of the shares of Series E Preferred
Stock (the "Sub-group Director").
3.2 Reimbursement of Expenses; D&O Insurance. The Company
shall reimburse the General Atlantic Director for all reasonable travel and
accommodation expenses incurred by him in connection with the performance of his
duties as director of the Company upon presentation of appropriate documentation
therefor. The Company shall use reasonable commercial efforts to maintain a
directors' liability insurance policy that is reasonably acceptable to the Board
of Directors.
3.3 Meetings of the Board of Directors. The Company
agrees to take such actions as are necessary to cause the Board of Directors to
meet in person or telephonically not less frequently than once during each
calendar month.
3.4 Annual Budget. Not less than thirty (30) days prior
to the end of each fiscal year, the Company shall prepare and submit to the
Board of Directors for its approval an annual operating budget of the Company
for the next succeeding fiscal year in reasonable detail.
3.5 Coinvestor Sub-group Rights. Notwithstanding anything
to the contrary set forth in the Charter Documents, so long as the Coinvestor
Sub-group owns at least 7,000,000 shares of Series E Preferred Stock (subject to
anti-dilution adjustment for stock splits of, combinations of and capital
reorganizations with respect to the Series E Preferred Stock) the consent and
approval of the Coinvestor Sub-group, voting separately as a class, shall be a
prerequisite to:
(a) any action that would result in a deemed
dividend to the shares of Series E Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended; or
(b) the issuance, incurrence, assumption or
guarantee by the Corporation or any Subsidiary of the Corporation of any funded
Indebtedness (excluding capital leases incurred in the ordinary course of
business but including the incurrence of any debt in connection with any
borrowing arrangements with Silicon Valley Bank, provided that, with respect to
the incurrence of any debt in connection with any borrowing arrangements with
Silicon Valley Bank, if the members of the Coinvestor Sub-group do not respond
to a written request for consent by the Company within two Business Days of
receiving such request, such members shall be deemed to have consented).
4. Standstill; Nasdaq Matters.
4.1 Standstill. Without the approval or written consent
of the Board of Directors, none of the General Atlantic Stockholders or any of
their Affiliates, and none of the Coinvestor Stockholders or any of their
respective Affiliates shall, severally and not jointly, at any time prior to the
Standstill Expiration Date:
9
(a) purchase or otherwise acquire, or propose or
offer to purchase or acquire, any shares of the Company's capital stock, whether
by tender offer, market purchase, privately negotiated purchase, merger or
otherwise, any shares of the Company's capital stock or any Common Stock
Equivalents in excess of the number of shares of the Company's capital stock and
Common Stock Equivalents purchased pursuant to the Stock Purchase Agreement
(subject to adjustments and issuances of additional Common Stock Equivalents
pursuant to the Amended and Restated Certificate of Determination with respect
to the Series D Preferred Stock) and the Convertible Note Purchase and Exchange
Agreement (subject to adjustments and issuances of additional Common Stock
Equivalents pursuant to the Certificate of Determination with respect to the
Series E Stock) with respect to each such Stockholder and its Affiliates
considered severally and not jointly with any other Stockholder and its
Affiliates (the "Standstill Ceiling"); provided, however, that in no event shall
any such Stockholder acquire any Shares in a transaction in such an amount that
when aggregated with the shares of the Company's capital stock already owned by
such Stockholder, the acquisition of such shares of the Company's capital stock
would require stockholder approval under applicable Nasdaq rules and policies;
and provided, further, that the dividends that accrue on the shares of Series D
Preferred Stock and Series E Preferred Stock pursuant to the terms thereof shall
be excluded for purposes of calculating whether or not a Stockholder and its
Affiliates have exceeded the Standstill Ceiling;
(b) except as specified in this Agreement, make,
or in any way participate, directly or indirectly, in any "solicitation" of
"proxy" (as such terms are defined or used in Regulation 14A of the Exchange
Act) to vote, or seek to advise or influence any Person with respect to the
voting of, any shares of the Company's capital stock, or become a "participant"
in any "election contest" (as such terms are used or defined in Regulation 14A
of the Exchange Act) relating to the election of directors of the Company;
provided, however, that none of the General Atlantic Stockholders, the
Coinvestor Stockholders or any of their respective Affiliates shall be deemed to
have engaged in a "solicitation" or to have become a "participant" by reason of
the membership of designees of the General Atlantic Stockholders, the Coinvestor
Stockholders or any of their respective Affiliates on the Board of Directors;
(c) form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) or
otherwise act in concert with any Person for the purpose of acquiring, holding,
voting or disposing of any shares of the Company's capital stock; provided,
however, that (i) the General Atlantic Stockholders may act as a group for the
purpose of acquiring, holding, voting or disposing of any shares of the
Company's capital stock, (ii) Vectis CP Holdings, LLC and any Affiliate thereof
that acquires shares of the Company's capital stock (the "Vectis Stockholders")
may act as a group for the purpose of acquiring, holding, voting or disposing of
any shares of the Company's capital stock, (iii) Cenwell Limited, Campina
Enterprises Limited, Great Affluent Limited, Dragonfield Limited, or Lion Cosmos
Limited or any Affiliate thereof that acquires shares of the Company's capital
stock (the "Coinvestor Sub-group") may act as a group for the purpose of
acquiring, holding, voting or disposing of any shares of the Company's capital
stock; and provided further, that, for the avoidance of doubt, the General
Atlantic Stockholders, the Vectis Stockholders and the Coinvestor Sub-group may
not together act as a group for the purpose of acquiring, holding, voting or
disposing of any shares of the Company's capital stock; or
10
(d) request the Company (or its directors,
officers, employees or agents), to take any action which would reasonably be
expected to require pursuant to law the Company to make a public announcement or
proposal or offer with respect to (i) any form of business combination or
transaction involving the Company including, without limitation, a merger,
consolidation, tender or exchange offer, sale or purchase of assets, or
dissolution or liquidation of the Company or (ii) instigate, encourage or assist
any Person to do any of the foregoing.
4.2 Nasdaq Matters. The Company shall use all
commercially reasonable efforts to maintain the quotation and listing on Nasdaq
of all of the shares of Common Stock issuable upon conversion of the Series D
Preferred Stock and Series E Preferred Stock and all of the shares of Common
Stock issuable upon exercise of the Warrants.
5. Miscellaneous.
5.1 Notices. All notices, demands or other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first class mail, return receipt requested, telecopier,
courier service or personal delivery:
(a) if to the Company:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
with a copy to, which shall not constitute
notice:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg F. Vignos, Esq.
(b) if to any of the General Atlantic
Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 622-8818
Attention: Matthew Nimetz
Thomas J. Murphy
with a copy to, which shall not constitute
notice:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
11
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
(c) if to the Coinvestor Stockholders:
(i) if to Vectis CP Holdings, LLC:
c/o Vectis Group, LLC
117 Greenwich Street
San Francisco, CA 94111
Telecopy: (415) 352-5310
Attention: Matthew Hobart
with a copy to, which shall not constitute
notice:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Telecopy: (212) 446-4900
Attention: Michael Movsovich, Esq.
(ii) if to Campina Enterprises Limited,
Great Affluent Limited, Dragonfield
Limited or Lion Cosmos Limited:
c/o 7th Floor
Cheung Kong Center
2 Queen's Road Central
Hong Kong
Telecopy: (852) 2845-2057
Attention: Mr. Edmond Ip
(iii) if to Cenwell Limited:
c/o 22nd Floor
Hutchison House
10 Harcourt Road
Hong Kong
Telecopy: (852) 2128-1778
Attention: Company Secretary
All such notices, demands and other communications shall be deemed to
have been duly given when delivered by hand, if personally delivered; when
delivered by courier, if delivered by commercial courier service; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed; and
when receipt is mechanically acknowledged, if telecopied. Any party may by
notice given in accordance with this Section 5.1 designate another address or
Person for receipt of notices hereunder.
12
5.2 Successors and Assigns; Third Party Beneficiary. This
Agreement shall inure to the benefit of and be binding upon successors and
permitted assigns of the parties hereto. No person other than the parties hereto
and their successors and permitted assigns is intended to be a beneficiary of
this Agreement.
5.3 Amendment and Waiver.
(a) No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
parties hereto at law, in equity or otherwise.
(b) Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by any party from the terms of any
provision of this Agreement, shall be effective only if it is made or given in
writing and signed by (i) the Company, (ii) the General Atlantic Stockholders
and (iii) the Coinvestor Stockholders holding a majority of the voting power of
the Shares held by the Coinvestor Stockholders; provided, however, that to the
extent that any such amendment or waiver adversely affects any of the
Stockholders, such amendment or waiver shall require the prior written consent
of each Stockholder so adversely affected; provided further, that any
Stockholder may waive in writing any right that inures to such Stockholder. Any
such amendment, supplement, modification, waiver or consent shall be binding
upon the Company and all of the Stockholders.
5.4 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
5.5 Specific Performance. The parties hereto intend that
each of the parties have the right to seek damages or specific performance in
the event that any other party hereto fails to perform such party's obligations
hereunder. Therefore, if any party shall institute any action or proceeding to
enforce the provisions hereof, any party against whom such action or proceeding
is brought hereby waives any claim or defense therein that the plaintiff party
has an adequate remedy at law.
5.6 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
5.7 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.
5.8 Severability. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect
13
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be in
any way impaired, unless the provisions held invalid, illegal or unenforceable
shall substantially impair the benefits of the remaining provisions hereof.
5.9 Rules of Construction. Unless the context otherwise
requires, references to sections or subsections refer to sections or subsections
of this Agreement.
5.10 Entire Agreement. This Agreement, together with the
exhibits hereto, is intended by the parties as a final expression of their
agreement and intended to be a complete and exclusive statement of the agreement
and understanding of the parties hereto in respect of the subject matter
contained herein and therein. There are no restrictions, promises,
representations, warranties or undertakings, other than those set forth herein
or therein or set forth in the Stock Purchase Agreement or the Convertible Note
Purchase and Exchange Agreement. Subject to Section 5.11, upon the Subsequent
Closing (as defined in the Convertible Note Purchase and Exchange Agreement),
this Agreement, together with the exhibits hereto, shall supersede all prior
agreements and understandings among the parties with respect to such subject
matter.
5.11 Term of Agreement. Notwithstanding anything in this
Agreement to the contrary, this Agreement shall become effective immediately
following the Subsequent Closing. If the Subsequent Closing does not occur and
the obligation to consummate the Conversion and the Exchange (each as defined in
the Convertible Note Purchase and Exchange Agreement) is terminated pursuant to
Article IX of the Convertible Note Purchase and Exchange Agreement, this
Agreement shall immediately terminate and be of no further force or effect. If
the Subsequent Closing does occur, this Agreement shall terminate upon the
earlier of (a) with respect to a particular Stockholder, on the date that such
Stockholder and its Affiliates beneficially own less than 5% of the actual
outstanding shares of Common Stock (assuming conversion of the shares of Series
D Preferred Stock and Series E Preferred Stock) or (b) the twentieth anniversary
of the date hereof.
5.12 Further Assurances. Each of the parties shall, and
shall cause their respective Affiliates to, execute such documents and perform
such further acts as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
[the remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Stockholders Agreement on the date first
written above.
CRITICAL PATH, INC.
By: ___________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: ___________________________
Name:
Title:
GAP COINVESTMENT PARTNERS II, L.P.
By: ___________________________
Name:
Title:
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: ___________________________
Name:
Title:
GAP-W, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Manager
By: ___________________________
Name:
Title:
GAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: ___________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
VECTIS CP HOLDINGS, LLC,
a Delaware limited liability company
By: VECTIS GROUP, LLC,
its Managing Member
By: ___________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
CENWELL LIMITED
By: ___________________________
Name:
Title:
CAMPINA ENTERPRISES LIMITED
By: ___________________________
Name:
Title:
GREAT AFFLUENT LIMITED
By: ___________________________
Name:
Title:
DRAGONFIELD LIMITED
By: ___________________________
Name:
Title:
LION COSMOS LIMITED
By: ___________________________
Name:
Title:
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
CRITICAL PATH, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON [ ]
The undersigned hereby appoints William E. McGlashan, Jr. and Michael J.
Zukerman, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of common stock of
Critical Path, Inc. which the undersigned may be entitled to vote at the Special
Meeting of Shareholders of Critical Path, Inc. to be held at [the Park Hyatt
Hotel located at 333 Battery Street, San Francisco, California] on [ ],
2004, at 10:00 a.m., California time, and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
PROPOSALS 1 AND 2 AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT, AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1: In connection with the convertible note purchase and exchange
agreement, to approve (i) the issuance of approximately 6.7 million
shares of Series E preferred stock with a price per share of $1.50
to the General Atlantic Investors, issuable upon conversion of $10
million principal amount of convertible secured notes, and such
additional shares of Series E preferred stock as they may purchase
in connection with the proposed rights offering, (ii) the issuance
of approximately 21.9 million shares of Series E preferred stock
with a price per share of $1.50 to the Cheung Kong Investors,
issuable upon exchange of approximately $32.8 million principal
amount of 5 3/4% convertible subordinated notes, and such
additional shares of Series E preferred stock as they may purchase
in connection with the proposed rights offering, and (iii) the
amendment of warrants to purchase 625,000 shares of common stock
held by members of the General Atlantic Investors that reduces the
exercise price per share from $4.20 to $1.50;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: In connection with the convertible note purchase and exchange
agreement, to approve (i) an amendment to our current amended and
restated articles of incorporation to increase the authorized number
of shares of common stock from 125 million to 200 million and the
authorized number of shares of preferred stock from 5 million to 75
million and (ii) an amended and restated certificate of
determination of preferences of Series D preferred stock to, among
other things, amend the Series D preferred stock liquidation
preference upon a liquidation and change of control, to eliminate
the participation feature, to reduce the conversion price from $4.20
to $1.50 and to reduce the amount of dividends to which the holders
of Series D preferred stock are entitled;
[ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the proxies of the undersigned are authorized to vote
upon such other business as may properly come before the meeting or any
postponements, continuations and adjournments thereof.
<Table>
Dated:
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</Table>
SIGNATURES
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or
more persons, each should sign.
Executors, administrators, trustees,
guardians and attorneys-in-fact
should add their titles. If signer
is a corporation, please give full
corporate name and have a duly
authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE
THAT IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.