EXHIBIT 10.1
RU
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CONVERTIBLE NOTE PURCHASE AGREEMENT
among
CRITICAL PATH, INC.,
PERMAL U.S. OPPORTUNITIES LIMITED,
ZAXIS EQUITY NEUTRAL, L.P.,
ZAXIS INSTITUTIONAL PARTNERS, L.P.,
ZAXIS OFFSHORE LIMITED,
ZAXIS PARTNERS, L.P.,
and
PASSPORT MASTER FUND, L.P.
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Dated: January 16, 2004
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Table of Contents
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Page
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ARTICLE I DEFINITIONS....................................................................................1
1.1 Definitions..........................................................................1
ARTICLE II PURCHASE AND SALE OF NOTES; CONVERSION; EXCHANGE.............................................10
2.1 Purchase and Sale of Notes..........................................................10
2.2 Filings.............................................................................10
2.3 Certificate of Determination........................................................11
2.4 Closings; Deliveries................................................................11
2.5 Issuances of Common Shares..........................................................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................12
3.1 Corporate Existence and Power.......................................................13
3.2 Authorization; No Contravention.....................................................13
3.3 Governmental Authorization; Third Party Consents....................................13
3.4 Binding Effect......................................................................14
3.5 Litigation..........................................................................14
3.6 Compliance with Laws................................................................14
3.7 Capitalization......................................................................15
3.8 No Default or Breach; Contractual Obligations.......................................16
3.9 Title to Properties.................................................................16
3.10 Reports; Financial Statements.......................................................17
3.11 Taxes...............................................................................17
3.12 No Material Adverse Change; Ordinary Course of Business.............................18
3.13 Private Offering....................................................................18
3.14 Labor Relations.....................................................................18
3.15 Employee Benefit Plans..............................................................19
3.16 Liabilities.........................................................................19
3.17 Affiliate Transactions..............................................................20
3.18 Intellectual Property...............................................................20
3.19 Privacy of Customer Information.....................................................21
3.20 Potential Conflicts of Interest.....................................................22
3.21 Trade Relations.....................................................................22
3.22 Outstanding Borrowing...............................................................22
3.23 Broker's, Finder's or Similar Fees..................................................22
3.24 Stockholder Approval................................................................22
3.25 CCC Section.........................................................................23
3.26 Disclosure..........................................................................23
3.27 Investments.........................................................................23
3.28 Sarbanes-Oxley Compliance...........................................................23
</Table>
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<Table>
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDERS................................................24
4.1 Existence and Power.................................................................24
4.2 Authorization; No Contravention.....................................................25
4.3 Governmental Authorization; Third Party Consents....................................25
4.4 Binding Effect......................................................................25
4.5 Purchase for Own Account............................................................25
4.6 Restricted Securities...............................................................26
4.7 Accredited Investor.................................................................26
4.8 Experience..........................................................................26
4.9 Access to Information...............................................................26
4.10 General Solicitation................................................................27
4.11 Reliance............................................................................27
4.12 Qualified Institutional Buyer.......................................................27
4.13 Affiliate Status....................................................................27
4.14 Capital Stock Ownership.............................................................27
ARTICLE V CONDITIONS TO INITIAL CLOSING.................................................................27
5.1 Conditions to Lenders' Obligations..................................................27
5.2 Conditions to Company's Obligations.................................................28
ARTICLE VI CONDITIONS TO SUBSEQUENT CLOSING.............................................................29
6.1 Conditions to Lenders' Obligations..................................................29
6.2 Conditions to the Company's Obligations.............................................29
ARTICLE VII INDEMNIFICATION.............................................................................29
7.1 Indemnification.....................................................................29
7.2 Notification........................................................................30
7.3 Contribution........................................................................31
ARTICLE VIII COVENANTS..................................................................................31
8.1 Financial Statements and Other Information..........................................31
8.2 FIRPTA Certificate..................................................................32
8.3 Reservation of Common Stock.........................................................32
8.4 Stockholder Approval................................................................33
8.5 Financial Covenants.................................................................33
8.6 Purchases and Sales.................................................................33
ARTICLE IX TERMINATION..................................................................................33
9.1 Termination.........................................................................33
ARTICLE X MISCELLANEOUS.................................................................................34
10.1 Survival of Representations and Warranties..........................................34
10.2 Notices.............................................................................34
10.3 Successors and Assigns; Third Party Beneficiaries...................................35
10.4 Amendment and Waiver................................................................35
10.5 Counterparts........................................................................36
10.6 Headings............................................................................36
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<Table>
10.7 Governing Law.......................................................................36
10.8 Severability........................................................................36
10.9 Rules of Construction...............................................................36
10.10 Entire Agreement....................................................................36
10.11 Fees................................................................................36
10.12 Publicity; Confidentiality..........................................................37
10.13 Further Assurances..................................................................37
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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 Articles of Incorporation
E By-laws
F Form of Series E Certificate of Determination
G Form of Pillsbury Winthrop LLP Opinion
SCHEDULES
2.1 Purchased Notes
3.3 Government Authorizations; Consents
3.5 Litigation
3.7(a) Capitalization
3.12 Material Adverse Change
3.17 Affiliate Transactions
3.20 Potential Conflicts of Interest
3.22 Outstanding Borrowing
3.23 Fees
3.27 Investments
4.14 Capital Stock Ownership
8.5 Financial Covenants
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CONVERTIBLE NOTE PURCHASE AGREEMENT
CONVERTIBLE NOTE PURCHASE AGREEMENT, dated January 16, 2004 (this
"Agreement"), among Permal U.S. Opportunities Limited, Zaxis Equity Neutral,
L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis
Partners, L.P., and Passport Master Fund, L.P., (collectively, the "Lenders")
and Critical Path, Inc., a California corporation (the "Company"),
WHEREAS, on November 18, 2003, the Company entered into the
Convertible Note Purchase and Exchange Agreement (the "Convertible Note
Agreement") with the General Atlantic Entities, GAP-W, LLC and the CK Purchasers
pursuant to which (a) the Company issued $10 million in principal amount of 10%
convertible secured notes to the General Atlantic Entities, and agreed to
convert the notes into approximately 7.3 million shares, par value $0.001 per
share, of Series E Redeemable Convertible Preferred Stock (the "Series E
Preferred Stock"), and (b) the CK Purchasers agreed to exchange approximately
$32.8 million in face value of CK Sub Notes for approximately 21.9 million
shares of Series E Preferred Stock subject to Stockholder Approval (as
hereinafter defined); and
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
fifteen million dollars ($15,000,000), in the face amount set forth opposite
such Lender's (as hereinafter defined) name on Schedule 2.1 hereto, that subject
to the terms and conditions set forth in this Agreement and the Notes, are
convertible either into Series E Preferred Stock or Common Stock, as more fully
set forth in the Agreement and the Notes:
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
Second 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, with such changes or limitations to the
voting provisions thereof as may be necessary to comply with NASD Rule 4351
regarding the voting power of the Series D Preferred Stock, which shall be duly
filed with the Secretary of State of the State of California as soon as
practicable following Stockholder Approval.
"Amendment to Preferred Stock Rights Agreement" means an
amendment to the Company's Preferred Stock Rights Agreement to permit the
Lenders to purchase securities being offered by the Company hereunder without
causing such Lenders 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 D.
"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 E.
"CK Purchasers" means Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
their transferees.
"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.
"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.
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"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).
"Common Shares" has the meaning set forth in Section 2.1(a).
"Common Shares Issuance Date" has the meaning set forth in
Section 2.5.
"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 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).
"Conversion Notice" has the meaning set forth in Section 2.5
of this Agreement.
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"Convertible Note Agreement" has the meaning set forth in the
recitals of this Agreement.
"Copyrights" means any foreign or United States copyright
registrations and applications for registration thereof, and any non-registered
copyrights.
"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.
"Exchangeable Shares" shall mean the Class A Non-Voting
Preference Shares of Critical Path Messaging Co., an unlimited liability company
existing under the laws of Nova Scotia, and a subsidiary of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder.
"Financial Statements" has the meaning set forth in Section
3.10 of this Agreement.
"GAAP" means United States generally accepted accounting
principles in effect from time to time.
"General Atlantic Entities" means General Atlantic Partners
74, L.P., a Delaware limited partnership, GAP Coinvestment Partners II, L.P., a
Delaware limited partnership, GapStar, LLC, a Delaware limited liability
company, and GAPCO GmbH & Co. KG, a German limited partnership.
"General Atlantic Notes" means the 10% convertible secured
notes issued to the General Atlantic Entities pursuant to the Convertible Note
Agreement and held by the General Atlantic Entities or their permitted
transferees.
"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
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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 2.4(a)
of this Agreement.
"Initial Closing Date" has the meaning set forth in Section
2.4(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.
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"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. McGlashan, Jr. and Michael J.
Zukerman after due inquiry.
"Lenders" means Permal U.S. Opportunities Limited, Zaxis
Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis Offshore
Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P. 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).
"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.
"Material Non-Public Information" has the meaning set forth in
Section 8.6 of this Agreement.
"NASD Rules" has the meaning set forth in Section 3.28(b).
"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,
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(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 holders of a majority of the outstanding principal amount of all
of the General Atlantic 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 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.
"Proxy Statement" has the meaning set forth in Section 8.4 of
this Agreement.
"Record Date" shall mean a date determined by the Board of
Directors as the record date for determining the shareholders of the Company
entitled to receive Series E Purchase Rights.
"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
7
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.
"Sarbanes-Oxley Act" has the meaning set forth in Section
3.28(a) of this Agreement.
"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" means the Series D Redeemable
Convertible Participating Preferred Stock of the Company, par value $0.001 per
share.
"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 F, with such changes
or limitations to the voting provisions thereof as may be necessary to comply
with NASD Rule 4351 regarding the voting power of the Series E Preferred Stock,
which certificate 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 Purchase Rights" means those rights to purchase
Series E Preferred Stock issued in the Rights Offering.
"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.
8
"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.
"Subordination Agreement" has the meaning set forth in the
Notes.
"Subsequent Closing" has the meaning set forth in Section
2.4(e) of this Agreement.
"Subsequent Closing Date" has the meaning set forth in Section
2.4(e) 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 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.
"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 Registration Rights Agreement, the Notes, the Security
9
Agreement, the Subordination Agreement, the Amendment to the Preferred Stock
Rights Agreement and the Waivers.
"Waivers" means the waivers and consents, dated the date
hereof, executed by the requisite General Atlantic Entities and the CK
Purchasers to consent to and approve the Amendment to the Convertible Note
Agreement and, to the extent necessary, the transactions and agreements
contemplated by the Transaction Documents and to waive any rights they may have
under that certain Stock and Warrant Purchase and Exchange Agreement, dated as
of November 8, 2001.
"Warrant" or "Warrants," as the case may be, means those
certain warrants to purchase Common issued to General Atlantic Entities pursuant
to that certain Stock and Warrant Purchase and Exchange Agreement, dated as of
November 8, 2001.
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"). If the Conversion has not occurred
on or before April 30, 2004, the Notes shall thereafter be convertible at the
option of each Lender into shares of Common Stock in accordance with the terms
thereof (all the shares of Common Stock issuable directly upon conversion of the
Notes referred to herein as the "Common 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; and (b) the Series E Certificate of Determination.
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2.3 Certificate of Determination. The Issuable Shares shall
have the preferences and rights set forth in the Series E Certificate of
Determination, with such changes or limitations to the voting provisions thereof
as may be necessary to comply with NASD Rule 4351. The Common Shares shall have
the preferences and rights set forth in the Articles of Incorporation.
2.4 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 (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 and the Lenders on the Date
Hereof. On the date hereof, (i) the Company shall execute and deliver to each
Lender and each Lender shall execute and deliver to the Company this Agreement.
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 (except for the Waivers) and deliver to each Lender:
(i) the Amended and Restated Registration Rights
Agreement;
(ii) such other documentation required to be provided
by the Company pursuant to Section 5.1;
(iii) 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;
(iv) the Waivers;
(v) a copy of the Amendment to Preferred Stock Rights
Agreement; and
(vi) the Security Agreement and the related security
documents required or contemplated by the Security Agreement.
(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 the Amended
and Restated Registration Rights Agreement; and
(ii) 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.
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(e) Subsequent Closing. The consummation of the Conversion
(the "Subsequent Closing") shall take place concurrently with the Subsequent
Closing under the Convertible Note Agreement as soon as practicable following
the satisfaction of the closing conditions set forth in Article VI of this
Agreement and Article VI of the Convertible Note Agreement (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, the General Atlantic Entities and the CK Purchasers may mutually agree.
At the Subsequent Closing, signature pages transmitted by facsimile will be
acceptable, with originals to immediately follow.
(f) 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, a certificate or certificates in
definitive form and registered in the name of each Lender,
representing such Lender's Issuable Shares; and
(ii) each Lender, such other documentation evidencing
the satisfaction of the conditions set forth in Section 6.1.
(g) 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 its Notes together with duly executed
note powers for such Notes.
2.5 Issuances of Common Shares. If the Conversion has not
occurred on or before April 30, 2004, subject to and in accordance with the
provisions of the Notes, thereafter upon surrender by a Lender of a Note to the
Company, together with a notice with duly executed note powers (the "Conversion
Notice"), also specifying the portion of the Note to be converted, the Company
shall, or shall cause its transfer agent to issue and deliver to the address as
specified in the Conversion Notice (the date of each such delivery, a "Common
Shares Issuance Date"), a certificate or certificates in definitive form and in
such denominations as may be requested by such Lender in the Conversion Notice,
registered in the name of such Lender, for the number of Common Shares to which
such Lender shall be entitled upon such conversion. If a Notes have been
surrendered only in part, the Company shall, at the time of delivery of the
stock certificate or certificates, deliver to such Lender a new Note evidencing
the remaining balance, which new Note shall in all other respects be identical
to the Note surrendered.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Lenders
that, except as disclosed or incorporated by reference in the SEC Reports:
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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 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 Issuable Shares or the Common
Shares) by, or enforcement against, the Company of this Agreement and the other
Transaction Documents or the transactions contemplated hereby and thereby, other
than (a) the notification to The NASDAQ National Market for the listing of the
shares of Common Stock issuable upon conversion of the Series E Preferred Stock
or the Notes, as the case may be, and applicable blue-sky filings, (b) such as
have already been obtained or such exemptive filings as may be required under
applicable securities laws, and (c) such other filings as may be required
following the Initial Closing
13
Date or the Subsequent Closing Date under the Securities Act, the Exchange Act
and corporate law.
3.4 Binding Effect. This Agreement and each of the other
Transaction Documents to which the Company is a party have been duly executed
and delivered by the Company, and this Agreement and each of the other
Transaction Documents to which the Company is a party 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, there are
no actions, suits, proceedings, claims, complaints, disputes, 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.
14
3.7 Capitalization.
(a) (i) As of the Initial Closing, the authorized capital
stock of the Company consists of (A) 125,000,000 shares of Common
Stock, of which 21,078,555 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) 4,188,587 shares of Series D
Preferred Stock, all of which are issued and outstanding, and (E)
736,412 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 16,672,844, of which 13,003,584
have been granted. The Company has reserved an adequate number of
shares of Common Stock for issuance upon conversion of the Issuable
Shares. In addition, as of the Initial Closing, there were 110,250
Exchangeable Shares issued and outstanding, each of which is
convertible into one share of Common Stock.
(ii) As of the Subsequent Closing Date, the
authorized capital stock of the Company shall consist of (A)
200,000,000 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 issue the Issuable
Shares, convert 82,927 shares of Series D Preferred Stock into 733,333
shares of Series E Preferred Stock held by MBCP Peerlogic LLC and its
affiliates issued in connection with the settlement of certain claims
and to consummate the transactions contemplated by the Convertible Note
Agreement and the Rights Offering, and (F) a number of 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.
15
(c) Upon the Subsequent Closing Date, the Issuable Shares
shall be duly authorized, and when issued and delivered to the Lenders and upon
the consummation of the Conversion 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 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 Issuable Shares 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.
(d) Upon each Common Shares Issuance Date, the Common Shares
then issuable shall be duly authorized, and when issued and delivered to the
Lenders in accordance with the terms and conditions of the Notes, will be
validly issued, fully paid and non-assessable, 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.
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 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.
16
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. 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 delivered or made available to the Lenders true and
complete copies of, or will make available at each Lender's request the SEC
Reports and any exhibits thereto. 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) 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
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
17
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.
Except as set forth on Schedule 3.12, since December 31, 2002, (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 Notes, the Issuable Shares or the Common 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 Issuable
Shares pursuant to this Agreement or that would violate applicable state
securities or "blue sky" laws. 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.
18
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.
(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,
19
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. Except as set forth on Schedule
3.17, 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.
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.
(ii) 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.
(iii) 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).
20
(iv) 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.
(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
21
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 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
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Certification 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 (as defined in the Convertible Note
Agreement).
3.25 CCC Section. The Board of Directors 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 of Notes and the Issuable Shares or Common Shares pursuant to this
Agreement and the Series E Certificate of Determination, each as applicable, and
any conversion by the Lenders of Issuable Shares into shares of Common Stock.
3.26 Disclosure. This Agreement and the documents and
certificates furnished to the Lenders 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.
3.28 Sarbanes-Oxley Compliance.
(a) The financial statements of the Company, together with the
related schedules and notes, that are incorporated by reference in the
Registration Statement and the Prospectus filed with the Commission on December
24, 2003: (i) present fairly, in all material respects, the financial position
of the Company as of the dates indicated and the results of operations and cash
flows of the Company for the periods specified; (ii) have been prepared in
compliance with requirements of the Exchange Act and in conformity with
generally accepted accounting principles in the United States applied on a
consistent basis during the periods presented and the schedules included in the
Registration Statement present fairly, in all material respects, the information
required to be stated therein; and (iii) comply with the antifraud provisions of
the Federal securities laws. There are no financial statements (historical or
pro forma) that are required to be included in the Registration Statement and
the Prospectus that are not included as required by the Securities Act. All
non-GAAP financial measures included or incorporated by reference in the
Registration Statement or the Prospectus comply in all material respects with
the applicable requirements of the Sarbanes-Oxley Act of 2002 (the
"Sarbanes-Oxley Act") and the rules and regulations promulgated by the
Commission thereunder.
(b) The Company's Board of Directors has validly appointed an
Audit Committee whose composition satisfies the requirements of Rule 4350A(d)(2)
of the
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Rules of the National Association of Securities Dealers, Inc. (the "NASD Rules")
and the Board of Directors and/or the Audit Committee has adopted a charter that
satisfies the requirements of Rule 4350A(d)(1) of the NASD Rules.
(c) The Company has established and maintains disclosure
controls and procedures (as such term is defined in Rule 13a-15 and 15d-15 under
the Exchange Act). Such disclosure controls and procedures are designed to
ensure that material information relating to the Company is made known to the
Company's principal executive officer and principal financial officer by others
within the Company. As of the end of the Company's last completed fiscal
quarter, such disclosure controls and procedures were effective to perform the
functions for which they were established, and the Company will use commercially
reasonable efforts to ensure that the Company's disclosure controls and
procedures remain effective to perform the functions for which they were
established. The Company's auditors and the Audit Committee of the Board of
Directors have been advised of: (i) any significant deficiencies and material
weaknesses in the design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect the Company's ability
to record, process, summarize, and report financial information; and (ii) any
fraud, whether or not material, that involves management or other employees who
have a significant role in the Company's internal controls over financial
reporting. Since the date of the most recent evaluation of such disclosure
controls and procedures, there have been no changes in internal controls over
financial reporting that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting. The
principal executive officer and the principal financial officers of the Company
have made all certifications required by the Sarbanes-Oxley Act and any related
rules and regulations promulgated by the Commission thereunder, and the
statements contained in any such certification are complete and correct. The
Company is in compliance in all material respects with all provisions of the
Sarbanes-Oxley Act that are effective and applicable to the Company, except for
the requirements of the Sarbanes-Oxley Act which are not yet required to be
complied with by the Company. The Company has established procedures to
implement timely additional rules and regulations applicable to the Company that
may be promulgated by the Commission pursuant to the Sarbanes-Oxley Act.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDERS
Each of the Lenders hereby represents and warrants, severally
and not jointly, to the Company as follows:
4.1 Existence and Power. Such Lender (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.
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4.2 Authorization; No Contravention. The execution, delivery
and performance by such Lender 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 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 any Requirement of Law applicable to such Lender, and (d) do
not violate any Orders of any Governmental Authority against, or binding upon,
such Lender.
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 of this
Agreement and each of the other 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 to which such Lender is a party, have been duly executed
and delivered by such Lender, and this Agreement and each of the other
Transaction Documents to which such Lender is a party, constitute the legal,
valid and binding obligations of such Lender, 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 Issuable
Shares or Common Shares to be acquired by such Lender, respectively, are being
or will be acquired for its own account and with no intention of distributing or
reselling such Notes, Issuable Shares or Common 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 at all times to sell or
otherwise dispose of all or any part of such Notes, Issuable Shares or Common
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 property being at
all times within its control. If such Lender should in the future decide to
dispose of any of such Notes, Issuable Shares or Common Shares, such Lender
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 agrees to the imprinting for so long as required by law, of a legend on
certificates representing all of its Notes, Issuable Shares or Common Shares and
shares of Common Stock issuable upon conversion of its Issuable Shares to the
following effect:
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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 APPLICABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
4.6 Restricted Securities. Such Lender understands that the
Notes, the Issuable Shares and the Common 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 representations set forth herein.
4.7 Accredited Investor. Such Lender 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, 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, Issuable Shares or Common Shares (the
"Securities"), and has so evaluated the merits and risks of such investment.
Such Lender 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 that it has reviewed
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 its representatives or counsel shall modify, amend
or affect such Lender'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.
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4.10 General Solicitation. Such Lender 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 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
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 hereby consents to such
reliance.
4.12 Qualified Institutional Buyer. Such Lender is a
"qualified institutional buyer" as defined in Rule 144A(a)(1) of the Securities
Act, as presently in effect.
4.13 Affiliate Status. Such Lender is not an Affiliate of any
director, officer or substantial shareholder of the Company for purposes of Rule
4350(i)(1)(A) of the NASD, Inc. Marketplace Rules. In addition, each Lender
represents that it is not an Affiliate of the other Lender and that Lenders have
not entered into an agreement, arrangement or understanding with each other or
any other holder of the Company's securities for the purpose of holding,
acquiring, voting or disposing of any securities of the Company.
4.14 Capital Stock Ownership. Schedule 4.14 sets forth a
complete list of the capital stock, Common Stock Equivalents or other securities
of the Company (and any options, warrants, conversion privileges, subscription
purchase rights or other rights presently outstanding to purchase or otherwise
acquire any of the foregoing) beneficially owned (as defined in Rule 13d-3 under
the Exchange Act) by each Lender and its respective Affiliates as of the date
hereof.
ARTICLE V
CONDITIONS TO INITIAL CLOSING
5.1 Conditions to Lenders' Obligations. Each of the Lenders'
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:
(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.
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(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 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 a certificate from the Company, in form and substance
satisfactory to the Lenders, 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 G to be delivered to the Lenders.
(g) SVB Consent. The Company shall have delivered to the
Lenders 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 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 on or prior to the
Initial Closing Date shall have been performed or complied with.
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ARTICLE VI
CONDITIONS TO SUBSEQUENT CLOSING
6.1 Conditions to Lenders' Obligations. Each of the Lenders'
obligation to consummate the Conversion 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 Issuable 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 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 Series E
Certificate of Determination.
6.2 Conditions to the Company's Obligations. The Company's
obligation to consummate the Conversion 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 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
29
Company in this Agreement, the Notes or the Security 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 Issuable Shares or Common Shares, as applicable, 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 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
30
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,
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 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, in form and substance
satisfactory to such Lender:
(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
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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 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, 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, in form
and substance satisfactory to such Lender, 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 Issuable
Shares, as provided in the Series E Certificate of Determination, or upon
conversion of the Notes, as provided for in the Notes, 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 Series E Certificate of Determination, or in
accordance with the Notes, as the case may be, 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 Series E Certificate of Determination or the
terms of the Notes, as the case may be, and otherwise comply with the terms
hereof and thereof.
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8.4 Stockholder Approval. The Company will use all reasonable
commercial efforts to cause the proxy statement filed with the Commission on
December 24, 2003 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") to be cleared by the Commission as promptly as
practicable. The Company agrees to provide the Lenders 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 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 Purchases and Sales. In the event any Lender has become
aware of or becomes aware of any material non-public information about the
Company (which the parties hereby agree will include (but not be limited to) any
information labeled by the Company to be material non-public information)
("Material Non-Public Information"), such Lender shall not purchase or sell any
shares of the Company's capital stock (or securities exercisable or convertible
for shares of the Company's capital stock) until the earlier of (a) such time as
the information is no longer material as a matter of law (which the parties
agree shall be a period of six months after becoming aware of such material
non-public information), and (b) the time at which such information has been
disseminated publicly by the Company, and in any event not in violation of the
federal securities laws.
ARTICLE IX
TERMINATION
9.1 Termination. The Lenders' obligation to consummate the
Conversion under this Agreement including, but not limited to, Sections 2.4(e),
2.4(f) and 2.4(g) 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
33
any event on April 30, 2004, if Stockholder Approval is not obtained by such
date. None of the Company 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 this Agreement until the date that is ninety (90) days after the
receipt by the Lenders 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.
350 The Embarcadero
San Francisco, CA 94105
Telecopy: (415) 541-2300
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.
34
if to the Lenders:
Apex Capital, LLC
25 Orinda Way, Suite 300
Orinda, CA 94563
Attention: Adam Fiore, General Counsel
Telephone: (925) 253 6125
Telecopy: (925) 253 1809
with a copy to, which shall not constitute notice:
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Three Embarcadero Center, Seventh Floor
San Francisco, CA 94111-4024
Telephone: 415.434.1600
Telecopy: 415.217.5910
Attention: Joseph Hershenson
and to:
Passport Capital, LLC
One Sansome Street, 39th Floor
San Francisco, CA 94104
Telephone: 415.399.7608
Telecopy: (415) 399-7650
Attention: John Burbank
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 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.
10.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company 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
35
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 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 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 and the Lenders, and (ii) only in the
specific instance and for the specific purpose for which made or given. 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.
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 the Lenders 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
36
obligations of the Lenders and filings with Commission); provided, that the
aggregate amount of all such reimbursements in respect of the Lenders shall not
exceed $7,500.
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, the Lenders 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 from disclosing information (a) that
is already publicly available, (b) that was known to such Lender 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 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
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 reasonably believes it appropriate in order to comply with any
Requirement of Law, (e) to such Lender'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. 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. Each of the Lenders acknowledge that if such Lender becomes
aware of Material Non-Public Information, such Lender's ability to trade in the
Company's securities and to participate, to the extent otherwise eligible, in
the Rights Offering would be restricted.
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.
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37
IN WITNESS WHEREOF, the undersigned have executed, or have
caused to be executed, this Convertible Note Purchase Agreement on the date
first written above.
CRITICAL PATH, INC.,
a California corporation
By: /s/ William E. McGlashan, Jr.
-------------------------------------------
Name: William E. McGlashan, Jr.
Title: Chairman and Chief Executive Officer
SIGNATURE PAGE TO CONVERTIBLE NOTE PURCHASE AGREEMENT
PERMAL U.S. OPPORTUNITIES LIMITED
By: Apex Capital, LLC, its Authorized Investment Advisor
By: /s/ Sanford J. Colen
------------------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
ZAXIS PARTNERS, L.P.
By: Apex Capital, LLC, its General Partner
By: /s/ Sanford J. Colen
-----------------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
ZAXIS EQUITY NEUTRAL, L.P.
By: Apex Capital, LLC, its General Partner
By: /s/ Sanford J. Colen
-----------------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
ZAXIS OFFSHORE LIMITED
By: Apex Capital, LLC, its Authorized Investment Advisor
By: /s/ Sanford J. Colen
-----------------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
ZAXIS INSTITUTIONAL PARTNERS, L.P.
By: Apex Capital, LLC, its General Partner
By: /s/ Sanford J. Colen
-----------------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
PASSPORT MASTER FUND, L.P.
By: /s/ John Burbank
-----------------------------------------------
Name: John Burbank
Title: Managing Partner