SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 4)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Section 14a-12
CRITICAL PATH, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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(CRITICAL PATH LOGO)
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105-1204
(415) 541-2500
May 5, 2004
To our shareholders:
On behalf of the board of directors and employees of Critical Path, Inc., I
cordially invite you to attend a special meeting of our shareholders to be held
on June 11, 2004, at 10:00 a.m., California time, at the Company's offices
located at 350 The Embarcadero, San Francisco, California.
At the special meeting, you will be asked to consider and vote upon six
proposals, in connection with private placements of our securities and a
proposed rights offering described in the enclosed proxy statement, to approve:
Proposal 1 The issuance of approximately 7.3 million shares of Series E
preferred stock with a price per share of $1.50 to the
General Atlantic Investors, issuable upon conversion of $11
million principal amount and interest of convertible secured
notes, and such additional shares of Series E preferred
stock as they may purchase in connection with the proposed
rights offering;
Proposal 2 The issuance of approximately 10 million shares of Series E
preferred stock with a price per share of $1.50 to the
January 2004 Investors, issuable upon conversion of $15
million principal amount of convertible secured notes;
Proposal 3 The issuance of approximately 12.3 million shares of Series
E preferred stock with a price per share of $1.50 to the
March 2004 Investors, issuable upon conversion of $18.5
million principal amount of convertible secured notes;
Proposal 4 The issuance of approximately 21.9 million shares of Series
E preferred stock with a price per share of $1.50 to the
Cheung Kong Investors, issuable upon exchange of
approximately $32.8 million principal amount of 5 3/4%
convertible subordinated notes, and such additional shares
of Series E preferred stock as they may purchase in
connection with the proposed rights offering;
Proposal 5 The amendment of warrants to purchase 625,000 shares of
common stock held by members of the General Atlantic
Investors that reduces the exercise price per share from
$4.20 to $1.50;
Proposal 6 An amendment to our current amended and restated articles of
incorporation to increase the authorized number of shares of
common stock from 125 million to 200 million and the
authorized number of shares of preferred stock from 5
million to 75 million; and
Proposal 7 An amended and restated certificate of determination of
preferences of Series D preferred stock to, among other
things, amend the Series D preferred stock liquidation
preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the
conversion price from $4.20 to $1.50 and to reduce the
amount of dividends to which the holders of Series D
preferred stock are entitled.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in a private placement of our securities that occurred in November
2003. The General Atlantic Investors consist of General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG.
The Cheung Kong Investors consist of Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
Members of the General Atlantic Investors and the Cheung Kong Investors are
current shareholders of Critical Path. The General Atlantic Investors and the
Cheung Kong Investors are unaffiliated, unrelated and do not constitute a group.
The Apex Investors are the lead investors in private placements of our
securities that occurred in January and March 2004. The Apex Investors consist
of Permal U.S. Opportunities Partners, L.P., Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited and Zaxis Partners, L.P.
and Guggenheim Portfolio Company XIII.
The investors in the January 2004 private placement consist of the Apex
Investors (except for Guggenheim Portfolio Company XIII) and Passport Master
Fund, L.P. and are collectively referred to as the January 2004 Investors. The
Apex Investors and Passport Master Fund, L.P. are unaffiliated, unrelated and do
not constitute a group.
The investors in the March 2004 private placement consist of the Apex
Investors, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., the
Criterion Investors and Capital Ventures International and are collectively
referred to as the March 2004 Investors. The Criterion Investors consist of
Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional and
Criterion Capital Partners, L.P. The Apex Investors, Crosslink Crossover Fund
IV, L.P., Sagamore Hill Hub Fund, Ltd., the Criterion Investors and Capital
Ventures International are unaffiliated, unrelated and do not constitute a
group.
Our board of directors recommends that you vote "For" the approval and
adoption of each of the proposals.
Assuming approval and adoption of each of the proposals and the closing of
the private placements, we intend to consummate an offer to our existing common
shareholders of transferable rights to purchase up to an aggregate of $21
million of shares of newly issued Series E preferred stock at a purchase price
of $1.50 per share, the same purchase price paid by the General Atlantic
Investors, the Cheung Kong Investors, the January 2004 Investors and the March
2004 Investors in the private placements. One purpose of the proposed rights
offering is to allow the holders of our common stock an opportunity to further
invest in Critical Path and restore a portion, although not all, of their
proportionate interest in our capital stock at the same price per share of
Series E preferred stock as was paid in the private placements. In addition, we
plan to use any funds raised from the proposed rights offering to support our
current operating plan. We are not asking you to vote on the rights offering.
Only shareholders of record of our common stock at the close of business on
April 30, 2004 will be entitled to vote at the special meeting and any
adjournments or postponements of the meeting. This proxy statement is being
mailed to you because our records show that you were a shareholder of record of
our common stock on April 30, 2004.
We have included for your convenience some questions and answers about the
special meeting, our private placements and proposed rights offering of Series E
preferred stock and the proposed increase in the number of our authorized shares
beginning on page 3 of the enclosed proxy statement.
Shareholders are cordially invited to attend the special meeting. In any
event, shareholders are urged to read carefully the enclosed proxy statement for
additional information concerning the matters to be considered at this special
meeting. Whether or not you plan to attend the special meeting, please take the
time to vote by completing and mailing the enclosed proxy card to us. As
explained in the proxy statement, you may withdraw your proxy at any time before
it is actually voted at the meeting.
Sincerely,
-s- William E. McGlashan, Jr.
William E. McGlashan, Jr.
Chairman of the Board of Directors
This proxy statement is dated May 5, 2004 and is first being mailed to
shareholders on or about May 7, 2004.
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105-1204
(415) 541-2500
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS -- JUNE 11, 2004
To the shareholders of Critical Path, Inc.:
Notice is hereby given that a special meeting of shareholders of Critical
Path, Inc., a California corporation, will be held on June 11, 2004, at 10:00
a.m., California time, at the Company's offices located at 350 The Embarcadero,
San Francisco, California:
The special meeting will be held to consider and vote upon six proposals,
in connection with private placements of our securities and a proposed rights
offering described in the enclosed proxy statement, to approve:
Proposal 1 The issuance of approximately 7.3 million shares of Series E
preferred stock with a price per share of $1.50 to the
General Atlantic Investors, issuable upon conversion of $11
million principal amount and interest of convertible secured
notes, and such additional shares of Series E preferred
stock as they may purchase in connection with the proposed
rights offering;
Proposal 2 The issuance of approximately 10 million shares of Series E
preferred stock with a price per share of $1.50 to the
January 2004 Investors, issuable upon conversion of $15
million principal amount of convertible secured notes;
Proposal 3 The issuance of approximately 12.3 million shares of Series
E preferred stock with a price per share of $1.50 to the
March 2004 Investors, issuable upon conversion of $18.5
million principal amount of convertible secured notes;
Proposal 4 The issuance of approximately 21.9 million shares of Series
E preferred stock with a price per share of $1.50 to the
Cheung Kong Investors, issuable upon exchange of
approximately $32.8 million principal amount of 5 3/4%
convertible subordinated notes, and such additional shares
of Series E preferred stock as they may purchase in
connection with the proposed rights offering;
Proposal 5 The amendment of warrants to purchase 625,000 shares of
common stock held by members of the General Atlantic
Investors that reduces the exercise price per share from
$4.20 to $1.50;
Proposal 6 An amendment to our current amended and restated articles of
incorporation to increase the authorized number of shares of
common stock from 125 million to 200 million and the
authorized number of shares of preferred stock from 5
million to 75 million; and
Proposal 7 An amended and restated certificate of determination of
preferences of Series D preferred stock to, among other
things, amend the Series D preferred stock liquidation
preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the
conversion price from $4.20 to $1.50 and to reduce the
amount of dividends to which the holders of Series D
preferred stock are entitled.
Shareholders are cordially invited to attend the special meeting. In any
event, shareholders are urged to read carefully the enclosed proxy statement for
additional information concerning the matters to be considered at this special
meeting. The board of directors has fixed the close of business on April 30,
2004 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the special meeting or any postponement or adjournment of
the meeting. A list of these shareholders will be available for examination at
our principal executive office during normal business hours for a period of 10
days before the special meeting.
Only shareholders of record of our common stock at the close of business on
April 30, 2004 will be entitled to vote at the special meeting and any
adjournments or postponements of the meeting. This
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in a private placement of our securities that occurred in November
2003. The General Atlantic Investors consist of General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG.
The Cheung Kong Investors consist of Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
Members of the General Atlantic Investors and the Cheung Kong Investors are
current shareholders of Critical Path. The General Atlantic Investors and the
Cheung Kong Investors, who held 10,026,733 shares and 3,437,735 shares,
respectively, of our Series D preferred stock (on an as converted to common
stock basis), or approximately 26.0% and 8.9%, respectively, of our outstanding
voting power, as of April 30, 2004, have agreed, solely in their capacity as
Critical Path shareholders, to vote their shares of our Series D preferred stock
in favor of each of the proposals in this proxy statement. The General Atlantic
Investors and the Cheung Kong Investors are unaffiliated, unrelated and do not
constitute a group.
The Apex Investors are the lead investors in private placements of our
securities that occurred in January and March 2004. The Apex Investors consist
of Permal U.S. Opportunities Partners, L.P., Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited and Zaxis Partners, L.P.
and Guggenheim Portfolio Company XIII.
The investors in the January 2004 private placement consist of the Apex
Investors (except for Guggenheim Portfolio Company XIII) and Passport Master
Fund, L.P. and are collectively referred to as the January 2004 Investors. The
Apex Investors and Passport Master Fund, L.P. are unaffiliated, unrelated and do
not constitute a group.
The investors in the March 2004 private placement consist of the Apex
Investors, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., the
Criterion Investors and Capital Ventures International and are collectively
referred to as the March 2004 Investors. The Criterion Investors consist of
Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional and
Criterion Capital Partners, L.P. The Apex Investors, Crosslink Crossover Fund
IV, L.P., Sagamore Hill Hub Fund, Ltd., the Criterion Investors and Capital
Ventures International are unaffiliated, unrelated and do not constitute a
group.
YOUR VOTE IS VERY IMPORTANT TO US. Whether or not you plan to attend the
special meeting in person and regardless of the number of shares of stock that
you own, please complete, sign, date and return the enclosed proxy card promptly
in the enclosed pre-addressed, postage-paid envelope. Should you receive more
than one proxy because your shares are registered in different names and
addresses, each proxy should be returned to assure that all of your shares will
be voted. If you attend the special meeting in person and vote by ballot, your
proxy will be revoked automatically and only your vote at the special meeting
will be counted. The prompt return of your proxy card will assist us in
preparing for the special meeting.
Only shareholders of record at the close of business on April 30, 2004 are
entitled to notice of and to vote at this meeting and at any continuation or
adjournment of the meeting. Please note that if your shares are held in "street
name," that is, in the custody of a financial institution or other holder of
record, you will
vote through the institution or holder in whose name the shares are held. If you
wish to vote at the meeting, you must obtain from the record holder a proxy
issued in your name.
By Order of the Board of Directors,
-s- MICHAEL J. ZUKERMAN
Michael J. Zukerman
Senior Vice President,
General Counsel and Secretary
San Francisco, California
May 5, 2004
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Forward-Looking Statements.................................. 2
Questions and Answers....................................... 3
Questions and Answers About the Special Meeting and the
Proxy Statement........................................... 3
Questions and Answers About Voting.......................... 5
Questions and Answers About the Private Placements and the
Rights Offering........................................... 11
The Private Placements -- Proposal 1 Through Proposal 5..... 22
Use of Proceeds............................................. 51
Proposal 1 -- Approval of the General Atlantic Private
Placement................................................. 52
Proposal 2 -- Approval of the January 2004 Private
Placement................................................. 53
Proposal 3 -- Approval of the March 2004 Private
Placement................................................. 54
Proposal 4 -- Approval of the Cheung Kong Private
Placement................................................. 55
Proposal 5 -- Approval of the Warrant Amendment............. 56
Proposal 6 -- Approval of the Amendment to Articles of
Incorporation............................................. 57
Proposal 7 -- Approval of the Amendment to Series D
Preferred Stock Certificate of Determination.............. 60
Common Stock Ownership of Certain Beneficial Owners and
Management and Directors.................................. 64
Advance Notice Procedures................................... 67
Submission of Shareholder Proposals......................... 67
Attendance of Principal Accountants......................... 67
Incorporation of Certain Documents by Reference............. 68
Additional Information...................................... 68
Appendix A -- November 2003 Convertible Note Purchase and
Exchange Agreement and Amendments
Appendix B -- Form of Convertible Secured Note Issued to the
General Atlantic Investors
Appendix C -- Certificate of Determination of Preferences of
Series E Redeemable Convertible Preferred Stock
Appendix D -- Amended and Restated Certificate of
Determination of Preferences of Series D Cumulative
Redeemable Convertible Preferred Stock
Appendix E -- Form of Amendment to Common Stock Purchase
Warrant
Appendix F -- Third Amended and Restated Registration Rights
Agreement
Appendix G -- Amended and Restated Stockholders Agreement
Appendix H -- January 2004 Convertible Note Purchase
Agreement and Amendment
Appendix I -- Form of Convertible Secured Note Issued to the
January 2004 Investors and Amendment
Appendix J -- March 2004 Convertible Note Purchase Agreement
Appendix K -- Form of Convertible Secured Note Issued to the
March 2004 Investors
</Table>
FORWARD-LOOKING STATEMENTS
This document includes certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, including
statements relating to the consummation of the proposed transactions described
in this proxy statement. The words "anticipates," "expects," "intends," "plans,"
"believes," "seek," and "estimate" and similar expressions are intended to
identify forward-looking statements. These statements are based on management's
current expectations and involve risks and uncertainties that could cause our
actual results to differ materially from those set forth in the statements. We
can give no assurance that such expectations will prove to be correct. Important
factors that could cause actual results to differ materially from current
expectations include: non-approval by our shareholders of the proposals in this
proxy statement; the level of demand for our services by customers; the level of
interest rates, which affects demand for our services and our interest expense;
the potential impact of any acquisition, disposition, merger, joint venture or
any other significant financial transactions that could occur in the future;
working capital requirements; general economic conditions; as well as other
factors listed in our Annual Report Form 10-K for the year ended December 31,
2003, as amended by our Form 10-K/A filed April 19, 2004, and this proxy
statement. We assume no obligation to update these forward-looking statements to
reflect actual results, changes in risks, uncertainties or assumptions
underlying or affecting such statements or for prospective events that may have
a retroactive effect.
2
QUESTIONS AND ANSWERS
While we encourage you to read this proxy statement in its entirety, we
include this Question and Answer section to provide some background information
and brief answers to several questions you might have about the enclosed
proposals. All references to "we," "our," "ours," "us" and "the Company" or
"Critical Path" in this proxy statement are to Critical Path, Inc. and its
subsidiaries, unless otherwise indicated.
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
AND THE PROXY STATEMENT
WHEN AND WHERE IS THE SPECIAL MEETING?
The special meeting will be held on June 11, 2004 beginning at 10:00 a.m.,
California time, at the Company's offices, 350 The Embarcadero, San Francisco,
California.
WHAT IS THE PURPOSE OF THE SPECIAL MEETING?
At the special meeting, we will ask you to consider and vote upon six
proposals, in connection with private placements of our securities and a
proposed rights offering described in this proxy statement, to approve:
Proposal 1 The issuance of approximately 7.3 million shares of Series E
preferred stock with a price per share of $1.50 to the
General Atlantic Investors, issuable upon conversion of $11
million principal amount and interest of convertible secured
notes, and such additional shares of Series E preferred
stock as they may purchase in connection with the proposed
rights offering;
Proposal 2 The issuance of approximately 10 million shares of Series E
preferred stock with a price per share of $1.50 to the
January 2004 Investors, issuable upon conversion of $15
million principal amount of convertible secured notes;
Proposal 3 The issuance of approximately 12.3 million shares of Series
E preferred stock with a price per share of $1.50 to the
March 2004 Investors, issuable upon conversion of $18.5
million principal amount of convertible secured notes;
Proposal 4 The issuance of approximately 21.9 million shares of Series
E preferred stock with a price per share of $1.50 to the
Cheung Kong Investors, issuable upon exchange of
approximately $32.8 million principal amount of 5 3/4%
convertible subordinated notes, and such additional shares
of Series E preferred stock as they may purchase in
connection with the proposed rights offering;
Proposal 5 The amendment of warrants to purchase 625,000 shares of
common stock held by members of the General Atlantic
Investors that reduces the exercise price per share from
$4.20 to $1.50;
Proposal 6 An amendment to our current amended and restated articles of
incorporation to increase the authorized number of shares of
common stock from 125 million to 200 million and the
authorized number of shares of preferred stock from 5
million to 75 million; and
Proposal 7 An amended and restated certificate of determination of
preferences of Series D preferred stock to, among other
things, amend the Series D preferred stock liquidation
preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the
conversion price from $4.20 to $1.50 and to reduce the
amount of dividends to which the holders of Series D
preferred stock are entitled.
3
The approval of each of the proposals is a requirement for the closing of
the private placements and the proposed rights offering. In addition, if our
shareholders approve the above proposals, we will exchange 69,149 shares of
Series D preferred stock for 733,333 shares of Series E preferred stock pursuant
to a settlement agreement that we entered into with MBCP PeerLogic, LLC and its
affiliates on November 21, 2003.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in a private placement of our securities that occurred in November
2003. The General Atlantic Investors consist of General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG.
The Cheung Kong Investors consist of Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
Members of the General Atlantic Investors and the Cheung Kong Investors are
current shareholders of Critical Path. The General Atlantic Investors and the
Cheung Kong Investors are unaffiliated, unrelated and do not constitute a group.
The Apex Investors are the lead investors in private placements of our
securities that occurred in January and March 2004. The Apex Investors consist
of Permal U.S. Opportunities Partners, L.P., Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited and Zaxis Partners, L.P.
and Guggenheim Portfolio Company XIII.
The investors in the January 2004 private placement consist of the Apex
Investors (except for Guggenheim Portfolio Company XIII) and Passport Master
Fund, L.P. and are collectively referred to as the January 2004 Investors. The
Apex Investors and Passport Master Fund, L.P. are unaffiliated, unrelated and do
not constitute a group.
The investors in the March 2004 private placement consist of the Apex
Investors, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., the
Criterion Investors and Capital Ventures International and are collectively
referred to as the March 2004 Investors. The Criterion Investors consist of
Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional and
Criterion Capital Partners, L.P. The Apex Investors, Crosslink Crossover Fund
IV, L.P., Sagamore Hill Hub Fund, Ltd., the Criterion Investors and Capital
Ventures International are unaffiliated, unrelated and do not constitute a
group.
WHY DID I RECEIVE THIS PROXY STATEMENT?
We sent you this proxy statement and the enclosed proxy card because our
board of directors is soliciting your proxy to vote at the special meeting. YOUR
VOTE IS VERY IMPORTANT.
This proxy statement summarizes the information you need to know to vote on
an informed basis at the special meeting. However, you do not need to attend the
special meeting to vote your shares (see the question entitled "How Do I Vote?"
on page 6 of this proxy statement). We began sending this proxy statement, the
attached notice of special meeting and the enclosed proxy card on or about May
7, 2004 to all shareholders entitled to vote.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on April 30, 2004 will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on April 30, 2004.
WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY CARD OR VOTER INSTRUCTION FORM?
If your shares are registered differently or are in more than one account,
you will receive more than one proxy card or voter instruction form, each of
which will indicate the number of shares you are entitled to vote on that
particular card or form. Sign and return all proxy cards or voter instruction
forms to ensure that all your shares are voted.
4
CAN I ATTEND THE SPECIAL MEETING?
If you owned common stock on April 30, 2004 then you may attend the special
meeting. You should be prepared to present photo identification for admittance.
In addition, if your shares are held in the name of your broker, bank or other
nominee, you must bring an account statement or letter from the nominee
indicating that you are the beneficial owner of the shares on the record date.
CAN I REVOKE MY PROXY?
If you execute and return a proxy, you may revoke that proxy at any time
before it is voted at the special meeting by:
- filing with the Secretary of Critical Path, Inc., at 350 The Embarcadero,
San Francisco, California 94105-1204, written notice of revocation
bearing a later date than the proxy;
- filing a duly executed proxy bearing a later date; or
- appearing in person and voting by ballot at the special meeting.
If you execute and return voting instructions to a nominee, you may revoke
such instructions at any time before the proxy executed by the nominee on your
behalf is voted at the special meeting by submitting to the nominee written
notice of revocation bearing a later date than the voting instructions.
If you were a shareholder of record as of April 30, 2004, you may attend
the special meeting and may vote in person whether or not a proxy has been
previously given, but your presence (without further action) at the special
meeting will not constitute revocation of a previously given proxy.
WILL OTHER MATTERS BE VOTED ON AT THE SPECIAL MEETING?
No. Under our bylaws only the proposals described in the attached notice of
special meeting of shareholders may be considered.
QUESTIONS AND ANSWERS ABOUT VOTING
WHAT CONSTITUTES A QUORUM AND WHY IS IT NECESSARY?
In order to carry on the business of the special meeting, we must have a
quorum. We urge you to either attend the meeting or send in your proxy so that
your shares will be counted for quorum purposes. A quorum for the meeting will
exist if the holders of a majority of the shares entitled to vote at the meeting
are represented, either in person or by proxy, at the meeting. Abstentions are
counted as present and entitled to vote for purposes of determining a quorum. If
you submit a properly executed proxy card or voter instruction form, even if you
abstain from voting, you will be considered part of the quorum. Broker non-votes
will also be counted in determining the existence of a quorum.
WHO IS ENTITLED TO VOTE?
If our records show that you are a holder of common stock (including shares
of common stock represented by the Special Voting Share related to our Nova
Scotia subsidiary) as of the close of business on April 30, 2004, you are
entitled to receive notice of the special meeting and to vote the shares that
you held on April 30, 2004. Only shareholders of record of our common stock
(including shares of common stock represented by the Special Voting Share
related to our Nova Scotia subsidiary) at the close of business on April 30,
2004 will be entitled to vote at the special meeting and any adjournments or
postponements of the meeting. Each share of common stock is entitled to one
vote. Cumulative voting is not permitted.
On April 30, 2004, there were 21,388,848 shares of common stock outstanding
and entitled to vote at the special meeting (including shares of common stock
represented by the Special Voting Share related to our Nova Scotia subsidiary).
Therefore, the presence at the special meeting, either in person or by proxy,
5
of a majority, or 10,694,425 shares of common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) will constitute a quorum. See the question entitled "How many votes
do the common shareholders have?" on page 7 of this proxy statement for further
information on the common stock issuable upon the conversion or exchange of
specified securities.
If on April 30, 2004 your shares were held in an account at a brokerage
firm, bank, dealer or other similar organization, then you are the beneficial
owner of shares held in "street name," and these proxy materials are being
forwarded to you by that organization. The organization holding your account is
considered the shareholder of record for purposes of voting at the special
meeting. As a beneficial owner, you have the right to direct your broker or
other agent on how to vote the shares in your account. You are also invited to
attend the special meeting. However, since you are not the shareholder of
record, you may not vote your shares in person at the meeting unless you request
and obtain a valid proxy from your broker or other agent.
Abstentions and broker non-votes will be counted for the purpose of
determining if a quorum is present. Broker non-votes occur when a nominee, such
as a financial institution, returns a proxy, but does not have the authorization
from the beneficial owner to vote the owner's shares on a particular proposal
because the nominee did not receive voting instructions (via proxy vote) from
the beneficial owner. An automated system administered by ComputerShare Trust
Company, Inc., our transfer agent, will tabulate votes cast by proxy and an
employee of the transfer agent will serve as inspector of elections for the
common stock and will tabulate votes cast in person at the special meeting. An
employee of the transfer agent also will tabulate separately affirmative and
negative votes, abstentions and broker non-votes.
HOW DO I VOTE?
If you are a shareholder of record, you may vote in person at the special
meeting, vote by proxy using the enclosed proxy card or vote by proxy on the
Internet. Whether or not you plan to attend the special meeting, we urge you to
vote by proxy to ensure your vote is counted. You may still attend the special
meeting and vote in person if you have already voted by proxy.
- To vote in person, come to the special meeting and we will give you a
ballot when you arrive.
- To vote using the proxy card, simply complete, sign and date the enclosed
proxy card and return it promptly in the envelope provided. If you return
your signed proxy card to us before the special meeting, we will vote
your shares as you direct.
- To vote on the Internet or by telephone, go to
www.computershare.com/us/proxy to complete an electronic proxy card or
call 1-888-728-8839. You will be asked to provide the company number and
control number from the enclosed proxy card. Your vote must be received
by 5:30 p.m., Central time, on June 10, 2004 in order to be counted.
If you are a beneficial owner of shares registered in the name of your
broker, bank or other agent, you should have received a proxy card and voting
instructions with these proxy materials from that organization rather than from
Critical Path. Simply complete and mail the proxy card to ensure that your vote
is counted. Alternatively, you may vote by telephone or over the Internet as
instructed by your broker or bank. To vote in person at the special meeting, you
must obtain a valid proxy from your broker, bank or other agent. Follow the
instructions from your broker or bank included with these proxy materials, or
contact your broker or bank to request a proxy form.
We provide Internet proxy voting to allow you to vote your shares on-line,
with procedures designed to ensure the authenticity and correctness of your
proxy vote instructions. However, please be aware that you must bear any costs
associated with your Internet access, such as usage charges from Internet access
providers and telephone companies.
6
HOW MANY VOTES DO THE COMMON SHAREHOLDERS HAVE?
Each share of common stock that you own entitles you to cast one vote on
each matter to be voted upon. Accordingly, the holders of common stock on April
30, 2004 (excluding shares issuable upon conversion of outstanding Series D
preferred stock) are entitled to cast an aggregate of 21,388,848 votes on each
proposal, representing approximately 55.5% of our outstanding voting power as of
April 30, 2004 after taking into account the voting power of the holders of
shares of our Series D preferred stock as discussed in the following paragraph.
This also assumes the exercise in full of the warrants to purchase 625,000
shares of common stock held by members of the General Atlantic Investors. Unless
otherwise indicated, references to the voting rights of our outstanding shares
of common stock include 110,250 shares of common stock issuable to
non-affiliates of Critical Path upon the exchange of Class A Non-Voting
preference shares of Critical Path Messaging Co., a Nova Scotia subsidiary of
Critical Path, for our common stock (which we call the Exchangeable Shares). The
Exchangeable Shares can be exchanged at any time for our common stock upon the
election of the holder. The holders of Exchangeable Shares are entitled to vote
by directing the holder of the share of Special Voting Stock of the Company
(which we call the Special Voting Share). The Special Voting Share has one vote
for each share of Class A Non-Voting stock outstanding and held by
non-affiliates.
We have issued 4,188,587 shares of our Series D preferred stock that are
convertible into 16,495,757 shares of our common stock as of April 30, 2004. The
Series D preferred stock is convertible into common stock at any time upon the
election of the holder. Each share of common stock into which the Series D
preferred stock is convertible has the same voting rights as one of your shares
of common stock.
HOW MANY VOTES DO OTHER SHAREHOLDERS HAVE?
As of April 30, 2004, the 4,188,587 shares of our Series D preferred stock
are convertible into 16,495,757 shares of our common stock. In order to comply
with the voting rules of the National Association of Securities Dealers, Inc.
(referred to as the NASD), the voting power of the Series D preferred stock will
be impaired after its terms are amended. For each share of Series D preferred
stock, the holder will initially be entitled to approximately 3.86342 votes.
Although the voting conversion ratio will remain the same (subject to adjustment
for stock splits, subdivisions, reclassifications, distributions and similar
transactions), pursuant to the terms of the Series D preferred stock, the number
of shares of common stock into which the Series D preferred stock is convertible
and the percentages of beneficial ownership and voting power represented by the
shares of Series D preferred stock will increase as dividends accrue on the
Series D preferred stock following the amendment.
As a result of their holdings of Series D preferred stock, the General
Atlantic Investors and the Cheung Kong Investors beneficially own 26.0% and
8.9%, respectively, of our outstanding voting power as of April 30, 2004. The
General Atlantic Investors and the Cheung Kong Investors have agreed, solely in
their capacity as Critical Path shareholders, to vote their shares of our Series
D preferred stock in favor of each of the proposals in this proxy statement.
WHAT IS A BROKER NON-VOTE?
A broker non-vote occurs when a broker holding shares for a beneficial
owner does not vote on a particular proposal because the broker does not have
discretionary voting power for that particular item and has not received
instructions from the beneficial owner.
HOW MANY VOTES ARE NEEDED TO APPROVE EACH PROPOSAL?
Proposal 1 To be approved, "Proposal 1 -- Approval of the General
Atlantic Private Placement" must receive a "For" vote from
the majority of shares present and entitled to vote either
in person or by proxy. In addition, "Proposal 1 -- Approval
of the General Atlantic Private Placement" must receive a
"For" vote from over 50% of the outstanding shares of Series
D preferred stock, voting separately as a class. Abstentions
7
will be counted toward the tabulation of votes cast and will
have the same effect as an "Against" vote. Broker non-votes
will have no effect. The approval of each of the proposals
in this proxy statement is a condition to the consummation
of the private placements, so shareholders who vote to
approve Proposal 1 should also vote to approve each of the
other proposals or the private placements Proposal 1 cannot
take effect.
Proposal 2 To be approved, "Proposal 2 -- Approval of the January 2004
Private Placement" must receive a "For" vote from the
majority of shares present and entitled to vote either in
person or by proxy. In addition, "Proposal 2 -- Approval of
the January 2004 Private Placement" must receive a "For"
vote from over 50% of the outstanding shares of Series D
preferred stock, voting separately as a class. Abstentions
will be counted toward the tabulation of votes cast and will
have the same effect as an "Against" vote. Broker non-votes
will have no effect. The approval of each of the proposals
in this proxy statement is a condition to the consummation
of the private placements, so shareholders who vote to
approve Proposal 2 should also vote to approve each of the
other proposals or the private placements cannot Proposal 2
take effect.
Proposal 3 To be approved, "Proposal 3 -- Approval of the March 2004
Private Placement" must receive a "For" vote from the
majority of shares present and entitled to vote either in
person or by proxy. In addition, "Proposal 3 -- Approval of
the March 2004 Private Placement" must receive a "For" vote
from over 50% of the outstanding shares of Series D
preferred stock, voting separately as a class. Abstentions
will be counted toward the tabulation of votes cast and will
have the same effect as an "Against" vote. Broker non-votes
will have no effect. The approval of each of the proposals
in this proxy statement is a condition to the consummation
of the private placements, so shareholders who vote to
approve Proposal 3 should also vote to approve each of the
other proposals or the private placements cannot Proposal 3
take effect.
Proposal 4 To be approved, "Proposal 4 -- Approval of the Cheung Kong
Private Placement" must receive a "For" vote from the
majority of shares present and entitled to vote either in
person or by proxy. In addition, "Proposal 4 -- Approval of
the Cheung Kong Private Placement" must receive a "For" vote
from over 50% of the outstanding shares of Series D
preferred stock, voting separately as a class. Abstentions
will be counted toward the tabulation of votes cast and will
have the same effect as an "Against" vote. Broker non-votes
will have no effect. The approval of each of the proposals
in this proxy statement is a condition to the consummation
of the private placements, so shareholders who vote to
approve Proposal 4 should also vote to approve each of the
other proposals or the private placements cannot Proposal 4
take effect.
Proposal 5 To be approved, "Proposal 5 -- Approval of the Warrant
Amendment" must receive a "For" vote from the majority of
shares present and entitled to vote either in person or by
proxy. In addition, "Proposal 5 -- Approval of the Warrant
Amendment" must receive a "For" vote from over 50% of the
outstanding shares of Series D preferred stock, voting
separately as a class. Abstentions will be counted toward
the tabulation of votes cast and will have the same effect
as an "Against" vote. Broker non-votes will have no effect.
Completion of the amendment to warrants described in
Proposal 5 is a condition to the consummation of the private
placements, so shareholders who vote to approve Proposal 1,
Proposal 2, Proposal 3 or Proposal 4 should also vote to
approve Proposal 5 or the private placements Proposal 5
cannot take effect.
Proposal 6 To be approved, "Proposal 6 -- Approval of the Amendment to
Articles of Incorporation" must receive a "For" vote from
over 50% of the outstanding shares either in person or by
proxy. In addition, "Proposal 6 -- Approval of the Amendment
to Articles of Incorporation" must receive a "For" vote from
over 50% of the outstanding shares of common stock and the
votes represented by the Special Voting Share (excluding the
8
shares of Series D preferred stock), voting together as a class,
and the outstanding shares of Series D preferred stock, voting
separately as a class. If you do not vote or "Abstain" from
voting, it will have the same effect as an "Against" vote. Broker
non-votes will have the same effect as an "Against" vote.
Completion of the amendment to our articles of incorporation
described in Proposal 6 is a condition to the consummation of the
private placements, so shareholders who vote to approve Proposal
1, Proposal 2, Proposal 3 or Proposal 4 should also vote to
approve Proposal 6 or the private placements Proposal 6 cannot
take effect.
Proposal 7 To be approved, "Proposal 7 -- Approval of the Amendment to
Series D Preferred Stock Certificate of Determination" must
receive a "For" vote from over 50% of the outstanding shares
either in person or by proxy. In addition, "Proposal
7 -- Approval of the Amendment to Series D Preferred Stock
Certificate of Determination" must receive a "For" vote from
over 50% of the outstanding shares of common stock and the
votes represented by the Special Voting Share (excluding the
shares of Series D preferred stock), voting together as a
class, and the outstanding shares of Series D preferred
stock, voting separately as a class. If you do not vote or
"Abstain" from voting, it will have the same effect as an
"Against" vote. Broker non-votes will have the same effect
as an "Against" vote. Completion of the amendment and
restatement of the amended and restated certificate of
determination of Series D preferred stock described in
Proposal 6 is a condition to the consummation of the private
placements, so shareholders who vote to approve Proposal 1,
Proposal 2, Proposal 3 or Proposal 4 should also vote to
approve Proposal 7 or the private Proposal 7 placements
cannot take effect.
The approval of each of the proposals in this proxy statement is a
requirement for the closing of the private placements and the proposed rights
offering.
IF I PLAN TO ATTEND THE SPECIAL MEETING, SHOULD I STILL VOTE BY PROXY?
Whether or not you plan to attend the special meeting, we urge you to vote
by proxy. Returning the proxy card will not affect your right to attend the
special meeting and vote, but it will ensure that your vote will be cast if for
some reason you do not attend the special meeting. We will bear the entire cost
of preparing, assembling, printing and mailing this proxy statement and
additional material that may be furnished to shareholders. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of stock held in the names of such
nominees. We have retained the services of an outside proxy solicitation firm,
Georgeson Shareholder Communications Inc., at an estimated cost of approximately
$23,000 and the reimbursement of out-of-pocket expenses. The solicitation of
proxies may be made in person or by the use of the Internet, facsimile,
telephone or mail or through direct communication with certain shareholders or
their representatives by our officers, directors and employees, who will receive
no additional compensation for such solicitation. This proxy statement is being
mailed to shareholders on or about May 7, 2004.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS?
The board of directors recommends that you vote in favor of each of the
proposals. Mr. William E. McGlashan, Jr., our chairman of the board, referred to
as the Management Director, was formerly the chief executive officer of Critical
Path until his resignation from that office at the end of March 2004. Mr.
McGlashan is also a managing member of Vectis CP Holdings, LLC, an owner of
shares of our Series D preferred stock. Messrs. William E. Ford and Peter L.S.
Currie are referred to as the General Atlantic Directors. Mr. Ford is a managing
member of General Atlantic Partners, LLC, an affiliate of the General Atlantic
Investors. Mr. Currie is a partner of General Atlantic Partners, LLC. Neither
the General Atlantic Directors nor the Management Director participated in the
voting with respect to the proposed sale of securities to the General Atlantic
Investors and the Cheung Kong Investors. References in this proxy statement to
the approval of our board as to the proposed sale of securities to the General
9
Atlantic Investors and the Cheung Kong Investors and the proposed rights
offering include all members of our board of directors other than the Management
Director and General Atlantic Directors.
WHAT OTHER INFORMATION SHOULD I REVIEW BEFORE VOTING?
You should review the documents referred to under "Incorporation of Certain
Documents by Reference" on page 68 of this proxy statement or consult the
sources referenced under "Additional Information" on page 68 of this proxy
statement.
WHAT ARE THE COSTS OF SOLICITING THESE PROXIES AND WHO PAYS THEM?
All expenses of soliciting proxies, including clerical work, printing and
postage, will be paid by us. The solicitation of proxies may be made in person
or by the use of the Internet, facsimile, telephone or mail or through direct
communication with certain shareholders or their representatives by our
officers, directors and employees, who will receive no additional compensation
for such solicitation. We have retained Georgeson Shareholder Communications
Inc. to assist us in the solicitation of proxies and to assist in the
distribution of proxies. We expect to pay Georgeson Shareholder Communications
Inc. a fee of approximately $23,000 and reimburse them for out-of-pocket
expenses.
AM I ENTITLED TO APPRAISAL RIGHTS?
No. You have no right under California law to seek appraisal of the value
of your shares in connection with any of the matters being voted upon.
10
QUESTIONS AND ANSWERS ABOUT THE PRIVATE PLACEMENTS
AND THE RIGHTS OFFERING
HOW ARE THE PRIVATE PLACEMENTS STRUCTURED?
On November 18, 2003, we entered into a convertible note purchase and
exchange agreement that provided for the issuance and sale by us to the General
Atlantic Investors of $10 million in principal amount of 10% convertible secured
notes that will, including $1 million of interest, convert into approximately
7.3 million shares of Series E preferred stock upon shareholder approval and
certain filings with the California Secretary of State. The convertible secured
notes were issued and sold for cash to the General Atlantic Investors on
November 26, 2003. In addition, pursuant to the November 2003 convertible note
purchase and exchange agreement, the Cheung Kong Investors are obligated to
exchange approximately $32.8 million face value of our outstanding 5 3/4%
convertible subordinated notes for approximately 21.9 million shares of Series E
preferred stock, also upon receipt of shareholder approval and certain filings
with the California Secretary of State. The shares of Series E preferred stock
will initially convert into shares of common stock on a one-to-one basis, rank
senior in preference to all of our existing equity shares and accrue dividends
at an annual rate of 5 3/4% of the purchase price of $1.50 per share. Accrued
dividends will also convert into common stock at the purchase price of $1.50 per
share.
On January 16, 2004, pursuant to a convertible note purchase agreement, we
issued and sold for cash to the January 2004 Investors $15 million in principal
amount of 10% convertible secured notes that will convert into approximately 10
million shares of Series E preferred stock upon shareholder approval and certain
filings with the California Secretary of State. The shares of Series E preferred
stock will initially convert into shares of common stock on a one-to-one basis,
rank senior in preference to all of our existing equity shares and accrue
dividends at an annual rate of 5 3/4% of the purchase price of $1.50 per share.
Accrued dividends will also convert into common stock at the purchase price of
$1.50 per share.
On March 9, 2004, pursuant to a convertible note purchase agreement, we
issued and sold for cash to the March 2004 Investors $18.5 million in principal
amount of 10% convertible secured notes that will convert into approximately
12.3 million shares of Series E preferred stock upon shareholder approval and
certain filings with the California Secretary of State. The shares of Series E
preferred stock will initially convert into shares of common stock on a
one-to-one basis, rank senior in preference to all of our existing equity shares
and accrue dividends at an annual rate of 5 3/4% of the purchase price of $1.50
per share. Accrued dividends will also convert into common stock at the purchase
price of $1.50 per share.
The General Atlantic Investors and the Cheung Kong Investors are currently
our largest groups of shareholders. Assuming the conversion of approximately
$42.8 million principal amount of outstanding convertible notes held by the
General Atlantic Investors and the Cheung Kong Investors and the amendment of
the terms of our Series D preferred stock, both of which are a condition to the
consummation of the private placements and the proposed rights offering, as of
April 28, 2004, the General Atlantic Investors own 20.8% of our outstanding
voting power and the Cheung Kong Investors own approximately 27.6% of our
outstanding voting power (assuming exercise in full of the warrants to purchase
up to 625,000 shares of common stock held by members of the General Atlantic
Investors).
Assuming the conversion of $16.25 million principal amount of outstanding
convertible notes held by the Apex Investors, as of April 28, 2004, the Apex
Investors own 10.4% of our outstanding voting power.
Under the terms of the November 2003 convertible note purchase and exchange
agreement, the January 2004 convertible note purchase agreement and the March
2004 convertible note purchase agreement, the closing of each of the private
placements is subject to a number of conditions, including shareholder approval
of each of the proposals in this proxy statement.
We describe the terms of the private placements more fully below under the
section entitled "The Private Placements -- Proposal 1 through Proposal 5" on
page 22 of this proxy statement.
The General Atlantic Investors and the Cheung Kong Investors, who held
10,026,733 shares and 3,437,735 shares, respectively, of our Series D preferred
stock (on an as converted to common stock
11
basis), or approximately 26.0% and 8.9%, respectively, of our outstanding voting
power, as of April 30, 2004, have agreed, solely in their capacity as Critical
Path shareholders, to vote their shares of our Series D preferred stock in favor
of each of the proposals in this proxy statement. The General Atlantic Investors
and the Cheung Kong Investors are unaffiliated, unrelated and do not constitute
a group. We describe the voting and the terms of these voting arrangements more
fully below under the section entitled "The Private Placements -- Proposal 1
through Proposal 5" on page 22 of this proxy statement.
HOW WOULD THE PRIVATE PLACEMENTS AFFECT THE TERMS OF THE SERIES D PREFERRED
STOCK?
If our shareholders approve each of the proposals in this proxy statement,
we will file an amended and restated certificate of determination of preferences
of Series D preferred stock to amend the terms of the shares of Series D
preferred stock. The following discussion of the terms of the amended shares of
Series D preferred stock is qualified in its entirety by the certificate of
determination of preferences of Series D preferred stock attached to this proxy
statement as APPENDIX D and incorporated by reference into this proxy statement.
The holders of Series D preferred stock have agreed to allow us to
eliminate the right of the Series D preferred stock to participate on a pro rata
basis with common shareholders in any remaining equity (after the full
preferential returns to the Series D preferred stock and the Series E preferred
stock). In addition, following the date shares of Series E preferred stock are
first issued, dividends on the shares of Series D preferred stock will accrue at
a simple annual rate of 5 3/4% whether or not declared by our board of
directors. The current right of the Series D preferred stock to cumulative
dividends at 8% will be eliminated going forward.
The Series D preferred stock will be amended to add a minimum liquidation
preference of 1.6 times the original purchase price of the Series D preferred
stock (or $22 per share). In addition, the amended and restated certificate of
determination of preferences of Series D preferred stock will reduce the
conversion price of the Series D preferred stock from $4.20 to $1.50. This will
provide the holders of the Series D preferred stock to convert their shares of
Series D preferred stock into a greater number of shares than they otherwise
could have prior to amending the terms of the Series D preferred stock.
See APPENDIX D to this proxy statement and the section entitled "Terms of
the amended and restated Series D preferred stock" on page 31 of this proxy
statement for more information about the terms of the amended and restated
Series D preferred stock.
WHAT IS THE IMPACT OF THE PRIVATE PLACEMENTS TO SHAREHOLDERS OF COMMON STOCK IN
THE EVENT OF A LIQUIDATION OR CHANGE IN CONTROL OF CRITICAL PATH?
If you approve the proposals set forth in this proxy statement, the holders
of our Series E preferred stock and Series D preferred stock will be entitled to
a liquidation preference upon a liquidation or change in control transaction, in
which event all or substantially all of the proceeds may likely be distributed
to holders of our Series E preferred stock and our Series D preferred stock and
none of the proceeds would be distributed to holders of our common stock.
WHY IS CRITICAL PATH DOING THE PRIVATE PLACEMENTS?
In July 2003, our board of directors established the strategic alternatives
committee of our board of directors, consisting of Messrs. Ross Dove, Wm.
Christopher Gorog and Steven R. Springsteel, and engaged a financial advisor to
assist the committee in identifying and evaluating our strategic alternatives.
Members of management began meeting with institutions and persons to discuss
investing in Critical Path. We focused our efforts on a private placement to
selected investors, and we evaluated the likelihood of a sale of the Company,
and selected assets of the Company, on favorable terms, or at all. After our
board of directors extensively discussed the terms and conditions of the private
placements, reviewed the absence of alternative financing or other strategic
prospects and received advice from Duff & Phelps, LLC, our financial advisors,
with respect to the November 2003 private placement, it approved the November
2003 and January 2004 private placements. In February 2004, our board of
directors determined that additional
12
financing was necessary and approved the March 2004 private placement on
substantially similar terms and conditions as the January 2004 private
placement. Our primary purpose of the private placements is to retire
approximately $4.9 million of our senior indebtedness, which we have already
done, and approximately $32.8 million of outstanding notes, both by raising
capital and through the exchange by the Cheung Kong Investors of their 5 3/4%
convertible subordinated notes for shares of Series E preferred stock, as well
as to provide additional capital for other general corporate purposes and
working capital.
WHY IS CRITICAL PATH DOING THE RIGHTS OFFERING?
The purposes of the proposed rights offering are to allow the holders of
our common stock an opportunity to further invest in Critical Path and restore a
portion, although not all, of their proportionate interest in our capital stock
at the same price per share of Series E preferred stock as was paid under the
November 2003 convertible note purchase and exchange agreement, the January 2004
convertible note purchase agreement and the March 2004 convertible note purchase
agreement and to raise capital for our operations.
On November 18, 2003, we entered into a convertible note purchase and
exchange agreement with the General Atlantic Investors and the Cheung Kong
Investors pursuant to which, among other things, we issued $10 million in
principal amount of 10% convertible secured notes to the General Atlantic
Investors and, subject to and upon shareholder approval, we agreed that the $10
million convertible secured notes (including $1 million of interest) would
convert into approximately 7.3 million shares of Series E preferred stock and
that the approximately $32.8 million of our face value 5 3/4% convertible
subordinated notes held by the Cheung Kong Investors would be exchanged for
approximately 21.9 million shares of Series E preferred stock.
On January 16, 2004, pursuant to a convertible note purchase agreement, we
issued and sold for cash to the January 2004 Investors $15 million in principal
amount of 10% convertible secured notes that will convert into approximately 10
million shares of Series E preferred stock upon shareholder approval and certain
filings with the California Secretary of State.
On March 9, 2004, pursuant to a convertible note purchase agreement, we
issued and sold for cash to the March 2004 Investors $18.5 million in principal
amount of 10% convertible secured notes that will convert into approximately
12.3 million shares of Series E preferred stock upon shareholder approval and
certain filings with the California Secretary of State.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on April 30, 2004 will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on April 30, 2004.
WHY IS CRITICAL PATH SEEKING SHAREHOLDER APPROVAL OF THE PRIVATE PLACEMENTS?
We are subject to Nasdaq's marketplace rules because our common stock is
currently listed on the Nasdaq National Market. These rules require shareholder
approval for an issuance of stock that is deemed to result in a "change of
control" of the issuer (based on certain criteria and presumptions established
by Nasdaq) or, in certain circumstances, is at a price that is less than the
greater of book or market value.
Nasdaq rules require us to obtain shareholder approval of the private
placements and the issuance of shares of Series E preferred stock, if any, to
the General Atlantic Investors and the Cheung Kong Investors, as the case may
be, in connection with the proposed rights offering because the private
placements and any issuance of shares to the General Atlantic Investors and the
Cheung Kong Investors in connection with the proposed rights offering will be
considered a change of control of Critical Path based on certain criteria and
presumptions established by Nasdaq. Upon consummation of the November 2003
private placement, the General Atlantic Investors and the Cheung Kong Investors
would beneficially own approximately 20.8% and approximately 27.6%,
respectively, of our outstanding voting power
13
(assuming exercise in full of the warrants to purchase up to 625,000 shares of
common stock held by members of the General Atlantic Investors as of April 28,
2004). Upon consummation of the January and March 2004 private placements, the
Apex Investors would beneficially own approximately 10.4% of our outstanding
voting power (as of April 28, 2004). Following the completion of the private
placements and the issuance of shares of Series E preferred stock, if any, to
the General Atlantic Investors and the Cheung Kong Investors, as the case may
be, in connection with the proposed rights offering, the General Atlantic
Investors, the Cheung Kong Investors and the Apex Investors would hold the
requisite percentage of our outstanding shares of stock so as to permit them, if
they chose to act in concert, to take actions requiring shareholder approval
without obtaining the approval of our other shareholders.
In addition, Nasdaq rules require us to obtain shareholder approval of the
private placements because the shares of Series D preferred stock, the shares of
Series E preferred stock and the warrants to purchase 625,000 shares of common
stock held by the General Atlantic Investors (and the shares of common stock
issuable upon conversion or exercise of the shares of Series D preferred stock,
shares of Series E preferred stock and the warrants) would be sold at or amended
to have a per-share price lower than the greater of the book or market value as
of the date on which we signed the November 2003 convertible note purchase and
exchange agreement, with respect to the November 2003 private placement, the
January 2004 convertible note purchase agreement, with respect to the January
2004 private placement and the March 2004 convertible note purchase agreement,
with respect to the March 2004 private placement. Under applicable Nasdaq rules,
we are required to obtain shareholder approval for an issuance of shares of
stock in a private placement equal to or greater than 20% of our outstanding
shares of stock if the shares are sold at or amended to have a per-share price
lower than the greater of the book or market value.
Two of our directors, Messrs. William E. Ford and Peter L.S. Currie, have a
relationship with some of the investors in the November 2003 private placement,
the General Atlantic Investors. Mr. McGlashan, one of our directors and our
former chief executive officer, is also a managing member of Vectis CP Holdings,
LLC, an owner of shares of our Series D preferred stock. Nasdaq rules require
shareholder approval of the private placements because of these financial
interests in our investors, and the shares of stock proposed to be issued in the
private placements would be sold at a per-share price deemed to be below the
book or market value of our common stock. Under applicable Nasdaq rules and
guidance, we are required to obtain shareholder approval for issuances of shares
indirectly to directors if the shares are sold at or amended to have a per-share
price lower than the greater of the book or market value of our common stock.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the
amendment to our amended and restated articles of incorporation to increase the
authorized number of shares of common stock and preferred stock and the approval
and adoption of the amended and restated certificate of determination of
preferences of Series D preferred stock require the affirmative vote of the
holders of a majority of the outstanding shares of common stock and the votes
represented by the Special Voting Share (excluding the shares of Series D
preferred stock), voting together as a class, and the outstanding shares of
Series D preferred stock, voting separately as a class.
The General Atlantic Investors and the Cheung Kong Investors, who held
10,026,733 shares and 3,437,735 shares, respectively, of our Series D preferred
stock (on an as converted to common stock basis), or approximately 26.0% and
8.9%, respectively, of our outstanding voting power, as of April 30, 2004, have
agreed, solely in their capacity as Critical Path shareholders, to vote their
shares of our Series D preferred stock in favor of each of the proposals in this
proxy statement. The General Atlantic Investors and the Cheung Kong Investors
are unaffiliated, unrelated and do not constitute a group.
WHAT HAPPENS IF ONE OR MORE OF THE PROPOSALS IS NOT APPROVED BY OUR
SHAREHOLDERS?
The approval of each of the proposals is a requirement for the closing of
the conversion of the notes issued in the private placements into equity. In the
event the conversion of the notes issued pursuant to the private placements does
not take place due to a failure to approve one or more of the proposals in this
14
proxy statement, the 10% convertible secured notes held by the General Atlantic
Investors issued on November 26, 2003, the 10% convertible secured notes held by
the January 2004 Investors issued on January 16, 2004, and the 10% convertible
secured notes held by the March 2004 Investors issued on March 9, 2004 would
remain outstanding. See the section entitled "The Private Placements -- Proposal
1 through Proposal 5" on page 22 of this proxy statement for more information
about the terms of the convertible secured notes held by the General Atlantic
Investors, the January 2004 Investors and the March 2004 Investors. The 5 3/4%
convertible subordinated notes held by the Cheung Kong Investors in principal
amount of approximately $32.8 million would not be converted into shares of
Series E preferred stock pursuant to the terms of the November 2003 convertible
note purchase and exchange agreement and would remain outstanding.
In the event the proposals in this proxy statement are not approved,
pursuant to an amendment we executed with the Cheung Kong Investors in March
2004, the maturity date of the 5 3/4% convertible subordinated notes held by the
Cheung Kong Investors will be extended from April 1, 2005 to April 1, 2006, the
interest rate will increase from 5 3/4% to 7 1/2% for the period beginning April
1, 2005 and ending April 1, 2006 and we will be required to pay fees totaling
$1.5 million to the Cheung Kong Investors. In addition, neither the terms of the
Series D preferred stock nor the exercise price per share of the warrants to
purchase 625,000 shares of common stock held by members of the General Atlantic
Investors would be amended. Finally, if one or more of the proposals is not
approved by our shareholders, we would not consummate the rights offering.
WHAT IS THE ACCOUNTING EFFECT OF THE PRIVATE PLACEMENTS AND THE PROPOSED RIGHTS
OFFERING?
If our shareholders approve each of the proposals at the special meeting,
based on our current estimates, the application of generally accepted accounting
principles to the consummation of the transactions contemplated by the private
placements and the rights offering will cause us to record charges that increase
our net loss attributable to common shares. Because these charges will be based
in part on the fair value of our common stock and the Series E preferred stock
on the date or dates the Series E preferred stock is issued, and on the fair
value of the Series D preferred stock on the date its rights and preferences are
modified, we are only able to estimate the amount of the charges that will
occur. Assuming that these transactions occurred on November 18, 2003, except
for the issuance of the notes to the General Atlantic Investors which occurred
on November 26, 2003, the issuance of the notes to the January 2004 Investors
which occurred on January 16, 2004 and the issuance of the notes to the March
2004 Investors which occurred on March 9, 2004, and the estimated fair market
values of the common stock, the Series E preferred stock and the Series D
preferred stock on such dates, we estimate that one-time charges would total
approximately $54.9 million to be recorded in the period that shareholders
approve the transactions, and that additional charges totaling $3.2 million
would be recorded over the four year redemption period of the Series E preferred
stock if all 14 million shares of Series E preferred stock are purchased in the
proposed rights offering. A change in the fair value of our common stock, or our
Series E preferred stock, as of the date or dates we issue the Series E
preferred stock, or our Series D preferred stock, as of the date we amend the
terms of the Series D preferred stock, would cause these estimates to vary.
See the section entitled "Accounting Effects of the Private Placements and
the Proposed Rights Offering" on page 44 of this proxy statement for additional
information relating to the accounting effect of the private placements and the
proposed rights offering.
15
WHAT ARE THE TOTAL EXPENSES RELATED TO THE PRIVATE PLACEMENTS AND THE PROPOSED
RIGHTS OFFERING AND HOW MUCH OF THE GROSS PROCEEDS FROM THE PROPOSED RIGHTS
OFFERING DO YOU EXPECT TO HAVE AFTER PAYING ANY REMAINING EXPENSES?
We estimate that the total aggregate costs of closing the private
placements and the proposed rights offering will be approximately $4.0 million
(of which approximately $3.1 million had been paid as of April 30, 2004).
This $4.0 million in expenses includes:
- approximately $3.4 million in expenses incurred in connection with the
private placements and obtaining shareholder consent and includes:
- $125,000 fee that was paid to Duff & Phelps LLC at the time Duff &
Phelps LLC delivered its fairness opinion; and
- $3.3 million in legal, accounting and other transaction costs incurred
in connection with the negotiation and consummation of the private
placements and obtaining the necessary shareholder consent.
- approximately $625,000 in printing, legal, accounting and other expenses
directly related to the proposed rights offering.
In addition to the $3.1 million in expenses that we have already incurred
and paid, we have incurred or expect to incur approximately $900,000 in
additional expenses related to these transactions as outlined above. Although
our remaining expenses could exceed our estimates, the investment represented by
the private placements should provide sufficient funds to pay the remaining
estimated transaction costs.
IF WE APPROVE THE PRIVATE PLACEMENTS, HOW MANY SHARES WILL BE OUTSTANDING AFTER
THE PRIVATE PLACEMENTS AND THE PROPOSED RIGHTS OFFERING, INCLUDING SHARES OWNED
BY THE GENERAL ATLANTIC INVESTORS, THE CHEUNG KONG INVESTORS AND THE APEX
INVESTORS?
Table I summarizes information regarding the securities owned by the
General Atlantic Investors, the Cheung Kong Investors, the Apex Investors and
our other shareholders as of April 28, 2004, and the percentages of beneficial
ownership and voting power represented by these securities, without giving
effect to any of the transactions contemplated by the November 2003 convertible
note purchase and exchange agreement, the January 2004 convertible note purchase
agreement or the March 2004 convertible note purchase agreement. If our
shareholders do not approve each of the proposals in this proxy statement, the
secured notes held by the General Atlantic Investors will remain outstanding and
will not be convertible into any class or series of our capital stock. However,
the convertible subordinated notes held by the Cheung Kong Investors and the
convertible secured notes held by the January 2004 Investors and the March 2004
Investors will be convertible at the option of each holder, except that the
January 2004 Investors and the March 2004 Investors may not convert their notes
into common stock if any of them (together with their affiliates) would
beneficially own 9.9% or more of our common stock after conversion.
Table II summarizes information regarding the securities owned by the
General Atlantic Investors, the Cheung Kong Investors, the Apex Investors and
our other shareholders as of April 28, 2004, and the percentages of beneficial
ownership and voting power represented by these securities, assuming the
conversion by the General Atlantic Investors and the Apex Investors of their
convertible secured notes into shares of Series E preferred stock, the exchange
by the Cheung Kong Investors of their 5 3/4% convertible subordinated notes into
shares of Series E preferred stock and the amendment of the certificate of
determination of preferences of Series D preferred stock.
Tables III and IV adjust Table II to give effect to the closing of the
proposed rights offering based on two different assumptions. Table III assumes
that the holders of our common stock on April 30, 2004 exercise their
subscription rights to purchase all of the approximately $21 million of Series E
preferred stock offered in the proposed rights offering. Table IV assumes that
the holders of our common stock on April 30, 2004 do not participate in the
proposed rights offering and the General Atlantic Investors
16
exercise their right to purchase 55% of the unsubscribed portion of the proposed
rights offering and the Cheung Kong Investors exercise their right to purchase
45% of the unsubscribed portion of the proposed rights offering in accordance
with our agreement with them. In addition to a right to purchase a percentage of
the shares of Series E preferred stock not subscribed for in the rights
offering, each of the General Atlantic Investors and the Cheung Kong Investors
have the right, but not the obligation, to purchase shares of Series E preferred
stock not purchased by the other. In a separate agreement, members of the Cheung
Kong Investors have granted us an option, which we may exercise in our sole
discretion, to repurchase approximately 10.9 million shares of the Series E
preferred stock held by the Cheung Kong Investors.
17
TABLE I
SECURITIES OWNED AS OF APRIL 28, 2004 -- WITHOUT GIVING EFFECT
TO CONVERSION OF CONVERTIBLE NOTES IN PRIVATE PLACEMENTS
<Table>
<Caption>
PERCENTAGE OF PERCENTAGE OF OUR
NUMBER OUTSTANDING BENEFICIAL VOTING POWER
ON AN AS CONVERTED OWNERSHIP REPRESENTED BY
ACTUAL NUMBER TO COMMON STOCK REPRESENTED BY SECURITIES
CLASS OUTSTANDING BASIS(A)(B) SECURITIES OWNED OWNED(A)(B)
------------------------ ------------- ------------------ ---------------- ------------------
General Atlantic
Investors.......... Series E Preferred Stock -- -- -- --
Series D Preferred Stock 2,545,455 10,022,363 26.0 26.0
Warrants to Purchase
Common Stock 625,000 625,000 1.6 1.6
---------- ---- ----
Total.............. 10,647,363 27.7 27.7
========== ==== ====
Cheung Kong
Investors.......... Series E Preferred Stock -- -- -- --
Series D Preferred Stock 872,727 3,436,237 8.9 8.9
---------- ---- ----
Total.............. 3,436,237 8.9 8.9
========== ==== ====
Apex Investors....... Series E Preferred Stock -- -- -- --
Series D Preferred Stock -- -- -- --
---------- ---- ----
Total.............. -- -- --
========== ==== ====
Other Holders........ Series E Preferred Stock -- -- --
Series D Preferred Stock 770,405 3,029,968 7.9 7.9
Common Stock 21,388,848 21,388,848 55.6 55.6
Warrants and Options 14,677,377 14,677,377 -- --
---------- ---- ----
Total.............. 39,096,193 63.4 63.4
========== ==== ====
</Table>
18
TABLE II
SECURITIES OWNED AS OF APRIL 28, 2004 -- AFTER GIVING EFFECT TO
CONVERSION OF CONVERTIBLE NOTES IN PRIVATE PLACEMENTS
<Table>
<Caption>
PERCENTAGE OF
NUMBER OUTSTANDING BENEFICIAL PERCENTAGE OF OUR
ON AN AS CONVERTED OWNERSHIP VOTING POWER
ACTUAL NUMBER TO COMMON STOCK REPRESENTED BY REPRESENTED BY
CLASS OUTSTANDING BASIS(A)(B) SECURITIES OWNED SECURITIES OWNED(A)(B)
------------------------ ------------- ------------------ ---------------- ----------------------
General Atlantic
Investors........... Series E Preferred Stock 7,333,333 7,333,333 6.1 7.9
Series D Preferred Stock 2,545,455 28,062,615 23.3 12.2
Warrants to Purchase
Common Stock 625,000 625,000 0.5 0.8
---------- ---- ----
Total............... 36,020,948 30.0 20.8
========== ==== ====
Cheung Kong
Investors........... Series E Preferred Stock 21,863,333 21,863,333 18.2 23.4
Series D Preferred Stock 872,727 9,621,463 8.0 4.2
---------- ---- ----
Total............... 31,484,796 26.2 27.6
========== ==== ====
Apex Investors....... Series E Preferred Stock 11,094,735 11,094,735 9.2 10.4
Series D Preferred Stock -- -- -- --
---------- ---- ----
Total............... 11,094,735 9.2 10.4
========== ==== ====
Other Holders........ Series E Preferred Stock 12,536,346 12,536,346 10.4 11.9
Series D Preferred Stock 701,256 7,725,052 6.4 3.3
Common Stock 21,388,848 21,388,848 17.8 26.0
Warrants and Options 14,677,377 14,677,377 -- --
---------- ---- ----
Total............... 56,327,623 34.6 41.2
========== ==== ====
</Table>
19
TABLE III
SECURITIES OWNED AFTER RIGHTS OFFERING -- APPROXIMATELY $21 MILLION
SUBSCRIPTION BY COMMON SHAREHOLDERS
<Table>
<Caption>
PERCENTAGE OF
NUMBER OUTSTANDING BENEFICIAL PERCENTAGE OF OUR
ON AN AS CONVERTED OWNERSHIP VOTING POWER
ACTUAL NUMBER TO COMMON STOCK REPRESENTED BY REPRESENTED BY
CLASS OUTSTANDING BASIS(A)(B) SECURITIES OWNED SECURITIES OWNED(A)(B)
------------------------ ------------- ------------------ ---------------- ----------------------
General Atlantic
Investors........... Series E Preferred Stock 7,333,333 7,333,333 5.5 6.8
Series D Preferred Stock 2,545,455 28,062,615 20.9 10.6
Warrants to Purchase
Common Stock 625,000 625,000 0.5 0.7
---------- ---- ----
Total............... 36,020,948 26.8 18.1
========== ==== ====
Cheung Kong
Investors........... Series E Preferred Stock 21,863,333 21,863,333 16.3 20.4
Series D Preferred Stock 872,727 9,621,463 7.2 3.6
---------- ---- ----
Total............... 31,484,796 23.5 24.0
========== ==== ====
Apex Investors....... Series E Preferred Stock 11,094,735 11,094,735 8.3 9.1
Series D Preferred Stock -- -- -- --
---------- ---- ----
Total............... 11,094,735 8.3 9.1
========== ==== ====
Other Holders........ Series E Preferred Stock 26,536,346 26,536,346 19.8 23.4
Series D Preferred Stock 701,256 7,725,052 5.8 2.9
Common Stock 21,388,848 21,388,848 15.9 22.6
Warrants and Options 14,677,377 14,677,377 -- --
---------- ---- ----
Total............... 70,327,623 41.5 48.9
========== ==== ====
</Table>
20
TABLE IV
SECURITIES OWNED AFTER RIGHTS OFFERING -- APPROXIMATELY $21 MILLION
SUBSCRIPTION BY GENERAL ATLANTIC INVESTORS AND CHEUNG KONG INVESTORS
<Table>
<Caption>
PERCENTAGE OF
NUMBER OUTSTANDING BENEFICIAL PERCENTAGE OF OUR
ON AN AS CONVERTED OWNERSHIP VOTING POWER
CLASS SERIES E ACTUAL NUMBER TO COMMON STOCK REPRESENTED BY REPRESENTED BY
PREFERRED OUTSTANDING BASIS(A)(B) SECURITIES OWNED SECURITIES OWNED(A)(B)
-------------------- ------------- ------------------ ---------------- ----------------------
General Atlantic
Investors..........
Series E Preferred
Stock 15,033,333 15,033,333 11.2 14.0
Series D Preferred
Stock 2,545,455 28,062,615 20.9 10.5
Warrants to Purchase
Common Stock 625,000 625,000 0.5 0.7
---------- ---- ----
Total.............. 43,720,948 32.6 25.2
========== ==== ====
Cheung Kong
Investors..........
Series E Preferred
Stock 28,163,333 28,163,333 21.0 26.2
Series D Preferred
Stock 872,727 9,621,463 7.2 3.6
---------- ---- ----
Total.............. 37,784,796 28.1 29.9
========== ==== ====
Apex Investors.......
Series E Preferred
Stock 11,094,735 11,094,735 8.3 9.1
Series D Preferred
Stock -- -- -- --
---------- ---- ----
Total.............. 11,094,735 8.2 9.0
========== ==== ====
Other Holders........
Series E Preferred
Stock 12,536,346 12,536,346 9.3 10.3
Series D Preferred
Stock 701,256 7,725,052 5.8 2.9
Common Stock 21,388,848 21,388,848 15.9 22.6
Warrants and Options 14,677,377 14,677,377 -- --
---------- ---- ----
Total.............. 56,327,623 31.0 35.8
========== ==== ====
</Table>
- ---------------
(a)In order to comply with NASD voting rules, the voting power of the Series E
preferred stock may be impaired. The percentage of voting power represented
by the Series E preferred stock in the table above assumes holders of Series
E preferred stock will be entitled to 0.8823529 votes for each share of
Series E preferred stock based on the most recent closing bid price of our
common stock of $1.70 as of November 18, 2003, the date we entered into the
November 2003 convertible note purchase and exchange agreement. The actual
voting formula for each share of Series E preferred stock will be the sum of
$1.50 plus all accrued dividends for such share divided by the "voting
conversion amount." The "voting conversion amount" will be equal to the lower
of (i) $1.70, (ii) the most recent closing bid price of the common stock as
of the date the Series E preferred stock is first issued and (iii) the
average closing bid prices for the five trading days prior to the date the
Series E preferred stock is first issued; provided, however, the voting
conversion amount will not be less than $1.50. The voting conversion amount
will be determined on the date the Series E preferred stock is first issued
and, once determined, will remain the same (subject to adjustment for stock
splits, subdivisions, reclassifications, distributions and similar
transactions). Pursuant to the terms of the Series E preferred stock, the
number of shares of common stock into which the Series E preferred stock is
convertible and the percentages of beneficial ownership and voting power
represented by the shares of Series E preferred stock will increase as
dividends accrue on the Series E preferred stock.
(b)In order to comply with NASD voting rules, the voting power of the Series D
preferred stock will be impaired after its terms are amended. As reflected in
the table above, for each share of Series D preferred stock, the holder will
initially be entitled to approximately 3.86342 votes. Although the voting
conversion ratio will remain the same (subject to adjustment for stock
splits, subdivisions, reclassifications, distributions and similar
transactions), pursuant to the terms of the Series D preferred stock, the
number of shares of common stock into which the Series D preferred stock is
convertible and the percentages of beneficial ownership and voting power
represented by the shares of Series D preferred stock will increase as
dividends accrue on the Series D preferred stock following the amendment.
21
Following the consummation of the private placements and the proposed
rights offering, it is highly likely that the General Atlantic Investors, the
Cheung Kong Investors and the Apex Investors, collectively, will control a
sufficient percentage of our outstanding voting power to elect all of our
directors. Accordingly, the General Atlantic Investors, the Cheung Kong
Investors and the Apex Investors, collectively, thereafter will be able to exert
a controlling influence over the formulation and implementation of our corporate
strategies and policies. The General Atlantic Investors, the Cheung Kong
Investors and the Apex Investors are unaffiliated, unrelated and do not
constitute a group.
WHOM SHOULD I CALL IF I HAVE ANY QUESTIONS?
All questions and requests for assistance in voting your shares may be
directed to Georgeson Shareholder Communications Inc. at (800) 843-1451
(toll-free) or (212) 440-9000 (call collect) from 9 a.m. to 11 p.m., New York
City time, Monday through Friday, and from 10:00 a.m. to 4:00 p.m., New York
City time, on Saturday.
THE PRIVATE PLACEMENTS --
PROPOSAL 1 THROUGH PROPOSAL 5
NATURE OF PROPOSAL 1 THROUGH PROPOSAL 5.
Our board of directors is asking you to vote upon five proposals, in
connection with the November 2003 convertible note purchase and exchange
agreement and the January 2004 convertible note purchase agreement, to approve:
Proposal 1 The issuance of approximately 7.3 million shares of Series E
preferred stock with a price per share of $1.50 to the General
Atlantic Investors, issuable upon conversion of $11 million
principal amount and interest of convertible secured notes, and
such additional shares of Series E preferred stock as they may
purchase in connection with the proposed rights offering;
Proposal 2 The issuance of approximately 10 million shares of Series E
preferred stock with a price per share of $1.50 to the January
2004 Investors, issuable upon conversion of $15 million
principal amount of convertible secured notes;
Proposal 3 The issuance of approximately 12.3 million shares of Series E
preferred stock with a price per share of $1.50 to the March
2004 Investors, issuable upon conversion of $18.5 million
principal amount of convertible secured notes;
Proposal 4 The issuance of approximately 21.9 million shares of Series E
preferred stock with a price per share of $1.50 to the Cheung
Kong Investors, issuable upon exchange of approximately $32.8
million principal amount of 5 3/4% convertible subordinated
notes, and such additional shares of Series E preferred stock as
they may purchase in connection with the proposed rights
offering; and
Proposal 5 The amendment of warrants to purchase 625,000 shares of common
stock held by members of the General Atlantic Investors that
reduces the exercise price per share from $4.20 to $1.50.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in a private placement of our securities that occurred in November
2003. The General Atlantic Investors consist of General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG.
The Cheung Kong Investors consist of Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
Members of the General Atlantic Investors and the Cheung Kong Investors are
current shareholders of Critical Path. The General Atlantic Investors and the
Cheung Kong Investors are unaffiliated, unrelated and do not constitute a group.
22
The Apex Investors are the lead investors in private placements of our
securities that occurred in January and March 2004. The Apex Investors consist
of Permal U.S. Opportunities Partners, L.P., Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited and Zaxis Partners, L.P.
and Guggenheim Portfolio Company XIII.
The investors in the January 2004 private placement consist of the Apex
Investors (except for Guggenheim Portfolio Company XIII) and Passport Master
Fund, L.P. and are collectively referred to as the January 2004 Investors. The
Apex Investors and Passport Master Fund, L.P. are unaffiliated, unrelated and do
not constitute a group.
The investors in the March 2004 private placement consist of the Apex
Investors, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., the
Criterion Investors and Capital Ventures International and are collectively
referred to as the March 2004 Investors. The Criterion Investors consist of
Criterion Capital Partners, Ltd., Criterion Capital Partners, Institutional and
Criterion Capital Partners, L.P. The Apex Investors, Crosslink Crossover Fund
IV, L.P., Sagamore Hill Hub Fund, Ltd., the Criterion Investors and Capital
Ventures International are unaffiliated, unrelated and do not constitute a
group.
None of these proposals will be implemented unless our shareholders approve
each of the proposals in this proxy statement. In addition, the approval of each
of the proposals in this proxy statement is a requirement for the closing of the
proposed rights offering to our common shareholders as of April 30, 2004.
BACKGROUND.
November 2003 private placement. In July 2003, our board of directors
established the strategic alternatives committee of our board of directors,
consisting of Messrs. Ross Dove, Wm. Christopher Gorog and Steven R.
Springsteel, and engaged a financial advisor to assist the committee in
identifying and evaluating our strategic alternatives. The strategic
alternatives committee met together with representatives of our management on
August 11, 2003, August 22, 2003 and October 2, 2003 to evaluate our financing
and strategic alternatives. We focused our efforts on a private placement to
selected investors, and we evaluated the likelihood of a sale of the Company or
the sale of selected assets of the Company.
In October 2003, we entered into negotiations with the investors in the
November 2003 private placement. The negotiations were initiated and led by the
General Atlantic Investors, who asked whether the Cheung Kong Investors would
also invest in the proposed financing. The Cheung Kong Investors expressed an
interest in investing in a financing led by the General Atlantic Investors by
exchanging their 5 3/4% convertible subordinated notes for shares of our
preferred equity.
In October 2003, we received a draft term sheet from the General Atlantic
Investors regarding the proposed November 2003 private placement. Our board of
directors met together with representatives of our management and legal counsel
on October 28, 2003 to evaluate the term sheet, our financing and strategic
alternatives and whether there were alternative transactions available to us.
Negotiations regarding the term sheet continued and, on November 14, 2003,
we reached preliminary agreement with the General Atlantic Investors on a term
sheet. On November 14, 2003, the strategic alternatives committee met again,
together with representatives of our management and legal counsel, to discuss
alternative terms of the November 2003 private placement as described below and
the proposed rights offering. The strategic alternatives committee also
considered whether there were alternatives available to us.
In early November 2003, we engaged Duff & Phelps, LLC to deliver an opinion
that the November 2003 private placement (including the additional 10 million
shares of Series E preferred stock that are issuable in connection with the
January 2004 private placement) and the proposed rights offering are fair to our
public common shareholders from a financial point of view.
On November 17, 2003, our board of directors met together with
representatives of our management and legal counsel to consider the November
2003 private placement and the proposed rights offering
23
described below. After extensive discussion of the terms and conditions, a
review of the absence of alternative financing or other strategic prospects and
the receipt of advice from Duff & Phelps, LLC, our board of directors (excluding
Mr. William E. McGlashan, who is a managing member of Vectis CP Holdings, LLC,
an owner of shares of our Series D preferred stock, and the former chief
executive officer of Critical Path until his resignation from that office at the
end of March 2004; Mr. William E. Ford, who abstained because of his
relationship with the General Atlantic Investors; and Mr. Raul J. Fernandez, a
former member of our board of directors, who abstained because of his
relationship with the General Atlantic Investors) approved the continued
negotiation and finalization of the proposed November 2003 private placement
and, subject to shareholder approval and the closing of the November 2003
private placement, the proposed rights offering. On November 17, 2003, our board
of directors met again to consider the November 2003 private placement. After
receiving the opinion of Duff & Phelps, LLC that the November 2003 private
placement (including the additional 10 million shares of Series E preferred
stock that are issuable in connection with the January 2004 private placement)
and the proposed rights offering are fair to our public common shareholders from
a financial point of view, the board of directors (excluding the Messrs.
McGlashan, Ford and Fernandez) approved the November 2003 private placement and
the proposed rights offering described below.
On November 18, 2003, we entered into the November 2003 convertible note
purchase and exchange agreement with the General Atlantic Investors and the
Cheung Kong Investors that provided for the issuance and sale by us to the
General Atlantic Investors of $10 million in principal amount of 10% convertible
secured notes that will, including $1 million of interest, convert into
approximately 7.3 million shares of Series E preferred stock upon shareholder
approval and certain filings with the California Secretary of State. The
convertible secured notes were issued and sold for cash to the General Atlantic
Investors on November 26, 2003. In addition, pursuant to the November 2003
convertible note purchase and exchange agreement, the Cheung Kong Investors are
obligated to exchange approximately $32.8 million face value of our outstanding
5 3/4% convertible subordinated notes for approximately 21.9 million shares of
Series E preferred stock, also upon shareholder approval and certain filings
with the California Secretary of State.
January 2004 private placement. The November 2003 private placement
provided that, for a period of 12 months following the date shares of Series E
preferred stock were first issued and as part of the private placement, we would
have the right to sell up to an additional 10 million shares of Series E
preferred stock to undetermined investors at a price per share equal to $1.50.
Our financial advisor identified for us qualified institutional investors for
the placement of those additional shares.
In January 2004, we entered into negotiations with the investors in the
January 2004 private placement who expressed interest in purchasing the
additional 10 million shares of Series E preferred stock as provided in the
November 2003 private placement. The negotiations were led by the Apex
Investors. Passport Master Fund, L.P. also expressed interest in investing in
the proposed financing.
In lieu of purchasing the additional 10 million shares of Series E
preferred stock, the January 2004 Investors purchased for $15 million in cash an
equal amount in principal of 10% convertible secured notes that will convert
into approximately 10 million shares of Series E preferred stock upon
shareholder approval and certain filings with the California Secretary of State.
The terms of the Series E preferred stock into which the 10% convertible secured
notes are convertible are to be the same as those contained in the certificate
of determination of preferences of Series E preferred stock.
Negotiations regarding the definitive documentation began on January 9,
2004. On January 16, 2004, by unanimous written consent, our board of directors
approved the January 2004 private placement described below. On January 16,
2004, we entered into the January 2004 convertible note purchase agreement with
the January 2004 Investors and issued and sold for cash to the January 2004
Investors convertible secured notes in principal amount of $15 million. The
convertible secured notes issued in the January 2004 private placement to the
January 2004 Investors will convert into approximately 10 million shares of
Series E preferred stock upon shareholder approval and certain filings with the
California Secretary of State.
24
March 2004 private placement. In February 2004, our board of directors
determined additional financing was necessary and evaluated different financing
alternatives and subsequently approved the March 2004 private placement on
substantially similar terms and conditions as the January 2004 private
placement. Our financial advisor identified for us qualified institutional
investors for the private placement which included some of the investors from
the January 2004 private placement.
In late February and early March 2004, we entered into negotiations with
the investors in the March 2004 private placement. The negotiations were led by
the Apex Investors. Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub Fund,
Ltd., the Criterion Investors and Capital Ventures International also expressed
interest in investing in the proposed financing.
On March 9, 2004, we entered into the March 2004 convertible note purchase
agreement with the March 2004 Investors and issued and sold for cash to the
March 2004 Investors $18.5 million in principal amount of 10% convertible
secured notes that will convert into approximately 12.3 million shares of Series
E preferred stock upon shareholder approval and certain filings with the
California Secretary of State. The terms of the Series E preferred stock into
which the 10% convertible secured notes are convertible are to be the same as
those contained in the certificate of determination of preferences of Series E
preferred stock.
OVERVIEW.
The primary purpose of the private placements is to retire approximately
$4.9 million of our senior indebtedness, which we have already done, and
approximately $32.8 million of outstanding notes, both by raising capital and
through the exchange by the Cheung Kong Investors of their 5 3/4% convertible
subordinated notes for shares of Series E preferred stock, as well as to provide
additional capital for other general purposes and working capital. You should
review our financial statements for the year ended December 31, 2003 which are
incorporated by reference into and delivered with this proxy statement. See the
section entitled "Incorporation of Certain Documents by Reference" on page 68 of
this proxy statement for more information about documents incorporated by
reference into this proxy statement.
The General Atlantic Investors and the Cheung Kong Investors are the lead
investors in the November 2003 private placement. The General Atlantic Investors
consist of General Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GapStar, LLC and GAPCO GmbH & Co. KG. The Cheung Kong Investors consist of
Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited,
Dragonfield Limited and Lion Cosmos Limited. Members of the General Atlantic
Investors and the Cheung Kong Investors are current shareholders of Critical
Path. The General Atlantic Investors and the Cheung Kong Investors are
unaffiliated, unrelated and do not constitute a group.
Mr. William E. Ford, a member of our board of directors, is a managing
member at General Atlantic Partners, LLC, an affiliate of the General Atlantic
Investors. At the time the November 2003 private placement was approved by our
board of directors, Mr. Raul J. Fernandez was a member of our board of directors
and a special advisor to General Atlantic Partners, LLC. Messrs. Ford and
Fernandez abstained from voting on the November 2003 private placement and the
proposed rights offering described below because of their relationship with the
General Atlantic Investors.
As a condition to the execution of the November 2003 convertible note
purchase and exchange agreement providing for the November 2003 private
placement, the General Atlantic Investors and the Cheung Kong Investors agreed
to vote all of their shares of Series D preferred stock in favor of approval of
each of the proposals in this proxy statement. The General Atlantic Investors
and the Cheung Kong Investors are unaffiliated, unrelated and do not constitute
a group.
REASONS FOR SHAREHOLDER APPROVAL.
Our common stock is listed on the Nasdaq National Market, and, as a result,
we are subject to Nasdaq's marketplace rules. We are required to seek
shareholder approval for the private placements and the issuance of shares of
Series E preferred stock, if any, to the General Atlantic Investors, the Cheung
25
Kong Investors, the January 2004 Investors and the March 2004 Investors, as the
case may be, in connection with the proposed rights offering to comply with Rule
4350 of the Nasdaq rules. Nasdaq Rule 4350 requires shareholder approval in
connection with the issuance of securities that could result in a "change of
control" of an issuer. In addition, Nasdaq Rule 4350 requires shareholder
approval prior to the issuance of securities under certain circumstances,
including in connection with a transaction involving the sale or issuance of
common stock at a price below the book value or market value, where the amount
of stock being issued is equal to 20% or more of the issuer's common stock
outstanding before such issuance. Finally, Nasdaq Rule 4350 also requires
shareholder approval in connection with certain issuances of securities to
officers or directors of the issuer at a price below the book value or market
value. On March 23, the closing sales price for Critical Path common stock on
the Nasdaq National Market was $1.91. Because the shares of Series E preferred
stock issued in the private placements are convertible into common stock, the
private placements are considered an issuance of securities below market value
because the implied purchase price of $1.50 for a share of Series E preferred
stock was below the closing price of our common stock on Nasdaq.
The shareholders are being asked to approve the issuance and sale by
Critical Path of approximately 7.3 million shares of Series E preferred to the
General Atlantic Investors that are issuable upon the conversion by the General
Atlantic Investors of their $11 million in principal amount and interest of
convertible secured notes and the issuance of shares of Series E preferred
stock, if any, to the General Atlantic Investors in connection with the proposed
rights offering. The shareholders are also being asked to approve the issuance
and sale of approximately 21.9 million shares of Series E preferred stock to the
Cheung Kong Investors that are issuable upon exchange of approximately $32.8
million face value of our outstanding 5 3/4% convertible subordinated notes and
the issuance of shares of Series E preferred stock, if any, to the Cheung Kong
Investors in connection with the proposed rights offering. In addition, the
shareholders are being asked to approve the issuance and sale by Critical Path
of approximately 10 million shares of Series E preferred to the January 2004
Investors that are issuable upon the conversion by the January 2004 Investors of
their $15 million in principal amount and interest of convertible secured notes.
In addition, the shareholders are being asked to approve the issuance and sale
by Critical Path of approximately 12.3 million shares of Series E preferred to
the March 2004 Investors that are issuable upon the conversion by the March 2004
Investors of their $18.5 million in principal amount and interest of convertible
secured notes. The purchase price per share of Series E preferred stock is $1.50
in each circumstance. Finally, the shareholders are being asked to approve
amendments to warrants to purchase common stock held by members of the General
Atlantic Investors that reduce the exercise price per share of the warrants to
$1.50. These warrants were issued to members of the General Atlantic Investors
in a previous round of financing in December 2001.
First, the private placements and the issuance of shares of Series E
preferred stock, if any, to the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors, as the case
may be, in connection with the proposed rights offering would be considered a
"change of control" of Critical Path as defined under Nasdaq's rules and
guidance.
Second, because the shares issued in the private placements are convertible
into common stock, the private placements and the issuance of shares of Series E
preferred stock, if any, to the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors, as the case
may be, in connection with the proposed rights offering will result in the
issuance of more than 20% of our outstanding common stock at a price below the
market value. The General Atlantic Investors and the Cheung Kong Investors are
currently our largest shareholders. Assuming the conversion of approximately
$42.8 million principal amount of outstanding convertible notes held by the
General Atlantic Investors and the Cheung Kong Investors and the amendment of
the terms of our Series D preferred stock, both of which are a condition to the
consummation of the private placements and the proposed rights offering, as of
April 28, 2004, the General Atlantic Investors own 20.8% of our outstanding
voting power and the Cheung Kong Investors own approximately 27.6% of our
outstanding voting power (assuming exercise in full of the warrants to purchase
up to 625,000 shares of common stock held by members of the General Atlantic
Investors). Assuming the conversion of $16.25 million principal amount
26
of outstanding convertible notes held by the Apex Investors, as of April 28,
2004, the Apex Investors own 10.4% of our outstanding voting power. Following
the completion of the private placements and the issuance of shares of Series E
preferred stock, if any, to the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors, as the case
may be, in connection with the proposed rights offering, the General Atlantic
Investors, the Cheung Kong Investors and the Apex Investors would hold the
requisite percentage of our outstanding shares of stock so as to permit them, if
they chose to act in concert, to take actions requiring shareholder approval
without obtaining the approval of our other shareholders. The General Atlantic
Investors, the Cheung Kong Investors and the Apex Investors are unaffiliated,
unrelated and do not constitute a group.
Third, two of our directors, Messrs. Ford and Currie, have a relationship
with the General Atlantic Investors, who are participating in the November 2003
private placement. Accordingly, we are seeking shareholder approval in
compliance with Nasdaq Rule 4350.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the
amendment to our amended and restated articles of incorporation to increase the
authorized number of shares of common stock and preferred stock and the approval
and adoption of the amended and restated certificate of determination of
preferences of Series D preferred stock require the affirmative vote of the
holders of a majority of the outstanding shares of common stock and the votes
represented by the Special Voting Share (excluding the shares of Series D
preferred stock), voting together as a class, and the outstanding shares of
Series D preferred stock, voting separately as a class. See the question
entitled "How many votes do the common shareholders have?" on page 7 of this
proxy statement for further information on the common stock issuable upon the
conversion or exchange of specified securities.
The General Atlantic Investors and the Cheung Kong Investors, who held
10,026,733 shares and 3,437,735 shares, respectively, of our Series D preferred
stock (on an as converted to common stock basis), or approximately 26.0% and
8.9%, respectively, of our outstanding voting power, as of April 30, 2004, have
agreed, solely in their capacity as Critical Path shareholders, to vote their
shares of our Series D preferred stock in favor of each of the proposals in this
proxy statement. The General Atlantic Investors and the Cheung Kong Investors
are unaffiliated, unrelated and do not constitute a group.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on April 30, 2004 will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on April 30, 2004.
SUMMARY OF THE TERMS OF THE PRIVATE PLACEMENTS.
The following is a summary of the terms of the November 2003 private
placement and the January 2004 private placement and the provisions of the
transaction documents relating to the private placements. In each case, the
private placement of our Series E preferred stock is intended to be exempt from
the registration requirements of the Securities Act of 1933, and we expect to
rely upon Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated under the Securities Act for an exemption from registration.
THIS SUMMARY OF THE TERMS OF THE PRIVATE PLACEMENTS IS INTENDED TO PROVIDE
YOU WITH BASIC INFORMATION CONCERNING THE TRANSACTIONS; HOWEVER, IT IS NOT A
SUBSTITUTE FOR REVIEWING THE TRANSACTION DOCUMENTS. YOU SHOULD READ THIS SUMMARY
IN CONJUNCTION WITH THE TRANSACTION DOCUMENTS ATTACHED TO THIS PROXY STATEMENT.
27
NOVEMBER 2003 PRIVATE PLACEMENT.
NOVEMBER 2003 CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT.
The following summary of the provisions of the November 2003 convertible
note purchase and exchange agreement, dated as of November 18, 2003, between
Critical Path, the General Atlantic Investors and the Cheung Kong Investors, is
qualified in its entirety by the November 2003 convertible note purchase and
exchange agreement and the amendments to that agreement attached to this proxy
statement as APPENDIX A and incorporated by reference into this proxy statement.
On November 18, 2003, we entered into a convertible note purchase and
exchange agreement with investors that provided for the issuance and sale by us
to the General Atlantic Investors of $10 million in principal amount of
convertible secured notes that will, including $1 million of interest, convert
into approximately 7.3 million shares of Series E preferred stock upon
shareholder approval and certain filings with the California Secretary of State.
On November 26, 2003, we sold and issued convertible secured notes to the
General Atlantic Investors. Shortly thereafter, we repaid the outstanding amount
of $4.9 million on our credit facility with Silicon Valley Bank.
In addition, pursuant to the November 2003 convertible note purchase and
exchange agreement, the Cheung Kong Investors are obligated to exchange
approximately $32.8 million face value of our outstanding 5 3/4% convertible
subordinated notes for approximately 21.9 million shares of Series E preferred
stock, also upon receipt of shareholder approval and certain filings with the
California Secretary of State.
On November 26, 2003, we sold and issued convertible secured notes to the
General Atlantic Investors. After receipt of shareholder approval at the special
meeting and after making certain filings with the California Secretary of State:
- the General Atlantic Investors will convert the $11 million in principal
amount and interest of the convertible secured notes into approximately
7.3 million shares of Series E preferred stock;
- the Cheung Kong Investors will exchange approximately $32.8 million face
value of our outstanding 5 3/4% convertible subordinated notes for
approximately 21.9 million shares of Series E preferred stock; and
- we will conduct a proposed rights offering of up to $21 million to our
common shareholders of shares of Series E preferred stock. The price per
share of the Series E preferred stock will be $1.50 in each circumstance.
The aggregate purchase price paid by the General Atlantic Investors to
Critical Path for the convertible secured notes on November 26, 2003 is $10
million. The aggregate purchase price to be paid by the Cheung Kong Investors to
Critical Path for the shares of Series E preferred stock at a subsequent closing
of the November 2003 private placement is in the form of approximately $32.8
million face value of our outstanding 5 3/4% convertible subordinated notes.
If our shareholders approve each of the proposals in this proxy statement,
we will file an amended and restated certificate of determination of preferences
of Series D preferred stock to amend the terms of the shares of Series D
preferred stock as discussed below. In addition, we and members of the General
Atlantic Investors holding warrants to purchase up to 625,000 shares of common
stock will enter into amendments that reduce the exercise price per share of the
warrants to $1.50.
The primary purpose of the November 2003 private placement is to retire
approximately $4.9 million of our senior indebtedness, which we have already
done, and approximately $32.8 million of outstanding notes, both by raising
capital and through the exchange by the Cheung Kong Investors of their 5 3/4%
convertible subordinated notes for shares of Series E preferred stock, as well
as to provide additional capital for other general corporate purposes and
working capital. Shortly following November 26, 2003, we repaid the outstanding
amount of $4.9 million on our credit facility with Silicon Valley Bank.
28
The General Atlantic Investors and the Cheung Kong Investors, who held
10,026,733 shares and 3,437,735 shares, respectively, of our Series D preferred
stock (on an as converted to common stock basis), or approximately 26.0% and
8.9%, respectively, of our outstanding voting power, as of April 30, have
agreed, solely in their capacity as Critical Path shareholders, to vote their
shares of our Series D preferred stock in favor of each of the proposals in this
proxy statement. The General Atlantic Investors and the Cheung Kong Investors
are unaffiliated, unrelated and do not constitute a group.
The General Atlantic Investors and the Cheung Kong Investors are currently
our largest groups of shareholders. Assuming the conversion of approximately
$42.8 million principal amount of outstanding convertible notes held by the
General Atlantic Investors and the Cheung Kong Investors and the amendment of
the terms of our Series D preferred stock, both of which are a condition to the
consummation of the private placements and the proposed rights offering, as of
April 28, 2004, the General Atlantic Investors will own 20.8% of our outstanding
voting power and the Cheung Kong Investors will own approximately 27.6% of our
outstanding voting power (as of April 28, 2004 and assuming exercise in full of
the warrants to purchase up to 625,000 shares of common stock held by members of
the General Atlantic Investors).
Representations, warranties and covenants. The November 2003 convertible
note purchase and exchange agreement contains representations and warranties and
covenants that are customary in transactions of this kind.
Terms of the convertible secured notes issued to the General Atlantic
Investors. The following summary of the provisions of the convertible secured
notes issued to the General Atlantic Investors is qualified in its entirety by
the convertible secured note attached to this proxy statement as APPENDIX B and
incorporated by reference into this proxy statement.
The convertible secured notes issued to the General Atlantic Investors
accrue interest at a simple annual interest rate of 10%. Upon shareholder
approval and certain filings with the California Secretary of State, the
convertible secured notes are convertible into shares of Series E preferred
stock at a price per share of $1.50. The convertible secured notes issued to the
General Atlantic Investors mature upon the earlier of:
- an event of default;
- the closing of the sale of any of the assets of Critical Path or any of
its subsidiaries, except for sales of assets not in excess of $1 million,
in the ordinary course of business, where the proceeds are used to
purchase new assets and other similar exceptions;
- a change of control;
- any financing transaction where Critical Path raises an aggregate of at
least $40 million (excluding the proposed rights offering); or
- November 26, 2007.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our preferred stock rights
agreement (unless waived by our board of directors).
No prepayment of the convertible secured notes issued to the General
Atlantic Investors is allowed, and the convertible secured notes are senior to
all of our indebtedness, except that the convertible secured notes issued to the
General Atlantic Investors (a) rank pari passu with the convertible secured
notes issued to the January 2004 Investors and the March 2004 Investors and (b)
subordinate to our credit facility with Silicon Valley Bank. The convertible
secured notes issued to the General Atlantic Investors
29
are secured by all of our assets and the assets of one of our subsidiaries,
Compass Holding Corp. In addition, the convertible secured notes issued to the
General Atlantic Investors are guaranteed by Compass Holding Corp.
The November 2003 convertible note purchase and exchange agreement and the
convertible secured notes issued to the General Atlantic Investors contain
affirmative and negative covenants that are customary in transactions of this
kind, including restrictions on the incurrence of indebtedness, limitations on
liens, restricted payments, financial covenants and other similar covenants. The
convertible secured notes issued to the General Atlantic Investors contain
antidilution protection with respect to their conversion into shares of Series E
preferred stock.
Terms of the Series E preferred stock. The following summary of the terms
of the shares of Series E preferred stock is qualified in its entirety by the
certificate of determination of preferences of Series E preferred stock attached
to this proxy statement as APPENDIX C and incorporated by reference into this
proxy statement.
If our shareholders approve each of the proposals in this proxy statement,
we will file a certificate of determination of preferences of Series E preferred
stock, the terms of which are discussed below.
Each share of Series E preferred stock will be convertible at any time at
the option of the holder into the number of shares of common stock derived by
dividing (a) the purchase price of the Series E preferred stock plus all accrued
dividends by (b) $1.50, subject to certain antidilution provisions. The terms of
the Series E preferred stock contain protection against dilution if Critical
Path effects a subdivision or combination of common stock or in the event of a
reclassification, recapitalization, stock split, stock dividend or other
distribution payable in securities of Critical Path or any other company.
With respect to distributions upon a liquidation, the payment of dividends
or a change of control, the shares of Series E preferred stock rank senior to
all capital stock of Critical Path. In the event of a liquidation or change of
control, each share of Series E preferred stock will be paid, prior to the
payment of any other equity securities, payments equal to the greater of the
purchase price of the Series E preferred stock plus all accrued dividends or the
value that would be paid to the holder of the number of shares of common stock
into which such shares of Series E preferred stock are convertible immediately
prior to the closing of such liquidation or change of control. Dividends on the
shares of Series E preferred stock accrue at a simple annual rate of 5 3/4%
whether or not declared by our board of directors.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest, sale of all or
substantially all of our assets or any other transaction that triggers the
issuance of rights pursuant to our preferred stock rights agreement (unless
waived by our board of directors).
The shares of Series E preferred stock may be called for redemption, at the
option of Critical Path upon the occurrence of specified events, on or after the
third anniversary of the date shares of Series E preferred stock are first
issued. If on any date after the third anniversary of the date shares of Series
E preferred stock are first issued, the average closing price per share of our
common stock, for any 60 consecutive trading days after such third anniversary
date, equals or exceeds 400% of the purchase price of the Series E preferred
stock plus all accrued dividends, Critical Path has the option to call for
redemption, within 30 days following such date, all, but not less than all, of
the outstanding shares of Series E preferred stock in cash, at a price per share
equal to the purchase price of the Series E preferred stock plus all accrued
dividends.
The shares Series E preferred stock must be called for redemption on the
fourth anniversary of the date shares of Series E preferred stock are first
issued for an amount equal to the purchase price of the Series E preferred stock
plus all accrued dividends.
30
Each share of Series E preferred stock entitles its holder to vote at any
shareholders meeting, on any matter entitled to be voted on by holders of our
common stock, voting together as a single class with other shares entitled to
vote on such matters. In order to comply with the voting rules of the National
Association of Securities Dealers, Inc. (referred to as the NASD), the voting
power of the Series E preferred stock may be impaired. The voting formula for
each share of Series E preferred stock will be the sum of $1.50 plus all accrued
dividends for such share divided by the "voting conversion amount." The "voting
conversion amount" will be equal to the lower of (i) $1.70, (ii) the most recent
closing bid price of the common stock as of the date the Series E preferred
stock is first issued and (iii) the average closing bid prices for the five
trading days prior to the date the Series E preferred stock is first issued;
provided, however, the voting conversion amount will not be less than $1.50. The
voting conversion amount will be determined on the date the Series E preferred
stock is first issued and, once determined, will remain the same (subject to
adjustment for stock splits, subdivisions, reclassifications, distributions and
similar transactions). Pursuant to the terms of the Series E preferred stock,
the number of shares of common stock into which the Series E preferred stock is
convertible and the percentages of beneficial ownership and voting power
represented by the shares of Series E preferred stock will increase as dividends
accrue on the Series E preferred stock.
In addition, the holders of Series E preferred stock will have additional
voting rights with respect to:
- any amendment to the terms of the Series E preferred stock;
- any amendment to the number of authorized shares of Series E preferred
stock and any issuance of shares of equity securities ranking senior to
the Series E preferred stock; or
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders.
Terms of the amended and restated Series D preferred stock. The following
summary of the terms of the amended shares of Series D preferred stock is
qualified in its entirety by the certificate of determination of preferences of
Series D preferred stock attached to this proxy statement as APPENDIX D and
incorporated by reference into this proxy statement.
In December 2001, we sold 2,162,582 shares of Series D preferred stock to
members of the General Atlantic Investors, members of the Cheung Kong Investors
and Vectis CP Holdings, LLC at $13.75 per share, for an aggregate of $29.7
million. The securities were sold to finance operations. As part of the same
transaction, members of the General Atlantic Investors also exchanged $64.63
million face value of its 5 3/4% convertible subordinated notes, which they had
purchased for on the open market for $25.3 million, for 1,837,418 shares of
Series D preferred stock. We also issued to members of the General Atlantic
Investors warrants to purchase up to an additional 625,000 shares of our common
stock. On November 21, 2003, we issued 188,587 shares of Series D preferred
stock in connection with a $5.1 million settlement with MBCP PeerLogic, LLC and
its affiliates. If shareholders approve the proposals in this proxy statement,
we will exchange 69,149 shares of Series D preferred stock issued to MBCP
PeerLogic, LLC and its affiliates for 733,333 shares of Series E preferred stock
pursuant to the terms of the settlement agreement.
If our shareholders approve each of the proposals in this proxy statement,
we will file an amended and restated certificate of determination of preferences
of Series D preferred stock to amend the terms of the shares of Series D
preferred stock. The terms of the amended Series D preferred stock are discussed
below.
The holders of Series D preferred stock have agreed to allow us to
eliminate the right of the Series D preferred stock to participate on a pro rata
basis with common shareholders in any remaining equity (after the full
preferential returns to the Series D preferred stock and the Series E preferred
stock). In addition, following the date shares of Series E preferred stock are
first issued, dividends on the shares of Series D preferred stock will accrue at
a simple annual rate of 5 3/4% whether or not declared by our board of
directors. The rights of the Series D preferred stock to cumulative dividends at
8% will be eliminated going forward. Thus, assuming we file an amended and
restated certificate of determination of preferences of Series D preferred stock
to amend the terms of the shares of Series D preferred stock, the shares of
31
Series D preferred stock will have a preferential return consisting of
cumulative dividends at 8%, up to the date shares of Series E preferred stock
are first issued, and simple dividends at 5 3/4% thereafter. This is known as
Series D Accreted Value.
The Series D preferred stock contains a preferential return of equity
(subordinate to the Series E preferred stock liquidation preference), upon a
change of control or the optional redemption by Critical Path, that is equal to
the sum of the Series D Accreted Value plus all dividends that would have
accrued through the fourth anniversary of the date shares of Series E preferred
stock are first issued. This is referred to in this proxy statement as the
Series D Accelerated Preference.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest, sale of all or
substantially all of our assets or any other transaction that triggers the
issuance of rights pursuant to our preferred stock rights agreement (unless
waived by our board of directors).
Subject to the rights and preferences of the Series E preferred stock, with
respect to distributions upon a liquidation, the payment of dividends or a
change of control, the shares of Series D preferred stock rank senior to all
capital stock of Critical Path. In the event of a liquidation, each share of
Series D preferred stock will be paid, prior to the payment of any other equity
securities (except for the Series E preferred stock), payments equal to the
greater of:
- the Series D Accreted Value;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the amount that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such liquidation.
In the event of a change of control, each share of Series D preferred stock
will be paid, prior to the payment of any other equity securities (except for
the Series E preferred stock), payments equal to the greater of:
- the Series D Accelerated Preference;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the amount that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such change of control.
The shares of Series D preferred stock may be called for redemption, at the
option of Critical Path upon the occurrence of specified events, on or after the
third anniversary of the date shares of Series E preferred stock are first
issued. If on any date after the third anniversary of the date shares of Series
E preferred stock are first issued, the average closing price per share of our
common stock, for any 60 consecutive trading days after such third anniversary
date, equals or exceeds 400% of the Series D Accelerated Preference, Critical
Path has the option to call for redemption, within 30 days following such date,
all, but not less than all, of the outstanding shares of Series D preferred
stock in cash, at a price per share equal to the Series D Accelerated
Preference.
The shares Series D preferred stock must be called for redemption on the
fourth anniversary of the date shares of Series E preferred stock are first
issued for an amount equal to the Series D Accreted Value. The redemption rights
of the Series D preferred stock are subordinate to the redemption rights of the
Series E preferred stock.
32
The holders of Series D preferred stock are entitled to elect one member to
our board of directors. In addition, each share of Series D preferred stock
entitles its holder to vote at any shareholders meeting, on any matter entitled
to be voted on by holders of our common stock, voting together as a single class
with other shares entitled to vote on such matters. In order to comply with the
NASD voting rules, the voting power of the Series D preferred stock will be
impaired after its terms are amended. For each share of Series D preferred
stock, the holder will initially be entitled to approximately 3.86342 votes.
Although the voting conversion ratio will remain the same (subject to adjustment
for stock splits, subdivisions, reclassifications, distributions and similar
transactions), pursuant to the terms of the Series D preferred stock, the number
of shares of common stock into which the Series D preferred stock is convertible
and the percentages of beneficial ownership and voting power represented by the
shares of Series D preferred stock will increase as dividends accrue on the
Series D preferred stock following the amendment.
In addition, the holders of a majority of outstanding shares of Series D
preferred stock must approve:
- any amendment to our articles of incorporation or bylaws;
- any issuance or authorization of shares of equity securities ranking
senior to the Series D preferred stock or any amendment to the number of
authorized shares of Series D preferred stock;
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders; or
- the incurrence of any indebtedness, subject to certain exceptions.
The amended and restated certificate of determination of preferences of
Series D preferred stock will reduce the conversion price of the Series D
preferred stock from $4.20 to $1.50. As a result, each share of Series D
preferred stock will be convertible at any time at the option of the holder into
the number of shares of common stock derived by dividing (a) the Series D
Accreted Value by (b) $1.50, subject to certain antidilution provisions. The
terms of the Series D preferred stock contain protection against dilution if
Critical Path effects a subdivision or combination of common stock or in the
event of a reclassification, recapitalization, stock split, stock dividend or
other distribution payable in securities of Critical Path or any other company.
Indemnification. In connection with the November 2003 private placement
and the November 2003 convertible note purchase and exchange agreement, we have
agreed to indemnify the General Atlantic Investors and the Cheung Kong Investors
and their respective members, agents and affiliates for any losses, liabilities,
damages, costs and expenses (including the reasonable fees and disbursements of
counsel) arising out of a breach by us of our representations, warranties and
covenants in the agreements relating to the November 2003 private placement.
Closing conditions. The obligation of the General Atlantic Investors to
convert their convertible secured notes into shares of Series E preferred stock
and the Cheung Kong Investors to exchange their 5 3/4% convertible subordinated
notes for shares of Series E preferred stock is subject to our fulfillment of
certain closing conditions, including, but not limited to, the following:
- our delivery of amendments to warrants to purchase 625,000 shares of
common stock held by members of the General Atlantic Investors that
reduce the exercise price per share from $4.20 to $1.50, the form of
which is attached to this proxy statement as APPENDIX E;
- our delivery of an amendment to our preferred stock rights agreement to
permit the General Atlantic Investors and the Cheung Kong Investors to
participate in the November 2003 private placement without causing the
General Atlantic Investors or the Cheung Kong Investors to trigger
certain events in the preferred stock rights agreement;
- our shareholders shall have approved each of the proposals in this proxy
statement;
- we shall have filed with the California Secretary of State (a) an
amendment to our current amended and restated articles of incorporation
to increase the authorized number of shares of common stock and the
authorized number of shares of preferred stock, (b) an amended and
33
restated certificate of determination of preferences of Series D
preferred stock and (c) a certificate of determination of preferences of
Series E preferred stock; and
- the issuance of the Series E preferred stock pursuant to the November
2003 private placement, the January 2004 private placement and the March
2004 private placement will be legally permitted by all applicable laws
and regulations.
Any of these conditions may be waived in whole or in part by the General
Atlantic Investors and the Cheung Kong Investors.
Termination. Subject to certain limitations, the November 2003 convertible
note purchase and exchange agreement may be terminated:
- mutually, by the written consent of Critical Path, the General Atlantic
Investors and the Cheung Kong Investors; or
- automatically, if our shareholders do not approve each of the proposals
covered by this proxy statement on the first attempt or, in any event, on
or prior to August 15, 2004.
None of Critical Path, the General Atlantic Investors or the Cheung Kong
Investors would have any liability arising out of a termination under these
circumstances.
Warrants. As part of the November 2003 private placement, the warrants
issued to the General Atlantic Investors in the December 2001 financing will be
amended to reduce the exercise price per share from $4.20 to $1.50. The form of
the amendment to warrants is attached to this proxy statement as APPENDIX E.
Third amended and restated registration rights agreement. The following
summary of the terms of the third amended and restated registration rights
agreement is qualified in its entirety by the third amended and restated
registration rights agreement attached to this proxy statement as APPENDIX F and
incorporated by reference into this proxy statement.
As part of the November 2003 private placement, the January 2004 private
placement and the March 2004 private placement, upon the conversion by the
General Atlantic Investors, the January 2004 Investors and the March 2004
Investors of their convertible secured notes into shares of Series E preferred
stock and the exchange by the Cheung Kong Investors of their 5 3/4% convertible
subordinated notes into shares of Series E preferred stock, the registration
rights agreement, dated November 8, 2001, between Critical Path and members of
the General Atlantic Investors and the Cheung Kong Investors will be amended and
restated to include the shares of common stock issuable upon conversion of the
Series E preferred stock as "registrable securities." Pursuant to the third
amended and restated registration rights agreement, the General Atlantic
Investors, the Cheung Kong Investors, the January 2004 Investors and the March
2004 Investors will be entitled to the same number of "piggy-back" and "demand"
registration rights. Each of the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors will be
entitled to make a "demand registration" on the earlier of (a) the consummation
of the proposed rights offering, (b) the termination of the proposed rights
offering and (c) August 15, 2004. The agreement includes other customary
registration rights terms, including, without limitation, those related to
registration suspension periods, registration expenses, indemnification and
other similar provisions.
Amended and restated stockholders agreement. The following summary of the
terms of the amended and restated stockholders agreement is qualified in its
entirety by the amended and restated stockholders agreement attached to this
proxy statement as APPENDIX G and incorporated by reference into this proxy
statement.
As part of the November 2003 private placement, upon the conversion by the
General Atlantic Investors of their convertible secured notes into shares of
Series E preferred stock and the exchange by the Cheung Kong Investors of their
5 3/4% convertible subordinated notes into shares of Series E preferred stock,
the stockholders agreement, dated November 8, 2001, between Critical Path and
members of the
34
General Atlantic Investors and the Cheung Kong Investors will be amended and
restated to include certain new members of the General Atlantic Investors and
the Cheung Kong Investors. As part of the agreement, the Cheung Kong Investors
will be entitled to receive the right to elect one member to our board of
directors. In addition, the Cheung Kong Investors will have additional approval
rights with respect to:
- any action that results in a deemed dividend to the Series E preferred
stock under Section 305 of the Internal Revenue Code of 1986, as amended;
and
- the incurrence of any indebtedness, subject to certain exceptions.
JANUARY 2004 PRIVATE PLACEMENT.
JANUARY 2004 CONVERTIBLE NOTE PURCHASE AGREEMENT.
The following summary of the provisions of the January 2004 convertible
note purchase agreement, dated as of January 16, 2004, between Critical Path and
the January 2004 Investors, is qualified in its entirety by the January 2004
convertible note purchase agreement and the amendment to that agreement attached
to this proxy statement as APPENDIX H and incorporated by reference into this
proxy statement.
On January 16, 2004, we entered into a convertible note purchase agreement
with the January 2004 Investors, pursuant to which we issued and sold for cash
to the January 2004 Investors $15 million in principal amount of convertible
secured notes. The primary purpose of the January 2004 private placement was to
provide additional capital for general corporate purposes and working capital.
The convertible secured notes issued to the January 2004 Investors will convert
into approximately 10 million shares of Series E preferred stock upon
shareholder approval and certain filings with the California Secretary of State.
Assuming the conversion of $16.25 million principal amount of outstanding
convertible notes issued to the Apex Investors in the January and March 2004
private placements, as of April 28, 2004, the Apex Investors own 10.4% of our
outstanding voting power.
Representations, warranties and covenants. The January 2004 convertible
note purchase agreement contains representations and warranties and covenants
that are customary in transactions of this kind.
Terms of the convertible secured notes issued to the January 2004
Investors. The following summary of the provisions of the convertible secured
notes issued to the January 2004 Investors is qualified in its entirety by the
convertible secured note attached to this proxy statement as APPENDIX I and
incorporated by reference into this proxy statement.
The convertible secured notes issued to the January 2004 Investors accrue
interest at a simple annual interest rate of 10%. Upon shareholder approval and
certain filings with the California Secretary of State, the convertible secured
notes issued to the January 2004 Investors are convertible into shares of Series
E preferred stock at a price per share of $1.50. In the event our shareholders
do not approve each of the proposals covered by this proxy statement on or prior
to August 15, 2004, then, following August 15, 2004, the convertible secured
notes issued to the January 2004 Investors are convertible into shares of our
common stock at a price per share of $1.65.
The convertible secured notes issued to the January 2004 Investors mature
upon the earlier of:
- an event of default;
- the closing of the sale of any of the assets of Critical Path or any of
its subsidiaries, except for sales of assets not in excess of $1 million,
in the ordinary course of business, where the proceeds are used to
purchase new assets and other similar exceptions;
- a change of control;
35
- any financing transaction where Critical Path raises an aggregate of at
least $40 million (excluding the proposed rights offering); or
- January 16, 2008.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our preferred stock rights
agreement (unless waived by our board of directors).
No prepayment of the convertible secured notes issued to the January 2004
Investors is allowed, and the convertible secured notes issued to the January
2004 Investors are senior to all of our indebtedness, except that the
convertible secured notes issued to the January 2004 Investors (a) rank pari
passu with the convertible secured notes issued to the General Atlantic
Investors and the March 2004 Investors (b) are subordinate to our credit
facility with Silicon Valley Bank. The convertible secured notes issued to the
January 2004 Investors are secured by all of our assets and the assets of one of
our subsidiaries, Compass Holding Corp. In addition, the convertible secured
notes issued to the January 2004 Investors are guaranteed by Compass Holding
Corp.
The January 2004 convertible note purchase agreement and the convertible
secured notes issued to the January 2004 Investors contain affirmative and
negative covenants that are customary in transactions of this kind, including
restrictions on the incurrence of indebtedness, limitations on liens, restricted
payments, financial covenants and other similar covenants. The convertible
secured notes issued to the January 2004 Investors contain antidilution
protection with respect to their conversion into shares of Series E preferred
stock.
Terms of the Series E preferred stock. The following summary of the terms
of the shares of Series E preferred stock is qualified in its entirety by the
certificate of determination of preferences of Series E preferred stock attached
to this proxy statement as APPENDIX C and incorporated by reference into this
proxy statement.
If our shareholders approve each of the proposals in this proxy statement,
we will file a certificate of determination of preferences of Series E preferred
stock, the terms of which are discussed below.
Each share of Series E preferred stock will be convertible at any time at
the option of the holder into the number of shares of common stock derived by
dividing (a) the purchase price of the Series E preferred stock plus all accrued
dividends by (b) $1.50, subject to certain antidilution provisions. The terms of
the Series E preferred stock contain protection against dilution if Critical
Path effects a subdivision or combination of common stock or in the event of a
reclassification, recapitalization, stock split, stock dividend or other
distribution payable in securities of Critical Path or any other company.
With respect to distributions upon a liquidation, the payment of dividends
or a change of control, the shares of Series E preferred stock rank senior to
all capital stock of Critical Path. In the event of a liquidation or change of
control, each share of Series E preferred stock will be paid, prior to the
payment of any other equity securities, payments equal to the greater of the
purchase price of the Series E preferred stock plus all accrued dividends or the
value that would be paid to the holder of the number of shares of common stock
into which such shares of Series E preferred stock are convertible immediately
prior to the closing of such liquidation or change of control. Dividends on the
shares of Series E preferred stock accrue at a simple annual rate of 5 3/4%
whether or not declared by our board of directors.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of
36
directors prior to such contest do not constitute a majority of our board of
directors after such contest, sale of all or substantially all of our assets or
any other transaction that triggers the issuance of rights pursuant to our
preferred stock rights agreement (unless waived by our board of directors).
The shares of Series E preferred stock may be called for redemption, at the
option of Critical Path upon the occurrence of specified events, on or after the
third anniversary of the date shares of Series E preferred stock are first
issued. If on any date after the third anniversary of the date shares of Series
E preferred stock are first issued, the average closing price per share of our
common stock, for any 60 consecutive trading days after such third anniversary
date, equals or exceeds 400% of the purchase price of the Series E preferred
stock plus all accrued dividends, Critical Path has the option to call for
redemption, within 30 days following such date, all, but not less than all, of
the outstanding shares of Series E preferred stock in cash, at a price per share
equal to the purchase price of the Series E preferred stock plus all accrued
dividends.
The shares Series E preferred stock must be called for redemption on the
fourth anniversary of the date shares of Series E preferred stock are first
issued for an amount equal to the purchase price of the Series E preferred stock
plus all accrued dividends.
Each share of Series E preferred stock entitles its holder to vote at any
shareholders meeting, on any matter entitled to be voted on by holders of our
common stock, voting together as a single class with other shares entitled to
vote on such matters. In order to comply with the voting rules of the NASD, the
voting power of the Series E preferred stock may be impaired. The voting formula
for each share of Series E preferred stock will be the sum of $1.50 plus all
accrued dividends for such share dividend by the "voting conversion amount." The
"voting conversion amount" will be equal to the lower of (i) $1.70, (ii) the
most recent closing bid price of the common stock as of the date the Series E
preferred stock is first issued and (iii) the average closing bid prices for the
five trading days prior to the date the Series E preferred stock is first
issued; provided, however, the voting conversion amount will not be less than
$1.50. The voting conversion amount will be determined on the date the Series E
preferred stock is first issued and, once determined, will remain the same
(subject to adjustment for stock splits, subdivisions, reclassifications,
distributions and similar transactions). Pursuant to the terms of the Series E
preferred stock, the number of shares of common stock into which the Series E
preferred stock is convertible and the percentages of beneficial ownership and
voting power represented by the shares of Series E preferred stock will increase
as dividends accrue on the Series E preferred stock.
In addition, the holders of Series E preferred stock will have additional
voting rights with respect to:
- any amendment to the terms of the Series E preferred stock;
- any amendment to the number of authorized shares of Series E preferred
stock and any issuance of shares of equity securities ranking senior to
the Series E preferred stock; or
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders.
Indemnification. In connection with the January 2004 private placement and
the January 2004 convertible note purchase agreement, we have agreed to
indemnify the January 2004 Investors and their respective members, agents and
affiliates for any losses, liabilities, damages, costs and expenses (including
the reasonable fees and disbursements of counsel) arising out of a breach by us
of our representations, warranties and covenants in the agreements relating to
the January 2004 private placement.
Closing conditions. The obligation of the January 2004 Investors to
convert their convertible secured notes into shares of Series E preferred stock
is subject to our fulfillment of certain closing conditions, including, but not
limited to, the following:
- our delivery of an amendment to our preferred stock rights agreement to
permit the Apex Investors to participate in the January 2004 private
placement without causing the Apex Investors to trigger certain events in
the preferred stock rights agreement;
37
- our shareholders shall have approved each of the proposals in this proxy
statement;
- we shall have filed with the California Secretary of State (a) an
amendment to our current amended and restated articles of incorporation
to increase the authorized number of shares of common stock and the
authorized number of shares of preferred stock and (b) a certificate of
determination of preferences of Series E preferred stock; and
- the issuance of the Series E preferred stock pursuant to the November
2003 private placement, the January 2004 private placement and the March
2004 private placement will be legally permitted by all applicable laws
and regulations.
Any of these conditions may be waived in whole or in part by the January
2004 Investors.
Termination. Subject to certain limitations, the January 2004 convertible
note purchase agreement may be terminated:
- mutually, by the written consent of Critical Path and the January 2004
Investors; or
- automatically, if our shareholders do not approve each of the proposals
covered by this proxy statement on the first attempt or, in any event, on
or prior to August 15, 2004.
None of Critical Path or the January 2004 Investors would have any
liability arising out of a termination under these circumstances.
Third amended and restated registration rights agreement. The following
summary of the terms of the third amended and restated registration rights
agreement is qualified in its entirety by the third amended and restated
registration rights agreement attached to this proxy statement as APPENDIX F and
incorporated by reference into this proxy statement.
As part of the November 2003 private placement, the January 2004 private
placement and the March 2004 private placement, upon the conversion by the
General Atlantic Investors, the January 2004 Investors and the March 2004
Investors of their convertible secured notes into shares of Series E preferred
stock and the exchange by the Cheung Kong Investors of their 5 3/4% convertible
subordinated notes into shares of Series E preferred stock, the registration
rights agreement, dated November 8, 2001, between Critical Path and members of
the General Atlantic Investors and the Cheung Kong Investors will be amended and
restated to include the shares of common stock issuable upon conversion of the
Series E preferred stock as "registrable securities." Pursuant to the third
amended and restated registration rights agreement, the General Atlantic
Investors, the Cheung Kong Investors, the January 2004 Investors and the March
2004 Investors will be entitled to the same number of "piggy-back" and "demand"
registration rights. Each of the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors will be
entitled to make a "demand registration" on the earlier of (a) the consummation
of the proposed rights offering, (b) the termination of the proposed rights
offering and (c) August 15, 2004. The agreement includes other customary
registration rights terms, including, without limitation, those related to
registration suspension periods, registration expenses, indemnification and
other similar provisions.
MARCH 2004 PRIVATE PLACEMENT.
MARCH 2004 CONVERTIBLE NOTE PURCHASE AGREEMENT.
The following summary of the provisions of the March 2004 convertible note
purchase agreement, dated as of March 9, 2004, between Critical Path and the
March 2004 Investors, is qualified in its entirety by the March 2004 convertible
note purchase agreement attached to this proxy statement as APPENDIX J and
incorporated by reference into this proxy statement.
On March 9, 2004, we entered into a convertible note purchase agreement
with the March 2004 Investors, pursuant to which we issued and sold for cash to
the March 2004 Investors $18.5 million in principal amount of convertible
secured notes. The primary purpose of the March 2004 private placement was to
provide additional capital for general corporate purposes and working capital.
The convertible
38
secured notes issued to the March 2004 Investors will convert into approximately
12.3 million shares of Series E preferred stock upon shareholder approval and
certain filings with the California Secretary of State.
Assuming the conversion of $16.25 million principal amount of outstanding
convertible notes issued to the Apex Investors in the January and March 2004
private placements, as of April 28, 2004, the Apex Investors own 10.4% of our
outstanding voting power.
Representations, warranties and covenants. The March 2004 convertible note
purchase agreement contains representations and warranties and covenants that
are customary in transactions of this kind.
Terms of the convertible secured notes issued to the March 2004
Investors. The following summary of the provisions of the convertible secured
notes issued to the March 2004 Investors is qualified in its entirety by the
convertible secured note attached to this proxy statement as APPENDIX K and
incorporated by reference into this proxy statement.
The convertible secured notes issued to the March 2004 Investors accrue
interest at a simple annual interest rate of 10%. Upon shareholder approval and
certain filings with the California Secretary of State, the convertible secured
notes issued to the March 2004 Investors are convertible into shares of Series E
preferred stock at a price per share of $1.50. In the event our shareholders do
not approve each of the proposals covered by this proxy statement on or prior to
August 15, 2004, then, following August 15, 2004, the convertible secured notes
issued to the March 2004 Investors are convertible into shares of our common
stock at a price per share of $2.18.
The convertible secured notes issued to the January 2004 Investors mature
upon the earlier of:
- an event of default;
- the closing of the sale of any of the assets of Critical Path or any of
its subsidiaries, except for sales of assets not in excess of $1 million,
in the ordinary course of business, where the proceeds are used to
purchase new assets and other similar exceptions;
- a change of control;
- any financing transaction where Critical Path raises an aggregate of at
least $40 million (excluding the proposed rights offering); or
- March 9, 2008.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest or any other transaction
that triggers the issuance of rights pursuant to our preferred stock rights
agreement (unless waived by our board of directors).
No prepayment of the convertible secured notes issued to the March 2004
Investors is allowed, and the convertible secured notes issued to the March 2004
Investors are senior to all of our indebtedness, except that the convertible
secured notes issued to the March 2004 Investors (a) rank pari passu with the
convertible secured notes issued to the General Atlantic Investors and the
January 2004 Investors (b) are subordinate to our credit facility with Silicon
Valley Bank. The convertible secured notes issued to the March 2004 Investors
are secured by all of our assets and the assets of one of our subsidiaries,
Compass Holding Corp. In addition, the convertible secured notes issued to the
March 2004 Investors are guaranteed by Compass Holding Corp.
The March 2004 convertible note purchase agreement and the convertible
secured notes issued to the March 2004 Investors contain affirmative and
negative covenants that are customary in transactions of this kind, including
restrictions on the incurrence of indebtedness, limitations on liens, restricted
payments,
39
financial covenants and other similar covenants. The convertible secured notes
issued to the March 2004 Investors contain antidilution protection with respect
to their conversion into shares of Series E preferred stock.
Terms of the Series E preferred stock. The following summary of the terms
of the shares of Series E preferred stock is qualified in its entirety by the
certificate of determination of preferences of Series E preferred stock attached
to this proxy statement as APPENDIX C and incorporated by reference into this
proxy statement.
If our shareholders approve each of the proposals in this proxy statement,
we will file a certificate of determination of preferences of Series E preferred
stock, the terms of which are discussed below.
Each share of Series E preferred stock will be convertible at any time at
the option of the holder into the number of shares of common stock derived by
dividing (a) the purchase price of the Series E preferred stock plus all accrued
dividends by (b) $1.50, subject to certain antidilution provisions. The terms of
the Series E preferred stock contain protection against dilution if Critical
Path effects a subdivision or combination of common stock or in the event of a
reclassification, recapitalization, stock split, stock dividend or other
distribution payable in securities of Critical Path or any other company.
With respect to distributions upon a liquidation, the payment of dividends
or a change of control, the shares of Series E preferred stock rank senior to
all capital stock of Critical Path. In the event of a liquidation or change of
control, each share of Series E preferred stock will be paid, prior to the
payment of any other equity securities, payments equal to the greater of the
purchase price of the Series E preferred stock plus all accrued dividends or the
value that would be paid to the holder of the number of shares of common stock
into which such shares of Series E preferred stock are convertible immediately
prior to the closing of such liquidation or change of control. Dividends on the
shares of Series E preferred stock accrue at a simple annual rate of 5 3/4%
whether or not declared by our board of directors.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest, sale of all or
substantially all of our assets or any other transaction that triggers the
issuance of rights pursuant to our preferred stock rights agreement (unless
waived by our board of directors).
The shares of Series E preferred stock may be called for redemption, at the
option of Critical Path upon the occurrence of specified events, on or after the
third anniversary of the date shares of Series E preferred stock are first
issued. If on any date after the third anniversary of the date shares of Series
E preferred stock are first issued, the average closing price per share of our
common stock, for any 60 consecutive trading days after such third anniversary
date, equals or exceeds 400% of the purchase price of the Series E preferred
stock plus all accrued dividends, Critical Path has the option to call for
redemption, within 30 days following such date, all, but not less than all, of
the outstanding shares of Series E preferred stock in cash, at a price per share
equal to the purchase price of the Series E preferred stock plus all accrued
dividends.
The shares Series E preferred stock must be called for redemption on the
fourth anniversary of the date shares of Series E preferred stock are first
issued for an amount equal to the purchase price of the Series E preferred stock
plus all accrued dividends.
Each share of Series E preferred stock entitles its holder to vote at any
shareholders meeting, on any matter entitled to be voted on by holders of our
common stock, voting together as a single class with other shares entitled to
vote on such matters. In order to comply with the voting rules of the NASD, the
voting power of the Series E preferred stock may be impaired. The voting formula
for each share of Series E preferred stock will be the sum of $1.50 plus all
accrued dividends for such share dividend by the "voting conversion amount." The
"voting conversion amount" will be equal to the lower of (i) $1.70, (ii) the
most recent closing bid price of the common stock as of the date the Series E
preferred stock is first issued and
40
(iii) the average closing bid prices for the five trading days prior to the date
the Series E preferred stock is first issued; provided, however, the voting
conversion amount will not be less than $1.50. The voting conversion amount will
be determined on the date the Series E preferred stock is first issued and, once
determined, will remain the same (subject to adjustment for stock splits,
subdivisions, reclassifications, distributions and similar transactions).
Pursuant to the terms of the Series E preferred stock, the number of shares of
common stock into which the Series E preferred stock is convertible and the
percentages of beneficial ownership and voting power represented by the shares
of Series E preferred stock will increase as dividends accrue on the Series E
preferred stock.
In addition, the holders of Series E preferred stock will have additional
voting rights with respect to:
- any amendment to the terms of the Series E preferred stock;
- any amendment to the number of authorized shares of Series E preferred
stock and any issuance of shares of equity securities ranking senior to
the Series E preferred stock; or
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders.
Indemnification. In connection with the March 2004 private placement and
the March 2004 convertible note purchase agreement, we have agreed to indemnify
the March 2004 Investors and their respective members, agents and affiliates for
any losses, liabilities, damages, costs and expenses (including the reasonable
fees and disbursements of counsel) arising out of a breach by us of our
representations, warranties and covenants in the agreements relating to the
March 2004 private placement.
Closing conditions. The obligation of the March 2004 Investors to convert
their convertible secured notes into shares of Series E preferred stock is
subject to our fulfillment of certain closing conditions, including, but not
limited to, the following:
- our delivery of an amendment to our preferred stock rights agreement to
permit the Apex Investors to participate in the March 2004 private
placement without causing the Apex Investors to trigger certain events in
the preferred stock rights agreement;
- our shareholders shall have approved each of the proposals in this proxy
statement;
- we shall have filed with the California Secretary of State (a) an
amendment to our current amended and restated articles of incorporation
to increase the authorized number of shares of common stock and the
authorized number of shares of preferred stock and (b) a certificate of
determination of preferences of Series E preferred stock; and
- the issuance of the Series E preferred stock pursuant to the November
2003 private placement, the January 2004 private placement and the March
2004 private placement will be legally permitted by all applicable laws
and regulations.
Any of these conditions may be waived in whole or in part by the March 2004
Investors.
Termination. Subject to certain limitations, the March 2004 convertible
note purchase agreement may be terminated:
- mutually, by the written consent of Critical Path and the March 2004
Investors; or
- automatically, if our shareholders do not approve each of the proposals
covered by this proxy statement on the first attempt or, in any event, on
or prior to August 15, 2004.
None of Critical Path or the March 2004 Investors would have any liability
arising out of a termination under these circumstances.
Third amended and restated registration rights agreement. The following
summary of the terms of the third amended and restated registration rights
agreement is qualified in its entirety by the third amended and restated
registration rights agreement attached to this proxy statement as APPENDIX F and
incorporated by reference into this proxy statement.
41
As part of the November 2003 private placement, the January 2004 private
placement and the March 2004 private placement, upon the conversion by the
General Atlantic Investors, the January 2004 Investors and the March 2004
Investors of their convertible secured notes into shares of Series E preferred
stock and the exchange by the Cheung Kong Investors of their 5 3/4% convertible
subordinated notes into shares of Series E preferred stock, the registration
rights agreement, dated November 8, 2001, between Critical Path and members of
the General Atlantic Investors and the Cheung Kong Investors will be amended and
restated to include the shares of common stock issuable upon conversion of the
Series E preferred stock as "registrable securities." Pursuant to the third
amended and restated registration rights agreement, the General Atlantic
Investors, the Cheung Kong Investors, the January 2004 Investors and the March
2004 Investors will be entitled to the same number of "piggy-back" and "demand"
registration rights. Each of the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors will be
entitled to make a "demand registration" on the earlier of (a) the consummation
of the proposed rights offering, (b) the termination of the proposed rights
offering and (c) August 15, 2004. The agreement includes other customary
registration rights terms, including, without limitation, those related to
registration suspension periods, registration expenses, indemnification and
other similar provisions.
IMPACT OF THE PRIVATE PLACEMENTS ON EXISTING SHAREHOLDERS -- ADVANTAGES AND
DISADVANTAGES.
The following is a summary of some of the advantages and disadvantages of
the private placements on existing holders of our common stock. This summary is
intended to provide you with basic information concerning the transaction;
however, it is not a substitute for reviewing the transaction documents. You
should carefully consider the following factors and other information presented
or incorporated by reference into this proxy statement before deciding how to
vote on the proposals in this proxy statement.
Advantages. Before voting, each shareholder should consider that the
conversion of the notes issued pursuant to the private placements into equity
will allow us to immediately retire approximately $77.3 million of indebtedness
represented by the outstanding notes and will allow us to pursue the proposed
rights offering. Retiring the indebtedness will significantly reduce our
liabilities that would otherwise become due over the next two to four years and
will be important to our efforts to continue operations beyond the maturity
dates of the notes. You should consider that we have never achieved
profitability and may continue to incur losses in the foreseeable future which
may require us to raise additional funds to continue our operations in the
future. Such financing may not be available in sufficient amounts or on
acceptable terms, or at all. If we are able to convert the notes issued pursuant
to the private placements and consummate the proposed rights offering, we
believe the retirement of the debt, including the reduction of liabilities and
elimination of future maturities of the notes, and additional funds from the
rights offering will continue to improve how we are perceived among our current
and prospective customers and vendors.
Disadvantages. The private placements will have a highly dilutive effect
on current shareholders and optionholders. This consequence is exacerbated by
the fact that Critical Path will be issuing senior securities convertible into
common stock at a price lower than the current trading price of the common
stock. Current Critical Path shareholders' aggregate percentage ownership will
decline significantly as a result of the private placements. As of April 28,
2004, the amendment of the terms of the Series D preferred stock and the
issuance of the Series E preferred stock pursuant to the private placements will
increase the number of shares of common stock issuable upon shares of preferred
stock outstanding from 16.5 million shares to 98.2 million shares. In addition,
if all 14 million additional shares of Series E preferred stock are purchased
pursuant to the rights offering, as of April 28, 2004, the number of shares of
common stock issuable upon shares of preferred stock outstanding would increase
to 112.2 million shares. This means that our current shareholders will own a
much smaller interest in Critical Path as a result of the private placements.
Currently, shares of Series D preferred stock accrue dividends at a
compounded annual rate of 8%. If the maximum amount of dividends were to accrue
to the Series D preferred stock prior to the automatic call for redemption date,
a total of approximately 20.3 million shares of common stock, or an additional
42
3.8 million shares, would be issuable upon conversion. If our shareholders
approve the amendment to the terms of the Series D preferred stock and we issue
approximately 66.8 million shares of Series E preferred stock, all of which will
accrue dividends at a rate of 5 3/4% per year, and the maximum amount of
dividends accrue prior to the automatic call for redemption date, the number of
shares of common stock issuable upon conversion will increase by approximately
25.9 million shares to approximately 138.1 million shares.
For purposes of example only, a shareholder who owned approximately 5% of
our outstanding stock as of April 30, 2004 would own approximately 1.45% of the
shares outstanding immediately after the private placements, based on shares of
common stock outstanding as of April 30, 2004 and assuming (i) the issuance, in
the November 2003 private placement, of 7,333,333 shares and 21,863,333 shares,
respectively, of Series E preferred stock to the General Atlantic Investors and
the Cheung Kong Investors, (ii) the issuance, in the January 2004 private
placement, of approximately 10,000,000 shares of Series E preferred stock to the
January 2004 Investors, (iii) the issuance, in the March 2004 private placement,
of approximately 12,333,333 shares of Series E preferred stock to the March 2004
Investors and (iv) the exercise in full of the warrants to purchase 625,000
shares of common stock held by members of the General Atlantic Investors.
In the event of liquidation, dissolution, winding up or change of control
of Critical Path, the holders of Series E preferred stock would be entitled to
receive $1.50 per share of Series E preferred stock plus all accrued dividends
on such share before any proceeds from the liquidation, dissolution or winding
up of is paid to the holders of our Series D preferred stock and common stock.
Accordingly, the approximately 52.8 million shares of Series E preferred stock
that will be outstanding, upon shareholder approval, will initially have an
aggregate liquidation preference of approximately $79.2 million. If all of the
shares of Series E preferred stock are purchased pursuant to the proposed rights
offering, the initial aggregate liquidation preference will increase to
approximately $100.2 million. The aggregate amount of the preference will
increase as the shares of Series E preferred stock accrue dividends at an annual
rate of 5 3/4%. After all of the then outstanding shares of Series E preferred
stock have received payment of their liquidation preference, the holders of
Series D preferred stock would be entitled to receive, at a minimum, $13.75 per
share of Series D preferred stock plus all accrued dividends on such share
before any proceeds from the liquidation, dissolution or winding up is paid to
holders of our common stock. As of April 28, 2004, the shares of Series D
preferred stock have an aggregate initial liquidation preference of
approximately $69.2 million, which, as amended, will increase on a daily basis
at an annual rate of 5 3/4%. As amended, the shares of Series D preferred stock
have a maximum aggregate initial liquidation preference of approximately $91
million. If we are acquired before the fourth anniversary of the date the shares
of Series E preferred stock are first issued, the holders of Series D preferred
stock will be entitled to receive an initial preference payment equal to
approximately $91 million, regardless of the amount of dividends accrued at the
time of the acquisition. Holders of our common stock will not receive any
proceeds from a liquidation, winding up or dissolution, including from a change
of control, until after the liquidation preferences of the our Series E
preferred stock and our Series D preferred stock are paid in full. Consequently,
a liquidation or the sale of all or substantially all of the shares of Critical
Path may result in all or substantially all of the proceeds of such transaction
being distributed to the holders of our Series E preferred stock and Series D
preferred stock and none of the proceeds being distributed to holders of our
common stock.
In addition, before voting, each shareholder also should consider the
following disadvantages of the private placements:
- Following the private placements, the General Atlantic Investors will own
20.8% of our outstanding voting power and the Cheung Kong Investors will
own approximately 27.6% of our outstanding voting power (as of April 28,
2004 and assuming exercise in full of the warrants to purchase up to
625,000 shares of common stock held by members of the General Atlantic
Investors), and the Cheung Kong Investors will be entitled to elect one
member of our board of directors.
- Following the private placements, the Apex Investors will own 10.4% of
our outstanding voting power (as of April 28, 2004).
43
- The significant rights of the General Atlantic Investors, the Cheung Kong
Investors, the January 2004 Investors and the March 2004 Investors may
make it more difficult for us to enter into other transactions, including
mergers, acquisitions or change of control transactions.
- Although our common stock will continue to be quoted on a securities
exchange, we may differ in important respects from a publicly owned
corporation in that our activities could potentially be controlled by a
few investors.
- The Series E preferred stock will not be listed on a national securities
exchange in the United States. No party intends to make a market in the
Series E preferred stock. As a result, no assurance can be given that any
trading market for our Series E preferred stock will develop or, if
developed, how liquid that trading market for the Series E preferred
stock would be.
ACCOUNTING EFFECTS OF THE PRIVATE PLACEMENTS AND THE PROPOSED RIGHTS OFFERING.
Based on our current estimates, the issuance of our Series E preferred
stock in the private placements and the rights offering and the amendment of our
Series D preferred stock will affect our results of operations as illustrated in
the following table, which sets forth our summary capitalization as of December
31, 2003:
- on an actual basis;
- on a pro forma basis to give effect to:
- the issuance of the $10 million in principal amount of 10% convertible
secured notes to the General Atlantic Investors;
- the issuance of the $15 million in principal amount of 10% convertible
secured notes to the January 2004 Investors;
- the issuance of the $18.5 million in principal amount of 10% convertible
secured notes to the March 2004 Investors;
- the repayment of the outstanding balance of the line of credit facility
with Silicon Valley Bank; and
- the issuance of 553,914 shares of common stock and 188,587 shares of
Series D preferred stock on November 21, 2003 in connection with a $5.1
million settlement with MBCP PeerLogic, LLC and its affiliates.
- on a pro forma, as adjusted, basis to give effect to:
- the conversion of $77.3 million principal and interest amount of
convertible notes held by the General Atlantic Investors, the Cheung
Kong Investors, the January 2004 Investors and the March 2004 Investors
into shares of Series E preferred stock;
- the sale of an aggregate of approximately $21 million of shares of our
Series E preferred stock, consisting of all shares offered in the rights
offering;
- the amendment of the terms of the Series D preferred stock; and
- the conversion of 64,149 shares of Series D preferred stock held by MBCP
PeerLogic, LLC and its affiliates into 733,333 shares of Series E
preferred stock.
Except for the pro forma, as adjusted, calculations for the issuance of
shares of Series E preferred stock upon conversion of the 10% convertible
secured notes to the General Atlantic Investors, the January 2004 Investors and
the March 2004 Investors, which take into account the fair market value of our
common stock the dates each note was funded, the pro forma, as adjusted,
calculations assume a fair market value of shares of the Series D preferred
stock and shares of the Series E preferred stock based on a fair market value of
our common stock of $1.73 per share which was the closing price of the common
stock on the date the November 2003 convertible note purchase and exchange
agreement was executed.
44
Except for the pro forma, as adjusted, calculations for the issuance of shares
of Series E preferred stock upon conversion of the 10% convertible secured
notes, the actual amounts will depend on the fair market value of our common
stock, Series D preferred stock, and our Series E preferred stock on the date
each of the transactions contemplated by the convertible note purchase and
exchange agreement and the rights offering are consummated. This table should be
read in conjunction with our financial statements and related notes incorporated
by reference into this proxy statement.
<Table>
<Caption>
DECEMBER 31, 2003
--------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
(IN THOUSANDS)
Line of credit facility............................... $ 2,298 $ -- $ --
Capital lease and other obligations, current.......... 1,721 1,721 1,721
----------- ----------- -----------
$ 7,723 $ 1,721 $ 1,721
Long-term debt
10% convertible secured notes held by the General
Atlantic Investors(a)............................... $ 10,016 $ 10,016 $ --
10% convertible secured notes held by the January 2004
Investors(b)........................................ -- 15,000 --
10% convertible secured notes held by the March 2004
Investors(c)........................................ -- 18,500 --
5 3/4% convertible subordinated notes due April 1,
2005(d)............................................. 38,360 38,360 5,565
Capital lease and other obligations, long-term........ 1,295 1,295 1,295
----------- ----------- -----------
$ 49,671 $ 83,171 $ 6,860
Mandatory redeemable preferred stock
Series E convertible preferred stock(a)(b)(c)(d)(e)... -- -- 95,990
Series D convertible preferred stock(f)(g)............ $ 55,301 $ 55,301 $ 68,667
----------- ----------- -----------
$ 55,301 $ 55,301 $ 164,667
Shareholders' deficit
Common stock and additional paid-in
capital(e)(f)(g).................................... $ 2,154,295 $ 2,154,295 $ 2,181,972
Common stock warrants................................. 5,947 5,947 5,947
Notes receivable from shareholders.................... (870) (870) (870)
Accumulated deficit and other comprehensive
loss(a)(b)(c)(d).................................... $(2,236,614) $(2,236,614) $(2,276,346)
----------- ----------- -----------
Total shareholders' deficit........................... $ (77,242) $ (77,242) $ (89,297)
----------- ----------- -----------
Total capitalization.................................. $ 31,749 $ 62,951 $ 83,951
=========== =========== ===========
</Table>
- ---------------
(a) Upon shareholder approval of the proposals in this proxy statement, the $10
million in principal amount of convertible secured notes held by the
General Atlantic Investors, plus interest, will convert into $11 million of
Series E preferred stock at $1.50 per share. As a result, interest expense
of approximately $5.7 million will be recognized as of the date of
conversion resulting from the beneficial conversion feature included in the
Series E preferred stock. Pro forma, as adjusted, assumes the Series E
preferred stock was issued on November 18, 2003, the date of the execution
of the November 2003 convertible note purchase and exchange agreement.
(b) Upon shareholder approval of the proposals in this proxy statement, the $15
million in principal amount plus interest of convertible secured notes held
by the January 2004 Investors will convert into approximately $15 million
of Series E preferred stock at $1.50 per share. As a result, interest
expense of approximately $1.5 million will be recognized as of the date of
conversion resulting from the beneficial conversion feature included in the
Series E preferred stock. Pro forma, as adjusted, assumes the Series E
preferred stock was issued on January 16, 2004, the date of the January
2004 convertible note purchase agreement.
45
(c) Upon shareholder approval of the proposals in this proxy statement, the
$18.5 million in principal amount plus interest of convertible secured
notes held by the March 2004 Investors will convert into approximately
$18.5 million of Series E preferred stock at $1.50 per share. As a result,
interest expense of approximately $1.5 million will be recognized as of the
date of conversion resulting from the beneficial conversion feature
included in the Series E preferred stock. Pro forma, as adjusted, assumes
the Series E preferred stock was issued on January 16, 2004, the date of
the January 2004 convertible note purchase agreement.
(d) Upon shareholder approval of the proposals in this proxy statement, the
$32.8 million face value of 5 3/4% convertible subordinated notes held by
the Cheung Kong Investors will be exchanged for approximately 21.9 million
shares of Series E preferred stock. As a result, a charge equal to the fair
value of the Series E preferred stock less the carrying value of the
convertible subordinated notes, net of unamortized issuance costs, will be
recorded to arrive at net loss and net loss attributable to common
shareholders as of the date of the exchange. Pro forma, as adjusted,
reflects a loss on exchange equal to approximately $24.2 million and
assumes the Series E preferred stock was issued on November 18, 2003, the
date of the execution of the November 2003 convertible note purchase and
exchange agreement.
(e) Upon shareholder approval of the proposals in this proxy statement, the
issuance of Series E preferred stock pursuant to the proposed rights
offering will result in a beneficial conversion feature if the fair value
of the common stock into which the Series E preferred stock is convertible
upon issuance is greater than $1.50 per share. The amount of the beneficial
conversion feature is recorded in additional paid-in capital and reduces
the carrying value of the Series E preferred stock. The Series E preferred
stock carrying value will be increased for the beneficial conversion
feature amount through a charge to arrive at net loss attributable to
common shareholders over a four year period from the date of issuance using
the effective interest method. Pro forma, as adjusted, assumes the issuance
of Series E preferred stock in the rights offering on November 18, 2003,
the date of the execution of the November 2003 convertible note purchase
and exchange agreement, which results in a beneficial conversion feature
amount of approximately $3.2 million.
(f) Upon shareholder approval of the proposals in this proxy statement, we will
amend the terms of our Series D preferred stock. As a result, we will
record a charge, as of the date of the amendment, equal to the incremental
fair value of the amended Series D preferred stock resulting from the
modifications to the terms of the Series D preferred stock to arrive at net
loss attributable to common shareholders with the offset to the Series D
preferred stock carrying value. Pro forma, as adjusted, assumes the
amendment occurred on November 18, 2003, the date of the execution of the
November 2003 convertible note purchase and exchange agreement, and results
in a charge equal to $15.0 million.
(g) Upon shareholder approval of the proposals in this proxy statement, 69,149
of the Series D preferred stock issued to MBCP PeerLogic, LLC and its
affiliates will be exchanged for Series E preferred stock, and a charge
equal to the fair value of the Series E preferred stock less the carrying
value of the Series D preferred stock will be recorded, as of the date of
the exchange, to arrive at net loss attributable to common shareholders.
Pro forma, as adjusted, assumes the exchange occurred on November 18, 2003,
the date of the execution of the November 2003 convertible note purchase
and exchange agreement, and results in a charge equal to $248,000.
INTERESTS OF CERTAIN INVESTORS IN THE PRIVATE PLACEMENTS.
Mr. William E. McGlashan, Jr., who is referred to as the Management
Director, was formerly the chief executive officer of Critical Path until his
resignation from that office at the end of March 2004. Mr. McGlashan is also a
managing member of Vectis CP Holdings, LLC, an owner of shares of our Series D
preferred stock. Messrs. William E. Ford and Peter L.S. Currie are referred to
as the General Atlantic Directors. Mr. Ford is a managing member of General
Atlantic Partners, LLC, an affiliate of the General Atlantic Investors. Mr.
Currie is a partner of General Atlantic Partners, LLC. Neither the General
Atlantic Directors nor the Management Director participated in the voting with
respect to the proposed sale of securities to the General Atlantic Investors and
the Cheung Kong Investors. References in this proxy statement to the approval of
our board as to the proposed sale of securities to the General Atlantic
Investors and the Cheung Kong Investors and the proposed rights offering include
all members of our board of directors other than the Management Director and
General Atlantic Directors.
46
OPINION OF OUR FINANCIAL ADVISOR.
The strategic alternatives committee of our board of directors engaged Duff
& Phelps, LLC, as its independent financial advisor to advise our board of
directors in connection with the November 2003 private placement and proposed
rights offering as described below.
The November 2003 private placement provided that, for a period of 12
months following the date shares of Series E preferred stock were first issued,
we would have the right to sell up to an additional 10 million shares of Series
E preferred stock to undetermined investors at a price per share equal to $1.50.
In January 2004, we entered into negotiations with the January 2004 Investors
who expressed interest in purchasing the additional 10 million shares of Series
E preferred stock as provided in the November 2003 private placement. In lieu of
purchasing the additional 10 million shares of Series E preferred stock, the
January 2004 Investors purchased for $15 million in cash an equal amount in
principal of 10% convertible secured notes that will convert into approximately
10 million shares of Series E preferred stock upon shareholder approval and
certain filings with the California Secretary of State. The terms of the Series
E preferred stock into which the 10% convertible secured notes are convertible
are to be the same as those contained in the certificate of determination of
preferences of Series E preferred stock.
Duff & Phelps was asked to provide an opinion as to the fairness to our
public common shareholders, from a financial point of view, of the November 2003
private placement, including the additional 10 million shares of Series E
preferred stock that are issuable in connection with the January 2004 private
placement, and the proposed rights offering (without giving effect to any
impacts of the private placements and proposed rights offering on any particular
shareholder other than in its capacity as a shareholder). Previously, Duff &
Phelps had not provided financial advisory services to us. DUFF & PHELPS DID NOT
PROVIDE AN OPINION WITH RESPECT TO ANY ASPECT OF THE MARCH 2004 PRIVATE
PLACEMENT.
Description of the private placements and rights offering. The November
2003 and January 2004 private placements provide for Critical Path to receive a
$25 million capital infusion to fund operations and repay certain indebtedness
and the conversion of approximately $32.8 million of subordinated indebtedness
for shares of Series E preferred stock. Duff & Phelps reviewed the November 2003
private placement (including the additional 10 million shares of Series E
preferred stock that are issuable in connection with the January 2004 private
placement) as a three step process.
First, Critical Path issued $10 million principal amount of 10% convertible
secured notes to the General Atlantic Investors to fund operations and repay
$4.9 million outstanding on the Company's credit facility with Silicon Valley
Bank. As discussed above, this transaction contemplated the private sale by
Critical Path of an additional 10 million shares of Series E preferred stock,
which was accomplished through the sale to the January 2004 Investors of $15
million in principal amount of 10% convertible secured notes that will convert
into approximately 10 million shares of Series E preferred stock upon
shareholder approval and certain filings with the California Secretary of State.
This first step is known as the initial closing.
In the second step, shareholders of Critical Path vote to approve the
following:
- the conversion of the convertible secured notes and the exchange of
approximately $32.8 million 5 3/4% convertible subordinated notes for
shares of Series E preferred stock;
- the amendment of Critical Path's Series D preferred stock to eliminate
the participating feature, provide for the potential for an increased
liquidation and change of control preference of 1.6 times the original
price per share, decrease the price at which conversion to common stock
would occur from $4.20 to $1.50 per share, decrease the dividend rate to
5 3/4% and provide for a mandatory redemption in four years;
- the amendment of warrants to purchase 625,000 shares of common stock held
by members of the General Atlantic Investors that reduces the exercise
price per share from $4.50 to $1.50; and
- an offering of rights to existing common shareholders to purchase up to
$21 million of Series E preferred stock.
47
These approvals are covered by the proposals in this proxy statement. The
holders of a majority of the outstanding shares of Series D preferred stock,
including the General Atlantic Investors and the Cheung Kong Investors, have
agreed to vote in the affirmative to approve the above.
Third, assuming stockholder approval, Critical Path would complete the
private placements and the proposed rights offering during the 120 days
following the initial closing. Further, the General Atlantic Investors and the
Cheung Kong Investors would have the right to participate in the proposed rights
offering if it was not fully subscribed by the existing common shareholders.
Scope of analysis. In conducting the analysis and arriving at their
opinion, Duff & Phelps reviewed and analyzed, among other things:
- the term sheet describing the November 2003 private placement and the
proposed rights offering, correspondence from Critical Path's management
describing the private placements and the proposed rights offering, the
November 2003 convertible note purchase and exchange agreement, the form
of convertible secured note issued to the General Atlantic Investors at
the initial closing, a November 2003 draft of the amended and restated
registration rights agreement, the amended and restated Series D
preferred stock certificate of determination, the amended and restated
stockholders agreement, the Series E preferred stock certificate of
determination, the form of amendment to warrants to purchase 625,000
shares of common stock held by members of the General Atlantic Investors
and the form of legal opinion issued by outside corporate counsel to
Critical Path;
- Critical Path's financial statements and filings with the Securities and
Exchange Commission, including the Annual Reports on Form 10-K for the
years ended December 31, 2000 through 2002, and Quarterly Reports on Form
10-Q for the quarters ended March 31, 2003, June 30, 2003 and September
30, 2003;
- financial projections prepared by Critical Path's management for the
fiscal years ended December 31, 2003 through 2005;
- Critical Path's customer presentation prepared by management;
- market trading prices, historical financial statements and valuation
metrics for Critical Path and comparable public companies;
- a comparison of the financial terms of the November 2003 private
placement (including the additional 10 million shares of Series E
preferred stock that are issuable in connection with the January 2004
private placement) and proposed rights offering with the financial terms
of other transactions that Duff & Phelps deemed relevant;
- other operating, financial and legal information regarding Critical Path;
- various transaction documents related to the Series D preferred stock
transaction in November 2001; and
- various loan documentation regarding the secured credit facility with
Silicon Valley Bank.
In addition, Duff & Phelps held in-person discussions with members of
senior management of Critical Path regarding the history, current business
operations, financial condition and future prospects of Critical Path. Duff &
Phelps also took into account its assessment of general economic, market and
financial conditions, as well as its experience in securities and business
valuation, in general, and with respect to merger, acquisition and financing
transactions, in particular.
Duff & Phelps did not make any independent evaluation, appraisal or
physical inspection of Critical Path's solvency or of any specific assets or
liabilities (contingent or otherwise). In addition, Duff & Phelps did not
express any opinion as to the market price or value of Critical Path's public
common shares after completion of the private placements and proposed rights
offering. Finally, Duff & Phelps made no independent investigation of any legal
matters involving Critical Path.
48
In rendering their opinion, Duff & Phelps:
- relied upon the accuracy, completeness, and fair presentation of all
information, data, advice, opinions and representations relating to the
private placements and proposed rights offering and did not attempt to
verify such information independently; and
- assumed that any estimates, evaluations and projections furnished to Duff
& Phelps by Critical Path's management were reasonably prepared and based
upon the last currently available information and good faith judgment of
the person furnishing them.
The opinion of Duff & Phelps further assumed that information supplied and
representations made by Critical Path's management were substantially accurate
regarding Critical Path, the November 2003 private placement (including the
additional 10 million shares of Series E preferred stock that are issuable in
connection with the January 2004 private placement) and the proposed rights
offering. Furthermore, Duff & Phelps assumed that there was no material change
in the assets, financial condition, business or prospects of Critical Path since
the date of the most recent financial statements made available to them.
In the analysis of Duff & Phelps and in connection with the preparation of
their opinion, Duff & Phelps made numerous assumptions with respect to industry
performance, general business, market and economic conditions and other matters,
many of which are beyond the control of any party involved in the private
placements and proposed rights offering. Duff & Phelps also assumed that all of
the conditions precedent required to implement the November 2003 private
placement (including the additional 10 million shares of Series E preferred
stock that are issuable in connection with the January 2004 private placement)
and the proposed rights offering would be satisfied and that the November 2003
private placement (including the additional 10 million shares of Series E
preferred stock that are issuable in connection with the January 2004 private
placement) and the proposed rights offering would be completed in accordance
with their terms.
Duff & Phelps prepared their opinion effective as of November 17, 2003.
Their opinion is necessarily based upon market, economic, financial and other
conditions as they existed and can be evaluated as of such date. In addition,
Duff & Phelps disclaimed any undertaking or obligation to advise anyone of any
change in any fact or matter affecting their opinion which may come or be
brought to their attention after November 17, 2003.
The opinion of Duff & Phelps should not be construed as creating any
fiduciary duty on the part of Duff & Phelps to any party.
To the extent that any of the assumptions of Duff & Phelps or any of the
facts on which their opinion is based proves to be untrue in any material
respect, the opinion of Duff & Phelps cannot and should not be relied upon.
Conclusion. Based upon and subject to the assumptions and facts upon which
their opinion is based, Duff & Phelps, LLC was of the opinion that the November
2003 private placement, including the private sale by Critical Path of an
additional 10 million shares of Series E preferred stock, and the proposed
rights offering is fair to the public common shareholders of Critical Path from
a financial point of view (without giving effect to any impacts of the private
placements or the proposed rights offering on any particular shareholder other
than in its capacity as a shareholder.)
Duff & Phelps was not asked to opine and did not express any opinion as to:
- the tax or legal consequences of the private placements or the proposed
rights offering;
- the realizable value of our common stock or the prices at which our
common stock may trade;
- the fairness of any aspect of the November 2003 private placement
(including the additional 10 million shares of Series E preferred stock
that are issuable in connection with the January 2004 private placement)
or the proposed rights offering not expressly addressed in their opinion;
and
- THE MARCH 2004 PRIVATE PLACEMENT.
49
The basis and methodology for the opinion of Duff & Phelps were designed
specifically for the express purposes of Critical Path and may not translate to
any other purposes. The opinion of Duff & Phelps does not address the underlying
business decision to effect the private placements or the proposed rights
offering or to enter into any related transactions; nor does it indicate that
the consideration received by Critical Path is the best possible attainable
under any circumstances; nor does it constitute a recommendation to any
shareholder (or any other person) as to whether the shareholder should vote in
favor of the portion of the private placements that are subject to shareholder
approval. Duff & Phelps has no obligation to update their opinion. Rather, the
opinion of Duff & Phelps merely states that the November 2003 private placement
(including the additional 10 million shares of Series E preferred stock that are
issuable in connection with the January 2004 private placement) and the proposed
rights offering are fair given current market conditions and the situation in
which Critical Path exists today. The decision as to whether to proceed with the
private placements, the proposed rights offering or any related transaction may
depend on an assessment of factors unrelated to the financial analysis on which
the opinion of Duff & Phelps is based. Furthermore, Duff & Phelps did not
negotiate any part of the private placements or the proposed rights offering.
Under our engagement letter with Duff & Phelps, we agreed to pay Duff &
Phelps fees totaling $125,000. In addition, we have agreed, among other things,
to indemnify and hold harmless Duff & Phelps and other related parties from and
against various liabilities and expenses, which may include liabilities under
the federal securities laws, in connection with its engagement.
WARRANTS.
In connection with the private placements, you are also being asked to
approve the amendment of warrants to purchase 625,000 shares of common stock
issued to members of the General Atlantic Investors in the December 2001
financing that reduce the exercise price per share from $4.20 to $1.50. The form
of the amendment to warrants is attached to this proxy statement as APPENDIX E.
PROPOSED RIGHTS OFFERING.
Assuming the approval of each of the proposals in this proxy statement and
the closing of the private placements, we intend to consummate an offer to our
existing common shareholders of transferable rights to purchase up to an
aggregate of $21 million of shares of newly issued Series E preferred stock at a
purchase price of $1.50 per share, the same purchase price paid by the General
Atlantic Investors, the Cheung Kong Investors, the January 2004 Investors and
the March 2004 Investors in the private placements.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on April 30, 2004 will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on April 30, 2004.
In the event all or any portion of the subscription rights are not
exercised by the holders of common stock prior to the expiration of the proposed
rights offering, including through the exercise of over-subscription rights, the
General Atlantic Investors have the option, but not the obligation, to purchase
up to 55% of the unexercised subscription rights and the Cheung Kong Investors
have the option, but not the obligation, to purchase up to 45% of the
unexercised subscription rights. In addition, the General Atlantic Investors and
the Cheung Kong Investors have the option, but not the obligation, to purchase
any or all of the subscription rights not exercised by the other group, if any.
If we determine that we have raised adequate funds to meet anticipated operating
needs through the private placements, the proposed rights offering and other
capital raising transactions, we may use a portion of the proceeds from the
proposed rights offering up to approximately $16.4 million to repurchase shares
of Series E preferred stock held by the Cheung Kong Investors.
The proposed rights offering will have a highly dilutive effect on current
shareholders and optionholders. This consequence is exacerbated by the fact that
Critical Path will be issuing senior
50
securities convertible into common stock at a price lower than the current
trading price of the common stock. Current Critical Path shareholders' aggregate
percentage ownership will decline significantly as a result of the proposed
rights offering. This means that our current shareholders will own a much
smaller interest in Critical Path as a result of the proposed rights offering.
For purposes of example only, a shareholder who owned approximately 5% of
our outstanding stock as of April 30, 2004 would own approximately 1.22% of the
shares outstanding immediately after the private placements, based on shares of
common stock outstanding as of April 30, 2004 and assuming (i) the issuance, in
the November 2003 private placement, of 7,333,333 shares and 21,863,333 shares,
respectively, of Series E preferred stock to the General Atlantic Investors and
the Cheung Kong Investors, (ii) the issuance, in the January 2004 private
placement, of approximately 10,000,000 shares of Series E preferred stock to the
January 2004 Investors, (iii) the issuance, in the March 2004 private placement,
of approximately 12,333,333 shares of Series E preferred stock to the March 2004
Investors, (iv) the exercise in full of the warrants to purchase 625,000 shares
of common stock held by members of the General Atlantic Investors and (vi) that
holders of our common stock do not participate in the proposed rights offering
and the General Atlantic Investors exercise their right to purchase 55% of the
unsubscribed portion of the proposed rights offering and the Cheung Kong
Investors exercise their right to purchase 45% of the unsubscribed portion of
the proposed rights offering in accordance with our agreement with them.
As part of "Proposal 1 -- Approval of the General Atlantic Private
Placement" and "Proposal 4 -- Approval of the Cheung Kong Private Placement,"
you are being asked to approve the issuance of such additional shares of Series
E preferred stock, if any, as the General Atlantic Investors or the Cheung Kong
Investors, as the case may be, may purchase in connection with the proposed
rights offering.
The approval of each of the proposals in this proxy statement is a
requirement for the closing the proposed rights offering. Thus, in the event our
shareholders fail to approve one or more of the proposals in this proxy
statement, the proposed rights offering would not occur.
THE PROPOSED RIGHTS OFFERING WILL BE MADE ONLY BY MEANS OF A PROSPECTUS
ANTICIPATED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF A
REGISTRATION STATEMENT. THIS DESCRIPTION SHALL NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH STATE OR JURISDICTION.
USE OF PROCEEDS
If the shares of Series E preferred stock offered in the proposed rights
offering are purchased by the holders of our common stock or by the General
Atlantic Investors or the Cheung Kong Investors, or some combination thereof,
the aggregate net proceeds to Critical Path will be approximately $20.4 million
after deducting fees and estimated expenses of approximately $550,000. The
actual proceeds will depend on the numbers of shares subscribed for in the
proposed rights offering.
We currently anticipate using the net proceeds from the private placements
and the proposed rights offering to fund our general operations. However, if we
determine that we have raised adequate funds to meet anticipated operating needs
through the private placements, the proposed rights offering and other capital
raising transactions, we may use a portion of these proceeds up to approximately
$16.4 million to repurchase shares of Series E preferred stock held by the
Cheung Kong Investors.
51
PROPOSAL 1 --
APPROVAL OF THE GENERAL ATLANTIC PRIVATE PLACEMENT
NATURE OF PROPOSAL.
In connection with "Proposal 1 -- Approval of the General Atlantic Private
Placement," you are being asked to consider and vote upon a proposal to approve
the issuance of approximately 7.3 million shares of Series E preferred stock
with a price per share of $1.50 to the General Atlantic Investors, issuable upon
conversion of $11 million principal amount and interest of convertible secured
notes, and such additional shares of Series E preferred stock as they may
purchase in connection with the proposed rights offering.
VOTE REQUIRED.
To be approved, "Proposal 1 -- Approval of the General Atlantic Private
Placement" must receive a "For" vote from the majority of shares present and
entitled to vote either in person or by proxy. In addition, "Proposal
1 -- Approval of the General Atlantic Private Placement" must receive a "For"
vote from over 50% of the outstanding shares of Series D preferred stock, voting
separately as a class. Abstentions will be counted toward the tabulation of
votes cast and will have the same effect as an "Against" vote. Broker non-votes
will have no effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
1 -- Approval of the General Atlantic Private Placement." California law
contemplates that directors who have a personal, financial or other interest
that is different from, or in conflict with, those of the shareholders regarding
a proposal may abstain from voting to recommend such proposal. Mr. William E.
McGlashan, Jr., who is referred to as the Management Director, was formerly the
chief executive officer of Critical Path until his resignation from that office
at the end of March 2004. Mr. McGlashan is also a managing member of Vectis CP
Holdings, LLC, an owner of shares of our Series D preferred stock. Messrs.
William E. Ford and Peter L.S. Currie, who are referred to as the General
Atlantic Directors, are affiliates of the General Atlantic Investors. Neither
the General Atlantic Directors nor the Management Director participated in the
voting with respect to the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 1 -- APPROVAL OF THE GENERAL ATLANTIC PRIVATE PLACEMENT."
52
PROPOSAL 2 --
APPROVAL OF THE JANUARY 2004 PRIVATE PLACEMENT
NATURE OF PROPOSAL.
In connection with "Proposal 2 -- Approval of the January 2004 Private
Placement," you are being asked to consider and vote upon a proposal to approve
the issuance of approximately 10 million shares of Series E preferred stock with
a price per share of $1.50 to the January 2004 Investors, issuable upon
conversion of $15 million principal amount of convertible secured notes.
VOTE REQUIRED.
To be approved, "Proposal 2 -- Approval of the January 2004 Private
Placement" must receive a "For" vote from the majority of shares present and
entitled to vote either in person or by proxy. In addition, "Proposal
2 -- Approval of the January 2004 Private Placement" must receive a "For" vote
from over 50% of the outstanding shares of Series D preferred stock, voting
separately as a class. Abstentions will be counted toward the tabulation of
votes cast and will have the same effect as an "Against" vote. Broker non-votes
will have no effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
2 -- Approval of the January 2004 Private Placement." California law
contemplates that directors who have a personal, financial or other interest
that is different from, or in conflict with, those of the shareholders regarding
a proposal may abstain from voting to recommend such proposal. Mr. William E.
McGlashan, Jr., who is referred to as the Management Director, was formerly the
chief executive officer of Critical Path until his resignation from that office
at the end of March 2004. Mr. McGlashan is also a managing member of Vectis CP
Holdings, LLC, an owner of shares of our Series D preferred stock. Messrs.
William E. Ford and Peter L.S. Currie, who are referred to as the General
Atlantic Directors, are affiliates of the General Atlantic Investors. Neither
the General Atlantic Directors nor the Management Director participated in the
voting with respect to the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 2 -- APPROVAL OF THE JANUARY 2004 PRIVATE PLACEMENT."
53
PROPOSAL 3 --
APPROVAL OF THE MARCH 2004 PRIVATE PLACEMENT
NATURE OF PROPOSAL.
In connection with "Proposal 3 -- Approval of the March 2004 Investors
Private Placement," you are being asked to consider and vote upon a proposal to
approve the issuance of approximately 12.3 million shares of Series E preferred
stock with a price per share of $1.50 to the March 2004 Investors, issuable upon
conversion of $18.5 million principal amount of convertible secured notes.
VOTE REQUIRED.
To be approved, "Proposal 3 -- Approval of the March 2004 Private
Placement" must receive a "For" vote from the majority of shares present and
entitled to vote either in person or by proxy. In addition, "Proposal
3 -- Approval of the March 2004 Private Placement" must receive a "For" vote
from over 50% of the outstanding shares of Series D preferred stock, voting
separately as a class. Abstentions will be counted toward the tabulation of
votes cast and will have the same effect as an "Against" vote. Broker non-votes
will have no effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
3 -- Approval of the March 2004 Private Placement." California law contemplates
that directors who have a personal, financial or other interest that is
different from, or in conflict with, those of the shareholders regarding a
proposal may abstain from voting to recommend such proposal. Mr. William E.
McGlashan, Jr., who is referred to as the Management Director, was formerly the
chief executive officer of Critical Path until his resignation from that office
at the end of March 2004. Mr. McGlashan is also a managing member of Vectis CP
Holdings, LLC, an owner of shares of our Series D preferred stock. Messrs.
William E. Ford and Peter L.S. Currie, who are referred to as the General
Atlantic Directors, are affiliates of the General Atlantic Investors. Neither
the General Atlantic Directors nor the Management Director participated in the
voting with respect to the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 3 -- APPROVAL OF THE MARCH 2004 PRIVATE PLACEMENT."
54
PROPOSAL 4 --
APPROVAL OF THE CHEUNG KONG PRIVATE PLACEMENT
NATURE OF PROPOSAL.
In connection with "Proposal 4 -- Approval of the Cheung Kong Private
Placement," you are being asked to consider and vote upon a proposal to approve
the issuance of approximately 21.9 million shares of Series E preferred stock
with a price per share of $1.50 to the Cheung Kong Investors, issuable upon
exchange of approximately $32.8 million principal amount of 5 3/4% convertible
subordinated notes, and such additional shares of Series E preferred stock as
they may purchase in connection with the proposed rights offering.
VOTE REQUIRED.
To be approved, "Proposal 4 -- Approval of the Cheung Kong Private
Placement" must receive a "For" vote from the majority of shares present and
entitled to vote either in person or by proxy. In addition, "Proposal
4 -- Approval of the Cheung Kong Private Placement" must receive a "For" vote
from over 50% of the outstanding shares of Series D preferred stock, voting
separately as a class. Abstentions will be counted toward the tabulation of
votes cast and will have the same effect as an "Against" vote. Broker non-votes
will have no effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
4 -- Approval of the Cheung Kong Private Placement." California law contemplates
that directors who have a personal, financial or other interest that is
different from, or in conflict with, those of the shareholders regarding a
proposal may abstain from voting to recommend such proposal. Mr. William E.
McGlashan, Jr., who is referred to as the Management Director, was formerly the
chief executive officer of Critical Path until his resignation from that office
at the end of March 2004. Mr. McGlashan is also a managing member of Vectis CP
Holdings, LLC, an owner of shares of our Series D preferred stock. Messrs.
William E. Ford and Peter L.S. Currie, who are referred to as the General
Atlantic Directors, are affiliates of the General Atlantic Investors. Neither
the General Atlantic Directors nor the Management Director participated in the
voting with respect to the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 4 -- APPROVAL OF THE CHEUNG KONG PRIVATE PLACEMENT."
55
PROPOSAL 5 --
APPROVAL OF THE WARRANT AMENDMENT
NATURE OF PROPOSAL.
In connection with "Proposal 5 -- Approval of the Warrant Amendment," you
are being asked to consider and vote upon a proposal to approve the amendment of
warrants to purchase 625,000 shares of common stock held by members of the
General Atlantic Investors that reduces the exercise price per share from $4.20
to $1.50.
VOTE REQUIRED.
To be approved, "Proposal 5 -- Approval of the Warrant Amendment" must
receive a "For" vote from the majority of shares present and entitled to vote
either in person or by proxy. In addition, "Proposal 5 -- Approval of the
Warrant Amendment" must receive a "For" vote from over 50% of the outstanding
shares of Series D preferred stock, voting separately as a class. Abstentions
will be counted toward the tabulation of votes cast and will have the same
effect as an "Against" vote. Broker non-votes will have no effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
5 -- Approval of the Warrant Amendment." California law contemplates that
directors who have a personal, financial or other interest that is different
from, or in conflict with, those of the shareholders regarding a proposal may
abstain from voting to recommend such proposal. Mr. William E. McGlashan, Jr.,
who is referred to as the Management Director, was formerly the chief executive
officer of Critical Path until his resignation from that office at the end of
March 2004. Mr. McGlashan is also a managing member of Vectis CP Holdings, LLC,
an owner of shares of our Series D preferred stock. Messrs. William E. Ford and
Peter L.S. Currie, who are referred to as the General Atlantic Directors, are
affiliates of the General Atlantic Investors. Neither the General Atlantic
Directors nor the Management Director participated in the voting with respect to
the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 5 -- APPROVAL OF THE WARRANT AMENDMENT."
56
PROPOSAL 6 --
APPROVAL OF THE AMENDMENT TO ARTICLES OF INCORPORATION
BACKGROUND.
Our board of directors is asking you to vote upon a proposal, in connection
with the November 2003 convertible note purchase and exchange agreement, the
January 2004 convertible note purchase agreement and the March 2004 convertible
note purchase agreement, to approve an amendment to our current amended and
restated articles of incorporation to increase the authorized number of shares
of common stock from 125 million to 200 million and the authorized number of
shares of preferred stock from 5 million to 75 million.
This proposal will not be implemented unless our shareholders approve
"Proposal 1 -- Approval of the General Atlantic Private Placement," "Proposal
2 -- Approval of the January 2004 Private Placement," "Proposal 3 -- Approval of
March 2004 Private Placement, "Proposal 4 -- Approval of the Cheung Kong Private
Placement" and "Proposal 5 -- Approval of the Warrant Amendment." In addition,
the approval of each proposal in this proxy statement is a requirement for
closing the private placements and the proposed rights offering.
AMENDMENT TO ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED NUMBER OF
SHARES OF COMMON STOCK AND PREFERRED STOCK.
If our shareholders approve each of the proposals in this proxy statement
and assuming the proposed rights offering is fully subscribed, then immediately
following the completion of the proposed rights offering, we would have
22,013,848 shares of our common stock issued and outstanding (assuming exercise
in full of the warrants to purchase up to 625,000 shares of common stock held by
members of the General Atlantic Investors and based on 21,388,848 shares of
common stock outstanding as of April 30, 2004), 4,188,587 shares of our Series D
preferred stock issued and outstanding (convertible into 16,495,757 shares of
our common stock outstanding as of April 30, 2004) and 66,828,078 shares of our
Series E preferred stock issued and outstanding. In that event, we would not
have enough shares of preferred stock authorized, and we would not have enough
shares of common stock authorized for issuance upon conversion of shares of the
Series D preferred stock or Series E preferred stock, pursuant to the employee
stock purchase plan or upon the exercise of options or warrants. The actual
number of shares outstanding or reserved will depend on the number of shares
issued pursuant to the private placements and the proposed rights offering.
If this proposal is approved by our shareholders, then the additional
shares of authorized common stock and preferred stock will become part of the
existing series and class of common stock or preferred stock, as the case may
be, and the additional shares, when issued, will have the same rights and
privileges as the shares of common stock or preferred stock outstanding.
Subject to the approval of the holders of Series D preferred stock and
Series E preferred stock, our board of directors will have the authority to
issue shares of the newly authorized common stock and preferred stock that are
not issued in connection with the proposed rights offering, the November 2003
convertible note purchase and exchange agreement, the January 2004 convertible
note purchase agreement or the March 2004 convertible note purchase agreement,
without additional approval by the holders of common stock, except as required
by the rules of the Nasdaq National Market. These rules require shareholder
approval in advance for, among other things, the issuance of shares of common
stock or securities convertible into or exercisable for common stock that have
or will have 20% or more of our voting power or that represent or will represent
20% or more of our common stock outstanding or issuable upon the conversion or
exercise of outstanding securities. In the case of issuances of securities to
substantial security holders of a listed company, such as the General Atlantic
Investors, the Cheung Kong Investors and the Apex Investors, we will need to
seek shareholder approval in advance for, among other things, the issuance of
shares of common stock or securities convertible into or exercisable for common
57
stock that represent 1% or more of our voting power or that represent or will
represent 1% or more of our common stock outstanding or issuable upon the
conversion or exercise of outstanding securities.
If additional authorized shares are issued in the future, they will
decrease your percentage equity ownership of our company. This is known as
dilution.
If this proposal is approved by the shareholders, the additional shares of
common stock and preferred stock will become authorized and issuable upon the
filing of an amendment to our current amended and restated articles of
incorporation to increase the authorized number of shares of common stock from
125 million to 200 million and the authorized number of shares of preferred
stock from 5 million to 75 million. We intend to file and record the amendment
promptly after the special meeting. Our board of directors may make any and all
changes to the form of amendment that it deems necessary in order to file the
amendment with the California Secretary of State. Our board of directors may
also abandon or delay the amendment at any time before or after the special
meeting and prior to the effective date of the amendment if for any reason our
board of directors deems it advisable to do so, subject to the approval of the
General Atlantic Investors and the Cheung Kong Investors, pursuant to the
November 2003 convertible note purchase and exchange agreement, the approval of
the January 2004 Investors, pursuant to the January 2004 convertible note
purchase agreement and the approval of the March 2004 Investors, pursuant to the
March 2004 convertible note purchase agreement.
The proposed increase in authorized common stock and preferred stock will
permit the conversion by the General Atlantic Investors, the January 2004
Investors and the March 2004 Investors of their convertible secured notes into
shares of Series E preferred stock and the exchange by the Cheung Kong Investors
of their 5 3/4% convertible subordinated notes into shares of Series E preferred
stock.
Finally, the amendment to our articles of incorporation to increase the
authorized number of shares of common stock and preferred stock is necessary to
allow us to conduct the private placements and proposed rights offering.
Only shareholders of record of our common stock (including shares of common
stock represented by the Special Voting Share related to our Nova Scotia
subsidiary) at the close of business on April 30, 2004 will be entitled to vote
at the special meeting and any adjournments or postponements of the meeting.
This proxy statement is being mailed to you because our records show that you
were a shareholder of record of our common stock on April 30, 2004.
REASONS FOR SHAREHOLDER APPROVAL.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the
amendment to our amended and restated articles of incorporation to increase the
authorized number of shares of common stock and preferred stock require the
affirmative vote of the holders of a majority of the outstanding shares of
common stock and the votes represented by the Special Voting Share (excluding
the shares of Series D preferred stock), voting together as a class, and the
outstanding shares of Series D preferred stock, voting separately as a class.
See the question entitled "How many votes do the common shareholders have?" on
page 7 of this proxy statement for further information on the common stock
issuable upon the conversion or exchange of specified securities.
The General Atlantic Investors and the Cheung Kong Investors, who held
10,026,733 shares and 3,437,735 shares, respectively, of our Series D preferred
stock (on an as converted to common stock basis), or approximately 26.0% and
8.9%, respectively, of our outstanding voting power, as of April 30, 2004, have
agreed, solely in their capacity as shareholders, to vote their shares of our
Series D preferred stock in favor of the amendment to our amended and restated
articles of incorporation to increase the authorized number of shares of common
stock and preferred stock. The General Atlantic Investors and the Cheung Kong
Investors are unaffiliated, unrelated to each other and do not constitute a
group.
58
VOTE REQUIRED.
To be approved, "Proposal 6 -- Approval of the Amendment to Articles of
Incorporation" must receive a "For" vote from over 50% of the outstanding shares
either in person or by proxy. In addition, "Proposal 6 -- Approval of the
Amendment to Articles of Incorporation" must receive a "For" vote from over 50%
of the outstanding shares of common stock and the votes represented by the
Special Voting Share (excluding the shares of Series D preferred stock), voting
together as a class, and the outstanding shares of Series D preferred stock,
voting separately as a class. If you do not vote or "Abstain" from voting, it
will have the same effect as an "Against" vote. Broker non-votes will have the
same effect as an "Against" vote. Completion of the amendment to our articles of
incorporation is a condition to the consummation of the private placements, so
shareholders who vote to approve Proposal 1, Proposal 2, Proposal 3 or Proposal
4 should also vote to approve Proposal 6 or the private placements cannot take
effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
5 -- Approval of the Amendment to Articles of Incorporation." California law
contemplates that directors who have a personal, financial or other interest
that is different from, or in conflict with, those of the shareholders regarding
a proposal may abstain from voting to recommend such proposal. Mr. William E.
McGlashan, Jr., who is referred to as the Management Director, was formerly the
chief executive officer of Critical Path until his resignation from that office
at the end of March 2004. Mr. McGlashan is also a managing member of Vectis CP
Holdings, LLC, an owner of shares of our Series D preferred stock. Messrs.
William E. Ford and Peter L.S. Currie, who are referred to as the General
Atlantic Directors, are affiliates of the General Atlantic Investors. Neither
the General Atlantic Directors nor the Management Director participated in the
voting with respect to the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 6 -- APPROVAL OF THE AMENDMENT TO ARTICLES OF INCORPORATION."
59
PROPOSAL 7 --
APPROVAL OF THE AMENDMENT TO SERIES D
PREFERRED STOCK CERTIFICATE OF DETERMINATION
BACKGROUND.
In December 2001, we sold 2,162,582 shares of Series D preferred stock to
members of the General Atlantic Investors, members of the Cheung Kong Investors
and Vectis CP Holdings, LLC at $13.75 per share, for an aggregate of $29.7
million. The securities were sold to finance operations. As part of the same
transaction, members of the General Atlantic Investors also exchanged $64.63
million face value of its 5 3/4% convertible subordinated notes, which they had
purchased for on the open market for $25.3 million, for 1,837,418 shares of
Series D preferred stock. We also issued to members of the General Atlantic
Investors warrants to purchase up to an additional 625,000 shares of our common
stock. On November 21, 2003, we issued 188,587 shares of Series D preferred
stock in connection with a $5.1 million settlement with MBCP PeerLogic, LLC and
its affiliates.
The General Atlantic Investors consist of General Atlantic Partners 74,
L.P., GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmbH & Co. KG.
The Cheung Kong Investors consist of Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited.
The General Atlantic Investors and the Cheung Kong Investors are unaffiliated,
unrelated to each other and do not constitute a group.
Our board of directors is asking you to vote upon a proposal, in connection
with the November 2003 convertible note purchase and exchange agreement, the
January 2004 convertible note purchase agreement and the March 2004 convertible
note purchase agreement, to approve an amended and restated certificate of
determination of preferences of Series D preferred stock to, among other things,
amend the Series D preferred stock liquidation preference upon a liquidation and
change of control, to eliminate the participation feature, to reduce the
conversion price from $4.20 to $1.50 and to reduce the amount of dividends to
which the holders of Series D preferred stock are entitled.
This proposal will not be implemented unless our shareholders approve
"Proposal 1 -- Approval of the General Atlantic Private Placement," "Proposal
2 -- Approval of the January 2004 Private Placement," "Proposal 3 -- Approval of
the March 2004 Private Placement," "Proposal 4 -- Approval of the Cheung Kong
Private Placement" and "Proposal 5 -- Approval of the Warrant Amendment." In
addition, the approval of each proposal in this proxy statement is a requirement
for closing the private placements and the rights offering.
AMENDMENT AND RESTATEMENT OF CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES D PREFERRED STOCK.
Under the November 2003 convertible note purchase and exchange agreement,
we must receive approval for and file an amended and restated certificate of
determination of preferences of Series D preferred stock.
Terms of the amended and restated Series D preferred stock. The following
summary of the terms of the amended shares of Series D preferred stock is
qualified in its entirety by the certificate of determination of preferences of
Series D preferred stock attached to this proxy statement as APPENDIX D and
incorporated by reference into this proxy statement.
If this proposal is approved, we will file an amended and restated
certificate of determination of preferences of Series D preferred stock to amend
the terms of the shares of Series D preferred stock. The terms of the amended
Series D preferred stock are discussed below.
The holders of Series D preferred stock have agreed to allow us to
eliminate the right of the Series D preferred stock to participate on a pro rata
basis with common shareholders in any remaining equity (after the full
preferential returns to the Series D preferred stock and the Series E preferred
stock). In addition, following the date shares of Series E preferred stock are
first issued, dividends on the shares of Series D preferred stock will accrue at
a simple annual rate of 5 3/4% whether or not declared by our board of
60
directors. The rights of the Series D preferred stock to cumulative dividends at
8% will be eliminated going forward. Thus, assuming we file an amended and
restated certificate of determination of preferences of Series D preferred stock
to amend the terms of the shares of Series D preferred stock, the shares of
Series D preferred stock will have a preferential return consisting of
cumulative dividends at 8%, up to the date shares of Series E preferred stock
are first issued, and simple dividends at 5 3/4% thereafter. This is known as
Series D Accreted Value.
The Series D preferred stock contains a preferential return of equity
(subordinate to the Series E preferred stock liquidation preference), upon a
change of control or the optional redemption by Critical Path, that is equal to
the sum of the Series D Accreted Value plus all dividends that would have
accrued through the fourth anniversary of the date shares of Series E preferred
stock are first issued. This is known as the Series D Accelerated Preference.
A change of control includes, among other events, any merger, consolidation
or other business combination transaction in which the shareholders owning a
majority of our voting securities do not own a majority of our voting securities
of the surviving entity, any tender, exchange or other offer whereby any person
obtains a majority of the voting securities, any proxy contest in which a
majority of our board of directors prior to such contest do not constitute a
majority of our board of directors after such contest, sale of all or
substantially all of our assets or any other transaction that triggers the
issuance of rights pursuant to our preferred stock rights agreement (unless
waived by our board of directors).
Subject to the rights and preferences of the Series E preferred stock, with
respect to distributions upon a liquidation, the payment of dividends or a
change of control, the shares of Series D preferred stock rank senior to all
capital stock of Critical Path. In the event of a liquidation, each share of
Series D preferred stock will be paid, prior to the payment of any other equity
securities (except for the Series E preferred stock), payments equal to the
greater of:
- the Series D Accreted Value;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the value that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such liquidation.
In the event of a change of control, each share of Series D preferred stock
will be paid, prior to the payment of any other equity securities (except for
the Series E preferred stock), payments equal to the greater of:
- the Series D Accelerated Preference;
- 1.6 times the original purchase price of the Series D preferred stock (or
$22 per share); or
- the amount that would be paid to the holder of the number of shares of
common stock into which such shares of Series D preferred stock are
convertible immediately prior to the closing of such change of control.
The shares of Series D preferred stock may be called for redemption, at the
option of Critical Path upon the occurrence of specified events, on or after the
third anniversary of the date shares of Series E preferred stock are first
issued. If on any date after the third anniversary of the date shares of Series
E preferred stock are first issued, the average closing price per share of our
common stock, for any 60 consecutive trading days after such third anniversary
date, equals or exceeds 400% of the Series D Accelerated Preference, Critical
Path has the option to call for redemption, within 30 days following such date,
all, but not less than all, of the outstanding shares of Series D preferred
stock in cash, at a price per share equal to the Series D Accelerated
Preference.
The shares Series D preferred stock must be called for redemption on the
fourth anniversary of the date shares of Series E preferred stock are first
issued for an amount equal to the Series D Accreted
61
Value. The redemption rights of the Series D preferred stock are subordinate to
the redemption rights of the Series E preferred stock.
The holders of Series D preferred stock are entitled to elect one member to
our board of directors. In addition, each share of Series D preferred stock
entitles its holder to vote at any shareholders meeting, on any matter entitled
to be voted on by holders of our common stock, voting together as a single class
with other shares entitled to vote on such matters. In order to comply with the
voting rules of the National Association of Securities Dealers, Inc. (referred
to as the NASD), the voting power of the Series D preferred stock will be
impaired after its terms are amended. For each share of Series D preferred
stock, the holder will initially be entitled to approximately 3.86342 votes.
Although the voting conversion ratio will remain the same (subject to adjustment
for stock splits, subdivisions, reclassifications, distributions and similar
transactions), pursuant to the terms of the Series D preferred stock, the number
of shares of common stock into which the Series D preferred stock is convertible
and the percentages of beneficial ownership and voting power represented by the
shares of Series D preferred stock will increase as dividends accrue on the
Series D preferred stock following the amendment.
In addition, the holders of a majority of outstanding shares of Series D
preferred stock must approve:
- any amendment to our articles of incorporation or bylaws;
- any issuance or authorization of shares of equity securities ranking
senior to the Series D preferred stock or any amendment to the number of
authorized shares of Series D preferred stock;
- the redemption of any junior equity securities or the payment of
dividends to junior equity holders; or
- the incurrence of any indebtedness, subject to certain exceptions.
The amended and restated certificate of determination of preferences of
Series D preferred stock will reduce the conversion price of the Series D
preferred stock from $4.20 to $1.50. As a result, each share of Series D
preferred stock will be convertible at any time at the option of the holder into
the number of shares of common stock derived by dividing (a) the Series D
Accreted Value by (b) $1.50, subject to certain antidilution provisions. The
terms of the Series D preferred stock contain protection against dilution if
Critical Path effects a subdivision or combination of common stock or in the
event of a reclassification, recapitalization, stock split, stock dividend or
other distribution payable in securities of Critical Path or any other company.
REASONS FOR SHAREHOLDER APPROVAL.
Under the California Corporations Code and under the terms of our amended
and restated articles of incorporation, the approval and adoption of the amended
and restated certificate of determination of preferences of Series D preferred
stock require the affirmative vote of the holders of a majority of the
outstanding shares of common stock and the votes represented by the Special
Voting Share (excluding the shares of Series D preferred stock), voting together
as a class, and the outstanding shares of Series D preferred stock, voting
separately as a class. See the question entitled "How many votes do the common
shareholders have?" on page 7 of this proxy statement for further information on
the common stock issuable upon the conversion or exchange of specified
securities.
The General Atlantic Investors and the Cheung Kong Investors, who held
10,026,733 shares and 3,437,735 shares, respectively, of our Series D preferred
stock (on an as converted to common stock basis), or approximately 26.0% and
8.9%, respectively, of our outstanding voting power, as of April 30, 2004, have
agreed, solely in their capacity as shareholders, to vote their shares of our
Series D preferred stock in favor of the amendment and restatement of the
amended and restated certificate of determination of preferences of Series D
preferred stock. The General Atlantic Investors and the Cheung Kong Investors
are unaffiliated, unrelated to each other and do not constitute a group.
62
VOTE REQUIRED.
To be approved, "Proposal 7 -- Approval of the Amendment to Series D
Preferred Stock Certificate of Determination" must receive a "For" vote from
over 50% of the outstanding shares either in person or by proxy. In addition,
"Proposal 7 -- Approval of the Amendment to Series D Preferred Stock Certificate
of Determination" must receive a "For" vote from over 50% of the outstanding
shares of common stock and the votes represented by the Special Voting Share
(excluding the shares of Series D preferred stock), voting together as a class,
and the outstanding shares of Series D preferred stock, voting separately as a
class. If you do not vote or "Abstain" from voting, it will have the same effect
as an "Against" vote. Broker non-votes will have the same effect as an "Against"
vote. Completion of the amendment and restatement of the amended and restated
certificate of determination of Series D preferred stock is a condition to the
consummation of the private placements, so shareholders who vote to approve
Proposal 1, Proposal 2, Proposal 3 or Proposal 4 should also vote to approve
Proposal 7 or the private placements cannot take effect.
RECOMMENDATION OF OUR BOARD OF DIRECTORS.
The board of directors recommends a vote "For" approval of this "Proposal
7 -- Approval of the Amendment to Series D Preferred Stock Certificate of
Determination." California law contemplates that directors who have a personal,
financial or other interest that is different from, or in conflict with, those
of the shareholders regarding a proposal may abstain from voting to recommend
such proposal. Mr. William E. McGlashan, Jr., who is referred to as the
Management Director, was formerly the chief executive officer of Critical Path
until his resignation from that office at the end of March 2004. Mr. McGlashan
is also a managing member of Vectis CP Holdings, LLC, an owner of shares of our
Series D preferred stock. Messrs. William E. Ford and Peter L.S. Currie, who are
referred to as the General Atlantic Directors, are affiliates of the General
Atlantic Investors. Neither the General Atlantic Directors nor the Management
Director participated in the voting with respect to the private placements.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THIS
"PROPOSAL 7 -- APPROVAL OF THE AMENDMENT TO SERIES D PREFERRED
STOCK CERTIFICATE OF DETERMINATION."
63
COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND DIRECTORS
PRINCIPAL SHAREHOLDERS.
The following table sets forth certain information regarding beneficial
ownership of common stock as of April 28, 2004 by:
- each person or entity known to Critical Path to own beneficially more
than 5% of our common stock;
- each of Critical Path's directors;
- the chief executive officer of Critical Path as of December 31, 2003,
each of the three other most highly compensated executive officers of
Critical Path whose total salary and bonus exceeded $100,000 during the
year ended December 31, 2003, and two former executive officers whose
total salary and bonus exceeded $100,000 during the year ended December
31, 2003 but who were no longer employed with Critical Path on December
31, 2003, whom we refer to as named executive officers; and all executive
officers and directors as a group.
<Table>
<Caption>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
---------------------------------------------------------------------------------------------------
SHARES OF RIGHT TO ACQUIRE
SHARES OF SERIES D OWNERSHIP OF COMMON AND
COMMON PREFERRED COMMON STOCK SERIES D
STOCK STOCK WITHIN TOTAL OF SERIES D PREFERRED
NAME AND ADDRESS OF BENEFICIALLY BENEFICIALLY 60 DAYS OF COMMON COMMON PREFERRED STOCK (AS
BENEFICIAL OWNER(1) OWNED OWNED APRIL 28, 2004 STOCK STOCK(2) STOCK(2) CONVERTED)(2)
- ------------------- ------------ ------------ ---------------- ---------- -------- --------- -------------
5% SHAREHOLDERS
Entities affiliated with
General Atlantic Partners,
LLC(3)..................... -- 2,545,455 10,647,363 10,647,363 2.8 60.8 27.7
3 Pickwick Plaza
Greenwich, CT
Scott Smith and affiliated
entities(4)................ 1,071,888 -- -- 1,071,888 5.1 -- 2.9
c/o Camelot Management
Corp.
3 Pickwick Plaza
Greenwich, CT
Peter Kellner and affiliated
entities(5)................ 1,330,084 -- -- 1,330,084 6.3 -- 3.6
c/o Richmond I, LLC
10563 Brunswick Road, Suite
7
Grass Valley, CA 95945
Cheung Kong (Holdings)
Limited and affiliated..... -- 872,727 3,436,237 3,436,237 -- 20.8 9.1
8th Floor, Cheung Kong
Center
2 Queen's Road Central
Hong Kong(6)
Vectis Group, LLC and
affiliated entities(7)..... -- 581,818 2,407,075 2,407,075 * 13.9 6.3
c/o BPM
600 California Street,
Suite 1300
San Francisco, CA 94180
DIRECTORS AND NAMED
EXECUTIVE OFFICERS
William E. McGlashan,
Jr. ....................... 280,288(8) 581,818 3,626,470(9) 3,906,758 7.1 13.9 10.0
Paul Bartlett............... -- -- 236,975(10) 236,975 * -- *
Patrick Currie.............. -- -- 105,207(11) 105,207 * -- *
Barry Twohig................ 1,001 -- 96,945(12) 96,945 * -- *
Bernard Harguindeguy........ -- -- 251,301(13) 251,301 1.2 -- *
Robert Shipp................ -- -- -- -- -- -- --
Peter Currie................ -- -- 6,250(14) 6,250 * -- *
Ross Dove................... -- -- 21,875(15) 21,875 * -- *
William E. Ford............. -- 2,545,455 10,719,238(16) 10,719,238 3.2 60.8 27.8
Frost R.R. Prioleau......... -- -- 6,250(17) 6,250 * -- *
Steven R. Springsteel....... -- -- 21,875(18) 21,875 * -- *
All Named Executive Officers
and current directors,
nominees and executive
officers as a group (15
persons)(19)............... 990,369 3,127,273 15,393,096 15,115,693 16.6 74.7 40.0
</Table>
64
- ---------------
* Amount represents less than 1% of the indicated class or classes of stock.
(1) Unless otherwise indicated, the address for each of the executive officers
and directors above is c/o Critical Path, Inc., 350 The Embarcadero, San
Francisco, California 94105-1204.
(2) Applicable percentage ownership of common stock is based on 21,388,848
shares of common stock issued and outstanding as of April 28, 2004
including 110,239 shares of common stock issuable upon exchange of
Exchangeable Shares of Class A Non-Voting Preferred Shares of Critical Path
Messaging Co., an unlimited liability company existing under the laws of
the Province of Nova Scotia and a wholly owned subsidiary of the Company.
Each Exchangeable Share is exchangeable for one Common Share. Applicable
percentage ownership of Series D preferred stock is based on 4,188,587
shares of Series D preferred stock issued and outstanding on April 28,
2004. Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission (SEC). In computing
the number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock subject to options or
convertible or exchangeable into such shares of common stock, held by that
person, that are currently exercisable or exercisable within 60 days of
April 28, 2004 are deemed outstanding. These shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of another person. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, each shareholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such shareholder's name.
(3) According to a Schedule 13D, dated as of December 21, 2001, filed jointly
by General Atlantic Partners, LLC (GAP), General Atlantic Partners 74, L.P.
(GAP 74), GapStar, LLC (GapStar) and GAP Coinvestment Partners II, L.P.
(GAPCO and, collectively with GAP, GAP 74 and GapStar, the Reporting
Persons), the Reporting Persons own no shares of the Company's common
stock. The Reporting Persons report collective beneficial ownership as to
2,545,455 shares of the Company's Series D preferred stock, which were
initially convertible into 8,333,333 shares of common stock, and warrants
to purchase 625,000 shares of common stock that are exercisable within 60
days of April 28, 2004. GAP is the general partner of GAP 74 and the sole
member of GapStar. The managing members of GAP (other than Klaus Esser) are
also the general partners of GAPCO. GAP and the managing members of GAP
report shared voting and dispositive power of the 2,545,455 shares of
Series D preferred stock and the warrants to purchase 625,000 shares of
common stock held by the Reporting Persons. GAP 74 owns 2,091,218 shares of
Series D preferred stock or 6,846,249 shares of common stock on an as
converted basis and owns warrants to purchase 513,468 shares of common
stock. GapStar owns 159,091 shares of Series D preferred stock or 520,833
shares of common stock on an as converted basis and owns warrants to
purchase 39,063 shares of common stock. GAPCO owns 295,146 shares of Series
D preferred stock or 966,251 shares of common stock on an as converted
basis and warrants to purchase 72,469 shares of common stock. The number of
shares of common stock into which the Series D preferred stock convert as
reflected in this footnote does not include the accretion of dividends
after the date of the applicable Schedule 13D. The number of shares of
common stock as reflected in the table does include such accretion of
dividends. The number of shares in this footnote have been adjusted to
reflect the stock split effected on August 1, 2003.
(4) Scott Smith filed a Schedule 13G/A, dated as of February 11, 2003, with the
SEC on behalf of himself and related parties described herein. According to
the Schedule 13G/A, shares are held for the account of Camelot Management
Corporation, Camelot Offshore Fund Limited and Scott Smith. Scott Smith is
an officer of Camelot Management Corporation and a director of Camelot
Offshore Fund Limited. Scott Smith reported beneficial ownership of
1,071,888 shares of common stock as of December 31, 2002. The shares held
consist of 268,325 shares of common stock held for the account of Camelot
Management Corporation, 268,325 shares of common stock held for the account
of Camelot Offshore Fund Limited and 1,071,888 shares of common stock held
for the account of Scott Smith. The reporting person reported shared voting
power over 1,071,888 shares
65
and shared dispositive power over 1,071,888 shares. The number of shares in this
footnote have been adjusted to reflect the stock split effected on August 1,
2003.
(5) Peter Kellner filed a Schedule 13D, dated as of February 4, 2004, with the
SEC on behalf of himself and related parties described herein. According to
the Schedule 13D, shares are held for the account of Richmond I, LLC and
Peter Kellner. Peter Kellner has voting and dispositive voting power over
Richmond I, LLC. Peter Kellner reported beneficial ownership of 1,330,084
shares of common stock (adjusted to include 57,825 options exercisable
within 60 days of February 2, 2004). The shares held consist of 696,056
shares of common stock held for the account of Richmond I, LLC and
1,330,084 shares of common stock held for the account of Peter Kellner. The
reporting person reported shared voting power over 1,330,084 shares and
shared dispositive power over 1,330,084 shares.
(6) According to a Schedule 13D/A, dated as of December 1, 2003, filed by
jointly by Cheung Kong (Holdings) Limited (Cheung Kong), Campina
Enterprises Limited, an indirect wholly owned subsidiary of Cheung Kong
(Campina), Hutchison Whampoa Limited (HWL), an entity in which Cheung Kong
holds a 49.97% interest, Cenwell Limited, an indirect wholly owned
subsidiary of HWL (Cenwell), CK Life Sciences Int'l., (Holdings) Inc. (CK
Life), an entity in which Cheung Kong holds a 44.0% interest, and Great
Affluent Limited (GAL), an indirect wholly owned subsidiary of CK Life,
Campina and Cenwell hold 436,363 and 436,364 shares of our Series D
preferred stock, respectively, collectively convertible into 3,317,782
shares of our common stock. Cheung Kong and Campina report shared voting
and dispositive power as to the shares held by Campina. Cheung Kong, HWL
and Cenwell reported shared voting and dispositive power as to the shares
held by Cenwell. Cheung Kong disclaims beneficial ownership of the
3,317,782 shares of common stock beneficially owned by Cenwell and Campina.
The number of shares of common stock into which the Series D preferred
stock convert as reflected in this footnote does not include the accretion
of dividends after the date of the applicable Schedule 13D/A. The number of
shares as reflected in the table does include such accretion of dividends.
(7) Vectis Group LLC, a Delaware limited liability company (Vectis), filed a
Schedule 13D, dated as of August 8, 2003, with the SEC on behalf of itself
and related parties. According to the Schedule 13D, shares are held for the
account of Vectis, the reporting person. William E. McGlashan, Jr. and
Matthew Hobart are the managing members of Vectis. The shares held consist
of (i) 2,064,780 shares of common stock issuable upon the conversion of
shares of Series D preferred stock, including the accretion of dividends,
and (ii) 116,250 shares of common stock issuable subject to warrants
currently exercisable in full. The shares exclude shares held individually
by the principals of Vectis and shares beneficially owned by the principals
of Vectis subject to options exercisable within 60 days of April 28, 2004.
The number of shares of common stock into which the Series D preferred
stock convert as reflected in this footnote does not include the accretion
of dividends after the date of the applicable Schedule 13D. The number of
shares as reflected in the table does include such accretion of dividends.
(8) Includes (i) 250,000 shares of common stock purchased by Mr. McGlashan
through an early option exercise pursuant to a promissory note and stock
pledge agreement with us, and subject to a lapsing right of repurchase by
us, (ii) 20,000 shares of common stock purchased by Mr. McGlashan's spouse
and (iii) 10,288 shares purchased under our employee stock purchase plan.
(9) Includes (i) 1,219,395 shares subject to options exercisable within 60 days
of April 28, 2004, (ii) 116,250 shares subject to warrants to purchase
shares of common stock held by Vectis and exercisable within 60 days of
April 28, 2004 and (iii) 2,290,825 shares of common stock issuable upon the
conversion of shares of Series D preferred stock. See footnote 7 above. Mr.
McGlashan disclaims beneficial ownership of the securities held by Vectis
and its affiliates within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934. The shares exclude all shares subject to options
issued to other Vectis principals as part of their individual employment
agreements with Critical Path and all shares individually owned by other
Vectis principals.
(10) Consists of 236,975 shares subject to options exercisable within 60 days of
April 28, 2004.
66
(11) Consists of 105,207 shares subject to options exercisable within 60 days of
April 28, 2004.
(12) Consists of 96,945 shares subject to options exercisable within 60 days of
April 28, 2004.
(13) Consists of 251,301 shares subject to options exercisable within 60 days of
April 28, 2004.
(14) Consists of 6,250 shares subject to options exercisable within 60 days of
April 28, 2004.
(15) Consists of 21,875 shares subject to options exercisable within 60 days of
April 28, 2004.
(16) Includes 10,647,363 shares issuable upon the conversion of the Series D
preferred stock and exercise of warrants to purchase shares of common
stock. See footnote (3) above. Mr. Ford disclaims beneficial ownership of
the securities described in footnote (3) above except to the extent of his
pecuniary interest therein. Also includes 71,875 shares subject to options
exercisable within 60 days of April 28, 2004.
(17) Consists of 6,250 shares subject to options exercisable within 60 days of
April 28, 2004.
(18) Consists of 21,875 shares subject to options exercisable within 60 days of
April 28, 2004.
(19) Includes shares beneficially owned by the directors and executive officers
as a group consisting of the named executive officers, Messrs. Ferrer,
Clark, Zukerman and Serbinis. Includes an aggregate of 709,080 shares of
common stock beneficially owned by Messrs. Ferrer and Zukerman and 300,710
shares subject to options exercisable within 60 days of April 28, 2004 held
by Messrs. Zukerman and Serbinis.
ADVANCE NOTICE PROCEDURES
Under our bylaws, no business may be brought before a special or annual
meeting except as specified in the notice of the meeting (which includes
shareholder proposals that we are required to set forth in our proxy statement
under SEC Rule 14a-8) or, with respect to annual meetings, as otherwise brought
before the meeting by or at the direction of the board of directors or by a
shareholder entitled to vote who has delivered notice to Critical Path
(containing certain information specified in the bylaws) not less than 120 days
prior to the first anniversary of the date that materials for the previous
year's annual meeting were mailed. These requirements are separate and apart
from, and in addition to, the SEC requirements that a shareholder must meet to
have a shareholder proposal included in the Company's proxy statement under
Rule14a-8.
A copy of the full text of the bylaw provisions discussed above may be
obtained by written request to: Secretary, Critical Path, Inc., 350 The
Embarcadero, San Francisco, California 94105-1204.
If any matter should nevertheless come before the meeting, it is the
intention of the persons named in the enclosed form of proxy to vote all proxies
(unless otherwise directed by shareholders) in accordance with their judgment on
such matter.
Whether or not you intend to be present at the special meeting, we urge you
to return your signed proxy promptly.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any proposal intended for inclusion in our proxy statement and form of
proxy relating to our 2004 Annual Meeting of Shareholders should be sent to:
Secretary, Critical Path, Inc., 350 The Embarcadero, San Francisco, California
94105-1204, and must have been received by January 23, 2004.
ATTENDANCE OF PRINCIPAL ACCOUNTANTS
Representatives of PricewaterhouseCoopers LLP, independent accountants, are
expected to be present at the special meeting, will have an opportunity to make
a statement if they so desire and will be available to respond to appropriate
questions.
67
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. The SEC
allows us to "incorporate by reference" the information we file with it, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference into this proxy
statement is an important part of this proxy statement. Specifically, we are
incorporating by reference the document listed below:
Our Annual Report on Form 10-K for the year ended December 31, 2003, as
amended by our Form 10-K/A, filed April 19, 2004.
OUR 2003 ANNUAL REPORT ON FORM 10-K/A HAS BEEN MAILED WITH THIS PROXY
STATEMENT. WE WILL PROVIDE COPIES OF EXHIBITS TO THIS DOCUMENT, BUT WILL CHARGE
A REASONABLE FEE PER PAGE TO ANY REQUESTING SHAREHOLDER. SHAREHOLDERS OF RECORD
MAY MAKE SUCH REQUEST IN WRITING TO THE COMPANY AT:
CRITICAL PATH, INC.
350 THE EMBARCADERO
SAN FRANCISCO, CALIFORNIA 94105
ATTENTION: INVESTOR RELATIONS
(415) 541-2500
THE REQUEST MUST INCLUDE A REPRESENTATION BY THE SHAREHOLDER THAT AS OF
APRIL 30, 2004, THE SHAREHOLDER WAS ENTITLED TO VOTE AT THE SPECIAL MEETING.
ADDITIONAL INFORMATION
We are a reporting company and file annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy these
reports, proxy statements and other information at the SEC public reference
rooms. You can request copies of these documents by writing to the SEC and
paying a fee for the copying costs. Please call the SEC at 1-800-SEC-0330 for
more information about the operation of the public reference rooms. Our SEC
filings are also available at the SEC's website at www.sec.gov.
By Order of the Board of Directors,
-s- MICHAEL J. ZUKERMAN
Michael J. Zukerman
Senior Vice President,
General Counsel and Secretary
San Francisco, California
May 5, 2004
68
APPENDIX A
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT
AMONG
CRITICAL PATH, INC.,
GENERAL ATLANTIC PARTNERS 74, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
GAPSTAR, LLC,
GAP-W, LLC,
GAPCO GMBH & CO. KG,
CAMPINA ENTERPRISES LIMITED,
CENWELL LIMITED,
GREAT AFFLUENT LIMITED,
DRAGONFIELD LIMITED
AND
LION COSMOS LIMITED
----------------------------
DATED: NOVEMBER 18, 2003
----------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I DEFINITIONS...................................... 1
1.1 Definitions......................................... 1
ARTICLE II PURCHASE AND SALE OF NOTES; CONVERSION;
EXCHANGE............................................ 7
2.1 Purchase and Sale of Notes.......................... 7
2.2 Filings............................................. 7
2.3 Exchange of CK Sub Notes............................ 8
2.4 Certificates of Determination....................... 8
2.5 Use of Proceeds..................................... 8
2.6 Closings; Deliveries................................ 8
2.7 Subsequent Sale of Shares of Series E Preferred
Stock............................................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY............................................. 10
3.1 Corporate Existence and Power....................... 10
3.2 Authorization; No Contravention..................... 10
3.3 Governmental Authorization; Third Party Consents.... 10
3.4 Binding Effect...................................... 10
3.5 Litigation.......................................... 11
3.6 Compliance with Laws................................ 11
3.7 Capitalization...................................... 11
3.8 No Default or Breach; Contractual Obligations....... 12
3.9 Title to Properties................................. 12
3.10 Reports; Financial Statements....................... 12
3.11 Taxes............................................... 13
3.12 No Material Adverse Change; Ordinary Course of
Business............................................ 13
3.13 Private Offering.................................... 13
3.14 Labor Relations..................................... 14
3.15 Employee Benefit Plans.............................. 14
3.16 Liabilities......................................... 15
3.17 Affiliate Transactions.............................. 15
3.18 Intellectual Property............................... 15
3.19 Privacy of Customer Information..................... 16
3.20 Potential Conflicts of Interest..................... 16
3.21 Trade Relations..................................... 16
3.22 Outstanding Borrowing............................... 17
3.23 Broker's, Finder's or Similar Fees.................. 17
3.24 Stockholder Approval................................ 17
3.25 CCC Section......................................... 17
3.26 Disclosure.......................................... 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDERS
AND CK PURCHASERS................................... 17
4.1 Existence and Power................................. 17
4.2 Authorization; No Contravention..................... 17
4.3 Governmental Authorization; Third Party Consents.... 18
</Table>
i
<Table>
<Caption>
PAGE
----
4.4 Binding Effect...................................... 18
4.5 Purchase for Own Account............................ 18
4.6 Restricted Securities............................... 18
4.7 Accredited Investor................................. 19
4.8 Experience.......................................... 19
4.9 Access to Information............................... 19
4.10 General Solicitation................................ 19
4.11 Reliance............................................ 19
ARTICLE V CONDITIONS TO INITIAL CLOSING.................... 19
5.1 Conditions to Lenders' and CK Purchasers'
Obligations............................................ 19
5.2 Conditions to Company's Obligations................. 20
ARTICLE VI CONDITIONS TO SUBSEQUENT CLOSING................ 20
6.1 Conditions to CK Purchasers' Obligations............ 20
6.2 Conditions to the Company's Obligations............. 21
ARTICLE VII INDEMNIFICATION................................ 21
7.1 Indemnification..................................... 21
7.2 Notification........................................ 21
7.3 Contribution........................................ 22
ARTICLE VIII COVENANTS..................................... 22
8.1 Financial Statements and Other Information.......... 22
8.2 FIRPTA Certificate.................................. 23
8.3 Reservation of Common Stock......................... 23
8.4 Stockholder Approval................................ 23
8.5 Financial Covenants................................. 24
8.6 SVB Debt Matters.................................... 24
ARTICLE IX TERMINATION OF AGREEMENT........................ 26
9.1 Termination......................................... 26
ARTICLE X MISCELLANEOUS.................................... 26
10.1 Survival of Representations and Warranties......... 26
10.2 Notices............................................ 26
10.3 Successors and Assigns; Third Party
Beneficiaries.......................................... 27
10.4 Amendment and Waiver............................... 28
10.5 Counterparts....................................... 28
10.6 Headings........................................... 28
10.7 Governing Law...................................... 28
10.8 Severability....................................... 28
10.9 Rules of Construction.............................. 28
10.10 Entire Agreement................................... 28
10.11 Fees............................................... 28
10.12 Publicity; Confidentiality......................... 28
10.13 Further Assurances................................. 29
10.14 Legal Representation............................... 29
</Table>
ii
<Table>
EXHIBITS
A Form of Note
B Form of Amended and Restated Registration Rights Agreement
C Form of Amended and Restated Series D Certificate of
Determination
D Form of Amended and Restated Stockholders Agreement
E Articles of Incorporation
F By-laws
G Form of Series E Certificate of Determination
H Form of Warrant Amendment
I Form of Pillsbury Winthrop LLP Opinion
SCHEDULES
2.1 Purchased Notes
2.3 CK Purchasers
3.3 Government Authorizations; Consents
3.5 Litigation
3.7(a) Capitalization
3.17 Affiliate Transactions
3.20 Potential Conflicts of Interest
3.22 Outstanding Borrowing
3.23 Fees
3.27 Investments
8.5 Financial Covenants
</Table>
iii
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT, dated November 18, 2003
(this "Agreement"), among Critical Path, Inc., a California corporation (the
"Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership
("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company
("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"), GAPCO
GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment") and Campina
Enterprises Limited ("Campina"), Cenwell Limited ("Cenwell"), Great Affluent
Limited ("GAL"), Dragonfield Limited ("Dragonfield") and Lion Cosmos Limited
("Lion" and together with Campina, Cenwell, GAL and Dragonfield, each a "CK
Purchaser" and, collectively, the "CK Purchasers"),
WHEREAS, upon the terms and conditions set forth in this Agreement, the
Company proposes to issue and sell, at the Initial Closing, convertible notes,
substantially in the form attached hereto as Exhibit A (each a "Note" and,
collectively, the "Notes") having an aggregate principal amount of ten million
dollars ($10,000,000), in the face amount set forth opposite such Lender's (as
hereinafter defined) name on Schedule 2.1 hereto, that are, upon requisite
stockholder approval and upon the terms and conditions set forth in this
Agreement, convertible into shares, par value $0.001 per share, of Series E
Redeemable Convertible Preferred Stock of the Company (the "Series E Preferred
Stock"); and
WHEREAS, upon Stockholder Approval (as hereinafter defined) and upon the
terms and conditions set forth in this Agreement and the Notes, the Lenders
shall convert such Notes into that number of shares of Series E Preferred Stock
issuable upon the conversion thereof (in accordance with the terms set forth
therein), in exchange for the surrender to the Company by such Lender of its
Notes; and
WHEREAS, upon Stockholder Approval and upon the terms and conditions set
forth in this Agreement, the Company proposes to issue to each of the CK
Purchasers, on the Subsequent Closing Date, the aggregate number of shares of
Series E Preferred Stock set forth opposite such CK Purchaser's name on Schedule
2.3 hereto in exchange for the surrender to the Company by such CK Purchaser of
its CK Sub Notes (as hereinafter defined);
WHEREAS, upon Stockholder Approval and upon the terms and conditions set
forth in this Agreement, the Company proposes to amend and restate the terms of
the Cumulative Redeemable Convertible Series D Preferred Stock (the "Series D
Preferred Stock"), substantially as set forth in the Amended and Restated Series
D Certificate of Determination; and
WHEREAS, upon Stockholder Approval, the Company may issue additional shares
of Series E Preferred Stock as permitted by Section 2.7 below and the Company
will initiate and consummate the Rights Offering (as hereinafter defined):
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Amended and Restated Registration Rights Agreement" means the Amended
and Restated Registration Rights Agreement, substantially in the form
attached hereto as Exhibit B.
"Amended and Restated Series D Certificate of Determination" means the
Amended and Restated Certificate of Determination of Preferences of Series
D Cumulative Redeemable Convertible Preferred Stock, substantially in the
form attached hereto as Exhibit C, which shall be duly filed with the
Secretary of State of the State of California as soon as practicable
following Stockholder Approval.
"Amended and Restated Stockholders Agreement" means the Amended and
Restated Stockholders Agreement, substantially in the form attached hereto
as Exhibit D.
"Amendment to Preferred Stock Rights Agreement" means an amendment to
the Company's Preferred Stock Rights Agreement to permit the Lenders and
the CK Purchasers to purchase securities being offered by the Company
hereunder without causing such Lenders or CK Purchasers to become Acquiring
Persons (as defined in the Preferred Stock Rights Agreement).
"Articles of Incorporation" means the Amended and Restated Articles of
Incorporation of the Company in effect on the Initial Closing Date and
attached hereto as Exhibit E.
"Basic Subscription Privilege" has the meaning set forth in Section
8.7(b) of this Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"By-laws" means the by-laws of the Company in effect on the Initial
Closing Date and attached hereto as Exhibit F.
"Campina" has the meaning set forth in the preamble to this Agreement.
"Cenwell" has the meaning set forth in the preamble to this Agreement.
"CK Purchasers" has the meaning set forth in the preamble to this
Agreement.
"CK Sub Notes" means the 5 3/4% Convertible Subordinated Notes, due
April 1, 2005, issued by the Company pursuant to the Company's Indenture,
dated March 31, 2000, and purchased by the CK Purchasers and held by the CK
Purchasers as of the Subsequent Closing Date.
"Claims" has the meaning set forth in Section 3.5 of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the United States Securities and Exchange
Commission or any similar agency then having jurisdiction to enforce the
Securities Act and Exchange Act.
"Common Stock" means the common stock of the Company, par value $0.001
per share.
"Commonly Controlled Entity" means any entity which is under common
control with the Company within the meaning of Code Section 414(b), (c),
(m), (o) or (t).
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Plans" has the meaning set forth in Section 3.15 of this
Agreement.
"Condition of the Company" means the assets, business, properties,
operations or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary 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
2
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (d) otherwise to assure or hold harmless the
owner of any such primary obligation against loss or failure or inability
to perform in respect thereof. The amount of any Contingent Obligation
shall be deemed to be an amount equal to the stated or determinable amount
of the primary obligation in respect of which such Contingent Obligation is
made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof.
"Contractual Obligations" means, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking,
contract, indenture, mortgage, deed of trust or other instrument to which
such Person is a party or by which it or any of its property is bound.
"Conversion" has the meaning set forth in Section 2.1(a).
"Copyrights" means any foreign or United States copyright
registrations and applications for registration thereof, and any
non-registered copyrights.
"Dragonfield" has the meaning set forth in the preamble to this
Agreement.
"Environmental Laws" means federal, state, local and foreign laws,
principles of common laws, civil laws, regulations, and codes, as well as
orders, decrees, judgments or injunctions, issued, promulgated, approved or
entered thereunder relating to pollution, protection of the environment or
public health and safety.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange" has the meaning set forth in Section 2.3 of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Exchange Shares" has the meaning set forth in Section 2.3 of this
Agreement.
"Financial Statements" has the meaning set forth in Section 3.10 of
this Agreement.
"GAAP" means United States generally accepted accounting principles in
effect from time to time.
"GAL" has the meaning set forth in the preamble to this Agreement.
"GAP Coinvestment" has the meaning set forth in the preamble to this
Agreement.
"GAP LP" has the meaning set forth in the preamble to this Agreement.
"GAP-W" has the meaning set forth in the preamble to this Agreement.
"GapStar" has the meaning set forth in the preamble to this Agreement.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other
entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except
trade accounts payable and accrued commercial or trade liabilities arising
in the ordinary course of business, (c) all interest rate and currency
swaps, caps, collars and similar agreements or hedging devices under which
payments are obligated to be made by such Person, whether periodically or
upon the happening of a contingency,
3
(d) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of
such property), (e) all obligations of such Person under leases which have
been or should be, in accordance with GAAP, recorded as capital leases, (f)
all indebtedness secured by any Lien (other than Permitted Liens) on any
property or asset owned or held by that Person regardless of whether the
indebtedness secured thereby shall have been assumed by that Person or is
non-recourse to the credit of that Person, and (g) any Contingent
Obligation of such Person.
"Indemnified Party" has the meaning set forth in Section 7.1 of this
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7.1 of this
Agreement.
"Initial Closing" has the meaning set forth in Section 2.6(a) of this
Agreement.
"Initial Closing Date" has the meaning set forth in Section 2.6(a) of
this Agreement.
"Intellectual Property" has the meaning set forth in Section 3.18 of
this Agreement.
"Internet Assets" means any Internet domain names and other computer
user identifiers and any rights in and to sites on the worldwide web,
including rights in and to any text, graphics, audio and video files and
html or other code incorporated in such sites.
"Investment" means (i) the acquisition (whether for cash, property,
services, assumption of Indebtedness, securities or otherwise) of assets
(other than equipment, inventory, supplies or other assets acquired in the
ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or
other securities of any Person, (ii) any deposit with, or advance, loan or
other extension of credit to, or on behalf of, any Person (other than
deposits made in connection with the purchase of equipment, inventory,
services, leases, supplies or other assets in the ordinary course of
business of the Company), (iii) any other capital contribution to or
investment in such Person, including, without limitation, any guaranty
obligation incurred for the benefit of such Person. For the sake of
clarity, Investments shall include any transfer of property or assets by
the Company to any of its Subsidiaries or by any Subsidiary of the Company
to any other Subsidiary.
"IP Agreements" has the meaning set forth in Section 3.18(a)(iii) of
this Agreement.
"Issuable Shares" has the meaning set forth in Section 2.1(a) of this
Agreement.
"Knowledge" means the knowledge of the Company and Paul Bartlett,
Tracy Currie, Matthew Hobart, William E. MacGlashan, Jr. and Michael J.
Zukerman after due inquiry.
"Lenders" means GAP LP, GAP Coinvestment, GapStar, GAP-W and GmbH
Coinvestment and any transferees to whom the Notes purchased by any of the
foregoing are transferred after the date hereof and in accordance with the
terms of such Notes.
"Liabilities" has the meaning set forth in Section 3.16 of this
Agreement.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related
preferences).
"Lion" has the meaning set forth in the preamble to this Agreement.
"Losses" has the meaning set forth in Section 7.1 of this Agreement.
"Material Contractual Obligations" has the meaning set forth in
Section 3.8 of this Agreement.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"Notes" has the meaning set forth in the recitals to this Agreement.
4
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
"Patents" means any foreign or United States patents and patent
applications, including any divisions, continuations,
continuations-in-part, substitutions or reissues thereof, whether or not
patents are issued on such applications and whether or not such
applications are modified, withdrawn or resubmitted.
"Permitted Investments" means (i) Investments in cash or cash
equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the Initial Closing
Date, and listed on Schedule 3.27 hereto, (iv) guaranty obligations
permitted by Section 5.3 of the Security Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of
convertible bonds or capital stock under a stock incentive plan, stock
option plan or other equity-based compensation plan or arrangement, (vi)
other advances or loans to employees, directors, officers or agents of the
Company in the ordinary course of business not to exceed $500,000 in the
aggregate at any time outstanding; (vii) loans, advances and Investments in
or by foreign Subsidiaries; (viii) any acquisition for which the prior
written consent of the Lenders holding a majority of the outstanding
principal amount of all of the Notes has been obtained, (ix) other loans,
advances and investments of a nature not contemplated by the foregoing
sections in an amount not to exceed $500,000 in the aggregate at any time
outstanding or (x) Investments by the Company in the Guarantor (as defined
in the Security Agreement).
"Permitted Liens" has the meaning set forth in the Note.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity
of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Plan" means any employee benefit plan, arrangement, policy, program,
agreement or commitment (whether or not an employee plan within the meaning
of Section 3(3) of ERISA), including, without limitation, any employment,
consulting or deferred compensation agreement, executive compensation,
bonus, incentive, pension, profit-sharing, savings, retirement, stock
option, stock purchase or severance pay plan, any life, health, disability
or accident insurance plan, whether oral or written, whether or not subject
to ERISA, as to which the Company or any Commonly Controlled Entity has or
in the future could have any direct or indirect, actual or contingent
liability.
"Proportionate Percentage" has the meaning set forth in Section 8.7 of
this Agreement.
"Proxy Statement" has the meaning set forth in Section 8.4 of this
Agreement.
"Purchaser Subscription Privilege" has the meaning set forth in
Section 8.7 of this Agreement.
"Record Date" shall mean the date of this Agreement.
"Requirements of Law" means, as to any Person, any law (including
Environmental Laws), statute, treaty, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a
court or other Governmental Authority or stock exchange, in each case
applicable or binding upon such Person or any of its property or to which
such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein.
"Retiree Welfare Plan" means any welfare plan (as defined in Section
3(1) of ERISA) that provides benefits to current or former employees beyond
their retirement or other termination of service (other than coverage
mandated by Section 4980A of the Code, commonly referred to as "COBRA," the
cost of which is fully paid by the current or former employee or his or her
dependents).
5
"Rights Offering" shall mean a rights offering for an aggregate amount
of up to $21,000,000 of shares of Series E Preferred Stock pursuant to
which the Company will distribute transferable rights to the Company's
holders of Common Stock as of the Record Date.
"Rights Shares" means the shares of Series E Preferred Stock issuable
upon exercise of the Series E Purchase Rights and the shares of the Common
Stock issuable upon conversion of such shares of Series E Preferred Stock.
"SEC Reports" has the meaning set forth in Section 3.10 of this
Agreement.
"Securities" has the meaning set forth in Section 4.8 of this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Security Agreement" has the meaning set forth in the Notes.
"Series D Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Series E Certificate of Determination" means the Certificate of
Determination of Preferences of Series E Redeemable Convertible Preferred
Stock, substantially in the form attached hereto as Exhibit G, which shall
be duly filed with the Secretary of State of the State of California as
soon as practicable following Stockholder Approval.
"Series E Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Series E Price Per Share" means $1.50 per share of Series E Preferred
Stock (subject to anti-dilution adjustments for a subdivision,
consolidation or reclassification of Common Stock).
"Series E Purchase Rights" means those rights to purchase Series E
Preferred Stock issued in the Rights Offering.
"Subscription Price" means $1.50 (subject to anti-dilution adjustments
for a subdivision, consolidation or reclassification of Common Stock).
"Software" means any computer software programs, source code, object
code, data and documentation, including, without limitation, any computer
software programs that incorporate and run the Company's pricing models,
formulae and algorithms.
"Stock Equivalents" means any security or obligation which is by its
terms convertible into or exchangeable or execrable for shares of common
stock or other capital stock of the Company, and any option, warrant or
other subscription or purchase right with respect to common stock or such
other capital stock.
"Stock Option Plans" means the Company's stock option plans and
employee purchase plans pursuant to which shares of restricted stock and
options to purchase shares of Common Stock are reserved and available for
grant to officers, directors, employees and consultants of the Company.
"Stockholder Approval" has the meaning set forth in Section 3.24 of
this Agreement.
"Subject Shares" has the meaning set forth in Section 2.3 of this
Agreement.
"Subsequent Closing" has the meaning set forth in Section 2.6(f) of
this Agreement.
"Subsequent Closing Date" has the meaning set forth in Section 2.6(f)
of this Agreement.
"Subsidiaries" means, as of the relevant date of determination, with
respect to any Person, a corporation or other Person of which 50% or more
of the voting 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.
6
"SVB Debt" has the meaning set forth in Section 2.5 of this Agreement.
"Taxes" means any federal, state, provincial, county, local, foreign
and other taxes (including, without limitation, income, profits, windfall
profits, alternative, minimum, accumulated earnings, personal holding
company, capital stock, premium, estimated, excise, sales, use, occupancy,
gross receipts, franchise, ad valorem, severance, capital levy, production,
transfer, withholding, employment, unemployment compensation, payroll and
property taxes, import duties and other governmental charges and
assessments), whether or not measured in whole or in part by net income,
and including deficiencies, interest, additions to tax or interest, and
penalties with respect thereto, and including expenses associated with
contesting any proposed adjustments related to any of the foregoing.
"Trade Secrets" means any trade secrets, research records, processes,
procedures, manufacturing formulae, technical know-how, technology, blue
prints, designs, plans, inventions (whether patentable and whether reduced
to practice), invention disclosures and improvements thereto.
"Trademarks" means any foreign or United States trademarks, service
marks, trade dress, trade names, brand names, designs and logos, corporate
names, product or service identifiers, whether registered or unregistered,
and all registrations and applications for registration thereof.
"Transaction Documents" means, collectively, this Agreement, the
Amended and Restated Stockholders Agreement, the Amended and Restated
Registration Rights Agreement, the Notes, the Security Agreement, the
Warrant Amendments, the Waiver and the Amendment to the Preferred Stock
Rights Agreement.
"Waiver" means the Waiver of the Preemptive Rights and Standstill,
dated the date hereof, pursuant to which the Company and each of the other
parties thereto shall have waived the provisions set forth in Section 2 and
Section 4, as applicable, of that certain Stockholders Agreement, dated as
of November 8, 2001, among the Company and each of the other parties
thereto.
"Warrant" or "Warrants," as the case may be, means those certain
warrants to purchase Common Stock issued to the Lenders by the Company
pursuant to that certain Stock and Warrant Purchase and Exchange Agreement,
dated as of November 8, 2001.
"Warrant Amendment" or "Warrant Amendments," as the case may be, has
the meaning set forth in Section 2.6(g)(i) of this Agreement.
ARTICLE II
PURCHASE AND SALE OF NOTES; CONVERSION; EXCHANGE
2.1 Purchase and Sale of Notes.
(a) Subject to the terms and conditions of this Agreement, on the Initial
Closing Date, each of the Lenders, severally and not jointly, agrees to
purchase, and the Company agrees to sell and issue to each Lender, a Note, in
the principal amount set opposite such Lender's name on Schedule 2.1 hereto.
Each of the Notes shall be due and payable upon the terms and conditions set
forth in the Notes and herein. Subject to Stockholder Approval and the terms and
conditions of this Agreement, on the Subsequent Closing Date, the Notes shall
convert into shares of Series E Preferred Stock in accordance with the terms
thereof, and the Company shall issue to each Lender that number of shares of
Series E Preferred Stock issuable upon such conversion, in exchange for the
surrender to the Company by each Lender of its Notes (the "Conversion") (all of
the shares of Series E Preferred Stock issuable upon conversion of the Notes
referred to herein as the "Issuable Shares").
(b) All payments by the Company under the Notes of principal and interest
shall be as set forth in the Notes.
2.2 Filings. As promptly as practicable following the Stockholder
Approval and upon the terms and conditions of this Agreement, on or before the
Subsequent Closing Date, the Company shall file with the
7
Secretary of State of the State of California: (a) an amendment to the Amended
and Restated Articles of Incorporation to increase the authorized common stock
and preferred stock of the Company; (b) the Amended and Restated Series D
Certificate of Determination; and (c) the Series E Certificate of Determination.
2.3 Exchange of CK Sub Notes. Subject to Stockholder Approval and the
terms and conditions of this Agreement, on the Subsequent Closing Date, the
Company shall issue to each CK Purchaser that number of shares of Series E
Preferred Stock set forth opposite such CK Purchaser's name on Schedule 2.3
hereto, in exchange for the surrender to the Company by such CK Purchaser of its
CK Sub Notes in the principal face amount set forth opposite such CK Purchaser's
name on Schedule 2.3 hereto (the "Exchange") (all of the shares of Series E
Preferred Stock being issued pursuant to the Exchange, the "Exchange Shares"
and, together with the Issuable Shares, the "Subject Shares").
2.4 Certificates of Determination. The Subject Shares shall have the
preferences and rights set forth in the Series E Certificate of Determination.
The shares of Series D Preferred Stock shall have the preferences and rights set
forth in the Amended and Restated Series D Certificate of Determination.
2.5 Use of Proceeds. The Company shall use the proceeds from the sale of
the Notes to the Lenders to first (a) repay four million nine hundred thousand
dollars ($4,900,000) of the indebtedness owed by the Company to Silicon Valley
Bank (the "SVB Debt") (immediately after which only a two million five hundred
thousand dollar ($2,500,000) letter of credit shall be outstanding under the SVB
Debt) and then (b) fund the Company's working capital.
2.6 Closings; Deliveries.
(a) Initial Closing. The purchase and sale of the Notes under this
Agreement (the "Initial Closing") shall be held as soon as practicable following
the date of this Agreement, but in any event not earlier than November 26, 2003
(the "Initial Closing Date"), at the offices of Pillsbury Winthrop LLP, 50
Fremont Street, San Francisco, California, or at such other time and place as
the Company and the Lenders may mutually agree. At the Initial Closing,
signature pages transmitted by facsimile will be acceptable, with originals to
immediately follow.
(b) Deliveries by the Company, the Lenders and the CK Purchasers on the
Date Hereof. On the date hereof, (i) the Company shall execute and deliver to
each Lender and each CK Purchaser this Agreement and the Waiver and (ii) each
Lender and each CK Purchaser shall execute and deliver to the Company this
Agreement and the Waiver. Signature pages transmitted by facsimile will be
acceptable, with originals to immediately follow.
(c) Deliveries by the Company at the Initial Closing. At the Initial
Closing, subject to the terms and conditions hereof, the Company shall execute
and deliver:
(i) to each Lender and CK Purchaser:
(B) the Amended and Restated Registration Rights Agreement;
(C) the Amended and Restated Stockholders Agreement; and
(D) such other documentation required to be provided by the Company
pursuant to Section 5.1.
(ii) to each Lender:
(A) a Note, in the form attached hereto as Exhibit A, in the
principal amount set forth opposite such Lender's name on Schedule 2.1;
and
(B) the Security Agreement and the related security documents
required or contemplated by the Security Agreement.
8
(d) Deliveries by each Lender at the Initial Closing. At the Initial
Closing, subject to the terms and conditions hereof, each Lender shall:
(i) execute and deliver to the Company and each CK Purchaser the
Amended and Restated Registration Rights Agreement;
(ii) execute and deliver to the Company and each CK Purchaser the
Amended and Restated Stockholders Agreement; and
(iii) loan to the Company, in the form of a check or wire transfer,
that amount set forth opposite such Lender's name on Schedule 2.1.
(e) Deliveries by each CK Purchaser at the Initial Closing. At the Initial
Closing, subject to the terms and conditions hereof, each CK Purchaser shall
execute and deliver to the Company and each Lender:
(i) the Amended and Restated Registration Rights Agreement; and
(ii) the Amended and Restated Stockholders Agreement.
(f) Subsequent Closing. The consummation of the Exchange and the
Conversion (the "Subsequent Closing") shall take place as soon as practicable
following the satisfaction of the closing conditions set forth in Article VI
(the "Subsequent Closing Date"), at the offices of Pillsbury Winthrop LLP, 50
Fremont Street, San Francisco, California, or at such other time and place as
the Company, the Lenders and the CK Purchasers may mutually agree. At the
Subsequent Closing, signature pages transmitted by facsimile will be acceptable,
with originals to immediately follow.
(g) Deliveries by the Company at the Subsequent Closing. At the Subsequent
Closing, subject to the terms and conditions hereof, the Company shall execute
and deliver to:
(i) each Lender, an amendment to such Lender's Warrant, in
substantially the form attached hereto as Exhibit H, such that the exercise
price of such Warrant shall be reduced to an amount equal to the Series E
Price Per Share (each a "Warrant Amendment" and, collectively, the "Warrant
Amendments");
(ii) each Lender, a certificate or certificates in definitive form and
registered in the name of each Lender, representing such Lender's Issuable
Shares;
(iii) each CK Purchaser, a certificate or certificates in definitive
form and registered in the name of each CK Purchaser, representing such CK
Purchaser's Exchange Shares;
(iv) each Lender and CK Purchaser, an executed copy of the Amendment
to Preferred Stock Rights Agreement, in form satisfactory to such Lender
and CK Purchaser; and
(v) each Lender and CK Purchaser, such other documentation evidencing
the satisfaction of the conditions set forth in Section 6.1.
(h) Deliveries by each Lender at the Subsequent Closing. At the Subsequent
Closing, subject to the terms and conditions hereof, each Lender shall execute
and deliver to the Company (i) its Warrant Amendment and (ii) its Notes together
with duly executed note powers for such Notes.
(i) Deliveries by each CK Purchaser at the Subsequent Closing. At the
Subsequent Closing, subject to the terms and conditions hereof, each CK
Purchaser shall deliver to the Company its CK Sub Notes together with duly
executed note powers for such CK Sub Notes.
2.7 Subsequent Sales. For a period of twelve (12) months following the
Subsequent Closing Date, the Company may sell up to 10,000,000 shares of Series
E Preferred Stock to such Persons as the Company may determine at a price equal
to the Series E Price Per Share, such amount in addition to and not including
(a) the Subject Shares, (b) shares of Series E Preferred Stock issued upon
exercise of the Series E Purchase Rights or (c) shares of Series E Preferred
Stock issued in connection with the settlement of Claims. The other terms of any
such sale of shares of Series E Preferred Stock shall be the
9
same as those contained in the Series E Certificate of Determination and not
more favorable than the terms and conditions set forth in this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each of the Lenders and the CK
Purchasers as follows:
3.1 Corporate Existence and Power. The Company and each of its
Subsidiaries (a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power and authority to own and operate its property, to
lease the property it operates as lessee and to conduct the business in which it
is currently engaged; (c) is duly qualified as a foreign corporation, licensed
and in good standing under the laws of each jurisdiction in which its ownership,
lease or operation of property or the conduct of its business requires such
qualification, except where the failure to be so qualified could not reasonably
be expected to have a material adverse effect on the Condition of the Company
and (d) has the corporate power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Transaction
Documents. No jurisdiction, other than those referred to in clause (c) above,
has claimed, in writing or otherwise, that the Company or any of its
Subsidiaries is required to qualify as a foreign corporation or other entity
therein, and the Company or any of its Subsidiaries does not file any franchise,
income or other tax returns in any other jurisdiction based upon the ownership
or use of property therein or the derivation of income therefrom.
3.2 Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and each of the other Transaction
Documents and the transactions contemplated hereby and thereby (a) subject to
Stockholder Approval with respect to the matters set forth in Section 3.24, have
been duly authorized by all necessary corporate action of the Company; (b)
subject to Stockholder Approval with respect to the matters set forth in Section
3.24, do not contravene the terms of the Articles of Incorporation or the
By-laws; (c) do not violate, conflict with or result in any breach, default or
contravention of (or with due notice or lapse of time or both would result in
any breach, default or contravention of), or the creation of any Lien under, any
Contractual Obligation of the Company or any of its Subsidiaries or any
Requirement of Law applicable to the Company or any of its Subsidiaries except
such violations or conflicts that would not reasonably be expected to have a
material adverse effect on the Condition of the Company; and (d) do not violate
any judgment, injunction, writ, award, decree or order of any nature
(collectively, "Orders") of any Governmental Authority against, or binding upon,
the Company or any of its Subsidiaries.
3.3 Governmental Authorization; Third Party Consents. Except for the
Stockholder Approval and as set forth in Schedule 3.3, no approval, consent,
compliance, exemption, authorization or other action by, or notice to, or filing
with, any Governmental Authority or any other Person, and no lapse of a waiting
period under a Requirement of Law, is necessary or required in connection with
the execution, delivery or performance (including, without limitation, the sale,
issuance and delivery of the Subject Shares) by, or enforcement against, the
Company of this Agreement and the other Transaction Documents or the
transactions contemplated hereby and thereby.
3.4 Binding Effect. This Agreement and each of the other Transaction
Documents (other than the Warrant Amendments and the Amendment to the Preferred
Stock Rights Agreement) have been, and as of the Subsequent Closing Date, each
of the Warrant Amendments and Amendment to the Preferred Stock Rights Agreement,
will have been, duly executed and delivered by the Company, and this Agreement
and each of the other Transaction Documents (other than the Warrant Amendments
and the Amendment to the Preferred Stock Rights Agreement) constitute, and as of
the Subsequent Closing Date, each of the Warrant Amendments and Amendment to the
Preferred Stock Rights Agreement will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency,
10
reorganization, fraudulent conveyance or transfer, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability (regardless of whether
considered in a proceeding at law or in equity).
3.5 Litigation. Except as set forth on Schedule 3.5 or as disclosed in
the SEC Reports, there are no actions, suits, proceedings, claims, complaints,
disputes, arbitrations or investigations (collectively, "Claims") pending or, to
the Knowledge of the Company, threatened, at law, in equity, in arbitration or
before any Governmental Authority against the Company or any of its Subsidiaries
that seeks in excess of $50,000 in damages nor is the Company aware that there
is any basis for any of the foregoing. The foregoing includes, without
limitation, Claims pending or, to the Knowledge of the Company, threatened or
any basis therefor known by the Company involving the prior employment of any
employee of the Company or any of its Subsidiaries, their use in connection with
the business of the Company or any of its Subsidiaries of any information or
techniques allegedly proprietary to any of their former employers or their
obligations under any agreements with prior employers. No Order has been issued
by any court or other Governmental Authority against the Company or any of its
Subsidiaries purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any of the other Transaction Documents.
3.6 Compliance with Laws. The Company and each of its Subsidiaries is in
compliance in all material respects with all Requirements of Law and all Orders
issued by any court or Governmental Authority against the Company in all
respects. To the Company's Knowledge, there are no Requirements of Law which
could reasonably be expected to prohibit or restrict the Company or any of its
Subsidiaries from, or otherwise materially adversely effect the Company or any
of its Subsidiaries in, conducting its business in any jurisdiction in which it
now conducts its business.
3.7 Capitalization.
(a) (i) As of the date of this Agreement, the authorized capital stock of
the Company consists of (A) 125,000,000 shares of Common Stock, of which
20,538,794 shares are issued and outstanding, (B) one share of Special Voting
Stock, par value $0.001 per share, of the Company, which is issued and
outstanding, (C) 75,000 shares of Series C Preferred Stock, par value $0.001 per
share, of the Company, of which no shares are issued and outstanding, (D)
4,000,000 shares of Series D Preferred Stock, all of which are issued and
outstanding, and (E) 925,000 shares of undesignated "blank check" preferred
stock. As of the date of this Agreement, the aggregate number of shares of
restricted stock and options to purchase shares of Common Stock which may be
issued under the Stock Option Plans are 19,842,011, of which 12,615,017 have
been granted. The Company has reserved an aggregate of 29,263,333 shares of
Common Stock for issuance upon conversion of the Subject Shares and 2,024,350
shares of Common Stock for issuance upon exercise of the Warrants.
(ii) As of the Subsequent Closing Date, the authorized capital stock of the
Company shall consist of (A) 21,092,708 shares of Common Stock, (B) one share of
Special Voting Stock, par value $0.001 per share, of the Company (C) 75,000
shares of Series C Preferred Stock, par value $0.001 per share, of the Company,
(D) 4,188,587 shares of Series D Preferred Stock, (E) a sufficient number of
shares of Series E Preferred Stock to settle certain claims and to consummate
the Conversion, the Exchange, the Rights Offering and the transactions
contemplated by Section 2.7 of this Agreement, and (F) a number of 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.
11
(b) Upon the Initial Closing Date, the Notes shall be duly authorized, and
assuming the accuracy of the representations and warranties of the Lenders set
forth in Article IV of this Agreement, will be issued in compliance with the
registration and qualification requirements of all applicable federal, state and
foreign securities laws and will be free and clear of all other Liens.
(c) Upon the Subsequent Closing Date, the Subject Shares shall be duly
authorized, and when issued and delivered to the Lenders and the CK Purchasers
and upon the consummation of the Conversion and the Exchange on the Subsequent
Closing Date, will be validly issued, fully paid and non-assessable, and
assuming the accuracy of the representations and warranties of the Lenders and
the CK Purchasers set forth in Article IV of this Agreement, will be issued in
compliance with the registration and qualification requirements of all
applicable federal, state and foreign securities laws and will be free and clear
of all other Liens. Upon the Subsequent Closing Date, the shares of Common Stock
issuable upon conversion of the Subject Shares and the shares of Series D
Preferred Stock and upon exercise of the Warrants, shall have been duly reserved
for issuance and will be validly issued, fully paid and non-assessable and not
subject to any preemptive rights or similar rights that have not been satisfied,
will be issued in compliance with the registration and qualification
requirements of all applicable federal and state securities laws and will be
free and clear of all other Liens. None of the issued and outstanding shares of
Common Stock were issued in violation of any preemptive rights.
3.8 No Default or Breach; Contractual Obligations. All of the Contractual
Obligations to which the Company or any of its Subsidiaries is a party, whether
written or oral, which are required by the Exchange Act to be disclosed in the
SEC Reports (collectively, "Material Contractual Obligations") are valid,
subsisting, in full force and effect and binding upon the Company or its
Subsidiary, as the case may be, and the other parties thereto, and the Company
or its Subsidiary, as the case may be, has paid in full or accrued all amounts
due thereunder and has satisfied in full or provided for all of its liabilities
and obligations thereunder, except for such amounts as are being contested by
the Company in good faith. Neither the Company nor any of its Subsidiaries has
received notice of a default and is not in default under, or with respect to,
any Material Contractual Obligation nor, to the Knowledge of the Company, does
any condition exist that with notice or lapse of time or both would constitute a
default thereunder. To the Knowledge of the Company, no other party to any such
Contractual Obligation is in default thereunder, nor does any condition exist
that with notice or lapse of time or both would constitute a default by such
other party thereunder.
3.9 Title to Properties. The Company and each of its Subsidiaries has
good, record and marketable title in fee simple to, or holds interests as lessee
under leases in full force and effect in, all real property used in connection
with its business or otherwise owned or leased by it. The Company and each of
its Subsidiaries owns and has good, valid and marketable title to all of its
properties and assets used in its business or reflected as owned on the
Financial Statements, in each case free and clear of all Liens, except for
Permitted Liens, or that would required to be described in the notes to the
Financial Statements.
3.10 Reports; Financial Statements.
(a) As of the respective dates of their filing with the Commission, all
reports, registration statements and other filings, together with any amendments
thereto, filed by the Company with the Commission since June 30, 2000 (the "SEC
Reports"), complied in all material respects with the applicable requirements of
the Securities Act, the Exchange Act, and the rules and regulations of the
Commission promulgated thereunder, except as disclosed in the SEC Reports.
Except as disclosed in the SEC Reports, the SEC Reports did not at the time they
were filed with the Commission, or will not at the time they are filed with the
Commission, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. The Company has (i) delivered to the Lenders and CK Purchasers
true and complete copies of, or will make available at each Lender's or CK
Purchaser's request, (x) all correspondence relating to the Company between the
Commission, Nasdaq and the United States Attorneys Office and the Company or its
legal counsel and, to the Company's Knowledge, accountants since January 1, 2003
(other than routine Commission filing package cover
12
letters) and (y) all correspondence between the Company or its counsel and the
Company's auditors since January 1, 2003, relating to any audit, financial
review or preparation of financial statements of the Company (other than
correspondence which the Company reasonably believes is subject to a privilege),
and (ii) disclosed to the Lenders and the CK Purchasers the content of all
material discussions between the Commission, Nasdaq and the United States
Attorneys Office on the one hand and the Company or its legal counsel, on the
other hand, and, to the Company's Knowledge, accountants concerning the adequacy
or form of any SEC Report filed with the Commission since January 1, 2003. The
Company is not aware of any issues raised by the Commission with respect to any
of the SEC Reports, other than those disclosed in the SEC Reports.
(b) Except as disclosed in the SEC Reports, the consolidated financial
statements (including, in each case, any related schedules or notes thereto)
contained in or incorporated by reference in the SEC Reports and any such
reports, registration statements and other filings to be filed by the Company
with the Commission prior to the Initial Closing Date or the Subsequent Closing
Date, as the case may be (the "Financial Statements"), (i) have been or will be
prepared in accordance with the published rules and regulations of the
Commission and GAAP consistently applied during the periods involved (except as
may be indicated in the notes thereto) and (ii) fairly present or will fairly
present in all material respects the consolidated financial position of the
Company and its Subsidiaries as of the respective dates thereof and the
consolidated results of operations, statements of stockholders' equity and cash
flows for the periods indicated, except that any unaudited interim financial
statements were or will be subject to normal and recurring year-end adjustments
and may omit footnote disclosure as permitted by regulations of the Commission.
3.11 Taxes. (a) The Company and each of its Subsidiaries has paid all
Taxes which have come due and are required to be paid by it through the date
hereof, and all deficiencies or other additions to Tax, interest and penalties
owed by it in connection with any such Taxes, other than Taxes being disputed by
the Company in good faith for which adequate reserves have been made in
accordance with GAAP; (b) the Company and each of its Subsidiaries has timely
filed or caused to be filed all returns for Taxes that it is required to file on
and through the date hereof (including all applicable extensions), and all such
Tax returns are accurate and complete in all material respects; (c) with respect
to all Tax returns of the Company and each of its Subsidiaries, (i) there is no
unassessed Tax deficiency proposed or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries and (ii) no audit is
in progress with respect to any return for Taxes, no extension of time is in
force with respect to any date on which any return for Taxes was or is to be
filed and no waiver or agreement is in force for the extension of time for the
assessment or payment of any Tax; (d) all provisions for Tax liabilities of the
Company and each of its Subsidiaries have been disclosed in the Financial
Statements and made in accordance with GAAP consistently applied, and all
liabilities for Taxes of the Company and each of its Subsidiaries attributable
to periods prior to or ending on the Initial Closing Date or the Subsequent
Closing Date, as the case may be, have been adequately disclosed in the
Financial Statements; and (e) there are no Liens for Taxes on the assets of the
Company or any of its Subsidiaries, other than Permitted Liens.
3.12 No Material Adverse Change; Ordinary Course of Business. Since
December 31, 2002, except as disclosed in or incorporated by reference in the
SEC Reports, (a) there has not been any material adverse change in the Condition
of the Company, (b) neither the Company nor any of its Subsidiaries has
participated in any transaction material to the Condition of the Company,
including, without limitation, declaring or paying any dividend or declaring or
making any distribution to its stockholders except out of the earnings of the
Company or its Subsidiary, as the case may be, (c) neither the Company nor any
of its subsidiaries has entered into any Material Contractual Obligation, other
than in the ordinary course of business and (d) there has not occurred a
material change in the accounting principles or practice of the Company or any
of its Subsidiaries except as required by reason of a change in GAAP.
3.13 Private Offering. Neither the Company nor any authorized Person
acting on its behalf has, in connection with the offer, sale, exchange or
issuance of the Notes or the Subject Shares, engaged in (a) any form of general
solicitation or general advertising (as those terms are used within the meaning
of
13
Rule 502(c) under the Securities Act), (b) any action involving a public
offering within the meaning of Section 4(2) of the Securities Act, or (c) any
action that would require the registration under the Securities Act of the
offering, sale, exchange or issuance of the Notes and the Subject Shares
pursuant to this Agreement or that would violate applicable state securities or
"blue sky" laws. The Company has not made and will not prior to the Initial
Closing Date or the Subsequent Closing Date, as the case may be, make, directly
or indirectly, any offer or sale of the Notes or the Subject Shares or of
securities of the same or similar class as the Notes or the Subject Shares if,
as a result, the offer and sale contemplated hereby would fail to be entitled to
exemption from the registration requirements of the Securities Act. As used
herein, the terms "offer" and "sale" have the meanings specified in Section 2(3)
of the Securities Act.
3.14 Labor Relations. Except as could not reasonably be expected to have
a material adverse effect on the Condition of the Company: (a) neither the
Company nor any of its Subsidiaries is engaged in any unfair labor practice; (b)
there is no strike, labor dispute, slowdown or stoppage pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries; (c) neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or contract; and (d) no union organizing
activities are taking place. To the Knowledge of the Company, no officer or key
employee, or any group of key employees, intends to terminate their employment
with the Company or any of its Subsidiaries. To the Knowledge of the Company,
each of the officers and key employees of the Company and each of its
Subsidiaries spends all, or substantially all, of his business time on the
business of the Company or its Subsidiary, as the case may be. To the Knowledge
of the Company, none of the employees of the Company or any of its Subsidiaries
is resident in the United States in violation of any Requirement of Law.
3.15 Employee Benefit Plans.
(a) The SEC Reports list or describe each Plan that the Company or any of
its Subsidiaries maintains or to which the Company or any of its Subsidiaries
contributes (the "Company Plans"). Neither the Company nor any of its
Subsidiaries has any liability under any Plans other than the Company Plans.
Except as described in or incorporated by reference in the SEC Reports, neither
the Company nor any Commonly Controlled Entity maintains or contributes to, or
has within the preceding six years maintained or contributed to, or may have any
liability with respect to any Plan subject to Title IV of ERISA or Section 412
of the Code or any "multiple employer plan" within the meaning of the Code or
ERISA. Each Company Plan (and related trust, insurance contract or fund) has
been established and administered in accordance with its terms, and complies in
form and in operation with the applicable requirements of ERISA and the Code and
other applicable Requirements of Law. All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each Company Plan.
(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.
14
(g) Except as could not reasonably be expected to have a material adverse
effect on the Condition of the Company, the Company has no liability, whether
absolute or contingent, including any obligations under any Company Plan, with
respect to any misclassification of any person as an independent contractor
rather than as an employee.
3.16 Liabilities. Neither the Company nor any of its Subsidiaries has any
direct or indirect obligation or liability (the "Liabilities") which are not
fully reflected or reserved against in the Financial Statements, other than
Liabilities not exceeding $1,000,000 in the aggregate incurred since September
30, 2003 in the ordinary course of business. The Company has no Knowledge of any
circumstance, condition, event or arrangement that could reasonably be expected
to give rise hereafter to any Liabilities of the Company or any of its
Subsidiaries that, individually or in the aggregate, could have a material
adverse effect on the Condition of the Company.
3.17 Affiliate Transactions. In the twelve (12) months preceding the date
hereof, neither the Company nor any of its Subsidiaries has sold, leased or
otherwise transferred any property or assets to, or purchased, leased or
otherwise acquired any property or assets from, or otherwise engaged in any
other transactions with, any of its Affiliates, except in (a) transactions that
are at prices and on terms and conditions not less favorable to the Company or
such Subsidiary than could be obtained on an arm's length basis from unrelated
third parties, (b) transactions exclusively between the Company and one or more
if its Subsidiaries, or between two or more Subsidiaries of the Company, and
which do not involve any other Affiliate and (c) transactions under the
agreements listed on Schedule 3.17 hereto.
3.18 Intellectual Property.
(a) (i) The Company and each of its Subsidiaries is the owner of all, or
has the license or right to use, sell and license all of, the Copyrights,
Patents, Trade Secrets, Trademarks, Internet Assets, Software and other
proprietary rights (collectively, "Intellectual Property") that are used in
connection with its business as presently conducted, free and clear of all
Liens, other than Permitted Liens.
(i) None of the Intellectual Property is subject to any outstanding
Order, and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand is pending or, to the Knowledge of the Company,
threatened, which challenges the validity, enforceability, use or ownership
of the item.
(ii) The Company and each of its Subsidiaries has substantially
performed all obligations imposed upon it under all Intellectual Property
licenses, sublicenses, distributor agreements and other agreements under
which the Company or any of its Subsidiaries is either a licensor, licensee
or distributor, except such licenses, sublicenses and other agreements
relating to off-the-shelf software which is commercially available on a
retail basis and used solely on the computers of the Company or its
Subsidiaries (collectively, the "IP Agreements"). The Company and each of
its Subsidiaries is not, nor to the Knowledge of the Company is any other
party thereto, in breach of or default thereunder in any respect, nor is
there any event which with notice or lapse of time or both would constitute
a default thereunder. All of the IP Agreements are valid, enforceable and
in full force and effect, and will continue to be so on identical terms
immediately following the Initial Closing and the Subsequent Closing, as
the case may be, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
(iii) None of the Intellectual Property currently sold or licensed by
the Company or any of its Subsidiaries to any Person or used by or licensed
to the Company or any of its Subsidiaries by any Person infringes upon or
otherwise violates any Intellectual Property rights of others, except as
could not reasonably be expected to have a material adverse effect on the
Condition of the Company.
(b) No litigation is pending and no Claim has been made against the Company
or any of its Subsidiaries or, to the Knowledge of the Company, is threatened,
contesting the right of the Company or any of its Subsidiaries to sell or
license to any Person or use the Intellectual Property presently sold or
15
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 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.
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3.22 Outstanding Borrowing. Schedule 3.22 sets forth the amount of all
Indebtedness of the Company and each of its Subsidiaries as of the date hereof,
the Liens that relate to such Indebtedness and that encumber the Assets and the
name of each lender thereof. No Indebtedness is entitled to any voting rights in
any matters voted upon by the holders of the Common Stock.
3.23 Broker's, Finder's or Similar Fees. Except as set forth on Schedule
3.23, there are no brokerage commissions, finder's fees or similar fees or
commissions payable by the Company or any of its Subsidiaries in connection with
the transactions contemplated hereby based on any agreement, arrangement or
understanding with the Company or any of its Subsidiaries or any action taken by
any such Person.
3.24 Stockholder Approval. The approval on the first attempt of (a) more
than fifty percent (50%) of the outstanding shares of Common Stock and the votes
represented by the Special Voting Stock, voting together as a class, and (b)
more than fifty percent (50%) of the outstanding shares of Series D Preferred
Stock, voting separately as a class, such stockholders present in person or
proxy at a properly convened meeting of the Company's stockholders ("Stockholder
Approval") are the stockholders' consents required for the (i) filing of (A) the
Amended and Restated Series D Certificate of Determination and (B) the Series E
Certificate of Determination; (ii) the issuance of shares of Series E Preferred
Stock authorized for issuance in the Series E Certificate of Determination;
(iii) the reservation and issuance of shares of Common Stock upon conversion of
the shares of Series D Preferred Stock and the shares of Series E Preferred
Stock and upon exercise of the Warrants; (iv) an amendment to the Amended and
Restated Articles of Incorporation to increase the authorized shares of common
stock and preferred stock; and (v) the Warrant Amendment.
3.25 CCC Section. The Board of Directors has received the opinion of Duff
& Phelps, LLC, financial advisor to the Company, that the transactions
contemplated by this Agreement are fair from a financial point of view and has
taken all action necessary to exempt from the provisions of Section 1203 of the
California Corporations Code, to the extent applicable, this Agreement, any
acquisition by the Lenders and the CK Purchasers of Notes and Subject Shares
pursuant to this Agreement and the Series E Certificate of Determination and any
conversion by the Lenders and the CK Purchasers of Subject Shares into shares of
Common Stock.
3.26 Disclosure. This Agreement and the documents and certificates
furnished to the Lenders and the CK Purchasers by the Company do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in the light of the
circumstances under which they were made, not misleading.
3.27 Investments. As of the date hereof, except as set forth on Schedule
3.27 hereto, neither the Company nor any of its Subsidiaries has made an
Investment in any Person, other than a Permitted Investment.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDERS
AND CK PURCHASERS
Each of the Lenders and CK Purchasers, as the case may be, hereby
represents and warrants, severally and not jointly, to the Company as follows:
4.1 Existence and Power. Such Lender or CK Purchaser (a) is a limited
partnership, corporation, partnership or limited liability company duly
organized and validly existing under the laws of the jurisdiction of its
formation and (b) has the requisite partnership, corporate or limited liability
company, as the case may be, power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Transaction Documents
to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Lender or CK Purchaser of this Agreement and each of the
other Transaction Documents to which it is a party and
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the transactions contemplated hereby and thereby, (a) have been duly authorized
by all necessary partnership, corporate or limited liability company, as the
case may be, action, (b) do not contravene the terms of such Lender's or CK
Purchaser's organizational documents, or any amendment thereof, (c) do not
violate, conflict with or result in any breach or contravention of, or the
creation of any Lien under, any Contractual Obligation of such Lender or CK
Purchaser or any Requirement of Law applicable to such Lender or CK Purchaser,
and (d) do not violate any Orders of any Governmental Authority against, or
binding upon, such Lender or CK Purchaser.
4.3 Governmental Authorization; Third Party Consents. Except for the
Stockholder Approval, no approval, consent, compliance, exemption, authorization
or other action by, or notice to, or filing with, any Governmental Authority or
any other Person, and no lapse of a waiting period under any Requirement of Law,
is necessary or required in connection with the execution, delivery or
performance by, or enforcement against, such Lender or CK Purchaser of this
Agreement and each of the other Transaction Documents to which it is a party or
the transactions contemplated hereby and thereby.
4.4 Binding Effect. This Agreement and each of the other Transaction
Documents (other than the Warrant Amendments) to which such Lender or CK
Purchaser, as the case may be, is a party, have been, and as of the Subsequent
Closing Date, each of the Warrant Amendments to which such Lender is a party
will have been, duly executed and delivered by such Lender or CK Purchaser, as
the case may be, and this Agreement and each of the other Transaction Documents
(other than the Warrant Amendments) to which such Lender or CK Purchaser, as the
case may be, is a party, constitute and, as of the Subsequent Closing Date, each
of the Warrant Amendments to which such Lender is a party will constitute, the
legal, valid and binding obligations of such Lender or CK Purchaser, enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability
(regardless of whether considered in a proceeding at law or in equity).
4.5 Purchase for Own Account. The Notes and the Subject Shares to be
acquired by such Lender or CK Purchaser, respectively, are being or will be
acquired for its own account and with no intention of distributing or reselling
such Notes or Subject Shares or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America, any
state of the United States or any foreign jurisdiction, without prejudice,
however, to the rights of such Lender or CK Purchaser at all times to sell or
otherwise dispose of all or any part of such Notes or Subject Shares under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of such Lender's or CK Purchaser's property
being at all times within its control. If such Lender or CK Purchaser should in
the future decide to dispose of any of such Notes or Subject Shares, such Lender
or CK Purchaser understands and agrees that it may do so only in compliance with
the Securities Act and applicable state and foreign securities laws, as then in
effect. Such Lender or CK Purchaser agrees to the imprinting at the Initial
Closing and the Subsequent Closing, as the case may be, and for so long as
required by law, of a legend on certificates representing all of its Notes,
Subject Shares and shares of Common Stock issuable upon conversion of its
Subject Shares to the following effect:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY FOREIGN JURISDICTION. THE
SECURITIES MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE AND FOREIGN
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
4.6 Restricted Securities. Such Lender or CK Purchaser understands that
the Notes and the Subject Shares will not be registered at the time of their
issuance under the Securities Act for the reason
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that the sale provided for in this Agreement is exempt pursuant to Section 4(2)
of the Securities Act and that the reliance of the Company on such exemption is
predicated in part on such Lender's or CK Purchaser's representations set forth
herein.
4.7 Accredited Investor. Such Lender or CK Purchaser is an "Accredited
Investor" within the meaning of Rule 501 of Regulation D under the Securities
Act, as presently in effect.
4.8 Experience. Such Lender or CK Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in its Notes and Subject Shares (the
"Securities"), and has so evaluated the merits and risks of such investment.
Such Lender or CK Purchaser is able to bear the economic risk of an investment
in the Securities and, at the present time, is able to afford a complete loss of
such investment.
4.9 Access to Information. Such Lender or CK Purchaser acknowledges that
it has received the SEC Reports and has been afforded: (a) the opportunity to
ask such questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (b) access to publicly available information about the Company and
the Subsidiaries and the Condition of the Company sufficient to enable it to
evaluate its investment; and (c) the opportunity to obtain such additional
publicly available information that the Company possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment. Neither such inquiries nor any other
investigation conducted by or on behalf of such Lender or CK Purchaser or its
representatives or counsel shall modify, amend or affect such Lender's or CK
Purchaser's right to rely on the truth, accuracy and completeness of the SEC
Reports and the Company's representations and warranties contained in the
Transaction Documents.
4.10 General Solicitation. Such Lender or CK Purchaser is not purchasing
the Securities as a result of any advertisement, article, notice or other
communication regarding the Securities published in any newspaper, magazine or
similar media or broadcast over television or radio or presented at any seminar
or any other general solicitation or general advertisement.
4.11 Reliance. Such Lender or CK Purchaser understands and acknowledges
that: (a) the Securities are being offered and sold to it without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act and (b) the availability of such
exemption depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and such Lender or CK Purchaser
hereby consents to such reliance.
ARTICLE V
CONDITIONS TO INITIAL CLOSING
5.1 Conditions to Lenders' and CK Purchasers' Obligations. Each of the
Lenders' and CK Purchasers' obligation to consummate the transactions
contemplated by the Initial Closing pursuant to this Agreement is subject to the
fulfillment at or prior to the Initial Closing of the following conditions, any
of which may be waived in whole or in part by such Lender or CK Purchaser:
(a) Representations and Warranties. The representations and
warranties made by the Company in Article III hereof shall be true and
correct on the Initial Closing Date.
(b) Performance. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company on or prior to the Initial
Closing Date shall have been performed or complied with.
(c) Compliance Certificate. The Company shall have delivered to the
Lenders and CK Purchasers a certificate of the Company, executed by the
Chief Executive Officer of the Company
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and dated as of the Initial Closing Date, certifying to the fulfillment of
the conditions specified in Section 5.1(a) and Section 5.1(b) hereof.
(d) Secretary's Certificate. The Company shall have delivered to the
Lenders and CK Purchasers a certificate from the Company, in form and
substance satisfactory to the Lenders and CK Purchasers, dated as of the
Initial Closing Date and signed by the Secretary or an Assistant Secretary
of the Company, certifying (i) that the Company is in good standing with
the Secretary of State of the State of California and (ii) that the
attached copies of the Articles of Incorporation, the By-laws, and
resolutions of the Board of Directors of the Company approving this
Agreement and each of the applicable Transaction Documents and the
transactions contemplated hereby and thereby, are all true, complete and
correct and remain unamended and in full force and effect.
(e) Satisfactory Release of Liens. The Company shall have delivered
to the Lenders satisfactory evidence of the release of all Liens, except
for Permitted Liens, on the assets of the Company and its Subsidiaries in
order to ensure the Lender's first priority security interests upon the
filing of applicable UCC-1's.
(f) Opinion of Counsel. The Company shall have caused the opinion of
Pillsbury Winthrop LLP, dated the Initial Closing Date, relating to the
transactions contemplated by the Initial Closing, substantially in the form
attached hereto as Exhibit I to be delivered to the Lenders and CK
Purchasers.
(g) SVB Consent. The Company shall have delivered to the Lenders and
the CK Purchasers the written consent of Silicon Valley Bank to the
execution, delivery and performance of the Transaction Documents and all of
the transactions contemplated therein.
5.2 Conditions to Company's Obligations. The Company's obligation to
consummate the transactions contemplated by the Initial Closing pursuant to this
Agreement is subject to the fulfillment at or prior to the Initial Closing of
the following conditions, any of which may be waived in whole or in part by the
Company:
(a) Representations and Warranties. The representations and
warranties made by the Lenders and CK Purchasers in Article IV hereof shall
be true and correct on the Initial Closing Date.
(b) Performance. All covenants, agreements and conditions contained
in this Agreement to be performed by the Lenders and CK Purchasers on or
prior to the Initial Closing Date shall have been performed or complied
with.
ARTICLE VI
CONDITIONS TO SUBSEQUENT CLOSING
6.1 Conditions to Lenders' and CK Purchasers' Obligations. Each of the
Lenders' the CK Purchasers' obligation to consummate the Conversion and the
Exchange at the Subsequent Closing pursuant to this Agreement is subject to the
fulfillment at or prior to the Subsequent Closing of the following conditions:
(a) Compliance with Laws. The issuance of the Subject Shares by the
Company hereunder shall be legally permitted by all laws and regulations to
which the Company is subject.
(b) Stockholder Approval. The Company shall have delivered to the
Lenders and CK Purchasers satisfactory evidence of the Stockholder
Approval.
(c) Amendment to the Amended and Restated Articles of
Incorporation. The Company shall have duly filed with the Secretary of
State of the State of California an amendment to the Amended and Restated
Articles of Incorporation to increase the authorized common stock and
preferred stock of the Company.
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(d) Certificates of Determination. The Company shall have duly filed
with the Secretary of State of the State of California the Amended and
Restated Series D Certificate of Determination and the Series E Certificate
of Determination.
(e) SVB Debt Matters. The Company shall used the proceeds from the
Initial Closing to repay four million nine hundred thousand dollars
($4,900,000) of the SVB Debt.
6.2 Conditions to the Company's Obligations. The Company's obligation to
consummate the Conversion and the Exchange at the Subsequent Closing pursuant to
this Agreement is subject to the fulfillment at or prior to the Subsequent
Closing of the following condition:
(a) Stockholder Approval. The Company shall have received
satisfactory evidence of the Stockholder Approval.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification. Except as otherwise provided in this Article VII,
the Company (the "Indemnifying Party") agrees to indemnify, defend and hold
harmless each of the Lenders and the CK Purchasers and their Affiliates and
their respective officers, directors, agents, employees, subsidiaries, partners,
members and controlling persons (each, an "Indemnified Party") to the fullest
extent permitted by law from and against any and all losses, Claims, or written
threats thereof (including, without limitation, any Claim by a third party),
damages, expenses (including reasonable fees, disbursements and other charges of
counsel incurred by the Indemnified Party in any action between the Indemnifying
Party and the Indemnified Party or between the Indemnified Party and any third
party or otherwise) or other liabilities (collectively, "Losses") resulting from
or arising out of any breach of any representation or warranty, covenant or
agreement by the Company in this Agreement, the Notes, the Security Agreement or
the Amended and Restated Stockholders Agreement. The amount of any payment to
any Indemnified Party herewith in respect of any Loss shall be of sufficient
amount to make such Indemnified Party whole for any diminution in value of the
Subject Shares directly caused by such breach. In connection with the obligation
of the Indemnifying Party to indemnify for expenses as set forth above, the
Indemnifying Party shall, upon presentation of appropriate invoices containing
reasonable detail, reimburse each Indemnified Party for all such expenses
(including reasonable fees, disbursements and other charges of counsel incurred
by the Indemnified Party in any action between the Indemnifying Party and the
Indemnified Party or between the Indemnified Party and any third party) as they
are incurred by such Indemnified Party; provided, however, that if an
Indemnified Party is reimbursed under this Article VII for any expenses, such
reimbursement of expenses shall be refunded to the extent it is finally
judicially determined that the Losses in question resulted primarily from the
willful misconduct or gross negligence of such Indemnified Party.
7.2 Notification. Each Indemnified Party under this Article VII shall,
promptly after the receipt of notice of the commencement of any Claim against
such Indemnified Party in respect of which indemnity may be sought from the
Indemnifying Party under this Article VII, notify the Indemnifying Party in
writing of the commencement thereof. The omission of any Indemnified Party to so
notify the Indemnifying Party of any such action shall not relieve the
Indemnifying Party from any liability which it may have to such Indemnified
Party (a) other than pursuant to this Article VII or (b) under this Article VII
unless, and only to the extent that, such omission 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
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employ separate counsel and to control its own defense of such Claim if, in the
reasonable opinion of counsel to such Indemnified Party, either (x) one or more
defenses are available to the Indemnified Party that are not available to the
Indemnifying Party or (y) a conflict or potential conflict exists between the
Indemnifying Party, on the one hand, and such Indemnified Party, on the other
hand, that would make such separate representation advisable; provided, however,
that the Indemnifying Party (i) shall not be liable for the fees and expenses of
more than one counsel to all Indemnified Parties and (ii) shall reimburse the
Indemnified Parties for all of such fees and expenses of such counsel incurred
in any action between the Indemnifying Party and the Indemnified Parties or
between the Indemnified Parties and any third party, as such expenses are
incurred; provided, however, that if an Indemnified Party is reimbursed under
this Article VII for any expenses, such reimbursement of expenses shall be
refunded to the extent it is finally judicially determined that the Losses in
question resulted primarily from the willful misconduct or gross negligence of
such Indemnified Party. The Indemnifying Party agrees that it will not, without
the prior written consent of the Indemnified Party, settle, compromise or
consent to the entry of any judgment in any pending or threatened Claim relating
to the matters contemplated hereby (if any Indemnified Party is a party thereto
or has been actually threatened to be made a party thereto) unless such
settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising or that may arise out of such
Claim. The Indemnifying Party shall not be liable for any settlement of any
Claim effected against an Indemnified Party without the Indemnifying Party's
written consent, which consent shall not be unreasonably withheld. The rights
accorded to an Indemnified Party hereunder shall be in addition to any rights
that any Indemnified Party may have at common law, by separate agreement or
otherwise; provided, however, that notwithstanding the foregoing or anything to
the contrary contained in this Agreement, nothing in this Article VII shall
restrict or limit any rights that any Indemnified Party may have to seek
equitable relief.
7.3 Contribution. If the indemnification provided for in this Article VII
from the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any Losses referred to herein, then the Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions which resulted in such Losses,
as well as any other relevant equitable considerations. The relative faults of
such Indemnifying Party and Indemnified Party shall be determined by reference
to, among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the Losses referred
to above shall be deemed to include, subject to the limitations set forth in
Section 7.1 and Section 7.2, any reasonable legal or other fees, charges or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
ARTICLE VIII
COVENANTS
The Company hereby covenants and agrees with the Lenders and CK Purchasers
as follows:
8.1 Financial Statements and Other Information. If any time the Company
is not subject to the periodic disclosure obligations of the Exchange Act, the
Company shall deliver to each Lender and CK Purchaser, in form and substance
satisfactory to such Lender and CK Purchaser:
(a) as soon as available, but not later than ninety (90) days after
the end of each fiscal year of the Company, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as of the
end of such fiscal year and the related statements of operations and cash
flows for such fiscal year, setting forth in each case in comparative form
the figures for the previous year, all in reasonable detail and accompanied
by a management summary and analysis of the operations of the Company for
such fiscal year and by the opinion of a nationally recognized independent
certified public
22
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 or CK
Purchasers, as promptly as practicable, but not later than five (5) days after
the end of each fiscal year of the Company, the Company shall deliver to such
Lender or CK Purchaser, in form and substance satisfactory to such Lender or CK
Purchaser, a certificate signed by the Chief Executive Officer of the Company in
customary form certifying that the Company is not a "foreign person" within the
meaning of Section 1445 of the Code.
8.3 Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of issue or delivery upon conversion of the Subject Shares and the
shares of Series D Preferred Stock and upon exercise of the Warrants, as
provided in the Series E Certificate of Determination, the Amended and Restated
Series D Certificate of Determination and the Warrants, respectively, the
maximum number of shares of Common Stock that may be issuable or deliverable
upon such conversion or exercise. Such shares of Common Stock are duly
authorized and, when issued or delivered in accordance with the Amended and
Restated Series D Certificate of Determination, the Series E Certificate of
Determination and the Warrants, shall be validly issued, fully paid and
non-assessable. The Company shall issue such shares of Common Stock, in
accordance with the terms of the Amended and Restated Series D Certificate of
Determination, the Series E Certificate of Determination and the Warrants, and
otherwise comply with the terms hereof and thereof.
8.4 Stockholder Approval. As soon as practicable following the Initial
Closing Date, the Company will prepare and file with the Commission a proxy
statement to be distributed to the Company's stockholders in connection with the
solicitation of votes in favor of the matters set forth in Section 3.24 that
require Stockholder Approval, including any amendments or supplements thereto
(the "Proxy Statement"). The Company will use all reasonable commercial efforts
to have or cause the Proxy Statement to be cleared by the Commission as promptly
as practicable. The Company agrees to provide the Lenders and the CK Purchasers
and their respective counsel with any written comments the Company or its
counsel may receive from the Commission with respect to the Proxy Statement
promptly after the receipt of such comments. The Company will use all reasonable
commercial efforts to cause the Proxy Statement (a) not to contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading and (b) to comply as
to form in all material respects with the applicable provisions of the Exchange
Act and the rules and regulations thereunder. Following clearance by the
Commission of the Proxy Statement, the Company shall promptly distribute
23
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 SVB Debt Matters. Following the Initial Closing, the Company shall
use reasonable commercial efforts to renegotiate the terms of the SVB Debt on
terms satisfactory to the Lenders and the CK Purchasers, which terms are
anticipated to include reducing the line of credit to a five million dollar
($5,000,000) line (such amount comprising approximately two million eight
hundred thousand dollars ($2,800,000) in letters of credit and a two million two
hundred thousand dollar ($2,200,000) line of credit). In the event that such
renegotiated terms of the SVB Debt are not satisfactory to the Lenders or the CK
Purchasers, the Lenders or the CK Purchasers may demand that the Company
terminate and pay off all agreements and letters of credit with Silicon Valley
Bank and upon such demand, the Company shall effect such termination and pay
off. Upon the Subsequent Closing, the CK Purchasers shall be entitled to the
rights set forth in Section 3.5 of the Amended and Restated Stockholders
Agreement.
8.7 Rights Offering.
(a) As promptly as practicable after the date hereof, the Company will
prepare and file with the Commission a registration statement on Form S-3 as
adopted pursuant to the Securities Act (or, if Form S-3 is not then available to
the Company, on Form S-1 as adopted pursuant to the Securities Act) (together
with the Prospectus included in such registration statement, the "Registration
Statement") covering the issuance of the Series E Purchase Rights and the Rights
Shares. The consummation of the Rights Offering shall be subject to the Company
obtaining Stockholder Approval. The Lenders, the CK Purchasers and their
respective counsel will be given the opportunity to participate in all drafting
sessions and other discussions with respect to such Registration Statement, and
the Company will provide the Lenders, the CK Purchasers and their respective
counsel with any written comments or other written communications that the
Company or its counsel receives from time to time from the Commission or its
staff with respect to the Registration Statement promptly after such
communications are received by the Company. The Registration Statement will (i)
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading and (ii) comply in all material respects with the provisions of
applicable federal securities laws. The Company promptly will correct any
information provided by it for use in the Registration Statement if and to the
extent that such information becomes false or misleading in any material respect
or omits to state any material fact, and the Company will take all steps
necessary to cause the Registration Statement, as so corrected, to be filed with
the Commission and to be disseminated to the distributees of the Series E
Purchase Rights, in each case as and to the extent required by applicable
federal securities Laws. The Company will use its reasonable commercial efforts
to cause the Registration Statement to be filed pursuant to this Section 8.7(a)
to be declared effective by the Commission as soon as possible after the
Registration Statement is filed with the Commission.
(b) Promptly following the effective date of the Registration Statement,
the Company will commence the Rights Offering (the date the Rights Offering is
commenced is referred to herein as the "Commencement Date"). In the Rights
Offering, the Company will distribute to each holder of Common Stock as of the
Record Date, at no cost to such holder, one Series E Purchase Right for each
share of Common Stock held as of the Record Date. Each Series E Purchase Right
will entitle the holder thereof, in such holder's sole discretion (the "Basic
Subscription Privilege"), to purchase, at the Subscription Price, such holder's
pro rata portion of the number of shares of Series E Preferred Stock equal to up
to
24
$21,000,000 divided by the Subscription Price. The Company shall not, without
the express prior written consent of the Lenders and the CK Purchasers, sell
shares of Series E Preferred Stock in the Rights Offering at any price other
than the Subscription Price. If any Person who holds a Series E Purchase Right
exercises more than one Series E Purchase Right in connection with the Rights
Offering, such Person shall receive the number of shares of Series E Preferred
Stock resulting from aggregating all such exercises, rounded down to the nearest
whole share. The Rights Offering will remain open until the 20th Business Day
following the Commencement Date (the "Expiration Date"), and the Series E
Purchase Rights will expire at 5:00 p.m., New York, New York local time on the
Expiration Date, except as otherwise required by applicable law.
(c) Each of the Lenders severally, and not jointly, and each of the CK
Purchasers severally, and not jointly, will have the right and option to
subscribe for (but will not be obligated to subscribe for) their Proportionate
Percentage (as hereinafter defined) of those Rights Shares that are not
subscribed for through the Basic Subscription Privilege at the Subscription
Price (the "Purchaser Subscription Privilege"). "Proportionate Percentage" means
(i) in the case of the Lenders, 55% and (ii) in the case of the CK Purchasers,
45%. If (x) the Lenders subscribe in full for their Proportionate Percentage of
the Purchaser Subscription Privilege and the CK Purchasers do not subscribe in
full for their Proportionate Percentage of the Purchaser Subscription Privilege,
then the Lenders will have the right and option to subscribe for (but will not
be obligated to subscribe for) that portion of the CK Purchasers' Proportionate
Percentage of the Purchaser Subscription Privilege not subscribed for by the CK
Purchasers and (y) the CK Purchasers subscribe in full for their Proportionate
Percentage of the Purchaser Subscription Privilege and the Lenders do not
subscribe in full for their Proportionate Percentage of the Purchaser
Subscription Privilege, then the CK Purchasers will have the right and option to
subscribe for (but will not be obligated to subscribe for) that portion of the
Lenders' Purchasers' Proportionate Percentage of the Purchaser Subscription
Privilege not subscribed for by the Lenders. The Lenders' Proportionate
Percentage shall be allocated among the Lenders as determined by the Lenders in
their sole discretion. The CK Purchasers' Proportionate Percentage shall be
allocated among the CK Purchasers as determined by the CK Purchasers in their
sole discretion.
(d) The Company will notify in writing the Lenders and the CK Purchasers
immediately following the Expiration Date (by no later than 9:00 am, New York,
New York local time on the next succeeding Business Day following the Expiration
Date) of the amount of Rights Shares not subscribed for in the Basic
Subscription Privilege and the Lenders and the CK Purchasers shall notify the
Company by 5:00 p.m., New York, New York local time on the second Business Day
following the date such notice is delivered by the Company to the Lenders and
the CK Purchasers, of the amount of Rights Shares the Lenders and the CK
Purchasers elect to purchase pursuant to the Purchaser Subscription Privilege.
The closing of the exercise of the Purchaser Subscription Privilege will occur
on or before the 15th Business Day following the Expiration Date. At such
closing, the Lenders and the CK Purchasers shall deliver by wire transfer the
purchase price for the Rights Shares being purchased and the Company shall
deliver certificates representing the shares of Series E Preferred Stock being
acquired pursuant to the Purchaser Subscription Privilege. The Company
represents and warrants that the Purchaser Subscription Privilege complies with,
and the Company agrees to take all actions reasonably required to ensure that
the Purchaser Subscription Privilege will continue to comply with, applicable
federal securities laws. The Lenders may assign their rights under this Section
8.7 to any of their Affiliated investment entities and the CK Purchasers may
assign their assign their rights under this Section 8.7 to any of their
Affiliated investment entities.
(e) The Company will pay all expenses associated with the Registration
Statement and the Rights Offering and registration of the Rights Shares and the
Series E Purchase Rights, including, without limitation, filing and printing
fees, fees and expenses of the subscription agent, counsel and accounting fees
and expenses, costs associated with clearing the Rights Shares and the Series E
Purchase Rights for sale under applicable federal and state securities laws,
listing fees.
25
ARTICLE IX
TERMINATION
9.1 Termination. The Lenders' obligation to consummate the Conversion and
the CK Purchasers' obligations to consummate the Exchange under this Agreement
including, but not limited to, Sections 2.6(f), 2.6(g), 2.6(h) and 2.6(i) and
Article VI of this Agreement, shall terminate in the event that the Company is
unable to obtain Stockholder Approval pursuant to Section 8.4 on the first
attempt, but in any event on April 30, 2004, if Stockholder Approval is not
obtained by such date. None of the Company, the CK Purchasers or the Lenders
shall have any liability arising out of such termination.
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement until the date that is ninety (90) days after the
receipt by the Lenders and the CK Purchasers of audited financial statements of
the Company for the fiscal year ending December 31, 2004 (or, if such fiscal
year changes and no such audited consolidated financial statements are
available, then the successor fiscal year), except for (a) Sections 3.1, 3.2,
3.4, 3.7, 3.13 and 3.23, which representations and warranties shall survive
until the third anniversary of the Initial Closing Date, and (b) Section 3.11,
which shall survive until the later to occur of (i) the lapse of the statute of
limitations with respect to the assessment of any Tax to which such
representation and warranty relates (including any extensions or waivers
thereof) and (ii) sixty (60) days after the final administrative or judicial
determination of the Taxes to which such representation and warranty relates,
and no claim with respect to Section 3.11 may be asserted thereafter with the
exception of claims arising out of any fact, circumstance, action or proceeding
to which the party asserting such claim shall have given notice to the other
parties to this Agreement prior to the termination of such period of reasonable
belief that a tax liability will subsequently arise therefrom.
10.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
if to the Company:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
with a copy to, which shall not constitute notice to the
Company:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg Vignos, Esq.
26
if to the Lenders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 618-9207
Attention: Matthew Nimetz
Thomas J. Murphy
with a copy to, which shall not constitute notice:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
if to the CK Purchasers:
c/o Campina Enterprises Limited
Great Affluent Limited
Dragonfield Limited
Lion Cosmos Limited
7th Floor
Cheung Kong Center
2 Queen's Road Central
Hong Kong
Telecopy: (852) 2845-2057
Attention: Mr. Edmond Ip
and
c/o Cenwell Limited
22nd Floor
Hutchison House
10 Harcourt Road
Hong Kong
(852) 2128-1778
Attention: Company Secretary
All such notices, demands and other communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied. Any party may by notice given in
accordance with this Section 10.2 designate another address or Person for
receipt of notices hereunder.
10.3 Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto. Subject to applicable securities laws and the
terms and conditions thereof, the Lenders and the CK Purchasers may assign any
of their rights under this Agreement or the other Transaction Documents to any
of their respective Affiliates. The Company may not assign any of its rights
under this Agreement without the written consent of the Lenders. Except as
provided in Article VII, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Agreement.
27
10.4 Amendment and Waiver.
(a) No failure or delay on the part of the Company, the CK Purchasers or
the Lenders in exercising any right, power or remedy hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company, the CK Purchasers or the Lenders at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by the Company, the CK Purchasers or the Lenders from the terms
of any provision of this Agreement, shall be effective (i) only if it is made or
given in writing and signed by the Company, the CK Purchasers and the Lenders,
and (ii) only in the specific instance and for the specific purpose for which
made or given; provided, however, that to the extent any amendment or waiver
adversely affects any of the Lenders or the CK Purchasers, such amendment or
waiver shall require the prior written consent of each Lender or CK Purchaser so
adversely affected. Except where notice is specifically required by this
Agreement, no notice to or demand on the Company in any case shall entitle the
Company to any other or further notice or demand in similar or other
circumstances.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
10.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, without regard to the
principles of conflicts of law thereof.
10.8 Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
10.9 Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
10.10 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, and the other Transaction Documents are intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein and therein. There are no
restrictions, promises, representations, warranties or undertakings, other than
those set forth or referred to herein or therein. This Agreement, together with
the exhibits and schedules hereto, and the other Transaction Documents supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
10.11 Fees. The Company shall reimburse each of the Lenders and the CK
Purchasers for their fees, disbursements and other charges of counsel incurred
in connection with the transactions contemplated by this Agreement (including,
but without limitation, to advise on reporting obligations of the Lenders and/or
the CK Purchasers and filings with Commission); provided, that the aggregate
amount of all such reimbursements in respect of each of the Lenders and the CK
Purchasers shall not exceed $12,500.
10.12 Publicity; Confidentiality. Except as may be required by applicable
Requirements of Law, none of the parties hereto shall issue a publicity release
or public announcement or otherwise make any disclosure concerning this
Agreement, the transactions contemplated hereby, or the Lenders or CK Purchasers
or the business, technology and financial affairs of the Company, without prior
approval by the other parties hereto; provided, however, that nothing in this
Agreement shall restrict any of the
28
Lenders or CK Purchasers from disclosing information (a) that is already
publicly available, (b) that was known to such Lender or CK Purchaser on a
non-confidential basis prior to its disclosure by the Company, (c) that may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, provided that such Lender or CK Purchaser will use
reasonable efforts to notify the Company in advance of such disclosure so as to
permit the Company to seek a protective order or otherwise contest such
disclosure, and such Lender or CK Purchaser will use reasonable efforts to
cooperate, at the expense of the Company, with the Company in pursuing any such
protective order, (d) to the extent that such Lender or CK Purchaser reasonably
believes it appropriate in order to comply with any Requirement of Law, (e) to
such Lender's or CK Purchaser's or the Company's officers, directors,
shareholders, advisors, employees, members, partners, controlling persons,
auditors or counsel or (f) to Persons from whom releases, consents or approvals
are required, or to whom notice is required to be provided, pursuant to the
transactions contemplated by the Transaction Documents; and provided, further,
that after the Initial Closing and the Subsequent Closing, as the case may be,
GAP LLC may disclose on its worldwide web page, www.gapartners.com, the name of
the Company, the name of the Chief Executive Officer of the Company, a brief
description of the business of the Company, the Company's logo and the aggregate
amount of the Lenders' investment in the Company. If any announcement is
required by any Requirement of Law to be made by any party hereto, prior to
making such announcement such party will deliver a draft of such announcement to
the other parties and shall give the other parties reasonable opportunity to
comment thereon.
10.13 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
10.14 Legal Representation. It is acknowledged by each of the CK
Purchasers that the Lenders have retained Paul, Weiss, Rifkind, Wharton &
Garrison LLP to act as their counsel in connection with the transactions
contemplated by the Transaction Documents and that Paul, Weiss, Rifkind, Wharton
& Garrison LLP has not acted as counsel for any of the CK Purchasers in
connection with the transaction contemplated by the Transaction Documents and
that none of the CK Purchasers has the status of a client of Paul, Weiss,
Rifkind, Wharton & Garrison LLP for conflict of interest or any other purposes
as a result thereof.
10.15 Voting. At any meeting of the stockholders of the Company at which,
or for any written stockholder consent in which, the Company is seeking
stockholder approval for any of the matters encompassed in the Stockholder
Approval, each of the Lenders and each of the CK Purchasers shall, and shall
cause its Affiliates to, vote all of the shares held by such Lender, CK
Purchaser or Affiliate, as the case may be, in favor of such matters if it is
permitted by the Requirements of Law, regulations or rules.
10.16 Waiver. The Lenders and the CK Purchasers hereby unconditionally
waive any rights to an adjustment of shares of Series D Preferred Stock and
shares of Series E Preferred Stock with respect to the Rights Offering, the
issuance of Series E Purchase Rights and the issuance of the Rights Shares
issuable upon exercise of the Rights Shares that such Lenders or CK Purchasers,
as the case may be, may otherwise be entitled to pursuant to Section 7(c) of the
Amended and Restated Series D Certificate of Determination or Section 7(c) the
Series E Certificate of Determination, respectively.
[the remainder of this page intentionally left blank]
29
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Convertible Note Purchase and Exchange Agreement on the date
first written above.
CRITICAL PATH, INC.,
a California corporation
By: /s/ MICHAEL J. ZUKERMAN
------------------------------------
Name: Michael J. Zukerman
Title: Senior Vice President
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A General Partner
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP-W, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Manager
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: Managing Director
CENWELL LIMITED
By: /s/ EDMOND IP TAK CHUEN
------------------------------------
Name: Mr. Edmond Ip Tak Chuen
Title: Authorized Signatory
CAMPINA ENTERPRISES LIMITED
By: /s/ EDMOND IP TAK CHUEN
------------------------------------
Name: Mr. Edmond Ip Tak Chuen
Title: Director
GREAT AFFLUENT LIMITED
By: /s/ EDMOND IP TAK CHUEN
----------------------------------
Name: Mr. Edmond Ip Tak Chuen
Title: Director
DRAGONFIELD LIMITED
By: /s/ EZRA PAU YEE WAN
------------------------------------
Name: Ezra Pau Yee Wan
Title: Authorized Signatory
LION COSMOS LIMITED
By: /s/ EZRA PAU YEE WAN
------------------------------------
Name: Ezra Pau Yee Wan
Title: Director
AMENDMENT TO
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT
AMENDMENT, dated January 16, 2004 (this "Amendment"), among Critical Path,
Inc., a California corporation (the "Company"), 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, GAPCO GmbH & Co. KG, a German limited partnership, Campina Enterprises
Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion
Cosmos Limited (collectively with the Company, the "Parties"),
WITNESSETH:
WHEREAS, the Parties are each a party to that certain Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003 (the "Note Exchange
Agreement"); and
WHEREAS, the Company desires to enter into a Convertible Note Purchase
Agreement pursuant to which the Company proposes to issue and sell to 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. convertible notes having an aggregate principal amount of $15
million which notes will be convertible, subject to Stockholder Approval, into
shares of Series E Redeemable Convertible Preferred Stock of the Company, par
value $0.001 per share (the "Note Purchase Agreement"); and
WHEREAS, in connection with the execution of the Note Purchase Agreement,
the Parties desire to amend the Note Exchange Agreement as set forth herein; and
WHEREAS, capitalized terms used in this Amendment and not defined herein
shall have the meanings ascribed to such terms in the Note Exchange Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, for the covenants and agreements set forth in the Note
Exchange Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, and intending to be legally
bound hereby, the Parties agree as follows:
1.1 Amendments to the Note Exchange Agreement. The Note Exchange
Agreement shall be amended as set forth below:
(a) Section 1.1 of the Note Exchange Agreement shall be amended to add
the following:
""Note Purchase Agreement" means that certain Convertible Note
Purchase Agreement, dated January 16, 2004, among Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional
Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Passport
Master Fund, L.P. and Critical Path, Inc., a California corporation (the
"Company"), pursuant to which the Company shall issue and sell
convertible notes in an aggregate principal amount of up to $15 million,
which notes shall be convertible, subject to Stockholder Approval, into
Series E Preferred Stock or Common Stock, in accordance with such
agreement, concurrently with the Conversion and Exchange."
"Subsequent Lenders" means the Lenders as defined in the Note
Purchase Agreement."
(b) Section 2.6(f) of the Note Exchange Agreement is hereby deleted
and amended and restated in its entirety to read as follows:
"(f) Subsequent Closing. The consummation of the Exchange and
Conversion (the "Subsequent Closing") shall take place concurrently with
the Subsequent Closing under the Note Purchase 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 Note
Purchase 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 CK Purchasers and the Subsequent Lenders may mutually
agree. At the Subsequent Closing, signature pages transmitted by
facsimile will be acceptable, with originals to follow as soon as
practicable thereafter."
(c) Section 2.7 of the Note Exchange Agreement is deleted in its
entirety.
1.2 Amendments to Exhibits to the Note Exchange Agreement.
(a) The form of Amended and Restated Series D Certificate of Determination,
attached as Exhibit C to the Note Exchange Agreement, is hereby deleted and
amended and restated to read in its entirety in the form set forth as Annex 1
attached hereto.
(b) The form of Series E Certificate of Determination, attached as Exhibit
G to the Note Exchange Agreement, is hereby deleted and amended and restated to
read in its entirety in the form set forth as Annex 2 attached hereto.
1.3 Counterparts. This Amendment may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Signature pages
transmitted by facsimile will be acceptable, with originals to immediately
follow.
1.4 Continuing Agreement. Except as specifically amended hereby, all of
the terms of the Note Exchange Agreement shall remain and continue in full force
and effect and are hereby confirmed in all respects.
1.5 Headings. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
1.6 Governing Law. This Amendment 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.
1.7 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.
1.8 Entire Agreement. This Amendment, together with the Note Exchange
Agreement and the exhibits and schedules thereto, 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 Amendment and the Note Exchange Agreement, together with the
exhibits and schedules thereto, and the other Transaction Documents, supersede
all prior agreements and understandings between the parties with respect to such
subject matter.
[the remainder of this page intentionally left blank]
2
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amendment 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, Chief Executive
Officer
SIGNATURE PAGE TO AMENDMENT TO CONVERTIBLE NOTE PURCHASE AND
EXCHANGE AGREEMENT
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A General Partner
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Director
SIGNATURE PAGE TO AMENDMENT TO CONVERTIBLE NOTE PURCHASE AND
EXCHANGE AGREEMENT
CENWELL LIMITED
By: /s/ MA LAI CHEE, GERALD
----------------------------------
Name: Ma Lai Chee, Gerald
Title: Authorised Person
CAMPINA ENTERPRISES LIMITED
By: /s/ MA LAI CHEE, GERALD
------------------------------------
Name: Ma Lai Chee, Gerald
Title: Authorised Person
GREAT AFFLUENT LIMITED
By: /s/ MA LAI CHEE, GERALD
------------------------------------
Name: Ma Lai Chee, Gerald
Title: Authorised Person
DRAGONFIELD LIMITED
By: /s/ MA LAI CHEE, GERALD
------------------------------------
Name: Ma Lai Chee, Gerald
Title: Authorised Person
LION COSMOS LIMITED
By: /s/ MA LAI CHEE, GERALD
------------------------------------
Name: Ma Lai Chee, Gerald
Title: Authorised Person
SIGNATURE PAGE TO AMENDMENT TO CONVERTIBLE NOTE PURCHASE AND
EXCHANGE AGREEMENT
AMENDMENT NO. 2 TO
CONVERTIBLE NOTE PURCHASE AND EXCHANGE AGREEMENT
AMENDMENT NO. 2, dated March 9, 2004 (this "Amendment"), among Critical
Path, Inc., a California corporation (the "Company"), 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, GAPCO GmbH & Co. KG, a German limited partnership, Campina Enterprises
Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion
Cosmos Limited (collectively with the Company, the "Parties"),
WITNESSETH:
WHEREAS, the Parties are each a party to that certain Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, as amended on January
16, 2004 (the "November 2003 Note Exchange Agreement"); and
WHEREAS, the Company entered into a Convertible Note Purchase Agreement,
dated January 16, 2004, pursuant to which the Company issued and sold to 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. convertible notes having an aggregate principal amount of $15
million, which notes are convertible, subject to Stockholder Approval, into
shares of Series E Redeemable Convertible Preferred Stock of the Company, par
value $0.001 per share (the "January 2004 Note Purchase Agreement"); and
WHEREAS, in connection with the execution of the January 2004 Note Purchase
Agreement, the Parties entered into an amendment to the November 2003 Note
Exchange Agreement; and
WHEREAS, the Company desires to enter into a Convertible Note Purchase
Agreement, pursuant to which the Company proposes to issue and sell to Permal
U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional
Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim
Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub
Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners,
Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International convertible notes having an aggregate principal amount of $18.5
million which notes will be convertible, subject to Stockholder Approval, into
shares of Series E Redeemable Convertible Preferred Stock of the Company, par
value $0.001 per share (the "March 2004 Note Purchase Agreement"); and
WHEREAS, in connection with the execution of the March 2004 Note Purchase
Agreement, the Parties desire to amend the November 2003 Note Exchange Agreement
as set forth herein; and
WHEREAS, capitalized terms used in this Amendment and not defined herein
shall have the meanings ascribed to such terms in the November 2003 Note
Exchange Agreement:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, for the covenants and agreements set forth in the November
2003 Note Exchange Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the Parties hereby agree as follows:
1.1 Amendments to the November 2003 Note Exchange Agreement. The November
2003 Note Exchange Agreement shall be amended as set forth below:
(a) Section 1.1 of the November 2003 Note Exchange Agreement shall be
amended to add the following:
""March 2004 Note Purchase Agreement" means that certain
Convertible Note Purchase Agreement, dated March 9, 2004, among Permal
U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners,
L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV,
L.P., Sagamore Hill Hub
Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital
Partners, Institutional, Criterion Capital Partners, L.P., Capital
Ventures International and Critical Path, Inc., a California corporation
(the "Company"), pursuant to which the Company shall issue and sell
convertible notes in an aggregate principal amount of up to $18.5
million, which notes shall be convertible into Series E Preferred Stock,
subject to Stockholder Approval and concurrently with the Conversion and
Exchange, or into Common Stock, in each case in accordance with such
agreement."
(b) The definition of "Note Purchase Agreement" in Section 1.1 of the
November 2003 Note Exchange Agreement shall be deleted and replaced with
the following:
""Note Purchase Agreement" means that certain Convertible Note
Purchase Agreement, dated January 16, 2004, among Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional
Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Passport
Master Fund, L.P. and Critical Path, Inc., a California corporation (the
"Company"), pursuant to which the Company shall issue and sell
convertible notes in an aggregate principal amount of up to $15 million,
which notes shall be convertible into Series E Preferred Stock, subject
to Stockholder Approval and concurrently with the Conversion and
Exchange, or into Common Stock, in each case in accordance with such
agreement."
(c) The definition of "Subsequent Lenders" in Section 1.1 of the
November 2003 Note Exchange Agreement shall be deleted and replaced with
the following:
""Subsequent Lenders" shall include the Lenders, as defined in the
Note Purchase Agreement, and the Lenders, as defined in the March 2004
Note Purchase Agreement."
(d) Section 2.6(f) of the November 2003 Note Exchange Agreement is
hereby deleted and amended and restated in its entirety to read as follows:
"(f) Subsequent Closing. The consummation of the Exchange and
Conversion (the "Subsequent Closing") shall take place concurrently with
the Subsequent Closing under the Note Purchase Agreement and the
Subsequent Closing under the March 2004 Note Purchase Agreement, as soon
as practicable following the satisfaction of the closing conditions set
forth in Article VI of this Agreement, Article VI of the Note Purchase
Agreement and Article VI of the March 2004 Note Purchase 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 CK Purchasers and the Subsequent
Lenders may mutually agree. At the Subsequent Closing, signature pages
transmitted by facsimile will be acceptable, with originals to follow as
soon as practicable thereafter."
(e) Article VIII of the November 2003 Note Exchange Agreement shall be
amended to add a new Section 8.8 which shall read as follows:
"8.8 Proxy Matters. Notwithstanding anything herein to the
contrary, but subject to the provisions of Section 9.1 of this
Agreement, if the Registration Statement has not been declared effective
by the Commission on or prior to May 15, 2004, the Company will promptly
take all such actions as may be necessary to withdraw the Registration
Statement, and the Company shall continue to have an obligation under
Section 8.4 of this Agreement to seek Stockholder Approval. If the
Company withdraws the Registration Statement pursuant to this Section
8.8 and receives Stockholder Approval, the Company may, subject to
approval by the Board of Directors, file a subsequent registration
statement with the Commission and provide the Company's shareholders the
opportunity to participate in a subsequent rights offering."
(f) In the first sentence of Section 9.1 of the November 2003 Note
Exchange Agreement, the words "April 30" shall be deleted and replaced with
the words "August 15".
2
1.2 Amendments to Schedules to the November 2003 Note Exchange
Agreement. Schedule 8.5 of the November 2003 Note Exchange Agreement is hereby
deleted and amended and restated to read in its entirety in the form set forth
as Annex 1 attached hereto.
1.3 Counterparts. This Amendment may be executed in any number of
counterparts and by the Parties 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. Signature pages transmitted by facsimile
will be acceptable, with originals to immediately follow.
1.4 Continuing Agreement. Except as specifically amended hereby, all of
the terms of the November 2003 Note Exchange Agreement shall remain and continue
in full force and effect and are hereby confirmed in all respects.
1.5 Headings. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
1.6 Governing Law. This Amendment 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.
1.7 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.
1.8 Entire Agreement. This Amendment, together with the November 2003
Note Exchange Agreement and the exhibits and schedules thereto, 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 Amendment and the November 2003 Note
Exchange Agreement, together with the exhibits and schedules thereto, and the
other Transaction Documents, supersede all prior agreements and understandings
between the parties with respect to such subject matter.
[the remainder of this page intentionally left blank]
3
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amendment 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, Chief Executive
Officer
SIGNATURE PAGE TO AMENDMENT NO. 2 TO CONVERTIBLE NOTE PURCHASE AND EXCHANGE
AGREEMENT
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ THOMAS J. MURPHY
------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-fact
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ THOMAS J. MURPHY
------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-fact
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: /s/ THOMAS J. MURPHY
------------------------------------
Name: Thomas J. Murphy
Title: Attorney-in-fact
GAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: /s/ THOMAS J. MURPHY
------------------------------------
Name: Thomas J. Murphy
Title: Procuration Officer
SIGNATURE PAGE TO AMENDMENT NO. 2 TO CONVERTIBLE NOTE PURCHASE AND EXCHANGE
AGREEMENT
CENWELL LIMITED
By: /s/ IP TAK CHUEN, EDMOND
----------------------------------
Name: Ip Tak Chuen, Edmond
Title: Authorised Person
CAMPINA ENTERPRISES LIMITED
By: /s/ IP TAK CHUEN, EDMOND
------------------------------------
Name: Name: Ip Tak Chuen, Edmond
Title: Director
GREAT AFFLUENT LIMITED
By: /s/ IP TAK CHUEN, EDMOND
------------------------------------
Name: Ip Tak Chuen, Edmond
Title: Director
DRAGONFIELD LIMITED
By: /s/ PAU YEE WAN, EZRA
------------------------------------
Name: Pau Yee Wan, Ezra
Title: Authorised Person
LION COSMOS LIMITED
By: /s/ PAU YEE WAN, EZRA
------------------------------------
Name: Pau Yee Wan, Ezra
Title: Director
SIGNATURE PAGE TO AMENDMENT NO. 2 TO CONVERTIBLE NOTE PURCHASE AND EXCHANGE
AGREEMENT
APPENDIX B
FORM OF NOTE
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND
ALL APPLICABLE STATE SECURITIES LAWS.
CRITICAL PATH, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$
San Francisco, California
November , 2003
Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of , or its registered
assigns ("Holder"), the sum of dollars ($ ), or such lesser amount as
shall then equal the outstanding principal amount hereof on the terms and
conditions set forth hereinafter. The outstanding principal amount hereof and
all accrued and unpaid interest hereon, as set forth below, shall be due and
payable on the earlier to occur of (i) November , 2007, (ii) when declared due
and payable by Holder upon the occurrence of an Event of Default (as defined
below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control,
or (v) any sale of capital stock or Stock Equivalents by the Company, any cash
capital contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date");
provided, however, that in the event that the Maturity Date is on or before
November , 2004, the Company shall also make an additional payment to Holder
equal to the amount of interest which would have otherwise accrued on the
outstanding principal amount of the Note on the Maturity Date between the
Maturity Date and November , 2004.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. Except as otherwise defined herein, each capitalized term
used herein shall have the meaning assigned to it in the Purchase Agreement, as
in effect on the date hereof, and without regard to any subsequent termination
of the Purchase Agreement. All other references to the Purchase Agreement in
this Note refer to the Purchase Agreement as in effect on the date hereof, and
without regard to any subsequent termination of the Purchase Agreement. As used
in this Note, the following terms, unless the context otherwise requires, have
the following meanings:
1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations of the Securities Exchange Act of
1934, as amended.
1.2 "Capitalized Lease Obligations" means, with respect to any Person, all
rental obligations of such Person which, under GAAP, are or will be required to
be capitalized on the books of such Person, in each case taken at the amount
thereof accounted for as indebtedness in accordance with such principles.
1.3 "Change of Control" shall mean (i) any merger, consolidation or other
business combination transaction (or series of related transactions) in which
the stockholders owning a majority of the voting securities of the Company prior
to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934, as amended) (other than
General Atlantic Partners 74, L.P., GAP Coinvestment Partners II, L.P., GapStar,
LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina Enterprises Limited, Cenwell
Limited, Great Affluent Limited, Dragonfield Limited and Lion Cosmos Limited and
the Affiliates of the foregoing, provided that Affiliates shall be deemed not to
include any portfolio companies of any of the foregoing) obtains a majority of
the outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of Directors
of the Company (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Company's Board of Directors after
such contest or (iv) any other transaction described in any stockholder rights
agreement or "poison pill," if any, to which the Company is party, which may
permit the holders of any rights or similar certificates to exercise the rights
evidenced thereby.
1.4 "Company" shall have the meaning set forth in the recitals hereto, and
includes any corporation that shall succeed to or assume the obligations of the
Company under this Note.
1.5 "Conversion Date" shall mean the Subsequent Closing Date.
1.6 "Designated Preferred Stock" shall mean the Series D Preferred Stock,
par value $0.001, of the Company and the Series E Preferred Stock.
1.7 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10
hereof.
1.8 "Event of Default" shall have the meaning set forth in Section 6
hereof.
1.9 "Guaranteed Interest" shall mean the total amount of interest that
would accrue on this Note, at the Interest Rate specified in Section 2, from the
date of this Note until the one year anniversary of the date of this Note.
1.10 "Guarantor" shall have the meaning set forth in the Security
Agreement.
1.11 "Holder" shall mean the registered holder of this Note from time to
time, and in the plural, shall mean all registered holders of Notes from time to
time issued by the Company pursuant to the Purchase Agreement.
1.12 "Interest Amount" shall have the meaning set forth in Section 3.1
hereof.
1.13 "Investment" means (i) the acquisition (whether for cash, property,
services, assumption of Indebtedness, securities or otherwise) of assets (other
than equipment, inventory, supplies or other assets acquired in the ordinary
course of business of the Company), capital stock, bonds, notes, debentures,
partnership, joint venture or other ownership interests or other securities of
any Person, (ii) any deposit with, or advance, loan or other extension of credit
to, or on behalf of, any Person (other than deposits made in connection with the
purchase of equipment, inventory, services, leases, supplies or other assets in
the ordinary course of business of the Company), (iii) any other capital
contribution to or investment in such Person, including, without limitation, any
guaranty obligation incurred for the benefit of such Person. For the sake of
clarity, Investments shall include any transfer of property or assets by the
Company to any of its Subsidiaries or by any Subsidiary of the Company to any
other Subsidiary.
1.14 "Loan Documents" shall have the meaning set forth in the Security
Agreement.
1.15 "Note" shall mean this note, and in the plural, shall mean all notes
issued to the Lenders pursuant to the terms of the Purchase Agreement, including
this Note, and all amendments, modifications and extensions thereto.
1.16 "Permitted Investments" means (i) Investments in cash or cash
equivalents, (ii) accounts receivable created, acquired or made in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; (iii) Investments existing on the closing date, and listed on
Schedule to the Purchase Agreement, (iv) guaranty obligations permitted by
Section 5.3 of this Agreement, (v) loans to employees, directors or officers of
the Company in connection with the award of
2
convertible bonds or capital stock under a stock incentive plan, stock option
plan or other equity-based compensation plan or arrangement, (vi) other advances
or loans to employees, directors, officers or agents of the Company in the
ordinary course of business not to exceed $500,000 in the aggregate at any time
outstanding; (vii) loans, advances and investments in foreign Subsidiaries (that
are not incorporated or otherwise organized under the laws of the United States
of America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Purchase Agreement has
been obtained, (ix) other loans, advances and investments of a nature not
contemplated by the foregoing sections in an amount not to exceed $500,000 in
the aggregate at any time outstanding or (x) Investments by the Company in the
Guarantor.
1.17 "Permitted Liens" shall have the meaning set forth in Section 5.4.
1.18 "Person" means any individual, firm, corporation, partnership, trust,
joint venture, joint stock company, limited liability company, Governmental
Authority or other entity of any kind, and shall include any successor (by
merger or otherwise) of such entity.
1.19 "Price Per Share" shall have the meaning attributed to such term in
the Series E Certificate of Determination, as filed with the Secretary of State
of the State of California.
1.20 "Purchase Agreement" means that certain Convertible Note Purchase and
Exchange Agreement, dated November 18, 2003, among the Company, the Holder and
the other parties thereto from time to time, and all amendments, modifications
and extensions thereto.
1.21 "Qualified Asset Sale" means the sale, transfer or other disposition
of any of the assets of the Company or any of its Subsidiaries, other than (a)
sales of assets in the ordinary course of business, (b) sales of assets where
the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer
or other disposition of assets of the Company where the proceeds are applied to
the purchase price or traded in for credit against the purchase price of other
assets, provided that any such purchase is made, or credit issued, within 90
days of the sale, transfer or other disposition, and (d) one or more sales of
the Company's assets (other than sales otherwise included in clauses (a), (b),
and (c) immediately above) which collectively yield up to an aggregate of one
million dollars ($1,000,000) in gross proceeds to the Company while this Note is
outstanding.
1.22 "Restricted Payment" means (a) any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Company or any of its Subsidiaries or (b) any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any shares of any class of capital
stock of the Company or any Subsidiary or any option, warrant or other right to
acquire any such shares of capital stock of the Company or any Subsidiary.
1.23 "Security Agreement" means that certain Guaranty and Security
Agreement, of even date herewith between the Company, Compass Holding Corp., the
Lenders and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.
1.24 "Series E Conversion Price" shall have the meaning set forth in the
Series E Certificate of Determination.
1.25 "Series E Preferred Stock" means the Series E Preferred Stock, par
value $0.001, of the Company.
1.26 "Subordination Agreement" shall have the meaning set forth in Section
5.3.
1.27 "SVB" means Silicon Valley Bank, a California chartered bank, or any
Affiliates thereof.
1.28 "UCC" shall have the meaning set forth in Section 5.4.
2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"),
3
on the outstanding principal of this Note from the date of this Note until the
Maturity Date or the date this Note is otherwise repaid. The Company shall not
be obligated to make any payments of interest which shall have accrued under
this Note prior to the Maturity Date. Interest shall be calculated on the basis
of a 360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.
3. Conversion.
3.1 Conversion. On the Conversion Date, the principal amount of this Note
plus the greater of (i) the accrued and unpaid interest thereon and (ii) the
Guaranteed Interest (the greater of clause (i) and (ii), the "Interest Amount"),
shall be automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by dividing
(a) the entire principal amount of this Note plus the Interest Amount by (b) the
Price Per Share.
3.2 Notice of Conversion. Upon conversion of this Note as provided in
Section 3.1, Holder shall surrender this Note to the Company and shall state the
name or names in which the certificate or certificates for such shares of Series
E Preferred Stock are to be issued. The Person or Persons entitled to receive
the shares of Series E Preferred Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Series E Preferred Stock as of the Conversion Date.
3.3 Delivery of Stock Certificates. On the Conversion Date, the Company
at its expense will issue and deliver to Holder of this Note a certificate or
certificates (bearing such legends as are required by applicable state and
federal securities laws in the opinion of counsel to the Company) for the number
of full shares of Series E Preferred Stock issuable upon such conversion.
3.4 Mechanics and Effect of Conversion. No fractional shares of Series E
Preferred Stock shall be issued upon conversion of this Note. In lieu of the
Company issuing any fractional shares to Holder upon the conversion of this
Note, the Company shall pay to Holder the amount of outstanding principal and
interest that is not so converted. Upon conversion of all amounts due under this
Note, the Company shall be released from all of its obligations under this Note.
4. Adjustments. The number of shares of Series E Preferred Stock
convertible hereunder are subject to adjustment from time to time as follows:
4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time
while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share
4
consideration payable to Holder hereof for shares in connection with any such
transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors based on the amount the Holder would have otherwise been
entitled to receive had the transaction or transactions not occurred. In all
events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.
4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding
anything to the contrary contained herein, if an event shall occur as provided
in Section 4.1 hereof that would otherwise result in the occurrence of the
Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this
Note, then the Holder may, in its sole discretion, by written notice to the
Company elect to convert the principal amount of this Note plus the Interest
Amount into the number of shares of stock or other securities or property
described in Section 4.1, in lieu of receiving payment in full of all amounts
outstanding under this Note. The number of shares of stock or other securities
or property to be issued upon such conversion shall be determined in accordance
with Section 4.1 hereof, taking into account the occurrence of such event.
4.3 Reclassification, Etc. If the Company shall, at any time while this
Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.
4.4 Split, Subdivision or Combination of Shares. If the Company at any
time while this Note, or any portion thereof, remains outstanding and unexpired
shall split, subdivide or combine the shares of Series E Preferred Stock into a
different number of securities of the same class, the Price Per Share shall be
proportionately adjusted.
4.5 Series E Adjustments. The initial Series E Conversion Price of the
shares of Series E Preferred Stock issued upon conversion of this Note pursuant
to Section 3.1 shall equal the Series E Conversion Price in effect on the
Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.
4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 4, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
4.7 No Impairment. The Company will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.
5
5. Covenants. The Company covenants and agrees that until the earlier of
(i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the Conversion Date:
5.1 Financial Statements and Other Information. The Company shall deliver
to the Holder of this Note the financial statements and other information
required to be delivered under Section 8.1 of the Purchase Agreement.
5.2 Financial Covenants. The Company shall at all times comply with the
financial and other covenants set forth in Schedule 8.5 to the Purchase
Agreement as if such covenants were set forth herein.
5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:
(a) Indebtedness in favor of the Holders under the Loan Documents;
(b) Indebtedness existing on the date hereof, and as set forth on
Schedule 3.22 to the Purchase Agreement;
(c) Indebtedness for accounts payable incurred in the ordinary course
of business by the Company;
(d) Indebtedness incurred solely for the purpose of financing the
acquisition of any equipment, machinery, software, improvements or any
other similar property, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence
of such Indebtedness shall not at any time exceed $500,000;
(e) Indebtedness of the Company evidenced by Capitalized Lease
Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e) exceed
$500,000 at any time outstanding; and
(f) Any extension renewal, refinancing, refunding, or replacement
(each, a "refinancing") of Indebtedness permitted by clauses (b) and (e)
above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such original
Indebtedness on the date of such refinancing (including that the principal
amount of such refinancing Indebtedness does not exceed the principal
amount of, plus the amount of accrued and unpaid interest on, the
Indebtedness so refinanced (plus the amount of reasonable premium and fees
and expenses incurred in connection therewith)), provided that, in the case
of a refinancing of Indebtedness owed by the Company or any Subsidiary to
SVB, this clause (f) shall only apply to the extent consistent with the
Subordination Agreement, dated as of the date hereof, by and among SVB, the
Holders and the Company (the "Subordination Agreement").
5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:
(a) Liens arising in the ordinary course of business by statute in
connection with worker's compensation, unemployment insurance, old age
benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash
deposits in connection with tenders, contracts or leases to which the
Company or any Subsidiary is a party or
6
other cash deposits required to be made in the ordinary course of business,
provided, that such Liens do not have a material adverse effect on the
ability of the Company to repay amounts due under the Notes;
(b) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due or Liens for taxes, assessments or governmental charges
or levies being contested in good faith and by appropriate proceedings for
which adequate reserves have been established in accordance with GAAP;
(c) Liens in respect of property or assets of the Company or its
Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's, materialmen's and mechanics' liens and other
similar Liens arising in the ordinary course of business, and (i) which do
not in the aggregate materially detract from the value of the Company's and
its Subsidiaries' property or assets taken as a whole or result in a
material adverse effect on the Condition of the Company or (ii) which are
being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing the forfeiture or sale of the property or
assets subject to any such Lien;
(d) the pledge of assets for the purpose of securing an appeal, stay
or discharge in the course of any legal proceeding, provided that the
aggregate amount of liabilities of the Company and its Subsidiaries secured
by a pledge of assets permitted under this subsection, including interest
and penalties thereon, if any, shall not be in excess of $500,000 at any
one time outstanding;
(e) any interest or title of a lesser under any operating lease;
(f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of
business;
(g) the Liens existing on the date hereof identified on Schedule 3.22
to the Purchase Agreement;
(h) Liens on cash deposited with account debtors to secure performance
by the Company or any Subsidiary in the ordinary course of business subject
to customary and reasonable terms;
(i) Liens upon assets of the Company or its Subsidiaries subject to
Capitalized Lease Obligations, provided, that (A) such Liens only serve to
secure the payment of Indebtedness permitted by Section 5.3(e) arising
under such Capitalized Lease Obligation and (B) the Lien encumbering the
asset giving rise to the Capitalized Lease Obligation does not encumber any
other asset of the Company or its Subsidiaries;
(j) Liens placed upon equipment, machinery, software, improvements or
any other similar property, used in the ordinary course of business of the
Company or any of its Subsidiaries at the time of the acquisition thereof
by the Company or any of its Subsidiaries or within ninety (90) days
thereafter to secure Indebtedness permitted by Section 5.3(d) above;
provided, that the Liens encumbering the equipment, machinery software,
improvements or any other similar property so acquired do not encumber any
other asset of the Company or its Subsidiaries;
(k) set-off rights of depository institutions; and
(l) Liens created by the Security Agreement (collectively with clauses
(a) through (k) hereof, the "Permitted Liens").
5.5 Fundamental Changes. The Company will not, and will not permit any
Subsidiary to, merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or a series of transactions) all or
substantially all of its assets, or all or substantially all of the stock of any
of its Subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time and immediately after giving
effect thereto no Event of Default shall have occurred and be continuing (i) the
Company or any of its Subsidiaries may, with the prior written consent of the
Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary
of the Company (other than the Guarantor) may
7
merge with or into the Company or any other wholly-owned Subsidiary of the
Company; (iii) any Subsidiary (other than the Guarantor, and except as otherwise
prohibited by this Note) may sell, transfer, lease or otherwise dispose of its
assets to the Company or to another wholly-owned Subsidiary of the Company; and
(iv) any Subsidiary may liquidate or dissolve if the board of directors of the
Company determine in good faith that such liquidation or dissolution is in its
best interests and is not disadvantageous to the Holders.
5.6 Restricted Payments. The Company will not, and the Company will not
permit any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except that (i) any Subsidiary may make a
Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Purchase Agreement and the other documents executed
in connection therewith.
5.7 Transactions with Affiliates. The Company will not, and the Company
will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Purchase Agreement.
5.8 Investments. The Company will not, and the Company will not permit
any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any
Person, except for Permitted Investments.
5.9 Nature of Business. The Company will not, and the Company will not
permit any Subsidiary to, engage in any business other than that conducted on
the date hereof and any businesses reasonably related thereto.
5.10 Property of Existing Domestic Subsidiaries. The Company will not
permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.
5.11 Formation of Subsidiaries. The Company will not, and will not cause
or permit any of its Subsidiaries to, form, acquire or permit the existence of
any new domestic Subsidiary, without causing such domestic Subsidiary to execute
and deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.
5.12 Books and Records. The Company shall keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company and its Subsidiaries in
accordance with GAAP consistently applied.
5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.
5.14 Maintenance of Business. The Company shall, and shall cause each
Subsidiary to, preserve and maintain its existence. The Company shall, and shall
cause each Subsidiary to, preserve and keep in force and effect all licenses,
permits, franchises, approvals, patents, trademarks, trade names, trade styles,
8
copyrights, and other property rights necessary to the proper conduct of its
business, except where the failure to do so could not reasonably be expected to
have a material adverse effect on the Condition of the Company or on the
prospects of repayment of the Notes.
5.15 Maintenance of Properties. The Company shall, and shall cause each
Subsidiary to, maintain, preserve and keep its property and equipment in good
repair, working order and condition (ordinary wear and tear excepted) and shall
from time to time make all needful and proper repairs, renewals, replacements,
additions and betterments thereto so that at all times the efficiency thereof
shall by fully preserved and maintained, except in each case to the extent that,
in the reasonable business judgment of such Person, any such property or
equipment is no longer necessary for the proper conduct of the business of such
Person.
6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":
6.1 Failure To Pay. (i) The failure of the Company to pay any principal
due under any of the Notes when due and payable (whether by acceleration,
declaration, extension or otherwise), or (ii) the failure of the Company to pay
any other amounts due under any of the Notes when due and payable if such
failure is not cured within five (5) days of Company's receipt of notice thereof
from any of the Holders.
6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.
6.3 Other Covenants and Agreements. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the covenants of this
Note, the Security Agreement or any of the other Loan Documents (other than the
Financial Covenants set forth on Schedule 8.5 to the Purchase Agreement, and
incorporated by reference in this Note in Section 5.2), if such failure is not
cured within sixty (60) days.
6.4 Representations and Warranties. If any representation or warranty
made by the Company or any of its Subsidiaries in the Loan Documents is not true
and correct in all material respects on the Initial Closing Date.
6.5 Default on Other Obligations. The occurrence of any condition or
default under any other indebtedness for borrowed money of the Company or any of
its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.
6.6 Involuntary Bankruptcy. There shall be filed against the Company or
any of its Subsidiaries an involuntary petition or other pleading seeking the
entry of a decree or order for relief under the United States Bankruptcy Code or
any similar federal or state insolvency or similar laws ordering: (a) the
liquidation of the Company or any of its Subsidiaries or (b) a reorganization of
the Company or any of its Subsidiaries or the business and affairs of the
Company or any of its Subsidiaries or (c) the appointment of a receiver,
liquidator, assignee, custodian, trustee or similar official for the Company or
any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.
6.7 Voluntary Bankruptcy. The commencement by the Company or any of its
Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.
6.8 Judgments, Awards. Any judgment or order for the payment of money is
rendered against the Company or any of its Subsidiaries in an amount in excess
of five hundred thousand dollars ($500,000) individually or in the aggregate and
either (i) enforcement proceedings are commenced by any creditor upon such
judgment or order and not stayed, or (ii) there is any period of sixty (60)
consecutive days
9
during which such judgment has not been paid in full or a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, is not in
effect.
6.9 Attachment by Lenders. Any assets of the Company or any of its
Subsidiaries shall be attached, levied upon, seized or repossessed, or come into
the possession of a trustee, receiver or other custodian and a determination by
any Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.
6.10 Adverse Change in Financial Condition. Any event having a material
adverse effect on the business, operations, assets, properties or condition of
the Company and its Subsidiaries taken as a whole shall have occurred and be
continuing or a material adverse effect on the validity or enforceability of
this or any of the other Loan Documents or the rights or remedies of the Holders
hereunder or thereunder.
7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.
8. Prepayment. The Company may not prepay this Note prior to the Maturity
Date without the prior written consent of the Holders.
9. Seniority. Except as set forth in the Subordination Agreement, the
Notes will rank senior in right of payment to all other indebtedness of the
Company.
10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.
11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.
12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Purchase Agreement. Promptly upon
delivering such written notice and opinion, if so required, Holder may sell or
otherwise dispose of this Note, all in accordance with the terms of the notice
delivered to the Company. Each Note thus transferred shall bear a legend as to
the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for the Company such
legend is not required in order to ensure compliance with the Securities Act.
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions. Notwithstanding the foregoing, the Holder
shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.
13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.
14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally
10
recognized courier service or mailed by registered or certified mail, postage
prepaid, to the respective addresses of the parties as set forth on the
signature pages hereto or if sent by facsimile to the respective facsimile
numbers of the parties set forth on the signature pages hereto. Any party hereto
may by notice so given change its address for future notice hereunder. Notice
shall conclusively be deemed to have been given and received when personally
delivered or three (3) business days after deposited in the mail or one business
day after sent by courier or upon confirmation of facsimile delivery in the
manner set forth above.
15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.
16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.
17. Amendments and Waivers. No amendments or waivers of any provision of
this Note, and no consent by the Holder to any departure by the Company, shall
in any event be effective unless the same shall be in writing, and signed by the
Holders of a majority of the outstanding principal amount of all of the Notes
issued by the Company pursuant to the Purchase Agreement, and then such waiver
or consent shall be effective only in the specific instance and for the purpose
for which given.
18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY (A) COVENANTS
AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY,
AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE COMPANY
AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN ANY WAY
PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY TRANSACTIONS,
OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY OF THE
FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE
PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS,
INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE. THIS WAIVER
OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY
THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER HEREBY AGREE THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE
COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT THIS NOTE TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE COMPANY AND THE HOLDER, SO
AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF RIGHT TO TRIAL BY JURY.
EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND WARRANTS THAT IT HAS BEEN
REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE MAKING OF THIS WAIVER BY
INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND/OR THAT IT HAS HAD
THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.
[the remainder of this page intentionally left blank]
11
IN WITNESS WHEREOF, the Company has caused this Note to be issued this
day of November, 2003.
COMPANY:
CRITICAL PATH, INC.,
a California corporation
By:
------------------------------------
Name:
Title:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
With a copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg Vignos, Esq.
Name of Holder:
- --------------------------------------
Address:
- -----------------------------------------------
Telephone
- --------------------------------------------
Facsimile
- ---------------------------------------------
With a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Douglas A. Cifu, Esq.
Telephone: (212) 373-3436
Fax: (212) 757-3990
12
APPENDIX C
CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES E REDEEMABLE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.001 PER SHARE, OF
CRITICAL PATH, INC.,
A CALIFORNIA CORPORATION
Pursuant to Section 401 of the California Corporations Code,
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, do
hereby certify that:
1. They are the duly elected and acting Chief Executive Officer and
Chairman of the Board of Directors and Senior Vice President, General
Counsel and Secretary, respectively, of Critical Path, Inc., a California
corporation (the "Corporation").
2. Pursuant to authority given in the Corporation's Amended and
Restated Articles of Incorporation, the following recitals and resolutions,
creating a series of [ ] ([ ]) shares of Series E Redeemable
Convertible Preferred Stock were duly adopted by the Corporation's Board of
Directors on [ ].
WITNESSETH
WHEREAS, the Board of Directors is authorized, within the limitations and
restrictions stated in the Amended and Restated Articles of Incorporation of the
Corporation, to provide by resolution or resolutions for the issuance of shares
of Preferred Stock, par value $0.001 per share, of the Corporation, in one or
more classes or series with such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions as
shall be stated and expressed in the resolution or resolutions providing for the
issuance thereof adopted by the Board of Directors, and as are not stated and
expressed in the Amended and Restated Articles of Incorporation, or any
amendment thereto, including (but without limiting the generality of the
foregoing) such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets and such other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
under the California Corporations Code; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its
authority as aforesaid, to authorize and fix the terms of a series of Preferred
Stock and the number of shares constituting such series:
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby created and
established a series of Preferred Stock designated as "Series E Redeemable
Convertible Preferred Stock" (the "Series E Preferred Stock"). The authorized
number of shares of Series E Preferred Stock shall be [ ]
([ ]). Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in Section 10 below.
2. Rank. The Series E Preferred Stock shall with respect to the payment
of the Series E Liquidation Payment in the event of Liquidation or Change of
Control and with respect to dividend and redemption rights rank senior to (i)
all series of common stock of the Corporation (including, without limitation,
the Common Stock, par value $0.001 per share, of the Corporation (the "Common
Stock")), (ii) all series of preferred stock of the Corporation (including,
without limitation, the Series C Participating Preferred Stock, par value $0.001
per share, and the Series D Preferred Stock) and (iii) each other class or
series of Capital Stock of the Corporation hereafter created which does not
expressly rank pari passu with or senior to the Series E Preferred Stock
(clauses (i), (ii) and (iii), together, the "Junior Stock").
3. Dividends.
(a) Dividend Rate. The holders of shares of Series E Preferred Stock shall
accrue dividends at an annual rate equal to five and three-fourths percent
(5 3/4%) of the Price Per Share, calculated on the basis of a 360-day year,
consisting of twelve 30-day months, and shall accrue on a daily basis from the
date of issuance thereof, whether or not the Corporation has earnings or
profits, whether or not there are funds legally available for the payment of
dividends and whether or not declared by the Board of Directors. Such dividends
shall not be paid in cash and shall instead be added to the Series E Accreted
Value on a semi-annual basis on December 31st and June 30th of each year (each
such date, a "Series E Accrual Date"). In addition, if the Corporation declares
and pays any dividends on the Common Stock, then, in that event, the holders of
shares of Series E Preferred Stock shall be entitled to share in such dividends
on a pro rata basis, as if their shares had been converted into shares of Common
Stock pursuant to Section 7(a) below immediately prior to the record date for
determining the stockholders of the Corporation eligible to receive such
dividends.
(b) Other Dividends. The Corporation shall not declare or pay any
dividends on, or make any other distributions with respect to or redeem,
purchase or otherwise acquire for consideration, any other shares of Capital
Stock unless and until all accrued and unpaid dividends on the Series E
Preferred Stock have been paid in full. Notwithstanding Section 2 or this
Section 3(b), dividends shall accrue on the Series D Preferred Stock as provided
in Section 3 of the Amended and Restated Series D Certificate of Determination.
4. Liquidation and Change of Control.
(a) Series E Liquidation Payment. Upon the occurrence of a Liquidation,
the holders of shares of Series E Preferred Stock shall be paid in cash for each
share of Series E Preferred Stock held thereby, out of, but only to the extent
of, the assets of the Corporation legally available for distribution to its
stockholders, an amount equal to the greater of (i) the sum of (A) the Series E
Accreted Value of such share of Series E Preferred Stock on the date of such
Liquidation plus (B) all dividends accrued since the previous Series E Accrual
Date or (ii) the aggregate consideration that would be paid to the holder of the
number of shares of Common Stock into which such share of Series E Preferred
Stock is convertible immediately prior to such Liquidation. If the assets of the
Corporation available for distribution to the holders of shares of Series E
Preferred Stock shall be insufficient to permit payment in full to such holders
of the sums which such holders are entitled to receive in such case, then all of
the assets available for distribution to holders of shares of Series E Preferred
Stock shall be distributed among and paid to such holders ratably in proportion
to the amounts that would be payable to such holders if such assets were
sufficient to permit payment in full.
(b) Change of Control. In the event of a Change of Control, the holders of
shares of Series E Preferred Stock shall be paid for each share of Series E
Preferred Stock held thereby, an amount equal to the greater of (i) the sum of
(A) the Series E Accreted Value of such share of Series E Preferred Stock on the
date of such Change of Control plus (B) all dividends accrued since the previous
Series E Accrual Date or (ii) the aggregate consideration that would be paid to
the holder of the number of shares of Common Stock into which such share of
Series E Preferred Stock is convertible immediately prior to the closing of such
Change of Control. Such amount shall be paid in the form of consideration paid
in such Change of Control on the closing date of such Change of Control.
5. Redemption.
(a) Optional Redemption.
(i) Series E Optional Redemption Period. The Corporation shall not have
any right to redeem any shares of the Series E Preferred Stock on or prior to
the third anniversary of the Series E Closing Date. If on any date after the
third anniversary of the Series E Closing Date, but prior to the Series E
Automatic
2
Redemption Date, the average closing price per share of the Common Stock, as
reported on NASDAQ or other nationally recognized securities exchange on which
the shares of Common Stock trade, for any sixty (60) consecutive trading days
after such third anniversary date, equals or exceeds four hundred percent (400%)
of the Series E Accreted Value (the "Series E Optional Redemption Measurement
Window"), the Corporation shall have the right, at its sole option and election,
to redeem (unless otherwise prevented by law) within thirty (30) days following
such Series E Optional Redemption Measurement Window (the "Series E Optional
Redemption Period"), all, but not less than all, of the outstanding shares of
Series E Preferred Stock in cash, at a price per share (the "Series E Optional
Redemption Price") equal to the sum of the Series E Accreted Value plus all
dividends accrued since the previous Series E Accrual Date.
(ii) Optional Redemption Payment. Written notice of any election by the
Corporation to redeem the shares of Series E Preferred Stock pursuant to Section
5(a) (with a closing date prior to the expiration of the Series E Optional
Redemption Period selected for such redemption (the "Series E Optional
Redemption Date")), shall be delivered in person, mailed by certified mail,
return receipt requested, mailed by overnight mail or sent by telecopier not
less than ten (10), nor more than thirty (30), days prior to such Series E
Optional Redemption Date to the holders of record of the shares of Series E
Preferred Stock, such notice to be addressed to each such holder at its address
as shown in the records of the Corporation. The Series E Optional Redemption
Price shall be made with respect to each share of Series E Preferred Stock by
wire transfer of immediately available funds or check as promptly as practicable
and, in any event, within seven (7) days after receipt by the Corporation of the
Series E Preferred Stock certificates to accounts designated in writing by the
holders of such shares of Series E Preferred Stock (in the case of wire
transfer) after surrender of the Series E Preferred Stock certificates pursuant
to the following sentence. Upon notice from the Corporation, each holder of
shares of Series E Preferred Stock so redeemed shall promptly surrender to the
Corporation, at any place where the Corporation shall maintain a transfer agent
for its shares of Series E Preferred Stock, certificates representing the shares
so redeemed, duly endorsed in blank or accompanied by proper instruments of
transfer. Notwithstanding anything to the contrary set forth in this Certificate
of Determination, any holder of Series E Preferred Stock may convert its shares
of Series E Preferred Stock pursuant to Section 7(a) until the Series E Optional
Redemption Price has been paid in full by the Corporation to such holder.
(iii) Termination of Rights. If shares of Series E Preferred Stock are
redeemed in full on the Series E Optional Redemption Date, then after the Series
E Optional Redemption Date, all rights of any holder of shares of Series E
Preferred Stock shall cease and terminate, and such shares of Series E Preferred
Stock shall no longer be deemed to be outstanding; provided, however, that, if
the Corporation defaults in the payment in full of the Series E Optional
Redemption Price, then, subject to Section 5(b), the Corporation may not redeem
the shares of Series E Preferred Stock until the next Series E Optional
Redemption Measurement Window.
(b) Automatic Redemption.
(i) Automatic Redemption Date and Payment. On the fourth anniversary of
the Series E Closing Date (the "Series E Automatic Redemption Date"), all of the
shares of Series E Preferred Stock shall automatically, with no further action
required to be taken by the Corporation or the holder thereof, be redeemed
(unless otherwise prevented by law) in cash, at a redemption price per share
(the "Series E Redemption Price") equal to the sum of the Series E Accreted
Value plus all dividends accrued since the previous Series E Accrual Date.
Written notice of the Series E Automatic Redemption Date shall be delivered in
person, mailed by certified mail, return receipt requested, mailed by overnight
mail or sent by telecopier not less than thirty (30), nor more than sixty (60),
days prior to the Series E Automatic Redemption Date to the holders of record of
the shares of Series E Preferred Stock, such notice to be addressed to each such
holder at its address as shown in the records of the Corporation. The Series E
Redemption Price shall be made with respect to each share of Series E Preferred
Stock by wire transfer of immediately available funds or check as promptly as
practicable and, in any event, within seven (7) days after receipt by the
Corporation of the Series E Preferred Stock certificates to accounts designated
(in the case of wire transfer) in writing by the holders of such shares of
Series E Preferred Stock after surrender
3
of the Series E Preferred Stock certificates pursuant to the following sentence.
Upon notice from the Corporation, each holder of such shares of Series E
Preferred Stock so redeemed shall promptly surrender to the Corporation, at any
place where the Corporation shall maintain a transfer agent for its shares of
Series E Preferred Stock, certificates representing the shares so redeemed, duly
endorsed in blank or accompanied by proper instruments of transfer.
Notwithstanding anything to the contrary set forth in this Certificate of
Determination, any holder of Series E Preferred Stock may convert its shares of
Series E Preferred Stock pursuant to Section 7(a) hereof until the Series E
Redemption Price has been paid in full by the Corporation to any such holder.
(ii) Termination of Rights. If the shares of Series E Preferred Stock are
redeemed in full on the Series E Automatic Redemption Date, then after the
Series E Automatic Redemption Date, all rights of any holder of such shares of
Series E Preferred Stock shall cease and terminate, and such shares of Series E
Preferred Stock shall no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation;
provided, however, that, if the Corporation defaults in the payment in full of
the Series E Redemption Price, the rights of the holders of shares of Series E
Preferred Stock shall continue until the Corporation cures such default.
(iii) Insufficient Funds for Redemption. If the funds of the Corporation
available for redemption of the shares of Series E Preferred Stock on the Series
E Automatic Redemption Date are insufficient to redeem in full the shares of
Series E Preferred Stock, the holders of shares of Series E Preferred Stock
shall share ratably in any funds available by law for redemption of such shares
according to the respective amounts which would be payable with respect to the
number of shares owned by them if the shares to be so redeemed on such Series E
Automatic Redemption Date were redeemed in full. Any shares of Series E
Preferred Stock that the Corporation does not redeem on the Series E Automatic
Redemption Date due to insufficient funds shall continue to be outstanding until
redeemed and dividends on such shares shall continue to accrue and cumulate
until redeemed. The Corporation shall in good faith use all commercially
reasonable efforts as expeditiously as possible to eliminate, or obtain an
exception, waiver or exemption from, any and all restrictions that prevented the
Corporation from paying the Series E Redemption Price and redeeming all of the
shares of Series E Preferred Stock. At any time thereafter when additional funds
of the Corporation are available by law for the redemption of the shares of
Series E Preferred Stock, such funds shall be used as promptly as practicable to
redeem the balance of such shares, or such portion thereof for which funds are
available, on the basis set forth above.
6. Voting Rights.
(a) General. In addition to the voting rights to which the holders of
Series E Preferred Stock are entitled under or granted by California law, the
holders of Series E Preferred Stock shall be entitled to vote, in person or by
proxy, at a special or annual meeting of stockholders on all matters entitled to
be voted on by holders of shares of Common Stock voting together as a single
class with the Common Stock (and with other shares entitled to vote thereon, if
any), including, without limitation, the election of all of the directors of the
Corporation other than the director elected solely by the holders of the shares
of Series D Preferred Stock pursuant to Section 6(b) of the Amended and Restated
Series D Certificate of Determination. With respect to any such vote, each share
of Series E Preferred Stock shall entitle the holder thereof to cast that number
of votes as is equal to the quotient of (i) the sum of the Series E Accreted
Value plus all dividends accrued since the previous Series E Accrual Date
divided by (ii) [ ], subject to the same adjustments that are made to the
Series E Conversion Price as provided in Section 7(c) below.
(b) Series E Actions. At any meeting of the holders of shares of Series E
Preferred Stock held for the purpose of voting upon any resolutions requiring
the approval of the holders of shares of Series E Preferred Stock, voting as a
separate class or series, the presence in person or by proxy of the holders of a
majority of the shares of Series E Preferred Stock then outstanding shall
constitute a quorum of the Series E Preferred Stock; the holders of shares of
Series E Preferred Stock shall be entitled to cast one vote per share of Series
E Preferred Stock; and such resolution shall be deemed approved upon the
4
affirmative vote of the holders of a majority of the outstanding shares of
Series E Preferred Stock present in person or represented by proxy at such
meeting.
(c) Action Without a Meeting. Any action required by the California
Corporations Code to be taken at any annual or special meeting of holders of
Series E Preferred Stock, voting as a separate class or series, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares of Series E Preferred Stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting of the holders of Series E Preferred Stock pursuant to
Section 6(b) and shall be delivered (by hand or certified or registered mail,
return receipt requested) to the Corporation by delivery to its registered
office in the State of California, its principal place of business, or any
officer or agent of the Corporation having custody of the book in which
proceedings of meetings of the holders of Series E Preferred Stock are recorded.
Every written consent shall bear the date of signature of each holder of Series
E Preferred Stock who signs the consent. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall,
to the extent, required by applicable law, be given to those holders of Series E
Preferred Stock who have not consented in writing, and who, if the action had
been taken at a meeting, would have been entitled to notice of the meeting if
the record date for such meeting had been the date that written consents signed
by a sufficient number of holders to take the action were delivered to the
Corporation.
(d) Major Actions. Notwithstanding anything to the contrary set forth in
the Amended and Restated Articles of Incorporation or the By-laws of the
Corporation, the affirmative vote of the holders of the outstanding shares of
Series E Preferred Stock acting in accordance with Section 6(b) or 6(c), voting
as a separate class, shall be a prerequisite to:
(i) any amendment to, restatement of or waiver of the terms of the
Series E Preferred Stock, including, without limitation, by merger,
consolidation, business combination or otherwise that is not a Change of
Control;
(ii) the issuance, reservation for issuance or authorization of any
Capital Stock of the Corporation or any right or option to acquire shares
of Capital Stock ranking senior to the shares of Series E Preferred Stock
or any increase or decrease in the authorized number of shares of Series E
Preferred Stock; provided, that the Corporation may issue (w) options or
shares pursuant to the Stock Option Plans, (x) shares of Series E Preferred
Stock (A) upon conversion of those certain convertible promissory notes,
with an aggregate principal amount of ten million dollars ($10,000,000),
issued by the Corporation on November 26, 2003, (B) in exchange for those
certain 5 3/4% Convertible Subordinated Notes, due April 1, 2005, in the
principal face amount of thirty-two million seven hundred ninety-five
thousand dollars ($32,795,000), issued by the Corporation pursuant to the
Corporation's Indenture, dated March 31, 2000, (C) upon conversion of the
Apex Notes and (D) issuable pursuant to agreements entered into prior to
the Series E Closing Date, and (y) the Series E Purchase Rights and the
Rights Shares;
(iii) the redemption of any Junior Stock other than the repurchase of
unvested stock options or restricted stock from employees, officers,
directors or consultants of the Corporation upon termination of service or
in accordance with the Stock Option Plans;
(iv) prior to the payment in full of the Series E Liquidation Payment,
any distribution or payment of any dividend or other distribution to any
Junior Stock, provided that, no consent of the holders of Series E
Preferred Stock shall be required for the accrual of dividends on the
Series D Preferred Stock as provided in Section 3 of the Amended and
Restated Certificate of Determination of Preferences of Series D Preferred
Stock; and
(v) any amendment to this Section 6(d).
5
7. Conversion.
(a) Optional Conversion. Any holder of shares of Series E Preferred Stock
shall have the right, at its option, at any time and from time to time, to
convert, subject to the terms and provisions of this Section 7, any or all of
such holder's shares of Series E Preferred Stock into such number of fully paid
and non-assessable shares of Common Stock as is equal to the product of (i) the
number of shares of Series E Preferred Stock being so converted multiplied by
(ii) the quotient of (x) the Series E Accreted Value divided by (y) the Series E
Conversion Price, subject to adjustment as provided in Section 7(c) below. Such
conversion right shall be exercised by the surrender of certificate(s)
representing the shares of Series E Preferred Stock to be converted to the
Corporation at any time during usual business hours at its principal place of
business maintained by it (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to the holders of shares of
Series E Preferred Stock), accompanied by written notice that the holder elects
to convert such shares of Series E Preferred Stock and specifying the name or
names (with address) in which a certificate or certificates for shares of Common
Stock are to be issued and (if so required by the Corporation) by a written
instrument or instruments of transfer in form reasonably satisfactory to the
Corporation duly executed by the holder or its duly authorized legal
representative and transfer tax stamps or funds therefor, if required pursuant
to Section 7(i) below. All certificates representing shares of Series E
Preferred Stock surrendered for conversion shall be delivered to the Corporation
for cancellation and canceled by it. As promptly as practicable after the
surrender of any shares of Series E Preferred Stock, in any event within seven
(7) days of the receipt of such certificates, the Corporation shall (subject to
compliance with the applicable provisions of federal and state securities laws)
deliver to the holder of such shares so surrendered certificate(s) representing
the number of fully paid and nonassessable shares of Common Stock into which
such shares are entitled to be converted. At the time of the surrender of such
certificate(s), the Person in whose name any certificate(s) for shares of Common
Stock shall be issuable upon such conversion shall be deemed to be the holder of
record of such shares of Common Stock on such date, notwithstanding that the
share register of the Corporation shall then be closed or that the certificates
representing such Common Stock shall not then be actually delivered to such
Person.
(b) Termination of Rights. On the date of such optional conversion
pursuant to Section 7(a) above all rights with respect to the shares of Series E
Preferred Stock so converted, including the rights, if any, to receive notices
and vote, shall terminate, except only the rights of holders thereof to (i)
receive certificates for the number of shares of Common Stock into which such
shares of Series E Preferred Stock have been converted and (ii) exercise the
rights to which they are entitled as holders of Common Stock.
(c) (i) Dividend, Subdivision, Combination or Reclassification of Common
Stock. In the event that the Corporation shall at any time or from time to
time, prior to conversion of shares of Series E Preferred Stock (w) pay a
dividend or make a distribution on the outstanding shares of Common Stock
payable in Capital Stock of the Corporation, (x) subdivide the outstanding
shares of Common Stock into a larger number of shares, (y) combine the
outstanding shares of Common Stock into a smaller number of shares or (z) issue
any shares of its Capital Stock in a reclassification of the Common Stock (other
than any such event for which an adjustment is made pursuant to another clause
of this Section 7(c)), then, and in each such case, the Series E Conversion
Price in effect immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Corporation) so that the holder of any
share of Series E Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series E Preferred Stock been converted immediately prior to the occurrence
of such event. An adjustment made pursuant to this Section 7(c)(i) shall become
effective retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
6
(ii) Certain Distributions. In case the Corporation shall at any time or
from time to time, prior to conversion of shares of Series E Preferred Stock,
distribute to all holders of shares of the Common Stock (including any such
distribution made in connection with a merger or consolidation in which the
Corporation is the resulting or surviving Person and the Common Stock is not
changed or exchanged) cash, evidences of indebtedness of the Corporation or
another issuer, securities of the Corporation or another issuer or other assets
(excluding cash dividends in which holders of shares of Series E Preferred Stock
participate, in the manner provided in Section 3(b); dividends payable in shares
of Common Stock for which adjustment is made under another paragraph of this
Section 7(c); and any distribution in connection with an Excluded Transaction)
or rights or warrants to subscribe for or purchase of any of the foregoing,
then, and in each such case, the Series E Conversion Price then in effect shall
be adjusted (and any other appropriate actions shall be taken by the
Corporation) by multiplying the Series E Conversion Price in effect immediately
prior to the date of such distribution by a fraction (x) the numerator of which
shall be the Current Market Price of the Common Stock immediately prior to the
date of distribution less the then fair market value (as determined by the Board
of Directors in the exercise of their fiduciary duties) of the portion of the
cash, evidences of indebtedness, securities or other assets so distributed or of
such rights or warrants applicable to one share of Common Stock and (y) the
denominator of which shall be the Current Market Price of the Common Stock
immediately prior to the date of distribution (but such fraction shall not be
greater than one); provided, however, that no adjustment shall be made with
respect to any distribution of rights or warrants to subscribe for or purchase
securities of the Corporation if the holder of shares of Series E Preferred
Stock would otherwise be entitled to receive such rights or warrants upon
conversion at any time of shares of Series E Preferred Stock into Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective retroactively to a date immediately following the close of
business on the record date for the determination of stockholders entitled to
receive such distribution.
(iii) Other Changes. In case the Corporation at any time or from time to
time, prior to the conversion of shares of Series E Preferred Stock, shall take
any action affecting its Common Stock similar to or having an effect similar to
any of the actions described in Sections 7(c)(i) or (ii) above or Section 7(f)
below (but not including any action described in any such Section) and the Board
of Directors shall consider whether an adjustment should thereupon be made in
the Series E Conversion Price. If the Board of Directors in good faith
determines that it would be equitable in the circumstances to adjust the Series
E Conversion Price as a result of such action, then, and in each such case, the
Series E Conversion Price shall be adjusted in such manner and at such time as
the Board of Directors in good faith determines would be equitable in the
circumstances (such determination to be evidenced in a resolution, a certified
copy of which shall be mailed to the holders of shares of Series E Preferred
Stock).
(iv) No Adjustment. Notwithstanding anything herein to the contrary, no
adjustment under this Section 7(c) need be made to the Series E Conversion Price
if the Corporation receives written notice from holders of a majority of the
outstanding shares of Series E Preferred Stock that no such adjustment is
required.
(d) Abandonment. If the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the Series E Conversion Price shall be
required by reason of the taking of such record.
(e) Certificate as to Adjustments. Upon any adjustment in the Series E
Conversion Price, the Corporation shall within a reasonable period (not to
exceed ten (10) Business Days) following any of the foregoing transactions
deliver to each registered holder of shares of Series E Preferred Stock a
certificate, signed by (i) the Chief Executive Officer of the Corporation and
(ii) the Chief Financial Officer of the Corporation, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated and specifying the increased or decreased Series E
Conversion Price then in effect following such adjustment.
7
(f) Reorganization, Reclassification. In case of any merger or
consolidation of the Corporation (other than a Change of Control) or any capital
reorganization, reclassification or other change of outstanding shares of Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value) (each, a "Transaction"), the holder of each
share of Series E Preferred Stock shall have the right to receive in such
Transaction, in exchange for each share of Series E Preferred Stock, a security
identical to (and not less favorable than) the Series E Preferred Stock, and
provision shall be made therefor in the agreement, if any, relating to such
Transaction.
(g) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available for issuance upon the conversion of shares of Series
E Preferred Stock, such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Series E Preferred Stock, and shall take all action to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
E Preferred Stock; provided, that the holders of shares of Series E Preferred
Stock shall vote such shares in favor of any such action that requires a vote of
stockholders.
(h) No Conversion Tax or Charge. The issuance or delivery of certificates
for Common Stock upon the conversion of shares of Series E Preferred Stock shall
be made without charge to the converting holder of shares of Series E Preferred
Stock for such certificates or for any tax in respect of the issuance or
delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series E Preferred Stock converted; provided, however, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Series E Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or Persons requesting the issuance or
delivery thereof shall have paid to the Corporation the amount of such tax or
shall have established to the reasonable satisfaction of the Corporation that
such tax has been paid.
(i) Limitations on Conversions. Each holder of the Series E Preferred
Stock's right to convert its shares of Series E Preferred Stock into shares of
Common Stock shall not be limited by any notice delivered by the Corporation of
any proposed redemption, Change of Control or any other event that
notwithstanding this subsection (i) shall purport to limit such conversion
right.
8. Certain Remedies. Any registered holder of shares of Series E
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Determination and to enforce
specifically the terms and provisions of this Certificate of Determination in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity.
9. Business Day. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
10. Definitions. As used in this Certificate of Determination, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Affiliate" shall mean any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
"Amended and Restated Series D Certificate of Determination" means the
Corporation's Certificate of Determination of Preference of Series D Cumulative
Redeemable Convertible Preferred Stock, as amended from time to time.
"Apex Notes" means the convertible promissory notes with an aggregate
principal amount of fifteen million dollars ($15,000,000) issued by the
Corporation on January 16, 2004, to Permal U.S. Opportunities
8
Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional Partners, L.P., Zaxis
Offshore Limited, Zaxis Partners, L.P. and Passport Master Fund, L.P., pursuant
to the Convertible Note Purchase Agreement.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York or the State of California are
authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however designated
and whether voting or non-voting) of, such Person's capital stock (including,
without limitation, common stock and preferred stock) and any and all rights,
warrants or options exchangeable for or convertible into such capital stock.
"Certificate of Determination" means this Certificate of Determination of
Preferences of Series E Redeemable Convertible Preferred Stock, as amended from
time to time.
"Change of Control" means (i) any merger, consolidation or other business
combination transaction (or series of related transactions) in which the
stockholders owning a majority of the voting securities of the Corporation prior
to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any person or "group" other than the Investors obtains a majority of the
outstanding shares of capital stock entitled to vote in the election of the
Board of Directors, (iii) any proxy contest in which a majority of the Board of
Directors (or persons appointed by such Board of Directors) prior to such
contest do not constitute a majority of the Board of Directors after such
contest, (iv) a sale of all or substantially all of the assets of the
Corporation or (v) any other transaction described in any stockholder rights
agreement or "poison pill", if any, to which the Corporation is a party, which
permits the holders of any rights or similar certificates to exercise the rights
evidenced thereby and pursuant to which the Board of Directors does not waive
the application of such stockholder rights agreement or "poison pill."
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Common Stock Equivalent" shall mean any security or obligation which is by
its terms convertible, exchangeable or exercisable into or for shares of Common
Stock, including, without limitation, shares of Series D Preferred Stock, shares
of Series E Preferred Stock and any option, warrant or other subscription or
purchase right with respect to Common Stock or any Common Stock Equivalent.
"Convertible Note Purchase Agreement" means the Convertible Note Purchase
Agreement, dated January 16, 2004, among the Corporation and 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.
"Corporation" shall have the meaning ascribed to it in the first paragraph
of this Certificate of Determination.
"Current Market Price" per share of Capital Stock of any Person shall mean,
as of the date of determination, (a) the average of the daily Market Price under
clause (a), (b) or (c), as applicable, of the definition thereof of such Capital
Stock during the immediately preceding thirty (30) trading days ending on such
date, and (b) if such Capital Stock is not then listed or admitted to trading on
any national securities exchange or quoted in the over-the-counter market, then
the Market Price under clause (d) of the definition thereof on such date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Excluded Transaction" means (a) any issuance of shares of stock or options
to purchase shares of Series E Preferred Stock or Common Stock pursuant to the
Stock Option Plans, (b) any issuance of
9
Common Stock (i) upon the conversion of shares of Series E Preferred Stock or
shares of Series D Preferred Stock, (ii) as a dividend on shares of Series E
Preferred Stock or shares of Series D Preferred Stock or (iii) upon conversion
or exercise of any Common Stock Equivalents, (c) any issuance of Common Stock in
connection with any Series E Liquidation Payment or Series D Liquidation
Payment, (d) Capital Stock issued in consideration of an acquisition, approved
by the Board of Directors, of another Person, (e) shares of Common Stock and
Common Stock Equivalents issued in strategic transactions (which may not be
private equity or venture capital financing transactions), approved by the Board
of Directors, to Persons that are not principally engaged in financial
investing, (f) the issuance of the Series E Purchase Rights and the Rights
Shares, (g) shares of Series E Preferred Stock issuable pursuant to agreements
entered into prior to the Series E Closing Date and (h) shares of Common Stock
issuable upon conversion of the Apex Notes in accordance with the terms of the
Convertible Note Purchase Agreement.
"GAAP" means United States generally accepted accounting principles in
effect from time to time.
"Investors" means General Atlantic Partners 74, L.P., GAP Coinvestment
Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Campina Enterprises
Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and Lion
Cosmos Limited and the Affiliates of the foregoing, provided that Affiliates
shall be deemed not to include any portfolio companies of any of the foregoing.
"Junior Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Liquidation" shall mean the voluntary or involuntary liquidation under
applicable bankruptcy or reorganization legislation, or the dissolution or
winding up of the Corporation.
"Market Price" shall mean, with respect to the Capital Stock of any Person,
as of the date of determination, (a) if such Capital Stock is listed on a
national securities exchange, the closing price per share of such Capital Stock
on such date published in The Wall Street Journal (National Edition) or, if no
such closing price on such date is published in The Wall Street Journal
(National Edition), the average of the closing bid and asked prices on such
date, as officially reported on the principal national securities exchange on
which such Capital Stock is then listed or admitted to trading; or (b) if such
Capital Stock is not then listed or admitted to trading on any national
securities exchange but is designated as a national market system security by
the National Association of Securities Dealers, Inc., the last trading price of
such Capital Stock on such date; or (c) if there shall have been no trading on
such date or if such Capital Stock is not designated as a national market system
security by the National Association of Securities Dealers, Inc., the average of
the reported closing bid and asked prices of such Capital Stock on such date as
shown by the National Market System of the National Association of Securities
Dealers, Inc. Automated Quotations System and reported by any member firm of the
New York Stock Exchange selected by the Corporation; or (d) if none of (a), (b)
or (c) is applicable, the fair market value thereof as reasonably determined by
the Board of Directors.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any kind.
"Price Per Share" means $1.50 (subject to anti-dilution adjustment for
stock splits of, combinations of and capital reorganizations with respect to the
Series E Preferred Stock).
"Rights Offering" shall mean a rights offering for an aggregate amount of
up to $21,000,000 of shares of Series E Preferred Stock pursuant to which the
Corporation will distribute transferable rights to the Corporation's holders of
Common Stock as contemplated by the Convertible Note Purchase and Exchange
Agreement, dated November 18, 2003, among the Corporation and certain other
parties thereto.
"Rights Shares" means the shares of Series E Preferred Stock issuable upon
exercise of the Series E Purchase Rights and the shares of the Common Stock
issuable upon conversion of such shares of Series E Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
10
"Series D Liquidation Payment" shall have the meaning ascribed to it in the
Amended and Restated Certificate of Determination of Preferences of Series D
Preferred Stock if and when approved by the requisite stockholders of the
Corporation and duly filed with the Secretary of State of the State of
California.
"Series D Preferred Stock" shall have the meaning ascribed to it in the
Amended and Restated Certificate of Determination of Preferences of Series D
Preferred Stock if and when approved by the requisite stockholders of the
Corporation and duly filed with the Secretary of State of the State of
California.
"Series E Accreted Value" shall mean as of any date, with respect to each
share of Series E Preferred Stock, the Price Per Share plus the amount of
dividends that have accrued from the Series E Closing Date to the then most
recent Series E Accrual Date pursuant to Section 3(a) of this Certificate of
Determination.
"Series E Automatic Redemption Date" shall have the meaning ascribed to it
in Section 5(b) hereof.
"Series E Closing Date" means , 2004.
"Series E Conversion Price" shall mean $1.50, as adjusted pursuant to
Section 7(c).
"Series E Liquidation Payment" shall mean, with respect to each share of
Series E Preferred Stock, those amounts payable pursuant to Section 4(a)(i) or
Section 4(b)(i), as the case may be.
"Series E Optional Redemption Date" shall have the meaning ascribed to it
in Section 5(a)(ii) hereof.
"Series E Optional Redemption Measurement Window" shall have the meaning
ascribed to it in Section 5(a)(i) hereof.
"Series E Optional Redemption Period" shall have the meaning ascribed to it
in Section 5(a)(i) hereof.
"Series E Optional Redemption Price" shall have the meaning ascribed to it
in Section 5(a)(i) hereof.
"Series E Preferred Stock" shall have the meaning ascribed to it in Section
1 hereof.
"Series E Purchase Rights" means those rights to purchase Series E
Preferred Stock issued in the Rights Offering.
"Series E Redemption Price" shall have the meaning ascribed to it in
Section 5(b) hereof.
"Stock Option Plans" means the Corporation's stock option plans and
employee purchase plans approved by the Board of Directors, pursuant to which
shares of restricted stock and options to purchase shares of Series E Preferred
Stock and/or Common Stock are reserved and available for grant to officers,
directors, employees and consultants of the Corporation.
* * * * * *
3. This Certificate of Determination has been duly approved by the Board
of Directors. The authorized number of shares of Preferred Stock of the
Corporation is [ ], of which one share constitutes the Special Voting
Share, which share has been issued, 75,000 shares constitute Series C
Participating Preferred Stock, none of which has been issued, [ ]
shares of Series D Preferred Stock, [all] of which have been issued, and
[ ] shares of Series E Preferred Stock, none of which has been issued.
The number of shares voting in favor of this Certificate of Determination
equaled or exceeded the vote required. The percentage vote required under the
Amended and Restated Articles of Incorporation in effect at the time of this
Certificate of Determination was more than 50% of the outstanding shares of
Series D Preferred Stock, voting separately as a class.
[the remainder of this page intentionally left blank]
11
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, the
Chief Executive Officer and Chairman of the Board of Directors and Vice
President and Secretary, respectively, of Critical Path, Inc., declare under
penalty of perjury that the matters set out in the foregoing Certificate are
true of their own knowledge.
Executed at San Francisco, California on this [ ] day of
[ ], [ ].
--------------------------------------
WILLIAM E. MCGLASHAN, JR.,
Chief Executive Officer and
Chairman of the Board of Directors
--------------------------------------
MICHAEL J. ZUKERMAN,
Senior Vice President, General
Counsel and Secretary
APPENDIX D
AMENDED AND RESTATED
CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES D CUMULATIVE REDEEMABLE CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.001 PER SHARE, OF
CRITICAL PATH, INC.,
A CALIFORNIA CORPORATION
Pursuant to Section 401 of the California Corporations Code,
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, do
hereby certify that:
1. They are the duly elected and acting Chief Executive Officer and
Chairman of the Board of Directors and Senior Vice President, General
Counsel and Secretary, respectively, of Critical Path, Inc., a California
corporation (the "Corporation").
2. Pursuant to the authority given in the Corporation's Amended and
Restated Articles of Incorporation, the Corporation filed a Certificate of
Determination of Preferences of Series D Cumulative Redeemable Convertible
Participating Preferred Stock on November 9, 2001.
3. Pursuant to Section 907 of the California Corporations Code, the
Certificate of Determination of Preferences of Series D Cumulative
Redeemable Convertible Participating Preferred Stock is amended and
restated to read in full as follows:
WITNESSETH
WHEREAS, it is the desire of the Board of Directors, upon requisite
approval of the stockholders of the Corporation, to alter the terms of the
Series D Cumulative Redeemable Convertible Participating Preferred Stock and
amend and restate the Certificate of Determination of Preferences for such
series:
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Number of Shares. There shall be hereby created and
established a series of preferred stock designated as "Series D Cumulative
Redeemable Convertible Preferred Stock" (the "Series D Preferred Stock"). The
authorized number of shares of Series D Preferred Stock shall be four million
one hundred eighty-eight thousand five hundred eighty-seven (4,188,587).
Capitalized terms used herein and not otherwise defined shall have the meanings
set forth in Section 10 below.
2. Rank.
(a) Notwithstanding anything to the contrary in this Certificate of
Determination, the Series D Preferred Stock shall not be entitled to the payment
of dividends, the Series D Liquidation Payment, the Series D Optional Redemption
Price or the Series D Redemption Price until the issued and outstanding shares
of Series E Preferred Stock shall have received all dividends, the Series E
Liquidation Payment, the Series E Optional Redemption Price and the Series E
Redemption Price due and owing under the terms thereof; provided, however, that
notwithstanding the foregoing and for the avoidance of doubt, dividends shall
accrue on the Series D Preferred Stock as provided in Section 3 below. Subject
to the foregoing sentence, the Series D Preferred Stock shall with respect to
the payment of the Series D Liquidation Payment in the event of Liquidation or
Change of Control and with respect to dividend and redemption rights rank senior
to (i) all series of common stock of the Corporation (including, without
limitation, the Common Stock, par value $0.001 per share, of the Corporation
(the "Common Stock")), (ii) all series of preferred stock of the Corporation
(excluding any shares of Series E Preferred Stock but including, without
limitation, the Series C Participating Preferred Stock, par value $0.001 per
share) and (iii) each
other class or series of Capital Stock of the Corporation hereafter created
which does not expressly rank pari passu with or senior to the Series D
Preferred Stock (clauses (i), (ii) and (iii), together, the "Junior Stock").
(b) Notwithstanding anything to the contrary contained in the Amended and
Restated Articles of Incorporation of the Corporation, the vote of the holders
of a majority of the Series D Preferred Stock shall be a prerequisite to the
designation or issuance of any shares of Capital Stock of the Corporation
ranking pari passu with or senior to the Series D Preferred Stock in the event
of a Liquidation or with respect to the payment of the Series D Liquidation
Payment.
3. Dividends.
(a) Dividend Rate. During the period beginning on the date of issuance of
such shares of Series D Preferred Stock and ending on the Series E Closing Date,
the holders of shares of Series D Preferred Stock shall accrue dividends at an
annual rate equal to eight percent (8%) of the Series D Accreted Value,
calculated on the basis of a 360-day year, consisting of twelve 30-day months,
and shall accrue on a daily basis from the date of issuance of such shares of
Series D Preferred Stock until the Series E Closing Date, whether or not the
Corporation has earnings or profits, whether or not there are funds legally
available for the payment of dividends and whether or not declared by the Board
of Directors. During the period beginning on the date of issuance thereof and
ending on the Series E Closing Date, such accrued and unpaid dividends shall
compound to the Series D Accreted Value on a semi-annual basis on December 31st
and June 30th of each year (each such date, the "Series D Accrual Date") whether
or not declared by the Board of Directors. Following the Series E Closing Date,
the holders of shares of Series D Preferred Stock shall accrue, out of funds
legally available therefor, dividends at an annual rate equal to five and
three-fourths percent (5 3/4%) of the Price Per Share with respect to each share
of Series D Preferred Stock, calculated on the basis of a 360-day year,
consisting of twelve 30-day months, and shall accrue on a daily basis from the
Series E Closing Date, whether or not the Corporation has earnings or profits,
whether or not there are funds legally available for the payment of dividends
and whether or not declared by the Board of Directors. Such dividends shall not
be paid in cash and shall instead be added to the Series D Accreted Value on the
Series D Accrual Date. In addition, if the Corporation declares and pays any
dividends on the Common Stock, then, in that event, the holders of shares of
Series D Preferred Stock shall be entitled to share in such dividends on a pro
rata basis, as if their shares had been converted into shares of Common Stock
pursuant to Section 7(a) below immediately prior to the record date for
determining the stockholders of the Corporation eligible to receive such
dividends.
(b) Change of Control; Optional Redemption. In the event of the occurrence
of a Change of Control or an optional redemption of the shares of Series D
Preferred Stock pursuant to Section 5(a) below, the sum of (i) any dividends
accrued at the rate and in the manner specified in Section 3(a) since the
previous Series D Accrual Date and prior to the date of the occurrence of a
Change of Control or the Series D Optional Redemption Date plus (ii) any and all
dividends that would have accrued at the rate and in the manner specified in
Section 3(a) from the closing date of such Change of Control or the Series D
Optional Redemption Date through and until the Series D Automatic Redemption
Date shall be added to the Series D Accreted Value on the closing date of such
Change of Control or the Series D Optional Redemption Date, as the case may be.
(c) Other Dividends. The Corporation shall not declare or pay any
dividends on, or make any other distributions with respect to or redeem,
purchase or otherwise acquire for consideration, any other shares of Capital
Stock unless and until all accrued and unpaid dividends on the Series D
Preferred Stock have been paid in full.
4. Liquidation and Change of Control.
(a) Series D Liquidation Payment. Upon the occurrence of a Liquidation,
after the payment of the full Series E Liquidation Payment of the issued and
outstanding shares of Series E Preferred Stock, the holders of shares of Series
D Preferred Stock shall be paid in cash for each share of Series D Preferred
Stock held thereby, out of, but only to the extent of, the assets of the
Corporation legally available for
2
distribution to its stockholders, an amount equal to the greater of (i) the sum
of (A) the Series D Accreted Value of such share of Series D Preferred Stock on
the date of such Liquidation plus (B) all dividends accrued since the previous
Series D Accrual Date, (ii) the product of (x) 1.6 multiplied by (y) the Price
Per Share or (iii) the aggregate consideration that would be paid to the holder
of the number of shares of Common Stock into which such share of Series D
Preferred Stock is convertible immediately prior to such Liquidation. If, after
the payment of the full Series E Liquidation Payment of the issued and
outstanding shares of Series E Preferred Stock, the assets of the Corporation
available for distribution to the holders of shares of Series D Preferred Stock
shall be insufficient to permit payment in full to such holders of the sums
which such holders are entitled to receive in such case, then all of the assets
available for distribution to holders of shares of Series D Preferred Stock
shall be distributed among and paid to such holders ratably in proportion to the
amounts that would be payable to such holders if such assets were sufficient to
permit payment in full.
(b) Change of Control. In the event of a Change of Control, after the
payment of the full Series E Liquidation Payment of the issued and outstanding
shares of Series E Preferred Stock, the holders of shares of Series D Preferred
Stock shall be paid for each share of Series D Preferred Stock held thereby, an
amount equal to the greater of (i) the sum of (A) the Series D Accreted Value of
such share of Series D Preferred Stock on the date of such Change of Control
plus (B) all dividends that accrue and are payable pursuant to Section 3(b),
(ii) the product of (x) 1.6 multiplied by (y) the Price Per Share or (iii) the
aggregate consideration that would be paid to the holder of the number of shares
of Common Stock into which such share of Series D Preferred Stock is convertible
immediately prior to the closing of such Change of Control. Such amount shall be
paid in the form of consideration paid in such Change of Control on the closing
date of such Change of Control.
(c) Notice. Written notice of a Liquidation or Change of Control stating a
payment or payments and the place where such payment or payments shall be
payable, shall be delivered in person, mailed by certified mail, return receipt
requested, mailed by overnight mail or sent by telecopier, not less than ten
(10) days prior to the earliest payment date stated therein, to the holders of
record of shares of Series D Preferred Stock, such notice to be addressed to
each such holder at its address as shown by the records of the Corporation.
5. Redemption.
(a) Optional Redemption.
(i) Series D Optional Redemption Period. The Corporation shall not
have any right to redeem any shares of the Series D Preferred Stock on or
prior to the third anniversary of the Series E Closing Date. If on any date
after the third anniversary of the Series E Closing Date, but prior to the
Series D Automatic Redemption Date, the average closing price per share of
the Common Stock, as reported on NASDAQ or other nationally recognized
securities exchange on which the shares of Common Stock trade, for any
sixty (60) consecutive trading days after such third anniversary date,
equals or exceeds four hundred percent (400%) of the Series D Accreted
Value (the "Series D Optional Redemption Measurement Window"), the
Corporation shall have the right, at its sole option and election, to
redeem (unless otherwise prevented by law) within thirty (30) days
following such Series D Optional Redemption Measurement Window (the "Series
D Optional Redemption Period"), all, but not less than all, of the
outstanding shares of Series D Preferred Stock in cash, at a price per
share (the "Series D Optional Redemption Price") equal to the sum of the
Series D Accreted Value plus all dividends that accrue and are payable
pursuant to Section 3(b).
(ii) Optional Redemption Payment. Written notice of any election by
the Corporation to redeem the shares of Series D Preferred Stock pursuant
to Section 5(a) (with a closing date prior to the expiration of the Series
D Optional Redemption Period selected for such redemption (the "Series D
Optional Redemption Date")), shall be delivered in person, mailed by
certified mail, return receipt requested, mailed by overnight mail or sent
by telecopier not less than ten (10), nor more than thirty (30), days prior
to such Series D Optional Redemption Date to the holders of record of the
shares of Series D Preferred Stock, such notice to be addressed to each
such holder at its address
3
as shown in the records of the Corporation. The Series D Optional
Redemption Price shall be made with respect to each share of Series D
Preferred Stock by wire transfer of immediately available funds as promptly
as practicable and, in any event, within seven (7) days after receipt by
the Corporation of the Series D Preferred Stock certificates to accounts
designated in writing by the holders of such shares of Series D Preferred
Stock after surrender of the Series D Preferred Stock certificates pursuant
to the following sentence. Upon notice from the Corporation, each holder of
shares of Series D Preferred Stock so redeemed shall promptly surrender to
the Corporation, at any place where the Corporation shall maintain a
transfer agent for its shares of Series D Preferred Stock, certificates
representing the shares so redeemed, duly endorsed in blank or accompanied
by proper instruments of transfer. Notwithstanding anything to the contrary
set forth in this Certificate of Determination, any holder of Series D
Preferred Stock may convert its shares of Series D Preferred Stock pursuant
to Section 7(a) until the Series D Optional Redemption Price has been paid
in full by the Corporation to such holder.
(iii) Termination of Rights. If shares of Series D Preferred Stock
are redeemed in full on the Series D Optional Redemption Date, then after
the Series D Optional Redemption Date, all rights of any holder of shares
of Series D Preferred Stock shall cease and terminate, and such shares of
Series D Preferred Stock shall no longer be deemed to be outstanding;
provided, however, that, if the Corporation defaults in the payment in full
of the Series D Optional Redemption Price, then, subject to Section 5(b),
the Corporation may not redeem the shares of Series D Preferred Stock until
the next Series D Optional Redemption Measurement Window.
(b) Automatic Redemption.
(i) Automatic Redemption Date and Payment. On the fourth anniversary
of the Series E Closing Date (the "Series D Automatic Redemption Date"),
all of the shares of Series D Preferred Stock shall automatically, with no
further action required to be taken by the Corporation or the holder
thereof, be redeemed (unless otherwise prevented by law) in cash, at a
redemption price per share (the "Series D Redemption Price") equal to the
sum of the Series D Accreted Value plus all dividends accrued since the
previous Series D Accrual Date. Written notice of the Series D Automatic
Redemption Date shall be delivered in person, mailed by certified mail,
return receipt requested, mailed by overnight mail or sent by telecopier
not less than thirty (30), nor more than sixty (60), days prior to the
Series D Automatic Redemption Date to the holders of record of the shares
of Series D Preferred Stock, such notice to be addressed to each such
holder at its address as shown in the records of the Corporation. The
Series D Redemption Price shall be made with respect to each share of
Series D Preferred Stock by wire transfer of immediately available funds as
promptly as practicable and, in any event, within seven (7) days after
receipt by the Corporation of the Series D Preferred Stock certificates to
accounts designated in writing by the holders of such shares of Series D
Preferred Stock after surrender of the Series D Preferred Stock
certificates pursuant to the following sentence. Upon notice from the
Corporation, each holder of such shares of Series D Preferred Stock so
redeemed shall promptly surrender to the Corporation, at any place where
the Corporation shall maintain a transfer agent for its shares of Series D
Preferred Stock, certificates representing the shares so redeemed, duly
endorsed in blank or accompanied by proper instruments of transfer.
Notwithstanding anything to the contrary set forth in this Certificate of
Determination, any holder of Series D Preferred Stock may convert its
shares of Series D Preferred Stock pursuant to Section 7(a) hereof until
the Series D Redemption Price has been paid in full by the Corporation to
any such holder.
(ii) Termination of Rights. If the shares of Series D Preferred Stock
are redeemed in full on the Series D Automatic Redemption Date, then after
the Series D Automatic Redemption Date, all rights of any holder of such
shares of Series D Preferred Stock shall cease and terminate, and such
shares of Series D Preferred Stock shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares have
been received by the Corporation; provided, however, that, if the
Corporation defaults in the payment in full of the Series D Redemption
Price, the rights of the holders of shares of Series D Preferred Stock
shall continue until the Corporation cures such default.
4
(iii) Insufficient Funds for Redemption. If the funds of the
Corporation available for redemption of the shares of Series D Preferred
Stock on the Series D Automatic Redemption Date are insufficient to redeem
in full the shares of Series D Preferred Stock, the holders of shares of
Series D Preferred Stock shall share ratably in any funds available by law
for redemption of such shares according to the respective amounts which
would be payable with respect to the number of shares owned by them if the
shares to be so redeemed on such Series D Automatic Redemption Date were
redeemed in full. Any shares of Series D Preferred Stock that the
Corporation does not redeem on the Series D Automatic Redemption Date due
to insufficient funds shall continue to be outstanding until redeemed and
dividends on such shares shall continue to accrue and cumulate until
redeemed. The Corporation shall in good faith use all commercially
reasonable efforts as expeditiously as possible to eliminate, or obtain an
exception, waiver or exemption from, any and all restrictions that
prevented the Corporation from paying the Series D Redemption Price and
redeeming all of the shares of Series D Preferred Stock. At any time
thereafter when additional funds of the Corporation are available by law
for the redemption of the shares of Series D Preferred Stock, such funds
shall be used as promptly as practicable to redeem the balance of such
shares, or such portion thereof for which funds are available, on the basis
set forth above.
(c) Rank. Notwithstanding anything to the contrary in this Section 5, no
redemption of shares Series D Preferred Stock pursuant to this Section 5 shall
occur (i) if there are any shares of Series E Preferred Stock issued and
outstanding or (ii) unless and until the issued and outstanding shares of Series
E Preferred Stock shall have received all payments due and owing under the terms
thereof.
6. Voting Rights; Election of Directors.
(a) General. In addition to the voting rights to which the holders of
Series D Preferred Stock are entitled under or granted by California law, the
holders of Series D Preferred Stock shall be entitled to vote, in person or by
proxy, at a special or annual meeting of stockholders on all matters entitled to
be voted on by holders of shares of Common Stock voting together as a single
class with the Common Stock (and with other shares entitled to vote thereon, if
any). With respect to any such vote, each share of Series D Preferred Stock
shall entitle the holder thereof to cast that number of votes as is equal to the
quotient of (i) the sum of the Series D Accreted Value plus all dividends
accrued since the previous Series D Accrual Date divided by (ii) $4.20, subject
to the same adjustments that are made to the Series D Conversion Price as
provided in Section 7(c) below.
(b) Directors. As long as at least 500,000 shares of Series D Preferred
Stock are outstanding, if General Atlantic Partners 74, L.P., GAP Coinvestment
Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG and/or any Affiliate
thereof in the aggregate own at least a majority of the outstanding shares of
Series D Preferred Stock, then the holders of shares of Series D Preferred
Stock, voting as a separate class, shall be entitled to elect one (1) director
of the Corporation.
(c) Elections. As long as at least 500,000 shares of Series D Preferred
Stock are outstanding, the Series D Preferred Stock shall vote together as a
single class with the Common Stock (and all other classes and series of stock of
the Corporation entitled to vote thereon, if any) with respect to the election
of all of the other directors of the Corporation other than the director elected
solely by the holders of shares of Series E Preferred Stock pursuant to Section
6(b) of the Series E Certificate of Determination of Preferences. If the
conditions set forth in Section 6(b) necessary for the holders of shares of
Series D Preferred Stock to vote as a separate class for the election of one
director are not satisfied, then the Series D Preferred Stock shall vote
together as a single class with the Common Stock (and all other classes and
series of stock of the Corporation entitled to vote thereon, if any) with
respect to the election of all of the directors of the Corporation other than
the director elected solely by the holders of shares of Series E Preferred Stock
pursuant to Section 6(b) of the Series E Certificate of Determination of
Preferences. At any meeting held for the purpose of electing directors pursuant
to Section 6(b) at a time when the holders of shares of Series D Preferred Stock
are entitled to vote as a separate class for the election of one director, the
presence in person or by proxy of the holders of a majority of the shares of
Series D Preferred Stock then outstanding shall constitute a quorum of the
Series D Preferred Stock for
5
the election of the director to be elected solely by the holders of shares of
Series D Preferred Stock; the holders of shares of Series D Preferred Stock
shall be entitled to cast one vote per share of Series D Preferred Stock in any
such election; and the director to be elected exclusively by the holders of
shares of Series D Preferred Stock shall be elected by the affirmative vote of
the holders of a majority of the outstanding shares of Series D Preferred Stock.
A vacancy in a directorship filled by the holders of the Series D Preferred
Stock voting as a separate class pursuant to Section 6(b) shall be filled only
by vote or written consent of the holders of shares of Series D Preferred Stock.
The director elected pursuant to Section 6(b) may not be removed without the
consent of a majority of the holders of shares of Series D Preferred Stock,
except as otherwise provided by law.
(d) Major Actions. Notwithstanding anything to the contrary set forth in
the Amended and Restated Articles of Incorporation or the By-laws of the
Corporation, the affirmative vote of the holders of a majority of the
outstanding shares of Series D Preferred Stock, voting as a separate class,
shall be a prerequisite to:
(i) any amendment, modification or restatement of the Articles of
Incorporation or the By-Laws of the Corporation, including, without
limitation, by merger, consolidation, business combination or otherwise
that is not a Change of Control;
(ii) the issuance, reservation for issuance or authorization of any
Capital Stock of the Corporation or any right or option to acquire shares
of Capital Stock ranking senior to the shares of Series D Preferred Stock
or any increase or decrease in the authorized number of shares of Series D
Preferred Stock; provided, that the Corporation may issue (w) options or
shares pursuant to the Stock Option Plans, (x) shares of Series E Preferred
Stock (A) upon conversion of those certain convertible promissory notes,
with an aggregate principal amount of ten million dollars ($10,000,000),
issued by the Corporation on November 26, 2003, (B) in exchange for those
certain 5 3/4% Convertible Subordinated Notes, due April 1, 2005, in the
principal face amount of thirty-two million seven hundred ninety-five
thousand dollars ($32,795,000), issued by the Corporation pursuant to the
Corporation's Indenture, dated March 31, 2000, (C) upon conversion of the
Apex Notes and (D) issuable pursuant to agreements entered into prior to
the Series E Closing Date, and (y) the Series E Purchase Rights and the
Rights Shares;
(iii) the redemption of any Junior Stock other than the repurchase of
unvested stock options or restricted stock from employees, officers,
directors or consultants of the Corporation upon termination of service or
in accordance with the Stock Option Plans;
(iv) any declaration, distribution or payment of any dividend or other
distribution to any Junior Stock;
(v) the issuance, incurrence, assumption or guarantee by the
Corporation or any Subsidiary of the Corporation of any funded Indebtedness
(excluding capital leases incurred in the ordinary course of business but
including the incurrence of any debt in connection with any borrowing
arrangements with Silicon Valley Bank, provided that, with respect to the
incurrence of any debt in connection with any borrowing arrangements with
Silicon Valley Bank, if the holders of Series D Preferred Stock do not
respond to a written request for consent by the Company within two Business
Days of receiving such request, such holder shall be deemed to have
consented); and
(vi) any amendment to this Section 6(d).
7. Conversion.
(a) Optional Conversion. Any holder of shares of Series D Preferred Stock
shall have the right, at its option, at any time and from time to time, to
convert, subject to the terms and provisions of this Section 7, any or all of
such holder's shares of Series D Preferred Stock into such number of fully paid
and non-assessable shares of Common Stock as is equal to the product of (i) the
number of shares of Series D Preferred Stock being so converted multiplied by
(ii) the quotient of (x) the sum of the Series D Accreted Value plus all
dividends accrued since the previous Series D Accrual Date divided by
6
(y) the Series D Conversion Price, subject to adjustment as provided in Section
7(c) below. Such conversion right shall be exercised by the surrender of
certificate(s) representing the shares of Series D Preferred Stock to be
converted to the Corporation at any time during usual business hours at its
principal place of business maintained by it (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of shares of Series D Preferred Stock), accompanied by written notice
that the holder elects to convert such shares of Series D Preferred Stock and
specifying the name or names (with address) in which a certificate or
certificates for shares of Common Stock are to be issued and (if so required by
the Corporation) by a written instrument or instruments of transfer in form
reasonably satisfactory to the Corporation duly executed by the holder or its
duly authorized legal representative and transfer tax stamps or funds therefor,
if required pursuant to Section 7(i) below. All certificates representing shares
of Series D Preferred Stock surrendered for conversion shall be delivered to the
Corporation for cancellation and canceled by it. As promptly as practicable
after the surrender of any shares of Series D Preferred Stock, in any event
within seven (7) days of the receipt of such certificates, the Corporation shall
(subject to compliance with the applicable provisions of federal and state
securities laws) deliver to the holder of such shares so surrendered
certificate(s) representing the number of fully paid and nonassessable shares of
Common Stock into which such shares are entitled to be converted. At the time of
the surrender of such certificate(s), the Person in whose name any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to be the holder of record of such shares of Common Stock on
such date, notwithstanding that the share register of the Corporation shall then
be closed or that the certificates representing such Common Stock shall not then
be actually delivered to such Person.
(b) Termination of Rights. On the date of such optional conversion
pursuant to Section 7(a) above all rights with respect to the shares of Series D
Preferred Stock so converted, including the rights, if any, to receive notices
and vote, shall terminate, except only the rights of holders thereof to (i)
receive certificates for the number of shares of Common Stock into which such
shares of Series D Preferred Stock have been converted and (ii) exercise the
rights to which they are entitled as holders of Common Stock.
(c) (i) Dividend, Subdivision, Combination or Reclassification of Common
Stock. In the event that the Corporation shall at any time or from time to
time, prior to conversion of shares of Series D Preferred Stock (w) pay a
dividend or make a distribution on the outstanding shares of Common Stock
payable in Capital Stock of the Corporation, (x) subdivide the outstanding
shares of Common Stock into a larger number of shares, (y) combine the
outstanding shares of Common Stock into a smaller number of shares or (z) issue
any shares of its Capital Stock in a reclassification of the Common Stock (other
than any such event for which an adjustment is made pursuant to another clause
of this Section 7(c)), then, and in each such case, the Series D Conversion
Price in effect immediately prior to such event shall be adjusted (and any other
appropriate actions shall be taken by the Corporation) so that the holder of any
share of Series D Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock or other securities of
the Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Series D Preferred Stock been converted immediately prior to the occurrence
of such event. An adjustment made pursuant to this Section 7(c)(i) shall become
effective retroactively (x) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (y) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
(i) Certain Distributions. In case the Corporation shall at any time
or from time to time, prior to conversion of shares of Series D Preferred
Stock, distribute to all holders of shares of the Common Stock (including
any such distribution made in connection with a merger or consolidation in
which the Corporation is the resulting or surviving Person and the Common
Stock is not changed or exchanged) cash, evidences of indebtedness of the
Corporation or another issuer, securities of the Corporation or another
issuer or other assets (excluding cash dividends in which holders of shares
of Series D Preferred Stock participate, in the manner provided in Section
3(c); dividends payable in
7
shares of Common Stock for which adjustment is made under another paragraph
of this Section 7(c); and any distribution in connection with an Excluded
Transaction) or rights or warrants to subscribe for or purchase of any of
the foregoing, then, and in each such case, the Series D Conversion Price
then in effect shall be adjusted (and any other appropriate actions shall
be taken by the Corporation) by multiplying the Series D Conversion Price
in effect immediately prior to the date of such distribution by a fraction
(x) the numerator of which shall be the Current Market Price of the Common
Stock immediately prior to the date of distribution less the then fair
market value (as determined by the Board of Directors in the exercise of
their fiduciary duties) of the portion of the cash, evidences of
indebtedness, securities or other assets so distributed or of such rights
or warrants applicable to one share of Common Stock and (y) the denominator
of which shall be the Current Market Price of the Common Stock immediately
prior to the date of distribution (but such fraction shall not be greater
than one); provided, however, that no adjustment shall be made with respect
to any distribution of rights or warrants to subscribe for or purchase
securities of the Corporation if the holder of shares of Series D Preferred
Stock would otherwise be entitled to receive such rights or warrants upon
conversion at any time of shares of Series D Preferred Stock into Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective retroactively to a date immediately following
the close of business on the record date for the determination of
stockholders entitled to receive such distribution.
(ii) Other Changes. In case the Corporation at any time or from time
to time, prior to the conversion of shares of Series D Preferred Stock,
shall take any action affecting its Common Stock similar to or having an
effect similar to any of the actions described in Sections 7(c)(i) or (ii)
above or Section 7(f) below (but not including any action described in any
such Section) and the Board of Directors shall consider whether an
adjustment should thereupon be made in the Series D Conversion Price. If
the Board of Directors in good faith determines that it would be equitable
in the circumstances to adjust the Series D Conversion Price as a result of
such action, then, and in each such case, the Series D Conversion Price
shall be adjusted in such manner and at such time as the Board of Directors
in good faith determines would be equitable in the circumstances (such
determination to be evidenced in a resolution, a certified copy of which
shall be mailed to the holders of shares of Series D Preferred Stock).
(iii) No Adjustment. Notwithstanding anything herein to the contrary,
no adjustment under this Section 7(c) need be made to the Series D
Conversion Price if the Corporation receives written notice from holders of
a majority of the outstanding shares of Series D Preferred Stock that no
such adjustment is required.
(d) Abandonment. If the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then no adjustment in the Series D Conversion Price shall be
required by reason of the taking of such record.
(e) Certificate as to Adjustments. Upon any adjustment in the Series D
Conversion Price, the Corporation shall within a reasonable period (not to
exceed ten (10) Business Days) following any of the foregoing transactions
deliver to each registered holder of shares of Series D Preferred Stock a
certificate, signed by (i) the Chief Executive Officer of the Corporation and
(ii) the Chief Financial Officer of the Corporation, setting forth in reasonable
detail the event requiring the adjustment and the method by which such
adjustment was calculated and specifying the increased or decreased Series D
Conversion Price then in effect following such adjustment.
(f) Reorganization, Reclassification. In case of any merger or
consolidation of the Corporation (other than a Change of Control) or any capital
reorganization, reclassification or other change of outstanding shares of Common
Stock (other than a change in par value, or from par value to no par value, or
from no par value to par value) (each, a "Transaction"), the Corporation shall
execute and deliver to each holder of shares of Series D Preferred Stock at
least ten (10) Business Days prior to effecting such
8
Transaction a certificate, signed by (i) the Chief Executive Officer of the
Corporation and (ii) the Chief Financial Officer of the Corporation, stating
that the holder of each share of Series D Preferred Stock shall have the right
to receive in such Transaction, in exchange for each share of Series D Preferred
Stock, a security identical to (and not less favorable than) the Series D
Preferred Stock, and provision shall be made therefor in the agreement, if any,
relating to such Transaction. Any certificate delivered pursuant to this Section
7(f) shall provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 7. The provisions of
this Section 7(f) and any equivalent thereof in any such certificate similarly
shall apply to successive transactions.
(g) Notices. In case at any time or from time to time:
(w) the Corporation shall declare a dividend (or any other
distribution) on its shares of Common Stock;
(x) the Corporation shall authorize the granting to the holders of its
Common Stock rights or warrants to subscribe for or purchase any shares of
Capital Stock of any class or of any other rights or warrants; or
(y) there shall be any Transaction;
then the Corporation shall mail to each holder of shares of Series D
Preferred Stock at such holder's address as it appears on the transfer
books of the Corporation, as promptly as possible but in any event at least
ten (10) days prior to the applicable date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of
such dividend, distribution or granting of rights or warrants or, if a
record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distribution or granting of
rights or warrants are to be determined, or (B) the date on which such
Transaction is expected to become effective and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for shares of stock or other securities or
property or cash deliverable upon such Transaction. Notwithstanding the
foregoing, in the case of any event to which Section 7(f) above is
applicable, the Corporation shall also deliver the certificate described in
Section 7(f) above to each holder of shares of Series D Preferred Stock at
least ten (10) Business Days' prior to effecting such reorganization or
reclassification as aforesaid.
(h) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available for issuance upon the conversion of shares of Series
D Preferred Stock, such number of its authorized but unissued shares of Common
Stock as will from time to time be sufficient to permit the conversion of all
outstanding shares of Series D Preferred Stock, and shall take all action to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficient authorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
D Preferred Stock; provided, that (x) the holders of shares of Series D
Preferred Stock shall vote such shares in favor of any such action that requires
a vote of stockholders and (y) such holders shall cause any directors elected by
them pursuant to Section 6(b) above to vote in favor of any such action that
requires a vote of the Board of Directors.
(i) No Conversion Tax or Charge. The issuance or delivery of certificates
for Common Stock upon the conversion of shares of Series D Preferred Stock shall
be made without charge to the converting holder of shares of Series D Preferred
Stock for such certificates or for any tax in respect of the issuance or
delivery of such certificates or the securities represented thereby, and such
certificates shall be issued or delivered in the respective names of, or
(subject to compliance with the applicable provisions of federal and state
securities laws) in such names as may be directed by, the holders of the shares
of Series D Preferred Stock converted; provided, however, that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Series D Preferred Stock
converted, and the Corporation shall not be required to issue or deliver such
certificate unless or until the Person or
9
Persons requesting the issuance or delivery thereof shall have paid to the
Corporation the amount of such tax or shall have established to the reasonable
satisfaction of the Corporation that such tax has been paid.
(j) Limitations on Conversions. Each holder of the Series D Preferred
Stock's right to convert its shares of Series D Preferred Stock into shares of
Common Stock shall not be limited by any notice delivered by the Corporation of
any proposed redemption, Change of Control or any other event that
notwithstanding this subsection (j) shall purport to limit such conversion
right.
8. Certain Remedies. Any registered holder of shares of Series D
Preferred Stock shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Certificate of Determination and to enforce
specifically the terms and provisions of this Certificate of Determination in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity.
9. Business Day. If any payment shall be required by the terms hereof to
be made on a day that is not a Business Day, such payment shall be made on the
immediately succeeding Business Day.
10. Definitions. As used in this Certificate of Determination, the
following terms shall have the following meanings (with terms defined in the
singular having comparable meanings when used in the plural and vice versa),
unless the context otherwise requires:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Apex Notes" means the convertible promissory notes with an aggregate
principal amount of fifteen million dollars ($15,000,000) issued by the
Corporation on January 16, 2004, to 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.,
pursuant to the Convertible Note Purchase Agreement.
"Board of Directors" means the Board of Directors of the Corporation.
"Business Day" means any day except a Saturday, a Sunday, or other day
on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights in, or other equivalents (however
designated and whether voting or non-voting) of, such Person's capital
stock (including, without limitation, common stock and preferred stock) and
any and all rights, warrants or options exchangeable for or convertible
into such capital stock.
"Certificate of Determination" means this Amended and Restated
Certificate of Determination of Preferences of Series D Cumulative
Redeemable Convertible Preferred Stock, as amended from time to time.
"Change of Control" means (i) any merger, consolidation or other
business combination transaction (or series of related transactions) in
which the stockholders owning a majority of the voting securities of the
Corporation prior to such transaction do not own a majority of the voting
securities of the surviving entity, (ii) any tender offer, exchange offer
or other transaction whereby any person or "group" other than the Investors
obtains a majority of the outstanding shares of capital stock entitled to
vote in the election of the Board of Directors, (iii) any proxy contest in
which a majority of the Board of Directors (or persons appointed by such
Board of Directors) prior to such contest do not constitute a majority of
the Board of Directors after such contest, (iv) a sale of all or
substantially all of the assets of the Corporation or (v) any other
transaction described in any stockholder rights agreement or "poison pill",
if any, to which the Corporation is a party, which permits the holders of
any rights or similar certificates to exercise the rights evidenced thereby
and pursuant to which the Board of Directors does not waive the application
of such stockholder rights agreement or "poison pill."
10
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Common Stock Equivalent" shall mean any security or obligation which
is by its terms convertible, exchangeable or exercisable into or for shares
of Common Stock, including, without limitation, shares of Series D
Preferred Stock, shares of Series E Preferred Stock, and any option,
warrant or other subscription or purchase right with respect to Common
Stock or any Common Stock Equivalent.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary
obligor"), whether or not contingent, (a) to purchase, repurchase or
otherwise acquire such primary obligations or any property constituting
direct or indirect security therefor, (b) to advance or provide funds (i)
for the payment or discharge or any such primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of
income or financial condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (d) otherwise to assure or
hold harmless the owner of any such primary obligation against loss or
failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof.
"Convertible Note Purchase Agreement" means the Convertible Note
Purchase Agreement, dated January 16, 2004, among the Corporation and
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.
"Corporation" shall have the meaning ascribed to it in the first
paragraph of this Certificate of Determination.
"Current Market Price" per share of Capital Stock of any Person shall
mean, as of the date of determination, (a) the average of the daily Market
Price under clause (a), (b) or (c), as applicable, of the definition
thereof of such Capital Stock during the immediately preceding thirty (30)
trading days ending on such date, and (b) if such Capital Stock is not then
listed or admitted to trading on any national securities exchange or quoted
in the over-the-counter market, then the Market Price under clause (d) of
the definition thereof on such date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"Excluded Transaction" means (a) any issuance of shares of stock or
options to purchase shares of Series E Preferred Stock or Common Stock
pursuant to the Stock Option Plans and (b) any issuance of Common Stock (i)
upon the conversion of shares of Series D Preferred Stock or shares of
Series E Preferred Stock, (ii) as a dividend on shares of Series D
Preferred Stock or shares of Series E Preferred Stock or (iii) upon
conversion or exercise of any Common Stock Equivalents, (c) any issuance of
Common Stock in connection with any Series D Liquidation Payment or Series
E Liquidation Payment, (d) Capital Stock issued in consideration of an
acquisition, approved by the Board of Directors, by the Company of another
Person, (e) shares of Common Stock and Common Stock Equivalents issued in
strategic transactions (which may not be private equity or venture capital
financing transactions) approved by the Board of Directors to Persons that
are not principally engaged in financial investing, (f) the issuance of the
Series E Purchase Rights and the Rights Shares, (g) shares of Series E
Preferred Stock issuable pursuant to agreements entered into prior to the
Series E Closing Date and (h) shares of Common Stock issuable upon
conversion of the Apex Notes in accordance with the terms of the
Convertible Note Purchase Agreement.
11
"GAAP" means United States generally accepted accounting principles in
effect from time to time.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except
trade accounts payable and accrued commercial or trade liabilities arising
in the ordinary course of business, (c) all interest rate and currency
swaps, caps, collars and similar agreements or hedging devices under which
payments are obligated to be made by such Person, whether periodically or
upon the happening of a contingency, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations of such Person under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (f) all indebtedness
secured by any Lien (other than Liens in favor of lessors under leases
other than leases included in clause (e)) on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of
that Person and (g) any Contingent Obligation of such Person.
"Investors" means General Atlantic Partners 74, L.P., GAP Coinvestment
Partners II, L.P., GapStar, LLC, GAPCO GmbH & Co. KG, Campina Enterprises
Limited, Cenwell Limited, Great Affluent Limited, Dragonfield Limited and
Lion Cosmos Limited and the Affiliates of the foregoing, provided that
Affiliates shall be deemed not to include any portfolio companies of any of
the foregoing.
"Junior Stock" shall have the meaning ascribed to it in Section 2(a)
hereof.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related
preferences).
"Liquidation" shall mean the voluntary or involuntary liquidation
under applicable bankruptcy or reorganization legislation, or the
dissolution or winding up of the Corporation.
"Market Price" shall mean, with respect to the Capital Stock of any
Person, as of the date of determination, (a) if such Capital Stock is
listed on a national securities exchange, the closing price per share of
such Capital Stock on such date published in The Wall Street Journal
(National Edition) or, if no such closing price on such date is published
in The Wall Street Journal (National Edition), the average of the closing
bid and asked prices on such date, as officially reported on the principal
national securities exchange on which such Capital Stock is then listed or
admitted to trading; or (b) if such Capital Stock is not then listed or
admitted to trading on any national securities exchange but is designated
as a national market system security by the National Association of
Securities Dealers, Inc., the last trading price of such Capital Stock on
such date; or (c) if there shall have been no trading on such date or if
such Capital Stock is not designated as a national market system security
by the National Association of Securities Dealers, Inc., the average of the
reported closing bid and asked prices of such Capital Stock on such date as
shown by the National Market System of the National Association of
Securities Dealers, Inc. Automated Quotations System and reported by any
member firm of the New York Stock Exchange selected by the Corporation; or
(d) if none of (a), (b) or (c) is applicable, the fair market value thereof
as reasonably per share determined by the Board of Directors.
"NASDAQ" shall mean The Nasdaq Stock Market, Inc.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, governmental body or other entity of any
kind.
12
"Price Per Share" means $13.75 (subject to anti-dilution adjustment
for stock splits of, combinations of and capital reorganizations with
respect to the Series D Preferred Stock).
"Rights Offering" shall mean a rights offering for an aggregate amount
of up to $21,000,000 of shares of Series E Preferred Stock pursuant to
which the Corporation will distribute transferable rights to the
Corporation's holders of Common Stock as contemplated by the Convertible
Note Purchase and Exchange Agreement, dated November 18, 2003, among the
Corporation and certain other parties thereto.
"Rights Shares" means the shares of Series E Preferred Stock issuable
upon exercise of the Series E Purchase Rights and the shares of the Common
Stock issuable upon conversion of such shares of Series E Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series D Accreted Value" shall mean as of any date, with respect to
each share of Series D Preferred Stock, the Price Per Share plus the amount
of dividends that have accrued and compounded thereto during the period
beginning on the date of issuance of such share of Series D Preferred Stock
and ending on the Series E Closing Date plus, during the period beginning
on the first day after the Series E Closing Date and from and after such
date, the amount of dividends that have accrued from the Series E Closing
Date to the then most recent Series D Accrual Date pursuant to Section 3(a)
of this Certificate of Determination.
"Series D Automatic Redemption Date" shall have the meaning ascribed
to it in Section 5(b) hereof.
"Series D Conversion Price" shall mean $1.50, as adjusted pursuant to
Section 7(c).
"Series D Liquidation Payment" shall mean, with respect to each share
of Series D Preferred Stock, those amounts payable pursuant to Section
4(a)(i), Section 4(a)(ii), Section 4(b)(i), or Section 4(b)(ii) as the case
may be.
"Series D Optional Redemption Date" shall have the meaning ascribed to
it in Section 5(a)(ii) hereof.
"Series D Optional Redemption Measurement Window" shall have the
meaning ascribed to it in Section 5(a)(i) hereof.
"Series D Optional Redemption Period" shall have the meaning ascribed
to it in Section 5(a)(i) hereof.
"Series D Optional Redemption Price" shall have the meaning ascribed
to it in Section 5(a)(i) hereof.
"Series D Preferred Stock" shall have the meaning ascribed to it in
Section 1 hereof.
"Series D Redemption Price" shall have the meaning ascribed to it in
Section 5(b) hereof.
"Series E Certificate of Determination" means the Corporation's
Certificate of Determination of Preferences of Series E Preferred Stock, as
amended from time to time.
"Series E Closing Date" means [ ], 2004.
"Series E Liquidation Payment" shall have the meaning ascribed to it
in the Certificate of Determination of Preferences of Series E Preferred
Stock if and when approved by the requisite stockholders of the Corporation
and duly filed with the Secretary of State of the State of California.
"Series E Optional Redemption Price" shall have the meaning ascribed
to it in the Certificate of Determination of Preferences of Series E
Preferred Stock if and when approved by the requisite stockholders of the
Corporation and duly filed with the Secretary of State of California.
13
"Series E Preferred Stock" shall have the meaning ascribed to it in
the Certificate of Determination of Preferences of Series E Redeemable
Convertible Preferred Stock if and when approved by the requisite
stockholders of the Corporation and duly filed with the Secretary of State
of the State of California.
"Series E Purchase Rights" means those rights to purchase Series E
Preferred Stock issued in the Rights Offering.
"Series E Redemption Price" shall have the meaning ascribed to it in
the Certificate of Determination of Preferences of Series E Preferred Stock
if and when approved by the requisite stockholders of the Corporation and
duly filed with the Secretary of State of California.
"Stock Option Plans" means the Company's stock option plans and
employee purchase plans approved by the Board of Directors, pursuant to
which shares of restricted stock and options to purchase shares of Series E
Preferred Stock and/or Common Stock are reserved and available for grant to
officers, directors, employees and consultants of the Corporation.
"Transaction" shall have the meaning ascribed to it in Section 7(f)
hereof.
* * * * * *
4. This Certificate of Determination has been duly approved by the Board
of Directors. This Certificate of Determination has been duly approved by the
required vote of stockholders in accordance with Section 903 of the California
Corporations Code. As of the record date for the meeting of the stockholders in
which the Certificate of Designation was approved, the total number of shares of
outstanding shares of the Corporation was [ ] shares of Common Stock,
[ ] million ( ) shares of Series D Preferred Stock, and one
(1) share of Special Voting Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
under the law and the Amended and Restated Articles of Incorporation in effect
at the time of this amendment is more than fifty percent (50%) of the
outstanding shares of Common Stock, the votes represented by the Special Voting
Share and the outstanding shares of preferred stock, voting together as a class,
and more than fifty percent (50%) of the outstanding shares of Series D
Preferred Stock, voting separately as a class.
[the remainder of this page intentionally left blank]
14
The undersigned, William E. McGlashan, Jr. and Michael J. Zukerman, the
Chief Executive Officer and Chairman of the Board and Senior Vice President,
General Counsel and Secretary of Critical Path, Inc., respectively, declare
under penalty of perjury that the matters set out in the foregoing Certificate
are true of their own knowledge.
Executed at San Francisco, California on this [ ] day of
[ ], [ ].
--------------------------------------
William E. McGlashan, Jr.,
Chief Executive Officer and
Chairman of the Board
--------------------------------------
Michael J. Zukerman,
Senior Vice President,
General Counsel and Secretary
APPENDIX E
FORM OF AMENDMENT TO
COMMON STOCK PURCHASE WARRANT
AMENDMENT, dated as of [ ], 2003 (this "Amendment"), to
Common Stock Purchase Warrant, dated as of November 8, 2001 (the "Warrant"),
entered into by and between Critical Path, Inc., a California corporation (the
"Company"), and [ ] ("Warrantholder"),
W I T N E S S E T H:
WHEREAS, pursuant to that certain Stock and Warrant Purchase and Exchange
Agreement, dated as of November 8, 2001, the Company granted the Warrant to
Warrantholder; and
WHEREAS, pursuant to that certain Convertible Note Purchase and Exchange
Agreement, dated as of November 18, 2003, the Company and Warrantholder desire
to amend the terms of the Warrant in the manner set forth below:
NOW, THEREFORE, the Company and Warrantholder hereby agree as of the day
and year first above written as follows:
Section 1. Capitalized Terms. Capitalized terms not defined herein shall
have the meanings ascribed to them in the Warrant.
Section 2. Amendment to First Paragraph of the Warrant. The first
paragraph of the Warrant is hereby deleted and amended and restated to read in
its entirety as follows:
"This certifies that, for good and valuable consideration, Critical
Path, Inc., a California corporation (the "Company"), grants to
[ ], a Delaware limited partnership (the "Warrantholder"),
the right to subscribe for and purchase from the Company, during the
Exercise Period (as hereinafter defined), [ ]
( ) validly issued, fully paid and nonassessable shares, par
value $0.001, of Common Stock of the Company (the "Warrant Shares"), at the
exercise price of $[Series E Price Per Share] per share (the "Exercise
Price"), all subject to the terms, conditions and adjustments herein set
forth. Capitalized terms used herein shall have the meanings ascribed to
such terms in Section 9 below."
Section 3. Continuing Agreement. Except as specifically amended hereby,
all of the terms of the Warrant shall remain and continue in full force and
effect and are hereby confirmed in all respects.
Section 4. Governing Law. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of law thereof.
Section 5. Counterparts. This Amendment may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
[the remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
COMPANY:
CRITICAL PATH, INC.,
a California corporation
By:
--------------------------------------
Name:
Title:
WARRANTHOLDER:
[________________________]
By:
--------------------------------------
Name:
Title:
APPENDIX F
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMONG
CRITICAL PATH, INC.
GENERAL ATLANTIC PARTNERS 74, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
GAPSTAR, LLC,
GAPCO GMBH & CO. KG
AND
THE OTHER PARTIES LISTED HEREIN
-----------------------
DATED: MARCH 9, 2004
-----------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
1. Definitions................................................. 2
2. General; Securities Subject to this Agreement............... 5
(a) Grant of Rights........................................ 5
(b) Registrable Securities................................. 5
(c) Holders of Registrable Securities...................... 5
3. Demand Registration......................................... 6
(a) Request for Demand Registration........................ 6
(b) Incidental or "Piggy-Back" Rights with Respect to a
Demand Registration......................................... 6
(c) Effective Demand Registration.......................... 7
(d) Expenses............................................... 7
(e) Underwriting Procedures................................ 7
(f) Selection of Underwriters.............................. 8
4. Incidental or "Piggy-Back" Registration..................... 8
(a) Request for Incidental Registration.................... 8
(b) Expenses............................................... 8
5. Holdback Agreements......................................... 9
(a) Restrictions on Public Sale by Designated Holders...... 9
(b) Restrictions on Public Sale by the Company............. 9
6. Registration Procedures..................................... 9
(a) Obligations of the Company............................. 9
(b) Seller Information..................................... 11
(c) Notice to Discontinue.................................. 11
(d) Registration Expenses.................................. 12
7. Indemnification; Contribution............................... 12
(a) Indemnification by the Company......................... 12
(b) Indemnification by Designated Holders.................. 12
(c) Conduct of Indemnification Proceedings................. 13
(d) Contribution........................................... 13
8. Rule 144.................................................... 14
9. Miscellaneous............................................... 14
(a) Recapitalizations, Exchanges, etc. .................... 14
(b) No Inconsistent Agreements............................. 14
(c) Remedies............................................... 14
(d) Amendments and Waivers................................. 14
(e) Notices................................................ 15
(f) Successors and Assigns; Third Party Beneficiaries...... 17
(g) Counterparts........................................... 17
(h) Headings............................................... 17
(i) Governing Law......................................... 17
(j) Severability.......................................... 17
(k) Rules of Construction.................................. 17
(l) Entire Agreement...................................... 17
(m) Further Assurances...................................... 18
(n) Other Agreements....................................... 18
(o) Effective Date and Termination......................... 18
</Table>
i
THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated March 9,
2004 (this "Agreement"), among Critical Path, Inc., a California corporation
(the "Company"), General Atlantic Partners 74, L.P., a Delaware limited
partnership ("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited
partnership ("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability
company ("GapStar"), GAPCO GmbH & Co. KG, a German limited partnership ("GmbH
Coinvestment"), Cenwell Limited ("Cenwell"), Campina Enterprises Limited
("Campina"), Great Affluent Limited ("Great Affluent"), Dragonfield Limited
("Dragonfield"), Lion Cosmos Limited ("Lion Cosmos"), Vectis CP Holdings, LLC, a
Delaware limited liability company ("Vectis"), Permal U.S. Opportunities Limited
("Permal"), Zaxis Equity Neutral, L.P. ("Zaxis Equity"), Zaxis Institutional
Partners, L.P. ("Zaxis Institutional"), Zaxis Offshore Limited ("Zaxis
Offshore"), Zaxis Partners, L.P. ("Zaxis Partners"), Guggenheim Portfolio
Company XIII ("Guggenheim" and collectively with Permal, Zaxis Equity, Zaxis
Institutional, Zaxis Offshore and Zaxis Partners, "Apex Capital"), Passport
Master Fund, L.P. ("Passport Capital"), Crosslink Crossover Fund IV, L.P.
("Crosslink"), Sagamore Hill Hub Fund, Ltd. ("Sagamore"), Criterion Capital
Partners, Ltd. ("Criterion Limited"), Criterion Capital Partners, Institutional
("Criterion Institutional"), Criterion Capital Partners, L.P. ("Criterion LP"
and together with Criterion Limited and Criterion Institutional, "Criterion")
and Capital Ventures International ("Heights Capital");
WHEREAS, pursuant to the Stock and Warrant Purchase Agreement, dated
November 8, 2001, as amended from time to time (the "Stock Purchase Agreement"),
among the Company, GAP LP, GAP Coinvestment, GapStar, Cenwell, Campina and
Vectis, the Company has (i) issued and sold to GAP LP, GAP Coinvestment,
GapStar, Cenwell, Campina and Vectis, an aggregate of 2,162,582 shares of Series
D Cumulative Redeemable Convertible Participating Series D Preferred Stock, par
value $0.001 per share, of the Company, as amended from time to time (the
"Series D Preferred Stock"), (ii) issued and delivered to GAP LP, GAP
Coinvestment and GapStar an aggregate of 1,837,418 shares of Series D Preferred
Stock in exchange for a certain amount of convertible subordinated notes of the
Company and (iii) issued and sold to GAP LP, GAP Coinvestment and GapStar
warrants to purchase shares of Common Stock (as hereinafter defined) (the
"Warrants");
WHEREAS, pursuant to the Convertible Note Purchase and Exchange Agreement,
dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, LLC, a
Delaware limited liability company, GmbH Coinvestment, Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos, as amended, (i) the Company has issued
and sold to GAP LP, GAP Coinvestment, GapStar and GmbH Coinvestment convertible
promissory notes (the "GA Notes") which are convertible into shares, par value
$0.001 per share, of Series E Redeemable Convertible Preferred Stock of the
Company (the "Series E Preferred Stock") and (ii) Campina, Cenwell, Great
Affluent, Dragonfield and Lion Cosmos agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock;
WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated January
16, 2004, among the Company, Permal, Zaxis Equity, Zaxis Institutional, Zaxis
Offshore, Zaxis Partners and Passport Capital (the "January Convertible Note
Agreement"), the Company has issued and sold to Permal, Zaxis Equity, Zaxis
Institutional, Zaxis Offshore, Zaxis Partners and Passport Capital convertible
promissory notes (the "January 2004 Notes") which are convertible into shares of
Series E Preferred Stock;
WHEREAS, pursuant to the Convertible Note Purchase Agreement, dated March
9, 2004, among the Company, Apex Capital, Crosslink, Sagamore, Criterion and
Heights Capital (the "March Convertible Note Agreement" and, together with the
January Convertible Note Agreement, the "Convertible Note Agreements"), the
Company has issued and sold to Apex Capital, Crosslink, Sagamore, Criterion and
Heights Capital convertible promissory notes in the principal amount of up to
$18,500,000 (the "March
2004 Notes" and, collectively with the GA Notes and the January 2004 Notes, the
"Notes") which are convertible into shares of Series E Preferred Stock; and
WHEREAS, in order to induce (i) each of GAP LP, GAP Coinvestment, GapStar,
GmbH Coinvestment, Apex Capital, Passport Capital, Crosslink, Sagamore,
Criterion and Heights Capital to purchase the Notes and (ii) Campina, Cenwell,
Great Affluent, Dragonfield and Lion Cosmos to exchange the CK Sub Notes for
shares of Series E Preferred Stock, the Company has agreed to grant registration
rights with respect to the Registrable Securities (as hereinafter defined) as
set forth in this Agreement:
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Amended and Restated Stockholders Agreement" shall mean the Amended
and Restated Stockholders Agreement, dated the date hereof, among the
Company, GAP LP, GAP Coinvestment, GapStar, GmbH Coinvestment and the
Persons listed therein as "Coinvestors."
"Apex Capital" has the meaning set forth in the preamble to this
Agreement.
"Apex Stockholders" means Apex Capital, Passport Capital, Crosslink,
Sagamore, Criterion and Heights Capital and any Affiliate thereof that,
after the date hereof, acquires Registrable Securities.
"Approved Underwriter" has the meaning set forth in Section 3(f) of
this Agreement.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the State of New York are authorized or
required by law or executive order to close.
"Campina" has the meaning set forth in the preamble to this Agreement.
"Cenwell" has the meaning set forth in the preamble to this Agreement.
"Coinvestor Stockholders" means Cenwell, Campina, Great Affluent,
Dragonfield, Lion Cosmos and any Affiliate thereof that, after the date
hereof, acquires Registrable Securities.
"CK Sub Notes" means the 53/4% Convertible Subordinated Notes due
April 1, 2005 issued by the Company in the principal face amount of
thirty-two million seven hundred ninety-five thousand dollars
($32,795,000), pursuant to the Company's Indenture, dated March 31, 2000.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $0.001 per share, of
the Company or any other capital stock of the Company into which such stock
is reclassified or reconstituted and any other common stock of the Company.
"Company" has the meaning set forth in the preamble to this Agreement.
"Company Underwriter" has the meaning set forth in Section 4(a) of
this Agreement.
"Conversion" has the meaning set forth in the Convertible Note
Agreements.
2
"Conversion and Exchange" has the meaning set forth in the Convertible
Note Purchase and Exchange Agreement.
"Convertible Note Purchase and Exchange Agreement" has the meaning set
forth in the recitals to this Agreement.
"Convertible Note Agreements" has the meaning set forth in the
recitals to this Agreement.
"Criterion" has the meaning set forth in the preamble to this
Agreement.
"Crosslink" has the meaning set forth in the preamble to this
Agreement.
"Daily Trade Amount" means, (a) as to each of the General Atlantic
Stockholders, the Coinvestor Stockholders, the Vectis Stockholders and the
Apex Stockholders (other than Passport Capital, Crosslink, Sagamore,
Criterion and Heights Capital), the greater of (i) with respect to any date
a proposed sale pursuant to a Registration Statement is to be executed, 20%
of the daily trading volume of the Common Stock on the Nasdaq National
Market System on the date a proposed trade is to take place and (ii) 20% of
the average daily trading volume of the Common Stock on the Nasdaq National
Market for the five trading days immediately preceding such date, (b) as to
Passport Capital, the greater of (i) 6.7% of the daily trading volume of
the Common Stock on the Nasdaq National Market System on the date a
proposed trade is to take place and (ii) 6.7% of the average daily trading
volume of the Common Stock on the Nasdaq National Market for the five
trading days immediately preceding such date, (c) as to Crosslink, the
greater of (i) 8.9% of the daily trading volume of the Common Stock on the
Nasdaq National Market System on the date a proposed trade is to take place
and (ii) 8.9% of the average daily trading volume of the Common Stock on
the Nasdaq National Market for the five trading days immediately preceding
such date, (d) as to Sagamore, the greater of (i) 5.3% of the daily trading
volume of the Common Stock on the Nasdaq National Market System on the date
a proposed trade is to take place and (ii) 5.3% of the average daily
trading volume of the Common Stock on the Nasdaq National Market for the
five trading days immediately preceding such date, (e) as to Criterion, the
greater of (i) 6.2% of the daily trading volume of the Common Stock on the
Nasdaq National Market System on the date a proposed trade is to take place
and (ii) 6.2% of the average daily trading volume of the Common Stock on
the Nasdaq National Market for the five trading days immediately preceding
such date and (f) as to Heights Capital, the greater of (i) 3.6% of the
daily trading volume of the Common Stock on the Nasdaq National Market
System on the date a proposed trade is to take place and (ii) 3.6% of the
average daily trading volume of the Common Stock on the Nasdaq National
Market for the five trading days immediately preceding such date; provided,
however, that for the purpose of calculating the Daily Trade Amount, a
block trade effected by a party outside the Nasdaq National Market System
shall be disregarded for purposes of calculating the amount disposed of by
the party and the daily trading volume. The Daily Trade Amount shall apply
to each such stockholder severally and not jointly, shall not be aggregated
among or between such stockholders, and such stockholders shall not be
required hereby to coordinate their sales or dispositions of Common Stock.
"Demand Registration" has the meaning set forth in Section 3(a) of
this Agreement.
"Designated Holder" means each of the General Atlantic Stockholders,
the Coinvestor Stockholders, the Vectis Stockholders and the Apex
Stockholders and any transferee of any of them to whom Registrable
Securities have been transferred in accordance with Section 9(f) of this
Agreement, other than a transferee to whom Registrable Securities have been
transferred pursuant to a Registration Statement under the Securities Act
or Rule 144 (or any successor rule thereto).
"Dragonfield" has the meaning set forth in the recitals to this
Agreement.
"Exchange" has the meaning set forth in the Convertible Note Purchase
and Exchange Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
3
"GA Notes" has the meaning set forth in the recitals to this
Agreement.
"GAP Coinvestment" has the meaning set forth in the preamble to this
Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP LP and the managing member
of GapStar, and any successor to such entity.
"GAP LP" has the meaning set forth in the preamble to this Agreement.
"GapStar" has the meaning set forth in the preamble to this Agreement.
"General Atlantic Stockholders" means GAP LP, GAP Coinvestment,
GapStar, GmbH Coinvestment and any Affiliate of GAP LLC that, after the
date hereof, acquires Registrable Securities.
"GmbH Coinvestment" means GAPCO GmbH & Co. KG, a German limited
partnership.
"Great Affluent" has the meaning set forth in the recitals to this
Agreement.
"Heights Capital" has the meaning set forth in the preamble to this
Agreement.
"Holders' Counsel" has the meaning set forth in Section 6(a)(i) of
this Agreement.
"Incidental Registration" has the meaning set forth in Section 4(a) of
this Agreement.
"Indemnified Party" has the meaning set forth in Section 7(c) of this
Agreement.
"Indemnifying Party" has the meaning set forth in Section 7(c) of this
Agreement.
"Initiating Holders" has the meaning set forth in Section 3(a) of this
Agreement.
"Inspector" has the meaning set forth in Section 6(a)(vii) of this
Agreement.
"January Convertible Note Agreement" has the meaning set forth in the
recitals to this Agreement.
"January 2004 Notes" has the meaning set forth in the recitals to this
Agreement.
"Liability" has the meaning set forth in Section 7(a) of this
Agreement.
"Lion Cosmos" has the meaning set forth in the recitals to this
Agreement.
"March Convertible Note Agreement" has the meaning set forth in the
recitals to this Agreement.
"March 2004 Notes" has the meaning set forth in the recitals to this
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"Passport Capital" has the meaning set forth in the preamble to this
Agreement.
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, limited liability company, government (or an
agency or political subdivision thereof) or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity.
"Public Offering" means any public offering of the shares of Common
Stock of the Company pursuant to an effective Registration Statement filed
under the Securities Act.
"Records" has the meaning set forth in Section 6(a)(vii) of this
Agreement.
"Registrable Securities" means each of the following: (a) any and all
shares of Common Stock issued or issuable upon conversion of shares of
Series D Preferred Stock or exercise of the Warrants, and, subject to
Stockholder Approval, any and all shares of Common Stock issued or issuable
upon conversion of shares of Series E Preferred Stock, (b) if the
Subsequent Closing does not occur by August 15, 2004, the shares of Common
Stock issued upon conversion of the January 2004 Notes and
4
the March 2004 Notes, (c) any other shares of Common Stock acquired or
owned by any of the Designated Holders after the date hereof if such
Designated Holder is an Affiliate of the Company and (d) any shares of
Common Stock issued or issuable to any of the Designated Holders with
respect to the Registrable Securities by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise and any shares
of Common Stock or voting common stock issuable upon conversion, exercise
or exchange thereof.
"Registration Expenses" has the meaning set forth in Section 6(d) of
this Agreement.
"Registration Statement" means a Registration Statement filed pursuant
to the Securities Act.
"Rights Offering" has the meaning set forth in the Convertible Note
Purchase and Exchange Agreement.
"Sagamore" has the meaning set forth in the preamble to this
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series D Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Series E Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Stock Purchase Agreement" has the meaning set forth in the recitals
to this Agreement.
"Stockholder Approval" has the meaning set forth in the Convertible
Note Purchase and Exchange Agreement.
"Valid Business Reason" has the meaning set forth in Section 3(a) of
this Agreement.
"Vectis" has the meaning set forth in the preamble of this Agreement.
"Vectis Stockholders" means Vectis and any Affiliate thereof that,
after the date hereof, acquires Registrable Securities.
"Warrants" has the meaning set forth in the recitals to this
Agreement.
2. General; Securities Subject to this Agreement.
(a) Grant of Rights. The Company hereby grants registration rights to the
Designated Holders upon the terms and conditions set forth in this Agreement.
(b) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities, when (i) a
Registration Statement covering such Registrable Securities has been declared
effective under the Securities Act by the Commission and such Registrable
Securities have been disposed of pursuant to such effective Registration
Statement, (ii) (x) the entire amount of the Registrable Securities owned by a
Designated Holder may be sold in a single sale, in the opinion of counsel
satisfactory to the Company and such Designated Holder, each in their reasonable
judgment, without any limitation as to volume pursuant to Rule 144 (or any
successor provision then in effect) under the Securities Act and (y) such
Designated Holder owning such Registrable Securities owns less than one percent
(1%) of the outstanding shares of Common Stock on a fully diluted basis, or
(iii) the Registrable Securities are proposed to be sold or distributed by a
Person not entitled to the registration rights granted by this Agreement.
(c) Holders of Registrable Securities. A Person is deemed to be a holder
of Registrable Securities whenever such Person owns of record Registrable
Securities, or holds an option to purchase, or a security convertible into or
exercisable or exchangeable for, Registrable Securities whether or not such
acquisition or conversion has actually been effected. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable
5
Securities. Registrable Securities issuable upon exercise of an option or upon
conversion of another security shall be deemed outstanding for the purposes of
this Agreement.
3. Demand Registration.
(a) Request for Demand Registration. At any time after the earliest of (i)
the expiration or consummation of the exercise of the right of the General
Atlantic Stockholders and the Coinvestor Stockholders (or their respective
permitted transferees) to purchase those shares of Series E Preferred Stock
offered in the Rights Offering but not acquired by holders of shares of the
Company's Common Stock, (ii) the termination of the Rights Offering and the
occurrence of the special meeting to seek Stockholder Approval and (iii) August
15, 2004, if the Conversion and Exchange and the Conversion have not occurred on
or prior to such date, each of (A) the General Atlantic Stockholders, (B) the
Coinvestor Stockholders, (C) Apex Capital, (D) Passport Capital, (E) Crosslink,
(F) Sagamore, (G) Criterion and (H) Heights Capital (the "Initiating Holders"),
may each make a written request to the Company to register, and the Company
shall register, under the Securities Act and on an appropriate registration
statement form as reasonably determined by the Company and approved by the
Initiating Holders (a "Demand Registration"), the number of Registrable
Securities stated in such request; provided, however, that the Company shall not
be obligated to effect more than one such Demand Registration for the General
Atlantic Stockholders (subject to Section 3(e)(ii) below), more than one such
Demand Registration for the Coinvestor Stockholders (subject to Section 3(e)(ii)
below), more than one such Demand Registration for Apex Capital (subject to
Section 3(e)(ii) below), more than one such Demand Registration for Passport
Capital (subject to Section 3(e)(ii) below), more than one such Demand
Registration for Crosslink (subject to Section 3(e)(ii) below), more than one
such Demand Registration for Sagamore (subject to Section 3(e)(ii) below), more
than one such Demand Registration for Criterion (subject to Section 3(e)(ii)
below) and more than one such Demand Registration for Heights Capital (subject
to Section 3(e)(ii) below). If following receipt of a written request for a
Demand Registration the Board of Directors, in its good faith judgment,
determines that any registration of Registrable Securities should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganization or merger or other material transaction
involving the Company (a "Valid Business Reason"), the Company may (x) postpone
filing a Registration Statement relating to a Demand Registration until such
Valid Business Reason no longer exists, but in no event for more than ninety
(90) days, and (y) in case a Registration Statement has been filed relating to a
Demand Registration, if the Valid Business Reason has not resulted from actions
taken by the Company, the Company, upon the approval of a majority of the Board
of Directors, such majority to include at least one Director appointed by the
General Atlantic Stockholders, may cause such Registration Statement to be
withdrawn and its effectiveness terminated or may postpone amending or
supplementing such Registration Statement. The Company shall give written notice
of its determination to postpone or withdraw a Registration Statement and of the
fact that the Valid Business Reason for such postponement or withdrawal no
longer exists, in each case, promptly after the occurrence thereof.
Notwithstanding anything to the contrary contained herein, the Company may not
postpone or withdraw a filing under this Section 3(a) more than once in any
twelve (12) month period. Each request for a Demand Registration by the
Initiating Holders shall state the amount of the Registrable Securities proposed
to be sold and the intended method of disposition thereof.
(b) Incidental or "Piggy-Back" Rights with Respect to a Demand
Registration. Each of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) may offer its or his
Registrable Securities under any Demand Registration pursuant to this Section
3(b). Within five (5) days after the receipt of a request for a Demand
Registration from an Initiating Holder, the Company shall (i) give written
notice thereof to all of the Designated Holders (other than Initiating Holders
which have requested a registration under Section 3(a)) and (ii) subject to
Section 3(e), include in such registration all of the Registrable Securities
held by such Designated Holders from whom the Company has received a written
request for inclusion therein within ten (10) days of the receipt by such
Designated Holders of such written notice referred to in clause (i) above. Each
such request by such Designated Holders shall specify the number of Registrable
Securities proposed to be
6
registered. The failure of any Designated Holder to respond within such 10 day
period referred to in clause (ii) above shall be deemed to be a waiver of such
Designated Holder's rights under this Section 3 with respect to such Demand
Registration. Any Designated Holder may waive its rights under this Section 3
prior to the expiration of such 10-day period by giving written notice to the
Company, with a copy to the Initiating Holders. If a Designated Holder sends the
Company a written request for inclusion of part or all of such Designated
Holder's Registrable Securities in a registration, such Designated Holder shall
not be entitled to withdraw or revoke such request without the prior written
consent of the Company in its sole discretion unless, as a result of facts or
circumstances arising after the date on which such request was made relating to
the Company or to market conditions, such Designated Holder reasonably
determines that participation in such registration would have a material adverse
effect on such Designated Holder.
(c) Effective Demand Registration. The Company shall use all commercially
reasonable efforts to cause any such Demand Registration to be filed not later
than thirty (30) days after it receives a request under Section 3(a) hereof and
to become and remain effective as soon as practicable thereafter but, in any
event, not later than ninety (90) days (or, if the Company is eligible to effect
such registration on Form S-3, sixty (60) days) after such filing. A
registration shall not constitute a Demand Registration unless it has become
effective and remains continuously effective until the earlier of the date (i)
on which all Registrable Securities registered in the Demand Registration are
sold and (ii) that is the second anniversary of the effectiveness of the
Registration Statement relating to such Demand Registration; provided, however,
that a registration shall not constitute a Demand Registration if (x) after such
Demand Registration has become effective, such registration or the related
offer, sale or distribution of Registrable Securities thereunder is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason not attributable
to the Initiating Holders and such interference is not thereafter eliminated or
(y) the conditions specified in the underwriting agreement, if any, entered into
in connection with such Demand Registration are not satisfied or waived, other
than by reason of a failure by the Initiating Holder.
(d) Expenses. The Company shall pay all Registration Expenses in
connection with a Demand Registration, whether or not such Demand Registration
becomes effective, except for an underwritten Demand Registration pursuant to
Section 3(e)(i)(y) below, as to which each participating Designated Holder shall
bear its pro rata portion of expenses based on the number of shares of Common
Stock registered pursuant thereto.
(e) Underwriting Procedures.
(i) If (x) any of the Initiating Holders so elects for itself or (y)
with respect to any given trading day, a Designated Holder proposes to sell
or dispose of more than the Daily Trade Amount and the Company's board of
directors determines in good faith that it is necessary for an orderly
distribution to be made pursuant to a firm commitment underwritten
offering, then the Company shall use all commercially reasonable efforts to
cause such Demand Registration to be in the form of, and such Designated
Holder or Designated Holders shall be obligated to sell or dispose of its
or their Registrable Securities pursuant to, a firm commitment underwritten
offering and the managing underwriter or underwriters selected for such
offering shall be the Approved Underwriter selected in accordance with
Section 3(f). In connection with any Demand Registration under this Section
3 involving an underwritten offering, none of the Registrable Securities
held by any Designated Holder making a request for inclusion of such
Registrable Securities pursuant to Section 3(b) hereof shall be included in
such underwritten offering unless such Designated Holder accepts the terms
of the offering as agreed upon by the Company, the Initiating Holders and
the Approved Underwriter, and then only in such quantity as will not, in
the opinion of the Approved Underwriter, jeopardize the success of such
offering by the Initiating Holders. If the Approved Underwriter advises the
Company in its reasonable opinion that the aggregate amount of such
Registrable Securities requested to be included in such offering is
sufficiently large to have a material adverse effect on the success of such
offering, then the Company shall include in such registration only the
aggregate amount of Registrable Securities that the Approved Underwriter
believes may be sold without any such material adverse
7
effect and shall reduce the amount of Registrable Securities to be included
in such registration by removing from such registration securities owned,
first by the Company and second by the Designated Holders (including the
Initiating Holders) pro rata based on the number of Registrable Securities
owned by each such Designated Holder.
(ii) If an Initiating Holder makes a request for a Demand Registration
and, pursuant to Section 3(e)(i) above, the Approved Underwriter advises
the Company to reduce the aggregate amount of Registrable Securities
requested to be included in such offering such that less than seventy-five
percent (75%) of the Registrable Securities requested to be included by any
Initiating Holder are ultimately included in and sold pursuant to such
Demand Registration, the Initiating Holder shall have the right to require
the Company to effect an additional Demand Registration; provided, however,
that in no event shall the aggregate number of Demand Registrations to be
effected by the Company for any one Initiating Holder exceed two (2).
(f) Selection of Underwriters. If any Demand Registration of Registrable
Securities is in the form of an underwritten offering, the Company shall select
and obtain an investment banking firm of national reputation to act as the
managing underwriter of the offering (the "Approved Underwriter"); provided,
however, that the Approved Underwriter shall, in any case, also be approved by
the Initiating Holders.
4. Incidental or "Piggy-Back" Registration.
(a) Request for Incidental Registration. If at any time the Company
proposes to file a Registration Statement under the Securities Act with respect
to an offering by the Company for its own account (other than a Registration
Statement on Form S-4 or S-8 or any successor thereto) or for the account of any
stockholder of the Company other than the Designated Holders, then the Company
shall give written notice of such proposed filing to each of the Designated
Holders at least twenty (20) days before the anticipated filing date, and such
notice shall describe the proposed registration and distribution and offer such
Designated Holders the opportunity to register the number of Registrable
Securities as each such Designated Holder may request (an "Incidental
Registration"). The Company shall use all commercially reasonable efforts
(within twenty (20) days of the notice provided for in the preceding sentence)
to cause the managing underwriter or underwriters in the case of a proposed
underwritten offering (the "Company Underwriter") to permit each of the
Designated Holders who have requested in writing to participate in the
Incidental Registration to include its or his Registrable Securities in such
offering on the same terms and conditions as the securities of the Company or
the account of such other stockholder, as the case may be, included therein. In
connection with any Incidental Registration under this Section 4(a) involving an
underwritten offering, the Company shall not be required to include any
Registrable Securities in such underwritten offering unless the Designated
Holders thereof accept the terms of the underwritten offering as agreed upon
between the Company, such other stockholders, if any, and the Company
Underwriter, and then only in such quantity as the Company Underwriter believes
will not jeopardize the success of the offering by the Company. If the Company
Underwriter determines that the registration of all or part of the Registrable
Securities which the Designated Holders have requested to be included would
materially adversely affect the success of such offering, then the Company shall
be required to include in such Incidental Registration, to the extent of the
amount that the Company Underwriter believes may be sold without causing such
adverse effect, first, all of the securities to be offered for the account of
the Company or on the account of the selling stockholder that caused the
registration statement that has triggered the Incidental Registration to be
filed, as the case may be; second, the Registrable Securities to be offered for
the account of the Designated Holders pursuant to this Section 4, pro rata based
on the number of Registrable Securities owned by each such Designated Holder;
and third, any other securities requested to be included in such offering.
(b) Expenses. The Company shall bear all Registration Expenses in
connection with any Incidental Registration pursuant to this Section 4, whether
or not such Incidental Registration becomes effective.
8
5. Holdback Agreements.
(a) Restrictions on Public Sale by Designated Holders. To the extent (i)
requested (A) by the Company or the Initiating Holders, as the case may be, in
the case of a non-underwritten public offering and (B) by the Approved
Underwriter or the Company Underwriter, as the case may be, in the case of an
underwritten public offering and (ii) all of the Company's officers, directors
and holders in excess of one percent (1%) of its outstanding capital stock
execute agreements identical to those referred to in this Section 5(a), each
Designated Holder agrees (x) not to effect any public sale or distribution of
any Registrable Securities or of any securities convertible into or exchangeable
or exercisable for such Registrable Securities, including a sale pursuant to
Rule 144 under the Securities Act, or offer to sell, contract to sell (including
without limitation any short sale), grant any option to purchase or enter into
any hedging or similar transaction with the same economic effect as a public
sale any Registrable Securities and (y) not to make any request for a Demand
Registration under this Agreement, during the ninety (90) day period or such
shorter period, if any, mutually agreed upon by such Designated Holder and the
requesting party beginning on the effective date of the Registration Statement
(except as part of such registration) for such public offering. No Designated
Holder of Registrable Securities subject to this Section 5(a) shall be released
from any obligation under any agreement, arrangement or understanding entered
into pursuant to this Section 5(a) unless all other Designated Holders of
Registrable Securities subject to the same obligation are also released. All
Designated Holders of Registrable Securities shall be automatically released
from any obligations under any agreement, arrangement or understanding entered
into pursuant to this Section 5(a) immediately upon the expiration of the 90 day
period, and in any case, on the date that is two years from the date of this
Agreement.
(b) Restrictions on Public Sale by the Company. The Company agrees not to
effect any public sale or distribution of any of its securities, or any
securities convertible into or exchangeable or exercisable for such securities
(except pursuant to registrations on Form S-4 or S-8 or any successor thereto),
during the period beginning on the effective date of any Registration Statement
in which the Designated Holders of Registrable Securities are participating and
ending on the earlier of (i) the date on which all Registrable Securities
registered on such Registration Statement are sold and (ii) 120 days after the
effective date of such Registration Statement (except as part of such
registration).
6. Registration Procedures.
(a) Obligations of the Company. Whenever registration of Registrable
Securities has been requested pursuant to Section 3 or Section 4 of this
Agreement, the Company shall use all commercially reasonable efforts to effect
the registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection with any such request, the Company shall, as expeditiously as
possible:
(i) prepare and file with the Commission a Registration Statement on
any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the
sale of such Registrable Securities in accordance with the intended method
of distribution thereof, and cause such Registration Statement to become
effective; provided, however, that (x) before filing a Registration
Statement or prospectus or any amendments or supplements thereto, the
Company shall provide counsel selected by the Designated Holders holding a
majority of the Registrable Securities being registered in such
registration ("Holders' Counsel") with an adequate opportunity to review
and comment on such Registration Statement and each prospectus included
therein (and each amendment or supplement thereto) to be filed with the
Commission, subject to such documents being under the Company's control,
and (y) the Company shall notify the Holders' Counsel and each seller of
Registrable Securities of any stop order issued or threatened by the
Commission and take all action required to prevent the entry of such stop
order or to remove it if entered;
(ii) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration
Statement effective for the lesser of (x) 120 days and (y) such shorter
period
9
which will terminate when all Registrable Securities covered by such
Registration Statement have been sold, and comply with the provisions of
the Securities Act with respect to the disposition of all securities
covered by such Registration Statement during such period in accordance
with the intended methods of disposition by the sellers thereof set forth
in such Registration Statement;
(iii) furnish to each seller of Registrable Securities, prior to
filing a Registration Statement, at least one copy of such Registration
Statement as is proposed to be filed, and thereafter such number of copies
of such Registration Statement, each amendment and supplement thereto (in
each case including all exhibits thereto), and the prospectus included in
such Registration Statement (including each preliminary prospectus) and any
prospectus filed under Rule 424 under the Securities Act as each such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) register or qualify such Registrable Securities under such other
securities or "blue sky" laws of such jurisdictions as any seller of
Registrable Securities may request, and to continue such qualification in
effect in such jurisdiction for as long as permissible pursuant to the laws
of such jurisdiction, or for as long as any such seller requests or until
all of such Registrable Securities are sold, whichever is shortest, and do
any and all other acts and things which may be reasonably necessary or
advisable to enable any such seller to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such seller; provided,
however, that the Company shall not be required to (x) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this Section 6(a)(iv), (y) subject itself to taxation in
any such jurisdiction or (z) consent to general service of process in any
such jurisdiction;
(v) notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as
a result of which, the prospectus included in such Registration Statement
contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading and the Company shall promptly prepare a supplement or
amendment to such prospectus and furnish to each seller of Registrable
Securities a reasonable number of copies of such supplement to or an
amendment of such prospectus as may be necessary so that, after delivery to
the purchasers of such Registrable Securities, such prospectus shall not
contain an untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(vi) enter into and perform customary agreements (including an
underwriting agreement containing representations, warranties, covenants
and indemnities for securities law matters and otherwise in customary form
with the Approved Underwriter or Company Underwriter, if any, selected as
provided in Section 3 or Section 4, as the case may be) and take such other
actions as are prudent and reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities, including
causing its officers to participate in "road shows" and other information
meetings organized by the Approved Underwriter or Company Underwriter;
(vii) make available at reasonable times for inspection by any seller
of Registrable Securities, any managing underwriter participating in any
disposition of such Registrable Securities pursuant to a Registration
Statement, Holders' Counsel and any attorney, accountant or other agent
retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and
its subsidiaries (collectively, the "Records") as shall be reasonably
necessary to enable them to exercise their due diligence responsibility,
and cause the Company's and its subsidiaries' officers, directors and
employees, and the independent public accountants of the Company, to supply
all information reasonably requested by any such Inspector in connection
with such Registration Statement. Records that the Company determines, in
good faith, to be confidential and which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors (and the Inspectors
shall confirm their agreement
10
in writing in advance to the Company if the Company shall so request)
unless (x) the disclosure of such Records is necessary, in the Company's
judgment, to avoid or correct a misstatement or omission in the
Registration Statement, (y) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent jurisdiction after
exhaustion of all appeals therefrom or (z) the information in such Records
was known to the Inspectors on a non-confidential basis prior to its
disclosure by the Company or has been made generally available to the
public. Each seller of Registrable Securities agrees that it shall, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential;
(viii) if such sale is pursuant to an underwritten offering, obtain a
"cold comfort" letter dated the effective date of the Registration
Statement and the date of the closing under the underwriting agreement from
the Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as
the managing underwriter reasonably requests;
(ix) furnish, at the request of any seller of Registrable Securities
on the date such securities are delivered to the underwriters for sale
pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the Registration Statement with respect
to such securities becomes effective, an opinion, if reasonably available,
dated such date, of counsel representing the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the seller
making such request, covering such legal matters with respect to the
registration in respect of which such opinion is being given as the
underwriters, if any, and such seller may reasonably request and are
customarily included in such opinions;
(x) comply with all applicable rules and regulations of the
Commission, and make available to its security holders, as soon as
reasonably practicable but no later than fifteen (15) months after the
effective date of the Registration Statement, an earnings statement
covering a period of twelve (12) months beginning after the effective date
of the Registration Statement, in a manner which satisfies the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xi) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed, provided that the applicable listing requirements are
satisfied;
(xii) cooperate with each seller of Registrable Securities and each
underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be
made with the NASD; and
(xiii) take all other steps reasonably necessary to effect the
registration of the Registrable Securities contemplated hereby.
(b) Seller Information. The Company may require each seller of Registrable
Securities as to which any registration is being effected to furnish, and such
seller shall furnish, to the Company such information regarding the distribution
of such securities as the Company may from time to time reasonably request in
writing.
(c) Notice to Discontinue. Each Designated Holder agrees that, not more
than two times in any 12-month period, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 6(a)(v),
such Designated Holder shall, for a total period not longer than 90 days during
each such 12-month period (inclusive of any delay pursuant to a Valid Business
Reason under Section 3(a) or period during which the Designated Holder is unable
to dispose of Registrable Securities under the Registration Statement pursuant
to a notice by the Company under Section 6(a)(v) hereof), forthwith discontinue
disposition of Registrable Securities pursuant to the Registration Statement
covering such Registrable Securities until such Designated Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
6(a)(v) and, if so directed by the Company, such
11
Designated Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Designated Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 6(a)(ii)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 6(a)(v) to and including the date when sellers of such
Registrable Securities under such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 6(a)(v).
(d) Registration Expenses. The Company shall pay all expenses arising from
or incident to its performance of, or compliance with, this Agreement,
including, without limitation, (i) Commission, stock exchange and NASD
registration and filing fees, (ii) all fees and expenses incurred in complying
with securities or "blue sky" laws (including reasonable fees, charges and
disbursements of counsel to any underwriter incurred in connection with "blue
sky" qualifications of the Registrable Securities as may be set forth in any
underwriting agreement), (iii) all printing, messenger and delivery expenses and
(iv) the fees, charges and expenses of counsel to the Company and of its
independent public accountants and any other accounting fees, charges and
expenses incurred by the Company (including, without limitation, any expenses
arising from any "cold comfort" letters or any special audits incident to or
required by any registration or qualification) and any reasonable legal fees,
charges and expenses incurred by one counsel for the General Atlantic
Stockholders. All of the expenses described in the preceding sentence of this
Section 6(d) are referred to herein as "Registration Expenses." The Designated
Holders of Registrable Securities sold pursuant to a Registration Statement
shall bear the expense of any underwriter's discount or commission relating to
registration and sale of such Designated Holders' Registrable Securities.
7. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Designated Holder, its partners, directors, officers,
affiliates and each Person who controls (within the meaning of Section 15 of the
Securities Act) such Designated Holder from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) (each, a "Liability" and collectively, "Liabilities"), arising
out of or based upon any untrue, or allegedly untrue, statement of a material
fact contained in any Registration Statement, prospectus or preliminary
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances under which such statements were made, except insofar as
such Liability arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission contained in such Registration
Statement, preliminary prospectus or final prospectus in reliance and in
conformity with information concerning such Designated Holder furnished in
writing to the Company by such Designated Holder expressly for use therein,
including, without limitation, the information furnished to the Company pursuant
to Section 7(b). The Company shall also provide customary indemnities to any
underwriters of the Registrable Securities, their officers, directors and
employees and each Person who controls such underwriters (within the meaning of
Section 15 of the Securities Act) to the same extent as provided above with
respect to the indemnification of the Designated Holders of Registrable
Securities.
(b) Indemnification by Designated Holders. In connection with any
Registration Statement in which a Designated Holder is participating pursuant to
Section 3 or Section 4 hereof, each such Designated Holder shall promptly
furnish to the Company in writing such information with respect to such
Designated Holder as the Company may reasonably request or as may be required by
law for use in connection with any such Registration Statement or prospectus and
all information required to be disclosed in order to make the information
previously furnished to the Company by such Designated Holder not materially
misleading or necessary to cause such Registration Statement not to omit a
material fact with respect to such Designated Holder necessary in order to make
the statements therein not misleading. Each Designated Holder agrees to
indemnify and hold harmless the Company, each of its directors, each of its
12
officers who has signed the Registration Statement, any underwriter retained by
the Company and each Person who controls the Company or such underwriter (within
the meaning of Section 15 of the Securities Act) to the same extent as the
foregoing indemnity from the Company to the Designated Holders, but only if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with information with respect to such Designated
Holder furnished in writing to the Company by such Designated Holder expressly
for use in such Registration Statement or prospectus, including, without
limitation, the information furnished to the Company pursuant to this Section
7(b); provided, however, that the total amount to be indemnified by such
Designated Holder pursuant to this Section 7(b) shall be limited to the net
proceeds (after deducting the underwriters' discounts and commissions) received
by such Designated Holder in the offering to which the Registration Statement or
prospectus relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, however, that the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any Liability
that it may have to the Indemnified Party hereunder (except to the extent that
the Indemnifying Party is materially prejudiced or otherwise forfeits
substantive rights or defenses by reason of such failure). If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party shall be entitled to participate in and, to the
extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and reasonably satisfactory to such Indemnified Party. The
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be paid by the Indemnified Party unless (i) the Indemnifying Party
agrees to pay the same, (ii) the Indemnifying Party fails to assume the defense
of such action with counsel reasonably satisfactory to the Indemnified Party or
(iii) the named parties to any such action (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and such parties
have been advised by such counsel that either (x) representation of such
Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct or (y) there
may be one or more legal defenses available to the Indemnified Party which are
different from or additional to those available to the Indemnifying Party. In
any of such cases, the Indemnifying Party shall not have the right to assume the
defense of such action on behalf of such Indemnified Party, it being understood,
however, that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all Indemnified Parties. No Indemnifying Party shall be liable for
any settlement entered into without its written consent, which consent shall not
be unreasonably withheld. No Indemnifying Party shall, without the consent of
such Indemnified Party, effect any settlement of any pending or threatened
proceeding in respect of which such Indemnified Party is a party and indemnity
has been sought hereunder by such Indemnified Party, unless such settlement
includes an unconditional release of such Indemnified Party from all liability
for claims that are the subject matter of such proceeding.
(d) Contribution. If the indemnification provided for in this Section 7
from the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any Liabilities referred to herein, then the Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such Liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such Liabilities, as well as any other relevant equitable considerations. The
relative faults of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, has been made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a
13
party as a result of the Liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Sections 7(a), 7(b) and 7(c),
any legal or other fees, charges or expenses reasonably incurred by such party
in connection with any investigation or proceeding; provided that the total
amount to be contributed by such Designated Holder shall be limited to the net
proceeds (after deducting the underwriters' discounts and commissions) received
by such Designated Holder in the offering.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
8. Rule 144. The Company covenants that it shall (a) file any reports
required to be filed by it under the Exchange Act and (b) take such further
action as each Designated Holder may reasonably request (including providing any
information necessary to comply with Rule 144 under the Securities Act), all to
the extent required from time to time to enable such Designated Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (i) Rule 144 under the Securities Act,
as such rule may be amended from time to time or (ii) any similar rules or
regulations hereafter adopted by the Commission. The Company shall, upon the
request of any Designated Holder, deliver to such Designated Holder a written
statement as to whether it has complied with such requirements.
9. Miscellaneous.
(a) Recapitalizations, Exchanges, etc. The provisions of this Agreement
shall apply to the full extent set forth herein with respect to (i) the shares
of Common Stock, (ii) any and all shares of voting common stock of the Company
into which the shares of Common Stock are converted, exchanged or substituted in
any recapitalization or other capital reorganization by the Company and (iii)
any and all equity securities of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets or otherwise) which
may be issued in respect of, in conversion of, in exchange for or in
substitution of, the shares of Common Stock and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations, recapitalizations
and the like occurring after the date hereof. The Company shall use all
commercially reasonable efforts to cause any successor or assign (whether by
merger, consolidation, sale of assets or otherwise) to enter into a new
registration rights agreement with the Designated Holders on terms substantially
the same as this Agreement as a condition of any such transaction.
(b) No Inconsistent Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Designated Holders in this Agreement or grant any additional
registration rights to any Person or with respect to any securities which are
not Registrable Securities which are prior in right to or inconsistent with the
rights granted in this Agreement.
(c) Remedies. The Designated Holders, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, shall be
entitled to specific performance of their rights under this Agreement. The
Company agrees that monetary damages would not be adequate compensation for any
loss incurred by reason of a breach by it of the provisions of this Agreement
and hereby agrees to waive in any action for specific performance the defense
that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless consented to in writing by (i) the Company and (ii) the General Atlantic
Stockholders, Coinvestor Stockholders, Vectis Stockholders and Apex Stockholders
holding Registrable Securities representing (after giving effect to any
adjustments) at least a majority of the aggregate number of Registrable
Securities owned by all of the General Atlantic Stockholders, Coinvestor
Stockholders, Vectis Stockholders and Apex Stockholders; provided, however, that
to the extent any amendment or waiver shall adversely affect any of such
stockholders, such amendment or waiver shall
14
require the prior written consent of each stockholder so adversely affected. Any
such written consent shall be binding upon the Company and all of the Designated
Holders.
(e) Notices. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be made by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company:
Critical Path, Inc.
350 The Embarcadero
San Francisco, CA 94105-1204
Telecopy: (415) 541-2300
Attention: Chief Financial Officer
with a copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg F. Vignos, Esq.
(ii) if to the General Atlantic Stockholders:
c/o General Atlantic Service Company
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 622-8818
Attention: Matthew Nimetz
Thomas J. Murphy
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
(iii) if to Campina, Great Affluent, Dragonfield or Lion Cosmos:
c/o 7th Floor
Cheung Kong Center
2 Queen's Road Central
Hong Kong
Telecopy: (852) 2845-2057
Attention: Mr. Edmond Ip
(iv) if to Cenwell:
c/o 22nd Floor
Hutchison House
10 Harcourt Road
Hong Kong
Telecopy: (852) 2128-1778
Attention: Company Secretary
15
(v) if to Vectis:
c/o Vectis Group, LLC
117 Greenwich Street
San Francisco, CA 94111
Telecopy: 415-352-5310
Attention: Matthew Hobart
with a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Telecopy: 212-446-4900
Attention: Michael Movsovich, Esq.
(vi) if to Apex Capital:
Apex Capital, LLC
25 Orinda Way, Suite 300
Orinda, CA 94563
Telecopy: (925) 253-1809
Attention: Adam Fiore, General Counsel
(vii) if to Passport Capital:
Passport Capital, LLC
One Sansome Street, 39th Floor
San Francisco, CA 94104
Telecopy: (415) 399-7608
Attention: John Burbank, Managing Partner
(viii) if to Crosslink:
Crosslink Capital
Two Embarcadero Center, Suite 2200
San Francisco, CA 94111
Telecopy: (415) 617-1801
Attention: Jason Sanders
(ix) if to Sagamore:
Sagamore Hill Hub Fund, Ltd.
c/o Sagamore Hill Capital Management
10 Glenville Street, 3rd Floor
Greenwich, CT 06831
Telecopy: (203) 422-7214
Attention: Legal Department
(x) if to Criterion:
Criterion Capital Management
One Maritime Plaza, Suite 1460
San Francisco, CA 94111
Telecopy:
Attention: R. Daniel Beckham
16
(xi) if to Heights Capital:
Capital Ventures International
c/o Heights Capital Management, Inc.
425 California Street, Suite 1100
San Francisco, CA 94104
Telecopy: (415) 403-6525
Attention: Martin Kobinger
(xii) if to any other Designated Holder, at its address as it appears on
the record books of the Company.
All such notices, demands and other communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied. Any party may by notice given in
accordance with this Section 9(e) designate another address or Person for
receipt of notices hereunder.
(f) Successors and Assigns; Third Party Beneficiaries. This Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties hereto as hereinafter provided. The Demand Registration
rights and related rights of the General Atlantic Stockholders, the Coinvestor
Stockholders or the Apex Stockholders contained in Section 3 hereof shall be (i)
with respect to any Registrable Security that is transferred to an Affiliate of
a General Atlantic Stockholder, a Coinvestor Stockholder or an Apex Stockholder,
automatically transferred to such Affiliate and (ii) with respect to any
Registrable Security that is transferred in all cases to a non-Affiliate,
transferred only with the consent of the Company which consent shall not be
unreasonably withheld, conditioned or delayed. The incidental or "piggy-back"
registration rights of the Designated Holders contained in Sections 3(b) and 4
hereof and the other rights of each of the Designated Holders with respect
thereto shall be, with respect to any Registrable Security, automatically
transferred to any Person who is the transferee of such Registrable Security so
long as such transferee agrees to be bound by this Agreement. All of the
obligations of the Company hereunder shall survive any such transfer. Except as
provided in Section 7, no Person other than the parties hereto and their
successors and permitted assigns is intended to be a beneficiary of this
Agreement.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
(j) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
(k) Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
(l) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto with respect
to the subject matter contained herein. There are no restrictions, promises,
17
representations, warranties or undertakings with respect to the subject matter
contained herein, other than those set forth or referred to herein. Subject to
Section 9(o), upon the Subsequent Closing (as defined in the Convertible Note
Purchase and Exchange Agreement and the Convertible Note Agreements), this
Agreement shall supersede all prior agreements and understandings among the
parties with respect to such subject matter.
(m) Further Assurances. Each of the parties shall execute such documents
and perform such further acts as may be reasonably required or desirable to
carry out or to perform the provisions of this Agreement.
(n) Other Agreements. Nothing contained in this Agreement shall be deemed
to be a waiver of, or release from, any obligations any party hereto may have
under, or any restrictions on the transfer of Registrable Securities or other
securities of the Company imposed by, any other agreement including, but not
limited to, the Stock Purchase Agreement, the Convertible Note Purchase and
Exchange Agreement, the Convertible Note Agreements or the Amended and Restated
Stockholders Agreement.
(o) Effective Date and Termination. Subject to the provisions of this
Section 9(o), this Agreement shall become effective immediately following the
Subsequent Closing. If the Subsequent Closing does not occur and the obligation
to consummate the Conversion and the Exchange and the Conversion has been
terminated pursuant to Article IX of the Convertible Note Purchase and Exchange
Agreement or Article IX of the Convertible Note Agreements, then this Agreement
shall become effective as of the date of such termination; provided, however,
that Registrable Securities shall not include any shares of Common Stock issued
or issuable upon conversion of the Series E Preferred Stock.
[the remainder of this page intentionally left blank]
18
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Registration Rights Agreement on the date
first written above.
CRITICAL PATH, INC.
By: /s/ WILLIAM E. MCGLASHAN
------------------------------------
Name: William E. McGlashan
Title: Chairman, Chief Executive
Officer
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
GENERAL ATLANTIC PARTNERS 74, L.P.
By: General Atlantic Partners, LLC,
its General Partner
By: /s/ STEVEN A. DENNING
------------------------------------
Name: Steven A. Denning
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ STEVEN A. DENNING
------------------------------------
Name: Steven A. Denning
Title: A General Partner
GAPSTAR, LLC
By: General Atlantic Partners, LLC,
its Managing Member
By: /s/ STEVEN A. DENNING
------------------------------------
Name: Steven A. Denning
Title: A Managing Member
GAPCO GMBH & CO. KG
By: Gapco Management Gmbh,
its General Partner
By: /s/ STEVEN A. DENNING
------------------------------------
Name: Steven A. Denning
Title: A Managing Director
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
VECTIS CP HOLDINGS, LLC,
a Delaware limited liability company
By: Vectis Group, LLC
its Managing Member
By: /s/ MATTHEW T. HOBART
------------------------------------
Name: Matthew T. Hobart
Title: Managing Director
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
CENWELL LIMITED
By: /s/ IP TAK CHUEN, EDMOND
----------------------------------
Name: Ip Tak Chuen, Edmond
Title: Authorised Person
CAMPINA ENTERPRISES LIMITED
By: /s/ IP TAK CHUEN, EDMOND
------------------------------------
Name: Ip Tak Chuen, Edmond
Title: Director
GREAT AFFLUENT LIMITED
By: /s/ IP TAK CHUEN, EDMOND
------------------------------------
Name: Ip Tak Chuen, Edmond
Title: Director
DRAGONFIELD LIMITED
By: /s/ PAUL YEE WAN, EZRA
------------------------------------
Name: Paul Yee Wan, Ezra
Title: Authorised Person
LION COSMOS LIMITED
By: /s/ PAUL YEE WAN, EZRA
------------------------------------
Name: Paul Yee Wan, Ezra
Title: Director
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS 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
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
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
GUGGENHEIM PORTFOLIO COMPANY XIII
By: Apex Capital, LLC,
its Authorized Investment Advisor
By: /s/ SANFORD J. COLEN
------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
PASSPORT MASTER FUND, LP
By: /s/ JOHN BURBANK
----------------------------------
Name: John Burbank
Title: Managing Partner
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
CROSSLINK CROSSOVER FUND IV, L.P.
By: Crossover Fund IV Management,
L.L.C.,
its General Partner
By: /s/ MICHAEL J. STARK
------------------------------------
Name: Michael J. Stark
Title: Managing Member
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
SAGAMORE HILL HUB FUND, LTD.
By: Sagamore Hill Capital Management
L.P.,
Investment Manager
By: /s/ STEVEN H. BLOOM
------------------------------------
Name: Steven H. Bloom
Title: President
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
CAPITAL VENTURES INTERNATIONAL
By: Heights Capital Management, Inc.,
an authorized signatory
By: /s/ MARTIN KOBINGER
------------------------------------
Name: Martin Kobinger
Title: Investment Manager
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
APPENDIX G
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMONG
CRITICAL PATH, INC.,
GENERAL ATLANTIC PARTNERS 74, L.P.,
GAP COINVESTMENT PARTNERS II, L.P.,
GAPSTAR, LLC,
GAP-W, LLC,
GAPCO GMBH & CO. KG,
CAMPINA ENTERPRISES LIMITED,
CENWELL LIMITED,
GREAT AFFLUENT LIMITED,
DRAGONFIELD LIMITED,
LION COSMOS LIMITED
AND
VECTIS CP HOLDINGS, LLC
----------------------------
DATED: NOVEMBER 26, 2003
----------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
1. Definitions................................................. 1
2. Future Issuance of Shares; Preemptive Rights................ 4
2.1 Offering Notice....................................... 4
2.2 Preemptive Rights; Exercise........................... 5
2.3 Closing............................................... 5
2.4 Sale to Subject Purchaser............................. 6
3. Corporate Governance........................................ 6
3.1 Board of Directors; Number and Composition............ 6
3.2 Reimbursement of Expenses; D&O Insurance.............. 6
3.3 Meetings of the Board of Directors.................... 6
3.4 Annual Budget......................................... 6
4. Standstill; Nasdaq Matters.................................. 7
4.1 Standstill............................................ 7
4.2 Nasdaq Matters........................................ 8
5. Miscellaneous............................................... 8
5.1 Notices............................................... 8
5.2 Successors and Assigns; Third Party Beneficiary....... 9
5.3 Amendment and Waiver.................................. 9
5.4 Counterparts.......................................... 10
5.5 Specific Performance.................................. 10
5.6 Headings.............................................. 10
5.7 Governing Law......................................... 10
5.8 Severability.......................................... 10
5.9 Rules of Construction................................. 10
5.10 Entire Agreement...................................... 10
5.11 Term of Agreement..................................... 10
5.12 Further Assurances.................................... 10
EXHIBITS
A Articles of Incorporation
B By-laws
</Table>
i
SCHEDULE
COINVESTORS
Vectis CP Holdings, LLC
Campina Enterprises Limited
Cenwell Limited
Great Affluent Limited
Dragonfield Limited
Lion Cosmos Limited
i
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement"), dated
November 26, 2003, among Critical Path, Inc., a California corporation (the
"Company"), General Atlantic Partners 74, L.P., a Delaware limited partnership
("GAP LP"), GAP Coinvestment Partners II, L.P., a Delaware limited partnership
("GAP Coinvestment"), GapStar, LLC, a Delaware limited liability company
("GapStar"), GAP-W, LLC, a Delaware limited liability company ("GAP-W"), GAPCO
GmbH & Co. KG, a German limited partnership ("GmbH Coinvestment"), and the
Persons listed on the Schedule hereto (the "Coinvestors").
WHEREAS, pursuant to the Stock and Warrant Purchase and Exchange Agreement,
dated November 8, 2001, as amended from time to time (the "Stock Purchase
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar and the
Coinvestors, the Company has (i) issued and sold to GAP LP, GAP Coinvestment,
GapStar and the Coinvestors an aggregate of 708,037 shares of Series D
Cumulative Redeemable Convertible Participating Preferred Stock, par value
$0.001 per share, of the Company, as amended from time to time (the "Series D
Preferred Stock"), (ii) issued and delivered to GAP LP, GAP Coinvestment and
GapStar an aggregate of 1,837,418 shares of Series D Preferred Stock in exchange
for a certain amount of convertible subordinated notes of the Company and (iii)
issued and sold to GAP LP, GAP Coinvestment and GapStar warrants (the
"Warrants") to purchase shares of Common Stock; and
WHEREAS, pursuant to the Convertible Note Purchase and Exchange Agreement,
dated November 18, 2003 (the "Convertible Note Purchase and Exchange
Agreement"), among the Company, GAP LP, GAP Coinvestment, GapStar, GAP-W, GAPCO
GmbH Coinvestment, Campina Enterprises Limited ("Campina Enterprises Limited"),
Cenwell Limited ("Cenwell Limited"), Great Affluent Limited ("Great Affluent
Limited"), Dragonfield Limited ("Dragonfield Limited") and Lion Cosmos Limited
("Lion Cosmos Limited"), (i) the Company has issued and sold to GAP LP, GAP
Coinvestment, GapStar, GAP-W and GAPCO GmbH Coinvestment convertible promissory
notes in the principal amount of $10,000,000 (the "Notes"), which are
convertible into shares, par value $0.001 per share, of Series E Convertible
Preferred Stock of the Company (the "Series E Preferred Stock") and (ii) Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited agreed upon the satisfaction of certain
conditions to exchange their CK Sub Notes (as hereinafter defined) for shares of
Series E Preferred Stock; and
WHEREAS, the parties hereto wish to provide for, among other things,
preemptive rights, corporate governance rights and standstill obligations and
certain other rights under certain conditions.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
"Affiliate" shall mean any Person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Agreement" means this Agreement as the same may be amended,
supplemented or modified in accordance with the terms hereof.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in the State of New York or the State of
California are authorized or required by law or executive order to close.
"Campina Enterprises Limited" has the meaning set forth in the
recitals of this Agreement.
"Cenwell Limited" has the meaning set forth in the recitals of this
Agreement.
"Charter Documents" means the Articles of Incorporation and the
By-laws of the Company as in effect on the date hereof after giving effect
to the filing of the Amended and Restated Certificate of Determination with
respect to the Series D Preferred Stock and the Certificate of
Determination with respect to the Series E Preferred Stock with the
Secretary of State of the State of California, copies of which are attached
hereto as Exhibit A and Exhibit B, respectively.
"CK Sub Notes" means the 5 3/4% Convertible Subordinated Notes, due
April 1, 2005, issued by the Company in the principal face amount of
$32,795,000 pursuant to the Company's Indenture, dated March 31, 2000, and
standing in the name of Campina Enterprises Limited, Cenwell Limited, Great
Affluent Limited, Dragonfield Limited or Lion Cosmos Limited on the books
of the Company.
"Coinvestor Stockholders" means the Coinvestors and any Affiliate of a
Coinvestor that, after the date hereof, acquires Shares, and the term
"Coinvestor Stockholder" shall mean any such person.
"Coinvestors" has the meaning set forth in the preamble to this
Agreement.
"Coinvestors Sub-group" has the meaning set forth in Section 4.1(c) of
this Agreement.
"Commission" means the Securities and Exchange Commission or any
similar agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.001 per share, of
the Company and any other capital stock of the Company into which such
stock is reclassified or reconstituted and any other common stock of the
Company.
"Common Stock Equivalents" means any security or obligation which is
by its terms convertible, exchangeable or exercisable into or for shares of
Common Stock, including, without limitation the Series D Preferred Stock,
Series E Preferred Stock and any option, warrant or other subscription or
purchase right with respect to Common Stock or any Common Stock Equivalent.
"Company" has the meaning set forth in the preamble to this Agreement.
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability of that Person with respect to any Indebtedness, lease,
dividend, guaranty, letter of credit or other obligation, contractual or
otherwise (the "primary obligation") of another Person (the "primary
obligor"), whether or not contingent, (a) to purchase, repurchase or
otherwise acquire such primary obligations or any property constituting
direct or indirect security therefor, (b) to advance or provide funds (i)
for the payment or discharge or any such primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet item, level of
income or financial condition of the primary obligor, (c) to purchase
property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (d) otherwise to assure or
hold harmless the owner of any such primary obligation against loss or
failure or inability to perform in respect thereof. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof.
"Convertible Note Purchase and Exchange Agreement" has the meaning set
forth in the recitals to this Agreement.
"Dragonfield Limited" has the meaning set forth in the recitals of
this Agreement.
"Escrow Agreement" has the meaning set forth in the recitals to this
Agreement.
"Excess New Securities" has the meaning set forth in Section 2.2(a) of
this Agreement.
"Exchange" has the meaning set forth in the Convertible Note Purchase
and Exchange Agreement.
2
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Exempt Issuances" has the meaning set forth in Section 2.1 of this
Agreement.
"GAP Coinvestment" has the meaning set forth in the preamble to this
Agreement.
"GAP LLC" means General Atlantic Partners, LLC, a Delaware limited
liability company and the general partner of GAP LP and the managing member
of GapStar, and any successor to such entity.
"GAP LP" has the meaning set forth in the preamble to this Agreement.
"GAP-W" has the meaning set forth in the preamble to this Agreement.
"GapStar" has the meaning set forth in the preamble to this Agreement.
"General Atlantic Director" has the meaning set forth in Section
3.2(a) of this Agreement.
"General Atlantic Stockholders" means GAP LP, GAP Coinvestment,
GapStar, GAP-W, GmbH Coinvestment and any Affiliate of GAP LLC that, after
the date hereof, acquires Shares, and the term "General Atlantic
Stockholder" shall mean any such Person.
"GmbH Coinvestment" has the meaning set forth in the preamble to this
Agreement.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other
entity owned or controlled, through stock or capital ownership or
otherwise, by any of the foregoing.
"Great Affluent Limited" has the meaning set forth in the recitals of
this Agreement.
"Indebtedness" means, as to any Person, (a) all obligations of such
Person for borrowed money (including, without limitation, reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), (b) all obligations of such
Person to pay the deferred purchase price of property or services, except
trade accounts payable and accrued commercial or trade liabilities arising
in the ordinary course of business, (c) all interest rate and currency
swaps, caps, collars and similar agreements or hedging devices under which
payments are obligated to be made by such Person, whether periodically or
upon the happening of a contingency, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations of such Person under leases which have been or should be, in
accordance with United States generally accepted accounting principles in
effect from time to time, recorded as capital leases, (f) all indebtedness
secured by any Lien (other than Liens in favor of lessors under leases
other than leases included in clause (e)) on any property or asset owned or
held by that Person regardless of whether the indebtedness secured thereby
shall have been assumed by that Person or is non-recourse to the credit of
that Person and (g) any Contingent Obligation of such Person.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related
preferences).
"Lion Cosmos Limited" has the meaning set forth in the recitals of
this Agreement.
"Nasdaq" means The Nasdaq Stock Market, Inc.
"New Issuance Notice" has the meaning set forth in Section 2.1 of this
Agreement.
"New Securities" has the meaning set forth in Section 2.1 of this
Agreement.
3
"Notes" has the meaning set forth in the recitals to this Agreement.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock
company, limited liability company, Governmental Authority or other entity
of any kind, and shall include any successor (by merger or otherwise) of
such entity.
"Preemptive Rightholder(s)" has the meaning set forth in Section 2.1
of this Agreement.
"Proportionate Percentage" has the meaning set forth in Section 2.2(a)
of this Agreement.
"Proposed Price" has the meaning set forth in Section 2.1 of this
Agreement.
"Requirement of Law" means, as to any Person, any law, statute,
treaty, rule, regulation, right, privilege, qualification, license or
franchise or determination of an arbitrator or a court or other
governmental authority or stock exchange, in each case applicable or
binding upon such Person or any of its property or to which such Person or
any of its property is subject or pertaining to any or all of the
transactions contemplated or referred to herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Series D Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Series E Preferred Stock" has the meaning set forth in the recitals
to this Agreement.
"Shares" means, with respect to each Stockholder, all shares, whether
now owned or hereafter acquired, of Common Stock, Series D Preferred Stock
and Series E Preferred Stock, and any other Common Stock Equivalents owned
thereby; provided, however, for the purposes of any computation of the
number of Shares pursuant to Sections 2.2 and 5.3, all outstanding Common
Stock Equivalents shall be deemed converted, exercised or exchanged as
applicable and the shares of Common Stock issuable upon such conversion,
exercise or exchange shall be deemed outstanding, whether or not such
conversion, exercise or exchange has actually been effected.
"Standstill Ceiling" has the meaning set forth in Section 4.1(a) of
this Agreement.
"Standstill Expiration Date" means November 8, 2008.
"Stock Option Plans" means the Company's stock option plans and
employee purchase plans pursuant to which shares of restricted stock and
options to purchase shares of Common Stock are reserved and available for
grant to officers, directors, employees and consultants of the Company.
"Stock Purchase Agreement" has the meaning set forth in the recitals
to this Agreement.
"Stockholder Approval" has the meaning set forth in the Convertible
Note Purchase and Exchange Agreement.
"Stockholders" means the General Atlantic Stockholders and the
Coinvestor Stockholders.
"Stockholders Meeting" has the meaning set forth in Section 4.2 of
this Agreement.
"Subject Purchaser" has the meaning set forth in Section 2.1 of this
Agreement.
"Vectis Stockholders" has the meaning set forth in Section 4.1(c) of
this Agreement.
"Warrants" has the meaning set forth in the recitals to this
Agreement.
"Written Consent" has the meaning set forth in Section 4.2 of this
Agreement.
2. Future Issuance of Shares; Preemptive Rights.
2.1 Offering Notice. Except for (a) options to purchase Series E
Preferred Stock or Common Stock or restricted stock which may be issued pursuant
to the Stock Option Plans, (b) a subdivision of the outstanding shares of Common
Stock into a larger number of shares of Common Stock, (c) capital stock
4
issued upon exercise, conversion or exchange of any Common Stock Equivalent
either (x) previously issued or (y) issued in accordance with the terms of this
Agreement or the Convertible Note Purchase and Exchange Agreement, (d) capital
stock of the Company issued in consideration of an acquisition, approved by the
Board of Directors, by the Company of another Person, (e) shares of Common Stock
issued as a dividend on the Series D Preferred Stock or Series E Preferred
Stock, (f) shares of Common Stock or Common Stock Equivalents issued in
strategic transactions (which may not be private equity or venture capital
financing transactions) approved by the Board of Directors to Persons that are
not principally engaged in financial investing and (g) up to 10,000,000 shares
of Series E Preferred Stock which may be issued pursuant to Section 2.7 of the
Convertible Note Purchase and Exchange Agreement ((a)-(g) being referred to
collectively as "Exempt Issuances"), if the Company wishes to issue any capital
stock or any other securities convertible into or exchangeable for capital stock
of the Company pursuant to a private placement exempt from registration under
the Securities Act, other than any such private placement that is made solely to
Qualified Institutional Buyers (as defined in the Securities Act) in reliance on
Rule 144A promulgated under the Securities Act (collectively, "New Securities")
to any Person (the "Subject Purchaser"), then the Company shall offer such New
Securities first to each of the General Atlantic Stockholders and the Coinvestor
Stockholders (each, a "Preemptive Rightholder" and collectively, the "Preemptive
Rightholders") by sending written notice (the "New Issuance Notice") to the
Preemptive Rightholders, which New Issuance Notice shall state (x) the number of
New Securities proposed to be issued and (y) the proposed purchase price per
security of the New Securities (the "Proposed Price"). Upon delivery of the New
Issuance Notice, such offer shall be irrevocable unless and until the rights
provided for in Section 2.2 shall have been waived or shall have expired.
2.2 Preemptive Rights; Exercise.
(a) For a period of twenty (20) days after the giving of the New Issuance
Notice pursuant to Section 2.1, each of the Preemptive Rightholders shall have
the right to purchase its Proportionate Percentage (as hereinafter defined) of
the New Securities at a purchase price equal to the Proposed Price and upon the
same terms and conditions set forth in the New Issuance Notice. Each Preemptive
Rightholder shall have the right to purchase that percentage of the New
Securities determined by dividing (x) the total number of Shares then owned by
such Preemptive Rightholder by (y) the total number of Shares owned by all of
the Preemptive Rightholders (the "Proportionate Percentage"). If any Preemptive
Rightholder does not fully subscribe for the number or amount of New Securities
that it or he is entitled to purchase pursuant to the preceding sentence, then
each Preemptive Rightholder which elected to purchase New Securities shall have
the right for a five (5) day period to purchase that percentage of the remaining
New Securities not so subscribed for (for the purposes of this Section 2.2(a),
the "Excess New Securities") determined by dividing (x) the total number of
Shares then owned by such fully participating Preemptive Rightholder by (y) the
total number of Shares then owned by all fully participating Preemptive
Rightholders who elected to purchase Excess New Securities. Each of the
Stockholders may transfer all or any portion of its rights to purchase New
Securities under this Section 2 to any of its Affiliates.
(b) The right of each Preemptive Rightholder to purchase the New Securities
or Excess New Securities, as the case may be, under subsection (a) above shall
be exercisable by delivering written notice of the exercise thereof, prior to
the expiration of the 20-day period referred to in subsection (a) above with
respect to New Securities or prior to the expiration of the 5-day period
referred to in subsection (a) above with respect to Excess New Securities, to
the Company, which notice shall state the amount of New Securities that such
Preemptive Rightholder elects to purchase pursuant to Section 2.2(a). The
failure of a Preemptive Rightholder to respond within such 20-day or 5-day
period shall be deemed to be a waiver of such Preemptive Rightholder's rights
under Section 2.2(a), provided that each Preemptive Rightholder may waive its
rights under Section 2.2(a) prior to the expiration of such 20-day or 5-day
period by giving written notice to the Company.
2.3 Closing. The closing of the purchase of New Securities or Excess New
Securities subscribed for by the Preemptive Rightholders under Section 2.2 shall
be held at the executive office of the Company at 11:00 a.m., local time, on (a)
the 30th day after the giving of the New Issuance Notice pursuant to
5
Section 2.1, if the Preemptive Rightholders elect to purchase all of the New
Securities under Section 2.2, (b) the date of the closing of the sale to the
Subject Purchaser made pursuant to Section 2.4 if the Preemptive Rightholders
elect to purchase some, but not all, of the New Securities under Section 2.2 or
(c) at such other time and place as the parties to the transaction may agree. At
such closing, the Company shall deliver certificates representing the New
Securities, and such New Securities shall be issued free and clear of all Liens
(other than those attributable to actions by the purchasers thereof) and the
Company shall so represent and warrant, and further represent and warrant (in
addition to other customary representations and warranties) that such New
Securities shall be, upon issuance thereof to the Preemptive Rightholders and
after payment therefor, duly authorized, validly issued, fully paid and non-
assessable. Each Preemptive Rightholder purchasing the New Securities shall
deliver at the closing payment in full in immediately available funds for the
New Securities purchased by him or it. At such closing all of the parties to the
transaction shall execute such additional documents as are customary for
transactions of this type.
2.4 Sale to Subject Purchaser. The Company may sell to the Subject
Purchaser all of the New Securities not purchased by the Preemptive Rightholders
pursuant to Section 2.2 on terms and conditions that are no more favorable to
the Subject Purchaser than those set forth in the New Issuance Notice; provided,
however, that such sale is bona fide and made pursuant to a contract entered
into within ninety (90) days following the earlier to occur of (i) the waiver by
the Preemptive Rightholders of their option to purchase New Securities or Excess
New Securities pursuant to Section 2.2, or (ii) the expiration of the 20-day or
5-day period referred to in Section 2.2. If such sale is not consummated within
such 90-day period for any reason, then the restrictions provided for herein
shall again become effective, and no issuance and sale of New Securities may be
made thereafter by the Company without again offering the same in accordance
with this Section 2. The closing of any issuance and sale pursuant to this
Section 2.4 shall be held at a time and place as the parties to the transaction
may agree within such 90-day period.
3. Corporate Governance.
3.1 Board of Directors; Number and Composition.
(a) The Company shall take all actions reasonably necessary to cause the
nomination to the Board of Directors of one (1) individual designated by the
General Atlantic Stockholders but only if the General Atlantic Stockholders are
not entitled to elect one director of the Company by virtue of their rights as
the holders of a majority of the shares of Series D Preferred Stock (the
"General Atlantic Director").
(b) If so requested by the Coinvestor Sub-group, the Company shall cause
the nomination to the Board of Directors of one (1) individual designated by the
Coinvestor Sub-group but only if the Coinvestor Sub-group is not entitled to
elect one director of the Company by virtue of their rights as the holders of a
majority of the shares of Series E Preferred Stock (the "Sub-group Director").
3.2 Reimbursement of Expenses; D&O Insurance. The Company shall reimburse
the General Atlantic Director for all reasonable travel and accommodation
expenses incurred by him in connection with the performance of his duties as
director of the Company upon presentation of appropriate documentation therefor.
The Company shall use reasonable commercial efforts to maintain a directors'
liability insurance policy that is reasonably acceptable to the Board of
Directors.
3.3 Meetings of the Board of Directors. The Company agrees to take such
actions as are necessary to cause the Board of Directors to meet in person or
telephonically not less frequently than once during each calendar month.
3.4 Annual Budget. Not less than thirty (30) days prior to the end of
each fiscal year, the Company shall prepare and submit to the Board of Directors
for its approval an annual operating budget of the Company for the next
succeeding fiscal year in reasonable detail.
3.5 Coinvestor Sub-group Rights. Notwithstanding anything to the contrary
set forth in the Charter Documents, so long as the Coinvestor Sub-group owns at
least 7,000,000 shares of Series E Preferred Stock (subject to anti-dilution
adjustment for stock splits of, combinations of and capital reorganizations
6
with respect to the Series E Preferred Stock) the consent and approval of the
Coinvestor Sub-group, voting separately as a class, shall be a prerequisite to:
(a) any action that would result in a deemed dividend to the shares of
Series E Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended; or
(b) the issuance, incurrence, assumption or guarantee by the
Corporation or any Subsidiary of the Corporation of any funded Indebtedness
(excluding capital leases incurred in the ordinary course of business but
including the incurrence of any debt in connection with any borrowing
arrangements with Silicon Valley Bank, provided that, with respect to the
incurrence of any debt in connection with any borrowing arrangements with
Silicon Valley Bank, if the members of the Coinvestor Sub-group do not
respond to a written request for consent by the Company within two Business
Days of receiving such request, such members shall be deemed to have
consented).
4. Standstill; Nasdaq Matters.
4.1 Standstill. Without the approval or written consent of the Board of
Directors, none of the General Atlantic Stockholders or any of their Affiliates,
and none of the Coinvestor Stockholders or any of their respective Affiliates
shall, severally and not jointly, at any time prior to the Standstill Expiration
Date:
(a) purchase or otherwise acquire, or propose or offer to purchase or
acquire, any shares of the Company's capital stock, whether by tender
offer, market purchase, privately negotiated purchase, merger or otherwise,
any shares of the Company's capital stock or any Common Stock Equivalents
in excess of the number of shares of the Company's capital stock and Common
Stock Equivalents purchased pursuant to the Stock Purchase Agreement
(subject to adjustments and issuances of additional Common Stock
Equivalents pursuant to the Amended and Restated Certificate of
Determination with respect to the Series D Preferred Stock) and the
Convertible Note Purchase and Exchange Agreement (subject to adjustments
and issuances of additional Common Stock Equivalents pursuant to the
Certificate of Determination with respect to the Series E Stock) with
respect to each such Stockholder and its Affiliates considered severally
and not jointly with any other Stockholder and its Affiliates (the
"Standstill Ceiling"); provided, however, that in no event shall any such
Stockholder acquire any Shares in a transaction in such an amount that when
aggregated with the shares of the Company's capital stock already owned by
such Stockholder, the acquisition of such shares of the Company's capital
stock would require stockholder approval under applicable Nasdaq rules and
policies; and provided, further, that the dividends that accrue on the
shares of Series D Preferred Stock and Series E Preferred Stock pursuant to
the terms thereof shall be excluded for purposes of calculating whether or
not a Stockholder and its Affiliates have exceeded the Standstill Ceiling;
(b) except as specified in this Agreement, make, or in any way
participate, directly or indirectly, in any "solicitation" of "proxy" (as
such terms are defined or used in Regulation 14A of the Exchange Act) to
vote, or seek to advise or influence any Person with respect to the voting
of, any shares of the Company's capital stock, or become a "participant" in
any "election contest" (as such terms are used or defined in Regulation 14A
of the Exchange Act) relating to the election of directors of the Company;
provided, however, that none of the General Atlantic Stockholders, the
Coinvestor Stockholders or any of their respective Affiliates shall be
deemed to have engaged in a "solicitation" or to have become a
"participant" by reason of the membership of designees of the General
Atlantic Stockholders, the Coinvestor Stockholders or any of their
respective Affiliates on the Board of Directors;
(c) form, join or in any way participate in a "group" (within the
meaning of Section 13(d)(3) of the Exchange Act) or otherwise act in
concert with any Person for the purpose of acquiring, holding, voting or
disposing of any shares of the Company's capital stock; provided, however,
that (i) the General Atlantic Stockholders may act as a group for the
purpose of acquiring, holding, voting or disposing of any shares of the
Company's capital stock, (ii) Vectis CP Holdings, LLC and any
7
Affiliate thereof that acquires shares of the Company's capital stock (the
"Vectis Stockholders") may act as a group for the purpose of acquiring,
holding, voting or disposing of any shares of the Company's capital stock,
(iii) Cenwell Limited, Campina Enterprises Limited, Great Affluent Limited,
Dragonfield Limited, or Lion Cosmos Limited or any Affiliate thereof that
acquires shares of the Company's capital stock (the "Coinvestor Sub-group")
may act as a group for the purpose of acquiring, holding, voting or
disposing of any shares of the Company's capital stock; and provided
further, that, for the avoidance of doubt, the General Atlantic
Stockholders, the Vectis Stockholders and the Coinvestor Sub-group may not
together act as a group for the purpose of acquiring, holding, voting or
disposing of any shares of the Company's capital stock; or
(d) request the Company (or its directors, officers, employees or
agents), to take any action which would reasonably be expected to require
pursuant to law the Company to make a public announcement or proposal or
offer with respect to (i) any form of business combination or transaction
involving the Company including, without limitation, a merger,
consolidation, tender or exchange offer, sale or purchase of assets, or
dissolution or liquidation of the Company or (ii) instigate, encourage or
assist any Person to do any of the foregoing.
4.2 Nasdaq Matters. The Company shall use all commercially reasonable
efforts to maintain the quotation and listing on Nasdaq of all of the shares of
Common Stock issuable upon conversion of the Series D Preferred Stock and Series
E Preferred Stock and all of the shares of Common Stock issuable upon exercise
of the Warrants.
5. Miscellaneous.
5.1 Notices. All notices, demands or other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first class mail, return receipt requested, telecopier, courier
service or personal delivery:
(a) if to the Company:
Critical Path, Inc.
532 Folsom Street
San Francisco, CA 94105
Telecopy: (415) 808-8898
Attention: Chief Financial Officer
with a copy to, which shall not constitute notice:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg F. Vignos, Esq.
(b) if to any of the General Atlantic Stockholders:
c/o General Atlantic Service Corporation
3 Pickwick Plaza
Greenwich, CT 06830
Telecopy: (203) 622-8818
Attention: Matthew Nimetz
Thomas J. Murphy
with a copy to, which shall not constitute notice:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, NY 10019-6064
Telecopy: (212) 757-3990
Attention: Douglas A. Cifu, Esq.
8
(c) if to the Coinvestor Stockholders:
(i) if to Vectis CP Holdings, LLC:
c/o Vectis Group, LLC
117 Greenwich Street
San Francisco, CA 94111
Telecopy: (415) 352-5310
Attention: Matthew Hobart
with a copy to, which shall not constitute notice:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Telecopy: (212) 446-4900
Attention: Michael Movsovich, Esq.
(ii) if to Campina Enterprises Limited, Great Affluent Limited,
Dragonfield Limited or Lion Cosmos Limited:
c/o 7th Floor
Cheung Kong Center
2 Queen's Road Central
Hong Kong
Telecopy: (852) 2845-2057
Attention: Mr. Edmond Ip
(iii) if to Cenwell Limited:
c/o 22nd Floor
Hutchison House
10 Harcourt Road
Hong Kong
Telecopy: (852) 2128-1778
Attention: Company Secretary
All such notices, demands and other communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier, if delivered by commercial courier service; five (5) Business Days
after being deposited in the mail, postage prepaid, if mailed; and when receipt
is mechanically acknowledged, if telecopied. Any party may by notice given in
accordance with this Section 5.1 designate another address or Person for receipt
of notices hereunder.
5.2 Successors and Assigns; Third Party Beneficiary. This Agreement shall
inure to the benefit of and be binding upon successors and permitted assigns of
the parties hereto. No person other than the parties hereto and their successors
and permitted assigns is intended to be a beneficiary of this Agreement.
5.3 Amendment and Waiver.
(a) No failure or delay on the part of any party hereto in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other right, power or
remedy. The remedies provided for herein are cumulative and are not exclusive of
any remedies that may be available to the parties hereto at law, in equity or
otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure by any party from the terms of any provision of this Agreement,
shall be effective only if it is made or given in writing and signed by (i) the
Company, (ii) the General Atlantic Stockholders and (iii) the Coinvestor
Stockholders holding a majority of the voting power of the Shares held by the
Coinvestor Stockholders; provided, however, that to
9
the extent that any such amendment or waiver adversely affects any of the
Stockholders, such amendment or waiver shall require the prior written consent
of each Stockholder so adversely affected; provided further, that any
Stockholder may waive in writing any right that inures to such Stockholder. Any
such amendment, supplement, modification, waiver or consent shall be binding
upon the Company and all of the Stockholders.
5.4 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.5 Specific Performance. The parties hereto intend that each of the
parties have the right to seek damages or specific performance in the event that
any other party hereto fails to perform such party's obligations hereunder.
Therefore, if any party shall institute any action or proceeding to enforce the
provisions hereof, any party against whom such action or proceeding is brought
hereby waives any claim or defense therein that the plaintiff party has an
adequate remedy at law.
5.6 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the state of New York, without regard to the
principles of conflicts of law thereof.
5.8 Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
5.9 Rules of Construction. Unless the context otherwise requires,
references to sections or subsections refer to sections or subsections of this
Agreement.
5.10 Entire Agreement. This Agreement, together with the exhibits hereto,
is intended by the parties as a final expression of their agreement and intended
to be a complete and exclusive statement of the agreement and understanding of
the parties hereto in respect of the subject matter contained herein and
therein. There are no restrictions, promises, representations, warranties or
undertakings, other than those set forth herein or therein or set forth in the
Stock Purchase Agreement or the Convertible Note Purchase and Exchange
Agreement. Subject to Section 5.11, upon the Subsequent Closing (as defined in
the Convertible Note Purchase and Exchange Agreement), this Agreement, together
with the exhibits hereto, shall supersede all prior agreements and
understandings among the parties with respect to such subject matter.
5.11 Term of Agreement. Notwithstanding anything in this Agreement to the
contrary, this Agreement shall become effective immediately following the
Subsequent Closing. If the Subsequent Closing does not occur and the obligation
to consummate the Conversion and the Exchange (each as defined in the
Convertible Note Purchase and Exchange Agreement) is terminated pursuant to
Article IX of the Convertible Note Purchase and Exchange Agreement, this
Agreement shall immediately terminate and be of no further force or effect. If
the Subsequent Closing does occur, this Agreement shall terminate upon the
earlier of (a) with respect to a particular Stockholder, on the date that such
Stockholder and its Affiliates beneficially own less than 5% of the actual
outstanding shares of Common Stock (assuming conversion of the shares of Series
D Preferred Stock and Series E Preferred Stock) or (b) the twentieth anniversary
of the date hereof.
5.12 Further Assurances. Each of the parties shall, and shall cause their
respective Affiliates to, execute such documents and perform such further acts
as may be reasonably required or desirable to carry out or to perform the
provisions of this Agreement.
[the remainder of this page intentionally left blank]
10
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amended and Restated Stockholders Agreement on the date first
written above.
CRITICAL PATH, INC.
By: /s/ MICHAEL J. ZUKERMAN
------------------------------------
Name: Michael J. Zukerman
Title: Senior Vice President
and General Counsel
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
GENERAL ATLANTIC PARTNERS 74, L.P.
By: GENERAL ATLANTIC PARTNERS, LLC,
its General Partner
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP COINVESTMENT PARTNERS II, L.P.
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A General Partner
GAPSTAR, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Managing Member
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAP-W, LLC
By: GENERAL ATLANTIC PARTNERS, LLC,
its Manager
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Member
GAPCO GMBH & CO. KG
By: GAPCO MANAGEMENT GMBH,
its General Partner
By: /s/ MATTHEW NIMETZ
------------------------------------
Name: Matthew Nimetz
Title: A Managing Director
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
VECTIS CP HOLDINGS, LLC,
a Delaware limited liability company
By: VECTIS GROUP, LLC,
its Managing Member
By: /s/ MATTHEW T. HOBART
------------------------------------
Name: Matthew T. Hobart
Title: Managing Director
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
CENWELL LIMITED
By: /s/ IP TAK CHUEN, EDMOND
----------------------------------
Name: Ip Tak Chuen, Edmond
Title: Authorised Person
CAMPINA ENTERPRISES LIMITED
By: /s/ IP TAK CHUEN, EDMOND
------------------------------------
Name: Ip Tak Chuen, Edmond
Title: Director
GREAT AFFLUENT LIMITED
By: /s/ IP TAK CHUEN, EDMOND
------------------------------------
Name: Ip Tak Chuen, Edmond
Title: Director
DRAGONFIELD LIMITED
By: /s/ PAU YEE WAN, EZRA
------------------------------------
Name: Pau Yee Wan, Ezra
Title: Authorized Person
LION COSMOS LIMITED
By: /s/ PAU YEE WAN, EZRA
------------------------------------
Name: Pau Yee Wan, Ezra
Title: Director
SIGNATURE PAGE TO AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
APPENDIX H
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.
--------------------------
DATED: JANUARY 16, 2004
--------------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I DEFINITIONS...................................... 1
1.1 Definitions......................................... 1
ARTICLE II PURCHASE AND SALE OF NOTES; CONVERSION;
EXCHANGE.................................................... 7
2.1 Purchase and Sale of Notes.......................... 7
2.2 Filings............................................. 7
2.3 Certificate of Determination........................ 7
2.4 Closings; Deliveries................................ 7
2.5 Issuances of Common Shares.......................... 8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY..................................................... 9
3.1 Corporate Existence and Power....................... 9
3.2 Authorization; No Contravention..................... 9
3.3 Governmental Authorization; Third Party Consents.... 9
3.4 Binding Effect...................................... 9
3.5 Litigation.......................................... 10
3.6 Compliance with Laws................................ 10
3.7 Capitalization...................................... 10
3.8 No Default or Breach; Contractual Obligations....... 11
3.9 Title to Properties................................. 11
3.10 Reports; Financial Statements....................... 11
3.11 Taxes............................................... 12
3.12 No Material Adverse Change; Ordinary Course of
Business............................................... 12
3.13 Private Offering.................................... 12
3.14 Labor Relations..................................... 13
3.15 Employee Benefit Plans.............................. 13
3.16 Liabilities......................................... 13
3.17 Affiliate Transactions.............................. 14
3.18 Intellectual Property............................... 14
3.19 Privacy of Customer Information..................... 15
3.20 Potential Conflicts of Interest..................... 15
3.21 Trade Relations..................................... 15
3.22 Outstanding Borrowing............................... 15
3.23 Broker's, Finder's or Similar Fees.................. 15
3.24 Stockholder Approval................................ 16
3.25 CCC Section......................................... 16
3.26 Disclosure.......................................... 16
3.27 Investments......................................... 16
3.28 Sarbanes-Oxley Compliance........................... 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDERS... 17
4.1 Existence and Power................................... 17
4.2 Authorization; No Contravention....................... 17
4.3 Governmental Authorization; Third Party Consents...... 17
4.4 Binding Effect........................................ 17
</Table>
i
<Table>
<Caption>
PAGE
----
4.5 Purchase for Own Account............................ 18
4.6 Restricted Securities............................... 18
4.7 Accredited Investor................................. 18
4.8 Experience.......................................... 18
4.9 Access to Information............................... 18
4.10 General Solicitation................................ 19
4.11 Reliance............................................ 19
4.12 Qualified Institutional Buyer....................... 19
4.13 Affiliate Status.................................... 19
4.14 Capital Stock Ownership............................. 19
ARTICLE V CONDITIONS TO INITIAL CLOSING.................... 19
5.1 Conditions to Lenders' Obligations.................. 19
5.2 Conditions to Company's Obligations................. 20
ARTICLE VI CONDITIONS TO SUBSEQUENT CLOSING................ 20
6.1 Conditions to Lenders' Obligations.................. 20
6.2 Conditions to the Company's Obligations............. 20
ARTICLE VII INDEMNIFICATION................................ 21
7.1 Indemnification..................................... 21
7.2 Notification........................................ 21
7.3 Contribution........................................ 22
ARTICLE VIII COVENANTS..................................... 22
8.1 Financial Statements and Other Information.......... 22
8.2 FIRPTA Certificate.................................. 23
8.3 Reservation of Common Stock......................... 23
8.4 Stockholder Approval................................ 23
8.5 Financial Covenants................................. 23
8.6 Purchases and Sales................................. 23
ARTICLE IX TERMINATION..................................... 24
9.1 Termination......................................... 24
ARTICLE X MISCELLANEOUS.................................... 24
10.1 Survival of Representations and Warranties......... 24
10.2 Notices............................................ 24
10.3 Successors and Assigns; Third Party
Beneficiaries.......................................... 25
10.4 Amendment and Waiver............................... 25
10.5 Counterparts....................................... 26
10.6 Headings........................................... 26
10.7 Governing Law...................................... 26
10.8 Severability....................................... 26
10.9 Rules of Construction.............................. 26
10.10 Entire Agreement................................... 26
10.11 Fees............................................... 26
</Table>
ii
<Table>
<Caption>
PAGE
----
10.12 Publicity; Confidentiality......................... 26
10.13 Further Assurances................................. 27
</Table>
<Table>
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
</Table>
iii
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.
"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 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.
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"Intellectual Property" has the meaning set forth in Section 3.18 of
this Agreement.
"Internet Assets" means any Internet domain names and other computer
user identifiers and any rights in and to sites on the worldwide web,
including rights in and to any text, graphics, audio and video files and
html or other code incorporated in such sites.
"Investment" means (i) the acquisition (whether for cash, property,
services, assumption of Indebtedness, securities or otherwise) of assets
(other than equipment, inventory, supplies or other assets acquired in the
ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or
other securities of any Person, (ii) any deposit with, or advance, loan or
other extension of credit to, or on behalf of, any Person (other than
deposits made in connection with the purchase of equipment, inventory,
services, leases, supplies or other assets in the ordinary course of
business of the Company), (iii) any other capital contribution to or
investment in such Person, including, without limitation, any guaranty
obligation incurred for the benefit of such Person. For the sake of
clarity, Investments shall include any transfer of property or assets by
the Company to any of its Subsidiaries or by any Subsidiary of the Company
to any other Subsidiary.
"IP Agreements" has the meaning set forth in Section 3.18(a)(iii) of
this Agreement.
"Issuable Shares" has the meaning set forth in Section 2.1(a) of this
Agreement.
"Knowledge" means the knowledge of the Company and Paul Bartlett,
Tracy Currie, Matthew Hobart, William E. 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, (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-
4
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 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.
5
"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.
"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
Agreement, the Subordination Agreement, the Amendment to the Preferred
Stock Rights Agreement and the Waivers.
6
"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.
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.
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(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.
(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.
8
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:
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 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
9
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.
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.
10
(b) Upon the Initial Closing Date, the Notes shall be duly authorized, and
assuming the accuracy of the representations and warranties of the Lenders set
forth in Article IV of this Agreement, will be issued in compliance with the
registration and qualification requirements of all applicable federal, state and
foreign securities laws and will be free and clear of all other Liens.
(c) Upon the Subsequent Closing Date, the 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.
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
11
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
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.
12
3.14 Labor Relations. Except as could not reasonably be expected to have
a material adverse effect on the Condition of the Company: (a) neither the
Company nor any of its Subsidiaries is engaged in any unfair labor practice; (b)
there is no strike, labor dispute, slowdown or stoppage pending or, to the
Knowledge of the Company, threatened against the Company or any of its
Subsidiaries; (c) neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or contract; and (d) no union organizing
activities are taking place. To the Knowledge of the Company, no officer or key
employee, or any group of key employees, intends to terminate their employment
with the Company or any of its Subsidiaries. To the Knowledge of the Company,
each of the officers and key employees of the Company and each of its
Subsidiaries spends all, or substantially all, of his business time on the
business of the Company or its Subsidiary, as the case may be. To the Knowledge
of the Company, none of the employees of the Company or any of its Subsidiaries
is resident in the United States in violation of any Requirement of Law.
3.15 Employee Benefit Plans.
(a) The SEC Reports list or describe each Plan that the Company or any of
its Subsidiaries maintains or to which the Company or any of its Subsidiaries
contributes (the "Company Plans"). Neither the Company nor any of its
Subsidiaries has any liability under any Plans other than the Company Plans.
Except as described in or incorporated by reference in the SEC Reports, neither
the Company nor any Commonly Controlled Entity maintains or contributes to, or
has within the preceding six years maintained or contributed to, or may have any
liability with respect to any Plan subject to Title IV of ERISA or Section 412
of the Code or any "multiple employer plan" within the meaning of the Code or
ERISA. Each Company Plan (and related trust, insurance contract or fund) has
been established and administered in accordance with its terms, and complies in
form and in operation with the applicable requirements of ERISA and the Code and
other applicable Requirements of Law. All contributions (including all employer
contributions and employee salary reduction contributions) which are due have
been paid to each Company Plan.
(b) No Claim with respect to the administration or the investment of the
assets of any Company Plan (other than routine claims for benefits) is pending.
(c) Except as could not reasonably be expected to have a material adverse
effect on the Condition of the Company, each Company Plan that is intended to be
qualified under Section 401(a) of the Code is so qualified and has been so
qualified during the period since its adoption; each trust created under any
such Plan is exempt from tax under Section 501(a) of the Code and has been so
exempt since its creation.
(d) No Company Plan is a Retiree Welfare Plan.
(e) Neither the consummation of the transactions contemplated by this
Agreement nor any termination of employment following such transactions will
accelerate the time of the payment or vesting of, or increase the amount of,
compensation due to any employee or former employee whether or not such payment
would constitute an "excess parachute payment" under Section 280G of the Code.
(f) There are no unfunded obligations under any Company Plan which are not
fully reflected in the Financial Statements.
(g) Except as could not reasonably be expected to have a material adverse
effect on the Condition of the Company, the Company has no liability, whether
absolute or contingent, including any obligations under any Company Plan, with
respect to any misclassification of any person as an independent contractor
rather than as an employee.
3.16 Liabilities. Neither the Company nor any of its Subsidiaries has any
direct or indirect obligation or liability (the "Liabilities") which are not
fully reflected or reserved against in the Financial Statements, other than
Liabilities not exceeding $1,000,000 in the aggregate incurred since September
30, 2003 in the ordinary course of business. The Company has no Knowledge of any
circumstance, condition, event or arrangement that could reasonably be expected
to give rise hereafter to any Liabilities of the
13
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).
(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.
14
(d) To the Knowledge of the Company, none of the Trade Secrets, wherever
located, the value of which is contingent upon maintenance of confidentiality
thereof, has been disclosed to any Person other than employees, representatives
and agents of the Company or any of its Subsidiaries, except as required
pursuant to the filing of a patent application by the Company or any of its
Subsidiaries.
(e) It is not necessary for the business of the Company or any of its
Subsidiaries to use any Intellectual Property owned by any director, officer,
employee or consultant of the Company or any of its Subsidiaries (or persons the
Company or any of its Subsidiaries presently intends to hire). To the Company's
Knowledge, at no time during the conception or reduction to practice of any of
the Intellectual Property of the Company or any of its Subsidiaries was any
developer, inventor or other contributor to such Intellectual Property operating
under any grants from any Governmental Authority or subject to any employment
agreement, invention assignment, nondisclosure agreement or other Contractual
Obligation with any Person that could materially adversely affect the rights of
the Company or any of its Subsidiaries to its Intellectual Property.
3.19 Privacy of Customer Information. Neither the Company nor any of its
Subsidiaries use any of the customer information it receives through its website
or otherwise in an unlawful manner, or in a manner violative of the privacy
policy of the Company or its Subsidiary, as the case may be, or the privacy
rights of its customers. Neither the Company nor any of its Subsidiaries has
collected any customer information through its website in an unlawful manner or
in violation of its privacy policy. The Company and each of its Subsidiaries has
adequate security measures in place to protect the customer information it
receives through its website and which it stores in its computer systems from
illegal use by third parties or use by third parties in a manner violative of
the rights of privacy of its customers. The Company and each of its Subsidiaries
represents to its customers that it assures complete security as to the customer
information it receives through its website.
3.20 Potential Conflicts of Interest. Except as set forth on Schedule
3.20 no officer, director or stockholder beneficially owning more than five
percent (5%) of the outstanding shares of Common Stock, to the Knowledge of the
Company, no spouse of any such officer, director or stockholder, and, to the
Knowledge of the Company, no Affiliate of any of the foregoing (a) owns,
directly or indirectly, any interest in (excepting less than one percent (1%)
stock holdings for investment purposes in securities of publicly held and traded
companies), or is an officer, director, employee or consultant of, any Person
which is, or is engaged in business as, a competitor, lessor, lessee, supplier,
distributor, or customer of, or lender to or borrower from, the Company or any
of its Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property that the Company or any of its Subsidiaries use,
in the conduct of business; or (c) has any cause of action or other claim
whatsoever against, or 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,
15
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 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 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
16
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.
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,
17
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:
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.
18
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.
(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.
19
(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.
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.
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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 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 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
21
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 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
22
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.
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
23
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 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.
24
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 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.
25
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 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.
26
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.
[the remainder of this page intentionally left blank]
27
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
CRITERION CAPITAL PARTNERS, LTD.
By: Derivatives Portfolio Management,
an authorized signatory
By: /s/ GUY J. CASTRANOVA
------------------------------------
Name: Guy J. Castranova
Title: Chief Operating Officer
CRITERION CAPITAL PARTNERS,
INSTITUTIONAL
By: Criterion Capital Partners, LLC,
an authorized signatory
By: /s/ R. DANIEL BECKHAM
------------------------------------
Name: R. Daniel Beckham
Title: Chief Operating Officer
CRITERION CAPITAL PARTNERS, L.P.
By: Criterion Capital Partners, LLC,
an authorized signatory
By: /s/ R. DANIEL BECKHAM
------------------------------------
Name: R. Daniel Beckham
Title: Chief Operating Officer
SIGNATURE PAGE TO THIRD AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
AMENDMENT NO. 1 TO
CONVERTIBLE NOTE PURCHASE AGREEMENT
AMENDMENT NO. 1, dated March 9, 2004 (this "Amendment"), among Critical
Path, Inc., a California corporation (the "Company"), 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 with the Company, the "Parties"),
WITNESSETH:
WHEREAS, the Parties are each a party to that certain Convertible Note
Purchase Agreement, dated January 16, 2004 (the "January 2004 Note Purchase
Agreement"); and
WHEREAS, the Company desires to enter into a Convertible Note Purchase
Agreement, pursuant to which the Company proposes to issue and sell to Permal
U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional
Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim
Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Criterion Capital
Partners, Ltd., Criterion Capital Partners, Institutional, Criterion Capital
Partners, L.P. and Capital Ventures International convertible notes having an
aggregate principal amount of $18.5 million which notes will be convertible,
subject to Stockholder Approval, into shares of Series E Redeemable Convertible
Preferred Stock of the Company, par value $0.001 per share (the "March 2004 Note
Purchase Agreement"); and
WHEREAS, in connection with the execution of the March 2004 Note Purchase
Agreement, the Parties desire to amend the January 2004 Note Purchase Agreement
as set forth herein; and
WHEREAS, capitalized terms used in this Amendment and not defined herein
shall have the meanings ascribed to such terms in the January 2004 Note Purchase
Agreement:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, for the covenants and agreements set forth in the January 2004
Note Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the Parties hereby agree as follows:
1.1 Amendments to the January 2004 Note Purchase Agreement. The
January 2004 Note Purchase Agreement shall be amended as set forth below:
(a) Section 1.1 of the January 2004 Note Purchase Agreement shall
be amended to add the following:
"March 2004 Note Purchase Agreement" means that certain
Convertible Note Purchase Agreement, dated March 9, 2004, among
Permal U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis Partners,
L.P., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV,
L.P., Criterion Capital Partners, Ltd., Criterion Capital Partners,
Institutional, Criterion Capital Partners, L.P., Capital Ventures
International and Critical Path, Inc., a California corporation (the
"Company"), pursuant to which the Company shall issue and sell
convertible notes in an aggregate principal amount of up to $18.5
million, which notes shall be convertible into Series E Preferred
Stock, subject to Stockholder Approval and concurrently with the
Conversion, or Common Stock, in each case in accordance with such
agreement."
"Subsequent Lenders" means the Lenders as defined in the March
2004 Note Purchase Agreement."
(b) The third sentence of Section 2.1(a) of the January 2004 Note
Purchase Agreement shall be deleted and replaced with the following:
"If the Conversion has not occurred on or before August 15,
2004, the Notes shall thereafter be convertible at the option of each
Lender only 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")."
(c) Section 2.4(e) of the January 2004 Note Purchase Agreement is
hereby deleted and amended and restated in its entirety to read as
follows:
"(e) Subsequent Closing. The consummation of the Conversion
(the "Subsequent Closing") shall take place concurrently with the
Subsequent Closing under the Convertible Note Agreement and the
Subsequent Closing under the March 2004 Note Purchase Agreement, as
soon as practicable following the satisfaction of the closing
conditions set forth in Article VI of this Agreement, Article VI of
the Convertible Note Agreement and Article VI of the March 2004 Note
Purchase 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, the CK Purchasers and the Subsequent
Lenders may mutually agree. At the Subsequent Closing, signature
pages transmitted by facsimile will be acceptable, with originals to
follow as soon as practicable thereafter."
(d) In the first sentence of Section 2.5 of the January 2004 Note
Purchase Agreement, the words "April 30" shall be deleted and replaced
with the words "August 15".
(e) Section 8.6 of the January 2004 Note Purchase Agreement shall
be deleted and replaced with the following:
"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 at least three 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. Except as set forth in this Agreement, the Company covenants
and agrees that neither it nor any other Person acting on its behalf
will provide any Lender or its agents or counsel with any information
that the Company believes constitutes Material Non-Public
Information, unless prior thereto such Lender shall have executed a
written agreement regarding the confidentiality and use of such
information. The Company understands and confirms that each Lender
shall be relying on the foregoing representations in effecting
transactions in securities of the Company."
(f) Article VIII of the January 2004 Note Purchase Agreement shall
be amended to add a new Section 8.7 which shall read as follows:
"8.7 Proxy Matters. Notwithstanding anything herein to the
contrary, but subject to the provisions of Section 9.1 of this
Agreement, if the Registration Statement (as defined in the
Convertible Note Agreement) has not been declared effective by the
Commission on or prior to May 15, 2004, subject to approval by the
Board of Directors, the Company will promptly take all such actions
as may be necessary to withdraw the Registration Statement, and the
Company shall continue to have an obligation under Section 8.4 of
this Agreement to seek Stockholder Approval. If the Company withdraws
the Registration Statement
2
pursuant to this Section 8.7 and receives Stockholder Approval, the
Company may, subject to approval by the Board of Directors, file a
subsequent registration statement with the Commission and provide the
Company's shareholders the opportunity to participate in a subsequent
rights offering."
(g) In the first sentence of Section 9.1 of the January 2004 Note
Purchase Agreement, the words "April 30" shall be deleted and replaced
with the words "August 15".
1.2 Amendments to Schedules to the January 2004 Note Purchase
Agreement. Schedule 8.5 of the January 2004 Note Purchase Agreement is
hereby deleted and amended and restated to read in its entirety in the form
set forth as Annex 1 attached hereto.
1.3 Counterparts. This Amendment may be executed in any number of
counterparts and by the Parties 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. Signature pages
transmitted by facsimile will be acceptable, with originals to immediately
follow.
1.4 Continuing Agreement. Except as specifically amended hereby, all
of the terms of the January 2004 Note Purchase Agreement shall remain and
continue in full force and effect and are hereby confirmed in all respects.
1.5 Headings. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
1.6 Governing Law. This Amendment 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.
1.7 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.
1.8 Entire Agreement. This Amendment, together with the January 2004
Note Purchase Agreement and the exhibits and schedules thereto, 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 Amendment and
the January 2004 Note Purchase Agreement, together with the exhibits and
schedules thereto, and the other Transaction Documents, supersede all prior
agreements and understandings between the parties with respect to such
subject matter.
[the remainder of this page intentionally left blank]
3
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amendment 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, Chief Executive
Officer
SIGNATURE PAGE TO AMENDMENT NO. 1 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
SIGNATURE PAGE TO AMENDMENT NO. 1 TO CONVERTIBLE NOTE PURCHASE AGREEMENT
PASSPORT MASTER FUND
By: /s/ JOHN BURBANK
----------------------------------
Name: John Burbank
Title: Managing Partner
SIGNATURE PAGE TO AMENDMENT NO. 1 TO CONVERTIBLE NOTE PURCHASE AGREEMENT
APPENDIX I
FORM OF NOTE
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE
IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND
MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL
APPLICABLE STATE SECURITIES LAWS.
CRITICAL PATH, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$
San Francisco, California
January , 2004
Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of , or its registered
assigns ("Holder"), the sum of dollars ($ ), or such lesser amount
as shall then equal the outstanding principal amount hereof on the terms and
conditions set forth hereinafter. The outstanding principal amount hereof and
all accrued and unpaid interest hereon, as set forth below, shall be due and
payable on the earlier to occur of (i) January , 2008, (ii) when declared due
and payable by Holder upon the occurrence of an Event of Default (as defined
below), (iii) consummation of a Qualified Asset Sale, (iv) a Change of Control,
or (v) any sale of capital stock or Stock Equivalents by the Company, any cash
capital contribution from any third person or any other debt or equity financing
consummated by the Company after the date of issuance of this Note which, in the
case of (v), individually or in the aggregate raises proceeds of at least forty
million dollars ($40,000,000) in cash or cash equivalents (the earliest of the
events set forth in items (i)-(v) immediately above, the "Maturity Date").
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. Except as otherwise defined herein, each capitalized term
used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following meanings:
1.1 "Affiliate" means any Person who is an "affiliate" as defined in
Rule 12b-2 of the General Rules and Regulations of the Securities Exchange
Act of 1934, as amended.
1.2 "Capitalized Lease Obligations" means, with respect to any Person,
all rental obligations of such Person which, under GAAP, are or will be
required to be capitalized on the books of such Person, in each case taken
at the amount thereof accounted for as indebtedness in accordance with such
principles.
1.3 "Change of Control" shall mean (i) any merger, consolidation or
other business combination transaction (or series of related transactions)
in which the stockholders owning a majority of the voting securities of the
Company prior to such transaction do not own a majority of the voting
securities of the surviving entity, (ii) any tender offer, exchange offer
or other transaction whereby any Person or "group" (as defined in Rule
13d-3 of the General Rules and Regulations of the Securities Exchange Act
of 1934, as amended) (other than General Atlantic Partners 74, L.P., GAP
Coinvestment Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co.
KG, Campina Enterprises Limited, Cenwell Limited, Great Affluent Limited,
Dragonfield Limited and Lion Cosmos Limited and the Affiliates of the
foregoing, provided that Affiliates shall be deemed not to include any
portfolio companies of any of the foregoing) obtains a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors, (iii) any proxy contest in which a majority of the Board of
Directors of the Company (or persons appointed by such Board of Directors)
prior to such contest do not constitute a majority of the Company's Board
of Directors after such contest or (iv) any other transaction described in
any stockholder rights agreement or "poison pill," if any, to which the
Company is party, which may permit the holders of any rights or similar
certificates to exercise the rights evidenced thereby.
1.4 "Company" shall have the meaning set forth in the recitals hereto,
and includes any corporation that shall succeed to or assume the
obligations of the Company under this Note.
1.5 "Common Conversion Date" shall have the meaning set forth in
Section 3.1(b) hereof.
1.6 "Common Stock" means the common stock, par value $0.001 per share,
of the Company.
1.7 "Conversion Date" shall mean the Subsequent Closing Date.
1.8 "Domestic Subsidiary" shall have the meaning set forth in Section
5.10 hereof.
1.9 "Event of Default" shall have the meaning set forth in Section 6
hereof.
1.10 "GA Notes" shall mean the Convertible Subordinated Promissory
Notes, each dated November 26, 2003, issued by the Company to the GAP
Entities pursuant to the Purchase and Exchange Agreement.
1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP
Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.
1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.
1.13 "Holder" shall mean the registered holder of this Note from time
to time, and in the plural, shall mean all registered holders of Notes from
time to time issued by the Company pursuant to the Note Purchase Agreement.
1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement,
dated the date hereof, among the GAP Entities, 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.
1.15 "Interest Amount" shall have the meaning set forth in Section 3.1
hereof.
1.16 "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), and (iii) any other capital contribution to or
investment in any Person, including, without limitation, any guaranty
obligation incurred for the benefit of any Person. For the sake of clarity,
Investments shall include any transfer of property or assets by the Company
to any of its Subsidiaries or by any Subsidiary of the Company to any other
Subsidiary.
1.17 "Loan Documents" shall have the meaning set forth in the Security
Agreement.
2
1.18 "Note" shall mean this note, and in the plural, shall mean all
notes issued to the Lenders pursuant to the terms of the Note Purchase
Agreement, including this Note, and all amendments, modifications and
extensions thereto.
1.19 "Note Purchase Agreement" means that certain Convertible Note
Purchase Agreement, dated January , 2004, among the Company, the Holder
and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.
1.20 "Permitted Investments" means (i) Investments in cash or cash
equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the closing date, and
listed on Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty
obligations permitted by Section 5.3 of this Agreement, (v) loans to
employees, directors or officers of the Company in connection with the
award of convertible bonds or capital stock under a stock incentive plan,
stock option plan or other equity-based compensation plan or arrangement,
(vi) other advances or loans to employees, directors, officers or agents of
the Company in the ordinary course of business not to exceed $500,000 in
the aggregate at any time outstanding; (vii) loans, advances and
investments in foreign Subsidiaries (that are not incorporated or otherwise
organized under the laws of the United States of America or any state
thereof) in an amount not to exceed $1,000,000 in the aggregate at any time
outstanding; (viii) any acquisition for which the prior written consent of
the Holders of a majority of the outstanding principal amount of all of the
Notes issued by the Company pursuant to the Note Purchase Agreement has
been obtained, (ix) other loans, advances and investments of a nature not
contemplated by the foregoing sections in an amount not to exceed $500,000
in the aggregate at any time outstanding or (x) Investments by the Company
in the Guarantor.
1.21 "Permitted Liens" shall have the meaning set forth in Section
5.4.
1.22 "Person" means any individual, firm, corporation, partnership,
trust, joint venture, joint stock company, limited liability company,
Governmental Authority or other entity of any kind, and shall include any
successor (by merger or otherwise) of such entity.
1.23 "Price Per Share" shall have the meaning attributed to such term
in the Series E Certificate of Determination, as filed with the Secretary
of State of the State of California.
1.24 "Purchase and Exchange Agreement" shall mean the Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the
Company, the GAP Entities, GAP-W, LLC and the other parties thereto, as
amended.
1.25 "Qualified Asset Sale" means the sale, transfer or other
disposition of any of the assets of the Company or any of its Subsidiaries,
other than (a) sales of assets in the ordinary course of business, (b)
sales of assets where the proceeds are used to repay Indebtedness owing to
SVB, (c) the sale, transfer or other disposition of assets of the Company
where the proceeds are applied to the purchase price or traded in for
credit against the purchase price of other assets, provided that any such
purchase is made, or credit issued, within 90 days of the sale, transfer or
other disposition, and (d) one or more sales of the Company's assets (other
than sales otherwise included in clauses (a), (b), and (c) immediately
above) which collectively yield up to an aggregate of one million dollars
($1,000,000) in gross proceeds to the Company while this Note is
outstanding.
1.26 "Restricted Payment" means (a) any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares
of any class of capital stock of the Company or any of its Subsidiaries or
(b) any payment (whether in cash, securities or other property), including
any sinking fund or similar deposit, on account of the purchase,
redemption, retirement, acquisition, cancellation or termination of any
shares of any class of capital stock of the Company or any Subsidiary or
any option, warrant or other right to acquire any such shares of capital
stock of the Company or any Subsidiary.
3
1.27 "Security Agreement" means that certain Guaranty and Security
Agreement, of even date herewith between the Company, Compass Holding
Corp., the Lenders and the other parties thereto from time to time, and all
amendments, modifications and extensions thereto.
1.28 "Series E Conversion Price" shall have the meaning set forth in
the Series E Certificate of Determination.
1.29 "Series E Preferred Stock" means the Series E Preferred Stock,
par value $0.001, of the Company.
1.30 "Subordination Agreement" shall have the meaning set forth in
Section 5.3.
1.31 "Subsequent Closing Date" shall have the meaning set forth in
Section 2.4(e) of the Note Purchase Agreement.
1.32 "SVB" means Silicon Valley Bank, a California chartered bank, or
any Affiliates thereof.
1.33 "Ten Percent Holder" means, with respect to a class of equity
securities of the Company, a Person (together with such Person's
Affiliates) who, directly or indirectly, beneficially owns 9.9% or more of
such class of equity securities of the Company, as defined by Section 13(d)
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
1.34 "UCC" shall have the meaning set forth in Section 5.4.
2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.
3. Conversion.
3.1 Conversion.
(a) On the Conversion Date, the principal amount of this Note plus the
accrued and unpaid interest thereon (the "Interest Amount"), shall be
automatically converted into the number of fully paid and nonassessable
shares of Series E Preferred Stock equal to the quotient obtained by
dividing (a) the entire principal amount of this Note plus the Interest
Amount by (b) the Price Per Share.
(b) In the event that the Conversion Date has not occurred on or prior
to April 30, 2004 (the "Common Conversion Date"), then, following the
Common Conversion Date, the principal amount of this Note plus the Interest
Amount shall be convertible, at the option of Holder and from time to time,
into Common Stock at a conversion price per share equal to $1.65, as
adjusted for any stock dividends, stock splits or similar consolidations or
subdivisions, following the date hereof; provided, however, that Holder
shall not be permitted to convert any portion of the principal of this Note
or the Interest Amount into Common Stock pursuant to this Section 3.1(b)
if, at the time of such conversion, the conversion would cause Holder to be
a Ten Percent Holder.
3.2 Notice of Conversion. Upon conversion of this Note as provided
in Section 3.1, Holder shall surrender this Note to the Company and shall
state the name or names in which the certificate or certificates for such
shares of Series E Preferred Stock or Common Stock, as the case may be, are
to be issued. The Person or Persons entitled to receive the shares of
Series E Preferred Stock or Common Stock, as the case may be, issuable upon
such conversion shall be treated for all purposes as
4
the record holder or holders (a) of such shares of Series E Preferred Stock
as of the Conversion Date and (b) of such shares of Common Stock as of the
date of any conversion pursuant to Section 3.1(b).
3.3 Delivery of Stock Certificates. Upon conversion of this Note as
provided in Section 3.1, the Company at its expense will issue and deliver
to Holder of this Note a certificate or certificates (bearing such legends
as are required by applicable state and federal securities laws in the
opinion of counsel to the Company) for the number of full shares of Series
E Preferred Stock or Common Stock, as the case may be, issuable upon such
conversion.
3.4 Mechanics and Effect of Conversion. No fractional shares of
Series E Preferred Stock or Common Stock, as the case may be, shall be
issued upon conversion of this Note. In lieu of the Company issuing any
fractional shares to Holder upon the conversion of this Note, the Company
shall pay to Holder the amount of outstanding principal and interest that
is not so converted. Upon conversion of all amounts due under this Note,
the Company shall be released from all of its obligations under this Note.
4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:
4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any
time while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is
the surviving entity but the shares of the Company's capital stock
outstanding immediately prior to the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise or (c) a sale or transfer of the Company's stock, properties or
assets as, or substantially as, an entirety to any other Person, then, as a
part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that Holder shall thereafter be entitled
to receive by converting this Note the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a holder of
the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such
reorganization, merger, consolidation, sale or transfer (notwithstanding
that the Stockholder Approval may not yet have been obtained), all subject
to further adjustment as provided in this Section 4. The foregoing
provisions of this Section 4.1 shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the
stock or securities of any other corporation. If the per share
consideration payable to Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities,
then the value of such consideration shall be determined in good faith by
the Company's Board of Directors based on the amount the Holder would have
otherwise been entitled to receive had the transaction or transactions not
occurred. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Note with respect to the rights and interests of
Holder after the transaction, to the end that the provisions of this Note
shall be applicable after that event, as near as reasonably may be, in
relation to any shares or other property deliverable after that event upon
conversion of this Note. The Company shall be obligated to retain and set
aside, or otherwise make fair provision for exercise of the right of the
Holder to receive, the shares of stock and/or other securities, cash or
other property provided for in this Section 4.1.
4.2 Election of Holder upon Merger or Sale of
Assets. Notwithstanding anything to the contrary contained herein, if an
event shall occur as provided in Section 4.1 hereof that would otherwise
result in the occurrence of the Maturity Date pursuant to clause (iii) or
(iv) of the first paragraph of this Note, then the Holder may, in its sole
discretion, by written notice to the Company elect to convert the principal
amount of this Note plus the Interest Amount into the number of shares
5
of stock or other securities or property described in Section 4.1, in lieu
of receiving payment in full of all amounts outstanding under this Note.
The number of shares of stock or other securities or property to be issued
upon such conversion shall be determined in accordance with Section 4.1
hereof, taking into account the occurrence of such event.
4.3 Reclassification, Etc. If the Company shall, at any time while
this Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities
as to which conversion rights under this Note exist into the same or a
different number of securities of any other class or classes, this Note
shall thereafter represent the right to acquire such number and kind of
securities as would have been issuable with respect to the securities that
were subject to the conversion rights under this Note immediately prior to
such reclassification or other change, and the Price Per Share shall be
appropriately adjusted, all subject to further adjustment as provided in
this Section 4.
4.4 Split, Subdivision or Combination of Shares. If the Company at
any time while this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the shares of Series E
Preferred Stock or Common Stock into a different number of securities of
the same class, the Price Per Share or conversion price, as the case may
be, shall be proportionately adjusted.
4.5 Series E Adjustments. The initial Series E Conversion Price of
the shares of Series E Preferred Stock issued upon conversion of this Note
pursuant to Section 3.1 shall equal the Series E Conversion Price in effect
on the Conversion Date, subject to the adjustment of such Series E
Conversion Price from time to time thereafter as provided in the Series E
Certificate of Determination.
4.6 Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to Holder a certificate
setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based.
4.7 No Impairment. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to
be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section
4 and in the taking of all such action as may be necessary or appropriate
in order to protect the rights of Holder against impairment.
5. Covenants. The Company covenants and agrees that until the earlier of
(i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):
5.1 Financial Statements and Other Information. The Company shall
deliver to the Holder of this Note the financial statements and other
information required to be delivered under Section 8.1 of the Note Purchase
Agreement.
5.2 Financial Covenants. The Company shall at all times comply with
the financial and other covenants set forth in Schedule 8.5 to the Note
Purchase Agreement as if such covenants were set forth herein.
5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:
(a) Indebtedness in favor of the Holders under the Loan Documents;
(b) Indebtedness existing on the date hereof, as set forth on
Schedule 3.22 to the Note Purchase Agreement;
6
(c) Indebtedness for accounts payable incurred in the ordinary
course of business by the Company;
(d) Indebtedness incurred solely for the purpose of financing the
acquisition of any equipment, machinery, software, improvements or any
other similar property, or extensions, renewals or replacements of any
of the foregoing for the same or a lesser amount; provided, that the
aggregate outstanding principal amount of all Indebtedness permitted
pursuant to this clause (d) outstanding for more than sixty (60) days
after the incurrence of such Indebtedness shall not at any time exceed
$500,000;
(e) Indebtedness of the Company evidenced by Capitalized Lease
Obligations, provided, that in no event shall the aggregate principal
amount of Capitalized Lease Obligations permitted by this clause (e)
exceed $500,000 at any time outstanding; and
(f) Any extension, renewal, refinancing, refunding, or replacement
(each, a "refinancing") of Indebtedness permitted by clauses (b) and (e)
above, on such terms and conditions as are, on the whole, not materially
more onerous to the Company than the terms and conditions of such
original Indebtedness on the date of such refinancing (including that
the principal amount of such refinancing Indebtedness does not exceed
the principal amount of, plus the amount of accrued and unpaid interest
on, the Indebtedness so refinanced (plus the amount of reasonable
premium and fees and expenses incurred in connection therewith)),
provided that, in the case of a refinancing of Indebtedness owed by the
Company or any Subsidiary to SVB, this clause (f) shall only apply to
the extent consistent with the Subordination Agreement, dated as of the
date hereof, by and among SVB, the Holders and the Company (the
"Subordination Agreement").
5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or
with respect to any property or assets (real or personal, tangible or
intangible) of the Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such
property or assets (including sales of accounts receivable), or assign any
right to receive income or permit the filing of any financing statement
under the Uniform Commercial Code, as from time to time in effect in the
relevant jurisdiction (the "UCC"), or any other similar notice of Lien
under any similar recording or notice statute; provided, that the
provisions of this Section 5.4 shall not prevent the creation, incurrence,
assumption or existence of the following:
(a) Liens arising in the ordinary course of business by statute in
connection with worker's compensation, unemployment insurance, old age
benefits, social security obligations, statutory obligations or other
similar charges (other then Liens arising under ERISA), good faith cash
deposits in connection with tenders, contracts or leases to which the
Company or any Subsidiary is a party or other cash deposits required to
be made in the ordinary course of business, provided, that such Liens do
not have a material adverse effect on the ability of the Company to
repay amounts due under the Notes;
(b) inchoate Liens for taxes, assessments or governmental charges
or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate
proceedings for which adequate reserves have been established in
accordance with GAAP;
(c) Liens in respect of property or assets of the Company or its
Subsidiaries imposed by law, which were incurred in the ordinary course
of business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's, materialmen's and mechanics' liens and other
similar Liens arising in the ordinary course of business, and (i) which
do not in the aggregate materially detract from the value of the
Company's and its Subsidiaries' property or assets taken as a whole or
result in a material adverse effect on the Condition of the Company or
7
(ii) which are being contested in good faith by appropriate proceedings,
which proceedings have the effect of preventing the forfeiture or sale
of the property or assets subject to any such Lien;
(d) the pledge of assets for the purpose of securing an appeal,
stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Company and its Subsidiaries
secured by a pledge of assets permitted under this subsection, including
interest and penalties thereon, if any, shall not be in excess of
$500,000 at any one time outstanding;
(e) any interest or title of a lessor under any operating lease;
(f) easements, rights-of-way, restrictions and other similar
encumbrances against real property incurred in the ordinary course of
business;
(g) the Liens existing on the date hereof identified on Schedule
3.22 to the Note Purchase Agreement;
(h) Liens on cash deposited with account debtors to secure
performance by the Company or any Subsidiary in the ordinary course of
business subject to customary and reasonable terms;
(i) Liens upon assets of the Company or its Subsidiaries subject to
Capitalized Lease Obligations, provided, that (A) such Liens only serve
to secure the payment of Indebtedness permitted by Section 5.3(e)
arising under such Capitalized Lease Obligation and (B) the Lien
encumbering the asset giving rise to the Capitalized Lease Obligation
does not encumber any other asset of the Company or its Subsidiaries;
(j) Liens placed upon equipment, machinery, software, improvements
or any other similar property, used in the ordinary course of business
of the Company or any of its Subsidiaries at the time of the acquisition
thereof by the Company or any of its Subsidiaries or within ninety (90)
days thereafter to secure Indebtedness permitted by Section 5.3(d)
above; provided, that the Liens encumbering the equipment, machinery
software, improvements or any other similar property so acquired do not
encumber any other asset of the Company or its Subsidiaries;
(k) set-off rights of depository institutions; and
(l) Liens created by the Security Agreement (collectively with
clauses (a) through (k) hereof, the "Permitted Liens").
5.5 Fundamental Changes. The Company will not, and will not permit
any Subsidiary to, merge into or consolidate with any other Person, or
permit any other Person to merge into or consolidate with it, or sell,
transfer, lease or otherwise dispose of (in one transaction or a series of
transactions) all or substantially all of its assets, or all or
substantially all of the stock of any of its Subsidiaries (in each case,
whether now owned or hereafter acquired), or liquidate or dissolve, except
that, if at the time and immediately after giving effect thereto no Event
of Default shall have occurred and be continuing (i) the Company or any of
its Subsidiaries may, with the prior written consent of the Holders, merge
with or into any other Person; (ii) any wholly-owned Subsidiary of the
Company (other than the Guarantor) may merge with or into the Company or
any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary
(other than the Guarantor, and except as otherwise prohibited by this Note)
may sell, transfer, lease or otherwise dispose of its assets to the Company
or to another wholly-owned Subsidiary of the Company; and (iv) any
Subsidiary may liquidate or dissolve if the board of directors of the
Company determine in good faith that such liquidation or dissolution is in
its best interests and is not disadvantageous to the Holders.
5.6 Restricted Payments. The Company will not, and the Company will
not permit any Subsidiary to, declare or make, or agree to pay or make,
directly or indirectly, any Restricted Payment, except that (i) any
Subsidiary may make a Restricted Payment to the Company or any of its
wholly-owned Subsidiaries, and (ii) the Company or any of its Subsidiaries
may make any
8
Restricted Payment required by the terms of the Note Purchase Agreement and
the other documents executed in connection therewith.
5.7 Transactions with Affiliates. The Company will not, and the
Company will not permit any Subsidiary to, sell, lease or otherwise
transfer any property or assets to, or purchase lease or otherwise acquire
any property or assets from, or otherwise engage in any other transactions
with, any of its Affiliates, except (a) transactions that are at prices and
on terms and conditions not less favorable to the Company or such
Subsidiary than could be obtained on an arm's length basis from unrelated
third parties, (b) transactions exclusively between the Company and the
Guarantor and (c) transactions under the agreements listed on Schedule 3.17
to the Note Purchase Agreement.
5.8 Investments. The Company will not, and the Company will not
permit any Domestic Subsidiary (as hereinafter defined) to, make an
Investment in any Person, except for Permitted Investments.
5.9 Nature of Business. The Company will not, and the Company will
not permit any Subsidiary to, engage in any business other than that
conducted on the date hereof and any businesses reasonably related thereto.
5.10 Property of Existing Domestic Subsidiaries. The Company will
not permit, or suffer to allow, any Subsidiary that is incorporated or
otherwise organized under the laws of the United States of America or any
state thereof (a "Domestic Subsidiary"), excluding the Guarantor, to (i)
own, hold, lease, license, purchase or otherwise acquire any personal or
real property (excluding any material intellectual property) in excess of
$50,000 for all property held by such Subsidiary, or $250,000 in the
aggregate for all property held by all Domestic Subsidiaries (ii) maintain
any deposit account in its name, (iii) own or otherwise hold any rights to
any material intellectual property or (iv) otherwise conduct any business
or maintain operations.
5.11 Formation of Subsidiaries. The Company will not, and will not
cause or permit any of its Subsidiaries to, form, acquire or permit the
existence of any new domestic Subsidiary, without causing such domestic
Subsidiary to execute and deliver to the Holders a secured guaranty of the
Notes and related security document, in form and substance satisfactory to
the Holders.
5.12 Books and Records. The Company shall keep proper books of
record and account, in which full and correct entries shall be made of all
financial transactions and the assets and business of the Company and its
Subsidiaries in accordance with GAAP consistently applied.
5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect
any of its properties, to examine its corporate, financial and operating
records and make copies thereof or abstracts therefrom, and to discuss its
affairs, finances and accounts with their respective directors, officers
and independent public accountants, all at such reasonable times during
normal business hours and as often as may be reasonably requested upon
notice to the Company.
5.14 Maintenance of Business. The Company shall, and shall cause
each Subsidiary to, preserve and maintain its existence. The Company shall,
and shall cause each Subsidiary to, preserve and keep in force and effect
all licenses, permits, franchises, approvals, patents, trademarks, trade
names, trade styles, copyrights, and other property rights necessary to the
proper conduct of its business, except where the failure to do so could not
reasonably be expected to have a material adverse effect on the Condition
of the Company or on the prospects of repayment of the Notes.
5.15 Maintenance of Properties. The Company shall, and shall cause
each Subsidiary to, maintain, preserve and keep its property and equipment
in good repair, working order and condition (ordinary wear and tear
excepted) and shall from time to time make all needful and proper repairs,
renewals, replacements, additions and betterments thereto so that at all
times the efficiency thereof shall by fully preserved and maintained,
except in each case to the extent that, in the reasonable
9
business judgment of such Person, any such property or equipment is no
longer necessary for the proper conduct of the business of such Person.
6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":
6.1 Failure To Pay. (i) The failure of the Company to pay any
principal due under any of the Notes when due and payable (whether by
acceleration, declaration, extension or otherwise), or (ii) the failure of
the Company to pay any other amounts due under any of the Notes when due
and payable if such failure is not cured within five (5) days of Company's
receipt of notice thereof from any of the Holders.
6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial
Covenants set forth on Schedule 8.5 to the Note Purchase Agreement, and
incorporated by reference in this Note in Section 5.2.
6.3 Other Covenants and Agreements. The failure of Company or any of
its Subsidiaries to perform, observe or comply with any of the covenants of
this Note, the Security Agreement or any of the other Loan Documents (other
than the Financial Covenants set forth on Schedule 8.5 to the Note Purchase
Agreement, and incorporated by reference in this Note in Section 5.2), if
such failure is not cured within sixty (60) days.
6.4 Representations and Warranties. If any representation or
warranty made by the Company or any of its Subsidiaries in the Loan
Documents is not true and correct in all material respects on the Initial
Closing Date.
6.5 Default on Other Obligations. The occurrence of any condition or
default under any other indebtedness for borrowed money of the Company or
any of its Subsidiaries with a principal amount of at least five hundred
thousand dollars ($500,000) that results in the acceleration of such
indebtedness which is not cured within sixty (60) days.
6.6 Involuntary Bankruptcy. There shall be filed against the Company
or any of its Subsidiaries an involuntary petition or other pleading
seeking the entry of a decree or order for relief under the United States
Bankruptcy Code or any similar federal or state insolvency or similar laws
ordering: (a) the liquidation of the Company or any of its Subsidiaries or
(b) a reorganization of the Company or any of its Subsidiaries or the
business and affairs of the Company or any of its Subsidiaries or (c) the
appointment of a receiver, liquidator, assignee, custodian, trustee or
similar official for the Company or any of its Subsidiaries of the property
of the Company or any of its Subsidiaries.
6.7 Voluntary Bankruptcy. The commencement by the Company or any of
its Subsidiaries of a voluntary case under the federal bankruptcy laws or
any federal or state insolvency or similar laws or the consent by the
Company or any of its Subsidiaries to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
similar official for the Company or any of its Subsidiaries of any of the
property of the Company or any of its Subsidiaries or the making by the
Company or any of its Subsidiaries of an assignment for the benefit of
creditors, or the failure by Company or any of its Subsidiaries generally
to pay its debts as the debts become due.
6.8 Judgments, Awards. Any judgment or order for the payment of
money is rendered against the Company or any of its Subsidiaries in an
amount in excess of five hundred thousand dollars ($500,000) individually
or in the aggregate and either (i) enforcement proceedings are commenced by
any creditor upon such judgment or order and not stayed, or (ii) there is
any period of sixty (60) consecutive days during which such judgment has
not been paid in full or a stay of enforcement of such judgment or order,
by reason of a pending appeal or otherwise, is not in effect.
6.9 Attachment by Lenders. Any assets of the Company or any of its
Subsidiaries shall be attached, levied upon, seized or repossessed, or come
into the possession of a trustee, receiver or other custodian and a
determination by any Holder, in good faith but in its sole discretion, that
the same
10
could have a material adverse effect on the prospect for the Holders to
fully and punctually realize the full benefits conferred on the Holders by
the Loan Documents.
6.10 Adverse Change in Financial Condition. Any event having a
material adverse effect on the business, operations, assets, properties or
condition of the Company and its Subsidiaries taken as a whole shall have
occurred and be continuing or a material adverse effect on the validity or
enforceability of this or any of the other Loan Documents or the rights or
remedies of the Holders hereunder or thereunder.
7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.
8. Prepayment. The Company may not prepay this Note prior to the Maturity
Date without the prior written consent of the Holders.
9. Seniority.
(a) Except as set forth in the Subordination Agreement, the Notes will
rank senior in right of payment to all other indebtedness of the Company,
other than the GA Notes, with respect to which the Notes will be pari passu
in right of payment in accordance with the Intercreditor Agreement.
(b) Notwithstanding anything to the contrary contained in the Notes,
this Note and the other Notes, and the terms and the conditions hereof and
thereof, are subject to the Intercreditor Agreement.
10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.
11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.
12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default.
11
13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.
14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.
15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.
16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.
17. Amendments and Waivers. No amendments or waivers of any provision of
this Note, and no consent by the Holder to any departure by the Company, shall
in any event be effective unless the same shall be in writing, and signed by the
Holders of a majority of the outstanding principal amount of all of the Notes
issued by the Company pursuant to the Note Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (a)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (b) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE
COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN
ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF SUCH WAIVER OF
RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER REPRESENTS AND
WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE AND IN THE
MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE
WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.
12
20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.
[the remainder of this page intentionally left blank]
13
IN WITNESS WHEREOF, the Company has caused this Note to be issued this
day of January, 2004.
Company:
CRITICAL PATH, INC.,
a California corporation
By:
------------------------------------
Name:
Title:
Critical Path, Inc.
350 The Embarcadero
San Francisco, CA 94105-1204
Telecopy: (415) 541-2300
Attention: Chief Financial Officer
With a copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg Vignos, Esq.
Name of Holder:
----------------------------------------------------
Address:
------------------------------------------------------
------------------------------------------------------
Telephone
----------------------------------------------------
Facsimile
-----------------------------------------------------
14
NOTE AMENDMENT AGREEMENT
This NOTE AMENDMENT AGREEMENT, dated March 9, 2004 (this "Amendment"), by
and among Critical Path, Inc., a California corporation (the "Company"), and
each of the investors whose names and addresses are set forth on Schedule I
hereto (each, an "Investor" and collectively, the "Investors"),
WITNESSETH:
WHEREAS, the Company and the Investors are parties to that certain
Convertible Note Purchase Agreement, dated January 16, 2004, as amended by
Amendment No. 1 to Convertible Note Purchase Agreement, dated of even date
herewith (together, the "January 2004 Note Purchase Agreement"), pursuant to
which the Company issued to each Investor a convertible subordinated promissory
note in the principal amount set forth on Schedule I attached hereto
(collectively, the "January Notes");
WHEREAS, the Company desires to enter into a Convertible Note Purchase
Agreement, pursuant to which the Company proposes to issue and sell to Permal
U.S. Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis Institutional
Partners, L.P., Zaxis Offshore Limited, Zaxis Partners, L.P., Guggenheim
Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub
Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners,
Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International convertible notes having an aggregate principal amount of $18.5
million which notes will be convertible, subject to Stockholder Approval, into
shares of Series E Redeemable Convertible Preferred Stock of the Company, par
value $0.001 per share (the "March 2004 Note Purchase Agreement"); and
WHEREAS, in connection with the execution of the March 2004 Note Purchase
Agreement, the Company and each of the Investors desire to amend the January
Notes as set forth herein; and
WHEREAS, capitalized terms used in this Amendment and not defined herein
shall have the meanings ascribed to such terms in the January Notes:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, for the covenants and agreements set forth in the January
Notes, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the Company and the Investors hereby agree as follows:
1.1 Amendments to the January Notes. Each of the January Notes shall be
amended as set forth below:
(a) Section 3.1(b) of each of the January Notes shall be deleted in
its entirety and replaced with the following:
"In the event that the Conversion Date has not occurred on or prior
to August 15, 2004 (the "Common Conversion Date"), then, following the
Common Conversion Date, the principal amount of this Note plus the
Interest Amount shall be convertible, at the option of Holder and from
time to time, only into Common Stock at a conversion price per share
equal to $1.65, as adjusted for any stock dividends, stock splits or
similar consolidations or subdivisions, following the date hereof;
provided, however, that Holder shall not be permitted to convert any
portion of the principal of this Note or the Interest Amount into Common
Stock pursuant to this Section 3.1(b) if, at the time of such
conversion, the conversion would cause Holder to be a Ten Percent
Holder."
(b) The following three sentences shall be inserted at the end of the
paragraph in Section 12 of each of the January Notes:
"This Note is registered as to both principal and stated interest
with the Company (or its agent) within the meaning of section
1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly,
notwithstanding anything to the contrary in the preceding paragraph,
this Note,
together with any interest thereon, may be transferred only (i) upon
surrender of the Note by the transferor to the Company (or its agent)
and the reissuance of the Note (or the issuance of a new Note) to the
transferee, or (ii) by transfer of the right to principal and interest
through a book-entry system meeting the requirements of section
1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by
the Company (or its agent). In the case of a Holder that is not a
"United States person" within the meaning of section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended (the "Code"), so long as an
exception under section 871(h)or section 881(c) of the Code does not
apply, the Company (or its agent) shall not withhold any U.S. federal
income tax with respect to such Holder provided that the Holder timely
provides the Company (or its agent) with a statement that meets the
requirements of section 871(h)(5) of the Code."
1.2 Counterparts. This Amendment may be executed in any number of
counterparts and by the parties 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. Signature pages transmitted by facsimile
will be acceptable, with originals to immediately follow.
1.3 Continuing Agreement. Except as specifically amended hereby, all of
the terms of the January Notes shall remain and continue in full force and
effect and are hereby confirmed in all respects.
1.4 Headings. The headings in this Amendment are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
1.5 Governing Law. This Amendment 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.
1.6 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.
1.7 Entire Agreement. This Amendment, together with the January Notes and
the exhibits and schedules thereto, 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
Amendment and the January Notes, together with the exhibits and schedules
thereto, and the other Transaction Documents, supersede all prior agreements and
understandings between the parties with respect to such subject matter.
[the remainder of this page intentionally left blank]
IN WITNESS WHEREOF, the undersigned have executed, or have caused to be
executed, this Amendment on the date first written above.
CRITICAL PATH, INC.,
a California corporation
By:/s/ WILLIAM E. MACGLASHAN, JR.
------------------------------------
Name: William E. McGlashan, Jr.
Title: Chairman, Chief Executive
Officer
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
SCHEDULE I
<Table>
<Caption>
INVESTORS PRINCIPAL AMOUNT OF NOTE
--------- ------------------------
Permal U.S. Opportunities Limited........................... $ 3,465,000
c/o Apex Capital, LLC
25 Orinda Way, Suite 300
Orinda, CA 94563
(925) 253-6125
Zaxis Equity Neutral, L.P. ................................. $ 930,000
c/o Apex Capital, LLC
25 Orinda Way, Suite 300
Orinda, CA 94563
(925) 253-6125
Zaxis Institutional Partners, L.P. ......................... $ 900,000
c/o Apex Capital, LLC
25 Orinda Way, Suite
300 Orinda, CA 94563
(925) 253-6125
Zaxis Offshore Limited...................................... $ 5,250,000
c/o Apex Capital, LLC
25 Orinda Way, Suite 300
Orinda, CA 94563
(925) 253-6125
Zaxis Partners, L.P. ....................................... $ 1,005,000
c/o Apex Capital, LLC
25 Orinda Way, Suite 300
Orinda, CA 94563
(925) 253-6125
Passport Master Fund, L.P. ................................. $ 3,750,000
c/o Passport Capital, LLC
One Sansome Street, 39th Floor
San Francisco, CA 94104
(415) 399-7608
Total:...................................................... $15,000,000
</Table>
APPENDIX J
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.,
GUGGENHEIM PORTFOLIO COMPANY XIII,
CROSSLINK CROSSOVER FUND IV, L.P.,
SAGAMORE HILL HUB FUND, LTD.,
CRITERION CAPITAL PARTNERS, LTD.,
CRITERION CAPITAL PARTNERS, INSTITUTIONAL,
CRITERION CAPITAL PARTNERS, L.P. AND
CAPITAL VENTURES INTERNATIONAL
-----------------------
DATED: MARCH 9, 2004
-----------------------
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
ARTICLE I DEFINITIONS...................................... 1
1.1 Definitions......................................... 1
ARTICLE II PURCHASE AND SALE OF NOTES; CONVERSION;
EXCHANGE.................................................... 7
2.1 Purchase and Sale of Notes.......................... 7
2.2 Filings............................................. 8
2.3 Certificate of Determination........................ 8
2.4 Closings; Deliveries................................ 8
2.5 Issuances of Common Shares.......................... 9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
COMPANY..................................................... 9
3.1 Corporate Existence and Power....................... 9
3.2 Authorization; No Contravention..................... 9
3.3 Governmental Authorization; Third Party Consents.... 10
3.4 Binding Effect...................................... 10
3.5 Litigation.......................................... 10
3.6 Compliance with Laws................................ 10
3.7 Capitalization...................................... 10
3.8 No Default or Breach; Contractual Obligations....... 11
3.9 Title to Properties................................. 12
3.10 Reports; Financial Statements...................... 12
3.11 Taxes.............................................. 12
3.12 No Material Adverse Change; Ordinary Course of
Business............................................... 13
3.13 Private Offering................................... 13
3.14 Labor Relations.................................... 13
3.15 Employee Benefit Plans............................. 13
3.16 Liabilities........................................ 14
3.17 Affiliate Transactions............................. 14
3.18 Intellectual Property.............................. 14
3.19 Privacy of Customer Information.................... 15
3.20 Potential Conflicts of Interest.................... 15
3.21 Trade Relations.................................... 16
3.22 Outstanding Borrowing.............................. 16
3.23 Broker's, Finder's or Similar Fees................. 16
3.24 Stockholder Approval............................... 16
3.25 CCC Section........................................ 16
3.26 Disclosure......................................... 16
3.27 Investments........................................ 16
3.28 Sarbanes-Oxley Compliance.......................... 17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE LENDERS... 17
4.1 Existence and Power................................. 17
4.2 Authorization; No Contravention..................... 18
4.3 Governmental Authorization; Third Party Consents.... 18
</Table>
i
<Table>
<Caption>
PAGE
----
4.4 Binding Effect...................................... 18
4.5 Purchase for Own Account............................ 18
4.6 Restricted Securities............................... 18
4.7 Accredited Investor................................. 19
4.8 Experience.......................................... 19
4.9 Access to Information............................... 19
4.10 General Solicitation............................... 19
4.11 Reliance........................................... 19
4.12 Qualified Institutional Buyer...................... 19
4.13 Affiliate Status................................... 19
4.14 Capital Stock Ownership............................ 20
ARTICLE V CONDITIONS TO INITIAL CLOSING.................... 20
5.1 Conditions to Lenders' Obligations.................. 20
5.2 Conditions to Company's Obligations................. 21
ARTICLE VI CONDITIONS TO SUBSEQUENT CLOSING................ 21
6.1 Conditions to Lenders' Obligations.................. 21
6.2 Conditions to the Company's Obligations............. 21
ARTICLE VII INDEMNIFICATION................................ 21
7.1 Indemnification..................................... 21
7.2 Notification........................................ 22
7.3 Contribution........................................ 22
ARTICLE VIII COVENANTS..................................... 23
8.1 Financial Statements and Other Information.......... 23
8.2 FIRPTA Certificate.................................. 23
8.3 Reservation of Common Stock......................... 24
8.4 Stockholder Approval................................ 24
8.5 Financial Covenants................................. 24
8.6 Purchases and Sales................................. 24
8.7 Proxy Matters....................................... 24
ARTICLE IX TERMINATION..................................... 25
9.1 Termination......................................... 25
ARTICLE X MISCELLANEOUS.................................... 25
10.1 Survival of Representations and Warranties......... 25
10.2 Notices............................................ 25
10.3 Successors and Assigns; Third Party
Beneficiaries.......................................... 27
10.4 Amendment and Waiver............................... 27
10.5 Counterparts....................................... 27
10.6 Headings........................................... 27
10.7 Governing Law...................................... 27
10.8 Severability....................................... 27
10.9 Rules of Construction.............................. 27
10.10 Entire Agreement.................................. 27
</Table>
ii
<Table>
<Caption>
PAGE
----
10.11 Fees.............................................. 27
10.12 Publicity; Confidentiality........................ 28
10.13 Further Assurances................................ 28
10.14 Waiver............................................ 28
</Table>
<Table>
EXHIBITS
A Form of Note
B Form of Third 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
Reports; Financial Statements
3.10(a)
3.12 Material Adverse Change
3.17 Affiliate Transactions
3.20 Potential Conflicts of Interest
3.22 Outstanding Borrowing
3.27 Investments
4.14 Capital Stock Ownership
8.5 Financial Covenants
</Table>
iii
CONVERTIBLE NOTE PURCHASE AGREEMENT
CONVERTIBLE NOTE PURCHASE AGREEMENT, dated March 9, 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., Guggenheim Portfolio Company XIII, Crosslink Crossover Fund IV,
L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital Partners, Ltd., Criterion
Capital Partners, Institutional, Criterion Capital Partners, L.P. and Capital
Ventures International (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, as amended from time to time (the
"November 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, on January 16, 2004, the Company entered into the Convertible Note
Purchase Agreement, as amended from time to time (the "January Convertible Note
Agreement") with 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 "January 2004 Investors"),
pursuant to which the Company issued $15 million in principal amount of 10%
convertible secured notes to the January 2004 Investors, and agreed to convert
such notes into approximately 10 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 eighteen
million five hundred thousand dollars ($18,500,000), 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 Third
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 % 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.
"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
2
(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.
"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.
"Existing Convertible Note Agreements" means the November Convertible
Note Agreement and the January Convertible Note Agreement.
"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 November
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 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
3
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.
"Intercreditor Agreement" shall mean the Intercreditor Agreement,
dated the date hereof, among the General Atlantic Entities, the January
2004 Investors and the Lenders.
"Internet Assets" means any Internet domain names and other computer
user identifiers and any rights in and to sites on the worldwide web,
including rights in and to any text, graphics, audio and video files and
html or other code incorporated in such sites.
"Investment" means (i) the acquisition (whether for cash, property,
services, assumption of Indebtedness, securities or otherwise) of assets
(other than equipment, inventory, supplies or other assets acquired in the
ordinary course of business of the Company), capital stock, bonds, notes,
debentures, partnership, joint venture or other ownership interests or
other securities of any Person, (ii) any deposit with, or advance, loan or
other extension of credit to, or on behalf of, any Person (other than
deposits made in connection with the purchase of equipment, inventory,
services, leases, supplies or other assets in the ordinary course of
business of the Company), (iii) any other capital contribution to or
investment in such Person, including, without limitation, any guaranty
obligation incurred for the benefit of such Person. For the sake of
clarity, Investments shall include any transfer of property or assets by
the Company to any of its Subsidiaries or by any Subsidiary of the Company
to any other Subsidiary.
"IP Agreements" has the meaning set forth in Section 3.18(a)(iii) of
this Agreement.
"Issuable Shares" has the meaning set forth in Section 2.1(a) of this
Agreement.
"January Convertible Note Agreement" has the meaning set forth in the
recitals of this Agreement.
"January 2004 Investors" has the meaning set forth in the recitals of
this Agreement.
"January 2004 Notes" means the 10% convertible secured notes issued to
the January 2004 Investors pursuant to the January Convertible Note
Agreement and held by the January 2004 Investors or their permitted
transferees.
"Knowledge" means the knowledge of the Company and Paul Bartlett,
James Clark, 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., Guggenheim Portfolio Company XIII, Crosslink
Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd., Criterion Capital
Partners, Ltd., Criterion Capital Partners, Institutional, Criterion
Capital Partners, L.P. and Capital Ventures International 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.
4
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, encumbrance, lien (statutory or other) or preference, priority,
right or other security interest or preferential arrangement of any kind or
nature whatsoever (excluding preferred stock and equity related
preferences).
"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.
"November Convertible Note Agreement" has the meaning set forth in the
recitals of this Agreement.
"Orders" has the meaning set forth in Section 3.2 of this Agreement.
"Patents" means any foreign or United States patents and patent
applications, including any divisions, continuations,
continuations-in-part, substitutions or reissues thereof, whether or not
patents are issued on such applications and whether or not such
applications are modified, withdrawn or resubmitted.
"Permitted Investments" means (i) Investments in cash or cash
equivalents, (ii) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; (iii) Investments existing on the Initial Closing
Date, and listed on Schedule 3.27 hereto, (iv) guaranty obligations
permitted by Section 5.3 of the Security Agreement, (v) loans to employees,
directors or officers of the Company in connection with the award of
convertible bonds or capital stock under a stock incentive plan, stock
option plan or other equity-based compensation plan or arrangement, (vi)
other advances or loans to employees, directors, officers or agents of the
Company in the ordinary course of business not to exceed $500,000 in the
aggregate at any time outstanding; (vii) loans, advances and Investments in
or by foreign Subsidiaries; (viii) any acquisition for which the prior
written consent of the holders of a majority of the outstanding principal
amount of (a) the General Atlantic Notes and (b) the January 2004 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.
5
"Requirements of Law" means, as to any Person, any law (including
Environmental Laws), statute, treaty, rule, regulation, right, privilege,
qualification, license or franchise or determination of an arbitrator or a
court or other Governmental Authority or stock exchange, in each case
applicable or binding upon such Person or any of its property or to which
such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein.
"Retiree Welfare Plan" means any welfare plan (as defined in Section
3(1) of ERISA) that provides benefits to current or former employees beyond
their retirement or other termination of service (other than coverage
mandated by Section 4980A of the Code, commonly referred to as "COBRA," the
cost of which is fully paid by the current or former employee or his or her
dependents).
"Rights Offering" shall mean a rights offering for an aggregate amount
of up to $21,000,000 of shares of Series E Preferred Stock pursuant to
which the Company will distribute transferable rights to the Company's
holders of Common Stock as of the Record Date.
"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.
"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.
6
"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
Agreement, the Subordination Agreement, the Intercreditor Agreement, the
Amendment to the Preferred Stock Rights Agreement and the Waivers.
"Waivers" means the waivers and consents, dated the date hereof,
executed by (i) the requisite holders of our Series D Preferred Stock, (ii)
the requisite General Atlantic Entities, CK Purchasers and Vectis CP
Holdings, LLC, and (iii) a majority of the outstanding principal amount of
all of the January 2004 Notes, in each case to consent to and approve, to
the extent necessary, the transactions and agreements contemplated by the
Transaction Documents and to waive any rights they may have under that
certain Stockholders 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 August 15, 2004, the Notes shall thereafter be convertible at the
option of each Lender only into shares of Common
7
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.
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.
(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.
(e) Subsequent Closing. The consummation of the Conversion (the
"Subsequent Closing") shall take place concurrently with the Subsequent Closings
under the Existing Convertible Note Agreements as soon as practicable following
the satisfaction of the closing conditions set forth in Article VI of this
Agreement and Article VI of the Existing Convertible Note Agreements (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, the CK Purchasers and
8
the January 2004 Investors 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 August 15, 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 Note has 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 or the Disclosure
Schedules:
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
9
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 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.
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 21,171,399
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
10
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 19,079,109, of which
12,449,551 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 110,209 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 69,149 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 Existing Convertible
Note Agreements and the Rights Offering, and (F) a number of shares of
undesignated "blank check" preferred stock agreed upon by the Company, the
Lenders, the General Atlantic Entities and the CK Purchasers.
(iii) Except as set forth on Schedule 3.7(a) and except for the
Warrants, there are no options, warrants, conversion privileges,
subscription or purchase rights or other rights presently outstanding to
purchase or otherwise acquire (A) any authorized but unissued, unauthorized
or treasury shares of the Company's capital stock, (B) any Stock
Equivalents or (C) any other securities of the Company and there are no
commitments, contracts, agreements, arrangements or understandings to which
the Company is a party to issue any shares of the Company's capital stock
or any Stock Equivalents or other securities of the Company.
(b) Upon the Initial Closing Date, the Notes shall be duly authorized, and
assuming the accuracy of the representations and warranties of the Lenders set
forth in Article IV of this Agreement, will be issued in compliance with the
registration and qualification requirements of all applicable federal, state and
foreign securities laws and will be free and clear of all other Liens.
(c) Upon the Subsequent Closing Date, the 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,
11
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.
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. Except as set forth in Schedule 3.10(a), 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
12
extension of time for the assessment or payment of any Tax; (d) all provisions
for Tax liabilities of the Company and each of its Subsidiaries have been
disclosed in the Financial Statements and made in accordance with GAAP
consistently applied, and all liabilities for Taxes of the Company and each of
its Subsidiaries attributable to periods prior to or ending on the Initial
Closing Date or the Subsequent Closing Date, as the case may be, have been
adequately disclosed in the Financial Statements; and (e) there are no Liens for
Taxes on the assets of the Company or any of its Subsidiaries, other than
Permitted Liens.
3.12 No Material Adverse Change; Ordinary Course of Business. 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.
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.
13
(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 December
31, 2003 in the ordinary course of business. The Company has no Knowledge of any
circumstance, condition, event or arrangement that could reasonably be expected
to give rise hereafter to any Liabilities of the Company or any of its
Subsidiaries that, individually or in the aggregate, could have a material
adverse effect on the Condition of the Company.
3.17 Affiliate Transactions. 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
14
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).
(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 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
15
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. 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 Certification of Determination and (B) the Series
E Certificate of Determination; (ii) the authorization and 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 November 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.
16
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, as
amended: (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 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
17
formation and (b) has the requisite partnership, corporate or limited liability
company, as the case may be, power and authority to execute, deliver and perform
its obligations under this Agreement and each of the other Transaction Documents
to which it is a party.
4.2 Authorization; No Contravention. The execution, delivery and
performance by such Lender 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:
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
18
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 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.
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, except as
disclosed on Schedule 4.14, each Lender represents that it is not an Affiliate
of the other Lenders or the January 2004 Investors 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. Except as disclosed on
Schedule 4.14, the obligations of each Lender under any Transaction Document are
several and not joint with the obligations of any other Lender, and no Lender
shall be responsible in any way for the performance of the obligations of any
other Lender under any Transaction Document. Except as disclosed on Schedule
4.14, the decision of each Lender to purchase Securities pursuant to this
Agreement has been made by such Lender independently of any other Lender and
independently of any information, materials, statements or opinions as to the
business, affairs, operations, assets, properties, liabilities, results of
operations, condition (financial or otherwise) or prospects of the Company or of
any Subsidiary which may have been made or given by any other Lender or by any
agent or employee of any other Lender, and no Lender or any of its agents or
employees shall have any liability to any other Lender (or any other person)
relating to or arising from any such information, materials, statements or
opinions. Except as disclosed on Schedule 4.14, nothing contained herein or in
any Transaction Document, and no action taken by any
19
Lender pursuant thereto, shall be deemed to constitute the Lenders as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Lenders are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by the
Transaction Document. Except as disclosed on Schedule 4.14, each Lender
acknowledges that no other Lender has acted as agent for such Lender in
connection with making its investment hereunder and that no other Lender will be
acting as agent of such Lender in connection with monitoring its investment
hereunder. Except as disclosed on Schedule 4.14, each Lender shall be entitled
to independently protect and enforce its rights, including without limitation
the rights arising out of this Agreement or out of the other Transaction
Documents, and it shall not be necessary for any other Lender to be joined as an
additional party in any proceeding for such purpose. The Lenders acknowledge
that the Company has elected to provide all Lenders with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Lenders.
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.
(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.
20
(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.
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 and caused to become effective an amendment to the Amended and
Restated Articles of Incorporation to increase the authorized common stock and
preferred stock of the Company.
(d) Certificate 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
21
agreement by the Company in this Agreement, the Amended and Restated
Registration Rights 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 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
22
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 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.
23
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.
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 Company will use all
reasonable commercial efforts to hold the special meeting and obtain a vote of
the stockholders on or prior to August 15, 2004. 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 at least three 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. Except as set forth in this Agreement, the Company
covenants and agrees that neither it nor any other Person acting on its behalf
will provide any Lender or its agents or counsel with any information that the
Company believes constitutes Material Non-Public Information, unless prior
thereto such Lender shall have executed a written agreement regarding the
confidentiality and use of such information. The Company understands and
confirms that each Lender shall be relying on the foregoing representations in
effecting transactions in securities of the Company.
8.7 Proxy Matters. Notwithstanding anything herein to the contrary, but
subject to the provisions of Section 9.1 of this Agreement, if the Registration
Statement (as defined in the November Convertible Note Agreement) has not been
declared effective by the Commission on or prior to May 15, 2004, subject to
approval by the Board of Directors, the Company will promptly take all such
actions as may be
24
necessary to withdraw the Registration Statement, and the Company shall continue
to have an obligation under Section 8.4 of this Agreement to seek Stockholder
Approval. If the Company withdraws the Registration Statement pursuant to this
Section 8.7 and receives Stockholder Approval, the Company may, subject to
approval by the Board of Directors, file a subsequent registration statement
with the Commission and provide the Company's shareholders the opportunity to
participate in a subsequent rights offering.
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 any event on August 15, 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.
25
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:
Crosslink Capital
Two Embarcadero Center, Suite 2200
San Francisco, CA 94111
Attention: Jason Sanders
Telephone: (415) 617-1845
Telecopy: (415) 617-1801
and to:
Sagamore Hill Hub Fund, Ltd.
c/o Sagamore Hill Capital Management
10 Glenville Street, 3rd Floor
Greenwich, CT 06831
Attention: Legal Department
Telecopy: (203) 422-7214
and to:
Criterion Capital Management
One Maritime Plaza, Suite 1460
San Francisco, CA 64111
Attention: R. Daniel Beckham
Telephone:
Telecopy:
and to:
Capital Ventures International
c/o Heights Capital Management, Inc.
425 California Street, Suite 1100
San Francisco, CA 94104
Attention: Martin Kobinger
Telephone: (415) 403-6500
Telecopy: (415) 403-6525
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
26
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 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 obligations of the Lenders and filings with
27
Commission); provided, that the aggregate amount of all such reimbursements in
respect of the Lenders shall not exceed $20,000.
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.
10.14 Waiver. The Company hereby waives the provisions set forth in
Section 8.6 of the January Convertible Note Agreement with respect to the
purchase by certain of the January 2004 Investors of Notes (and any shares of
capital stock of the Company issuable upon their conversion) pursuant to this
Agreement.
[the remainder of this page intentionally left blank]
28
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, 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
SIGNATURE PAGE TO CONVERTIBLE NOTE PURCHASE AGREEMENT
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
GUGGENHEIM PORTFOLIO COMPANY XIII
By: APEX CAPITAL, LLC,
its Authorized Investment Advisor
By: /s/ SANFORD J. COLEN
------------------------------------
Name: Sanford J. Colen
Title: Manager and Principal
SIGNATURE PAGE TO CONVERTIBLE NOTE PURCHASE AGREEMENT
CROSSLINK CROSSOVER FUND IV, L.P.
By:CROSSOVER FUND IV MANAGEMENT,
L.L.C.,
its General Partner
By: /s/ MICHAEL J. STARK
------------------------------------
Name: Michael J. Stark
Title: Managing Member
SIGNATURE PAGE TO CONVERTIBLE NOTE PURCHASE AGREEMENT
SAGAMORE HILL HUB FUND, LTD.
By:SAGAMORE HILL CAPITAL MANAGEMENT,
L.P.,
Investment Manager
By: /s/ STEVEN H. BLOOM
------------------------------------
Name: Steven H. Bloom
Title: President
SIGNATURE PAGE TO CONVERTIBLE NOTE PURCHASE AGREEMENT
CAPITAL VENTURES INTERNATIONAL
By:HEIGHTS CAPITAL MANAGEMENT, INC.,
an authorized signatory
By: /s/ MARTIN KOBINGER
------------------------------------
Name: Martin Kobinger
Title: Investment Manager
CRITERION CAPITAL PARTNERS, LTD.
By:DERIVATIVES PORTFOLIO MANAGEMENT,
an authorized signatory
By: /s/ GUY J. CASTRANOVA
------------------------------------
Name: Guy J. Castranova
Title: Chief Operating Officer
CRITERION CAPITAL PARTNERS,
INSTITUTIONAL
By:CRITERION CAPITAL PARTNERS, LLC,
an authorized signatory
By: /s/ R. DANIEL BECKHAM
------------------------------------
Name: R. Daniel Beckham
Title: Chief Operating Officer
CRITERION CAPITAL PARTNERS, L.P.
By:CRITERION CAPITAL PARTNERS, LLC,
an authorized signatory
By: /s/ R. DANIEL BECKHAM
------------------------------------
Name: R. Daniel Beckham
Title: Chief Operating Officer
APPENDIX K
FORM OF NOTE
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR
SALE IN CONNECTION WITH, THE DISTRIBUTION THEREOF. THIS NOTE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND
ALL APPLICABLE STATE SECURITIES LAWS.
CRITICAL PATH, INC.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$
San Francisco, California
March 9, 2004
Critical Path, Inc., a California corporation (the "Company"), the
principal office of which is located in San Francisco, California, for value
received hereby promises to pay to the order of , or its
registered assigns ("Holder"), the sum of dollars ($ ),
or such lesser amount as shall then equal the outstanding principal amount
hereof on the terms and conditions set forth hereinafter. The outstanding
principal amount hereof and all accrued and unpaid interest hereon, as set forth
below, shall be due and payable on the earlier to occur of (i) March 9, 2008,
(ii) when declared due and payable by Holder upon the occurrence of an Event of
Default (as defined below), (iii) consummation of a Qualified Asset Sale, (iv) a
Change of Control, or (v) any sale of capital stock or Stock Equivalents by the
Company, any cash capital contribution from any third person or any other debt
or equity financing consummated by the Company after the date of issuance of
this Note which, in the case of (v), individually or in the aggregate raises
proceeds of at least forty million dollars ($40,000,000) in cash or cash
equivalents (the earliest of the events set forth in items (i)-(v) immediately
above, the "Maturity Date").
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. Except as otherwise defined herein, each capitalized term
used herein shall have the meaning assigned to it in the Note Purchase
Agreement, as in effect on the date hereof, and without regard to any subsequent
termination of the Note Purchase Agreement. All other references to the Note
Purchase Agreement in this Note refer to the Note Purchase Agreement as in
effect on the date hereof, and without regard to any subsequent termination of
the Note Purchase Agreement. As used in this Note, the following terms, unless
the context otherwise requires, have the following meanings:
1.1 "Affiliate" means any Person who is an "affiliate" as defined in Rule
12b-2 of the General Rules and Regulations of the Securities Exchange Act of
1934, as amended.
1.2 "Capitalized Lease Obligations" means, with respect to any Person, all
rental obligations of such Person which, under GAAP, are or will be required to
be capitalized on the books of such Person, in each case taken at the amount
thereof accounted for as indebtedness in accordance with such principles.
1.3 "Change of Control" shall mean (i) any merger, consolidation or other
business combination transaction (or series of related transactions) in which
the stockholders owning a majority of the voting securities of the Company prior
to such transaction do not own a majority of the voting securities of the
surviving entity, (ii) any tender offer, exchange offer or other transaction
whereby any Person or "group" (as defined in Rule 13d-3 of the General Rules and
Regulations of the Securities Exchange Act of 1934,
as amended) (other than General Atlantic Partners 74, L.P., GAP Coinvestment
Partners II, L.P., GapStar, LLC, GAP-W, LLC, GAPCO GmbH & Co. KG, Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited, Dragonfield
Limited and Lion Cosmos Limited and the Affiliates of the foregoing, provided
that Affiliates shall be deemed not to include any portfolio companies of any of
the foregoing) obtains a majority of the outstanding shares of capital stock
entitled to vote in the election of directors, (iii) any proxy contest in which
a majority of the Board of Directors of the Company (or persons appointed by
such Board of Directors) prior to such contest do not constitute a majority of
the Company's Board of Directors after such contest or (iv) any other
transaction described in any stockholder rights agreement or "poison pill," if
any, to which the Company is party, which may permit the holders of any rights
or similar certificates to exercise the rights evidenced thereby.
1.4 "Company" shall have the meaning set forth in the recitals hereto, and
includes any corporation that shall succeed to or assume the obligations of the
Company under this Note.
1.5 "Common Conversion Date" shall have the meaning set forth in Section
3.1(b) hereof.
1.6 "Common Stock" means the common stock, par value $0.001 per share, of
the Company.
1.7 "Conversion Date" shall mean the Subsequent Closing Date.
1.8 "Domestic Subsidiary" shall have the meaning set forth in Section 5.10
hereof.
1.9 "Event of Default" shall have the meaning set forth in Section 6
hereof.
1.10 "GA Notes" shall mean the Convertible Subordinated Promissory Notes,
each dated November 26, 2003, issued by the Company to the GAP Entities pursuant
to the Purchase and Exchange Agreement.
1.11 "GAP Entities" shall mean General Atlantic Partners 74, L.P., GAP
Coinvestment Partners II, L.P., GapStar, LLC and GAPCO GmhH & Co. KG.
1.12 "Guarantor" shall have the meaning set forth in the Security
Agreement.
1.13 "Holder" shall mean the registered holder of this Note from time to
time, and in the plural, shall mean all registered holders of Notes from time to
time issued by the Company pursuant to the Note Purchase Agreement.
1.14 "Intercreditor Agreement" shall mean the Intercreditor Agreement,
dated the date hereof, among the GAP Entities, the January Lenders, Guggenheim
Portfolio Company XIII, Crosslink Crossover Fund IV, L.P., Sagamore Hill Hub
Fund, Ltd., Criterion Capital Partners, Ltd., Criterion Capital Partners,
Institutional, Criterion Capital Partners, L.P. and Capital Ventures
International.
1.15 "Interest Amount" shall have the meaning set forth in Section 3.1
hereof.
1.16 "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), and (iii) any other capital
contribution to or investment in any Person, including, without limitation, any
guaranty obligation incurred for the benefit of any Person. For the sake of
clarity, Investments shall include any transfer of property or assets by the
Company to any of its Subsidiaries or by any Subsidiary of the Company to any
other Subsidiary.
1.17 "January Lenders" shall mean 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.
2
1.18 "January Note Agreement" shall mean the Convertible Note Purchase
Agreement, dated January 16, 2004, among the January Lenders and the Company.
1.19 "January 2004 Notes" shall mean the Convertible Subordinated
Promissory Notes, each dated January 16, 2003, issued by the Company to the
January Lenders pursuant to the January Note Agreement.
1.20 "Loan Documents" shall have the meaning set forth in the Security
Agreement.
1.21 "Note" shall mean this note, and in the plural, shall mean all notes
issued to the Lenders pursuant to the terms of the Note Purchase Agreement,
including this Note, and all amendments, modifications and extensions thereto.
1.22 "Note Purchase Agreement" means that certain Convertible Note
Purchase Agreement, dated March 9, 2004, among the Company, the Holder and the
other parties thereto from time to time, and all amendments, modifications and
extensions thereto.
1.23 "Permitted Investments" means (i) Investments in cash or cash
equivalents, (ii) accounts receivable created, acquired or made in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms; (iii) Investments existing on the closing date, and listed on
Schedule 3.27 to the Note Purchase Agreement, (iv) guaranty obligations
permitted by Section 5.3 of this Agreement, (v) loans to employees, directors or
officers of the Company in connection with the award of convertible bonds or
capital stock under a stock incentive plan, stock option plan or other
equity-based compensation plan or arrangement, (vi) other advances or loans to
employees, directors, officers or agents of the Company in the ordinary course
of business not to exceed $500,000 in the aggregate at any time outstanding;
(vii) loans, advances and investments in foreign Subsidiaries (that are not
incorporated or otherwise organized under the laws of the United States of
America or any state thereof) in an amount not to exceed $1,000,000 in the
aggregate at any time outstanding; (viii) any acquisition for which the prior
written consent of the Holders of a majority of the outstanding principal amount
of all of the Notes issued by the Company pursuant to the Note Purchase
Agreement has been obtained, (ix) other loans, advances and investments of a
nature not contemplated by the foregoing sections in an amount not to exceed
$500,000 in the aggregate at any time outstanding or (x) Investments by the
Company in the Guarantor.
1.24 "Permitted Liens" shall have the meaning set forth in Section 5.4.
1.25 "Person" means any individual, firm, corporation, partnership, trust,
joint venture, joint stock company, limited liability company, Governmental
Authority or other entity of any kind, and shall include any successor (by
merger or otherwise) of such entity.
1.26 "Price Per Share" shall have the meaning attributed to such term in
the Series E Certificate of Determination, as filed with the Secretary of State
of the State of California.
1.27 "Purchase and Exchange Agreement" shall mean the Convertible Note
Purchase and Exchange Agreement, dated November 18, 2003, among the Company, the
GAP Entities, GAP-W, LLC and the other parties thereto, as amended.
1.28 "Qualified Asset Sale" means the sale, transfer or other disposition
of any of the assets of the Company or any of its Subsidiaries, other than (a)
sales of assets in the ordinary course of business, (b) sales of assets where
the proceeds are used to repay Indebtedness owing to SVB, (c) the sale, transfer
or other disposition of assets of the Company where the proceeds are applied to
the purchase price or traded in for credit against the purchase price of other
assets, provided that any such purchase is made, or credit issued, within 90
days of the sale, transfer or other disposition, and (d) one or more sales of
the Company's assets (other than sales otherwise included in clauses (a), (b),
and (c) immediately above) which collectively yield up to an aggregate of one
million dollars ($1,000,000) in gross proceeds to the Company while this Note is
outstanding.
3
1.29 "Restricted Payment" means (a) any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Company or any of its Subsidiaries or (b) any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of the purchase, redemption, retirement,
acquisition, cancellation or termination of any shares of any class of capital
stock of the Company or any Subsidiary or any option, warrant or other right to
acquire any such shares of capital stock of the Company or any Subsidiary.
1.30 "Security Agreement" means that certain Guaranty and Security
Agreement, of even date herewith between the Company, Compass Holding Corp., the
Lenders and the other parties thereto from time to time, and all amendments,
modifications and extensions thereto.
1.31 "Series E Conversion Price" shall have the meaning set forth in the
Series E Certificate of Determination.
1.32 "Series E Preferred Stock" means the Series E Preferred Stock, par
value $0.001, of the Company.
1.33 "Subordination Agreement" shall have the meaning set forth in Section
5.3.
1.34 "Subsequent Closing Date" shall have the meaning set forth in Section
2.4(e) of the Note Purchase Agreement.
1.35 "SVB" means Silicon Valley Bank, a California chartered bank, or any
Affiliates thereof.
1.36 "Ten Percent Holder" means, with respect to a class of equity
securities of the Company, a Person (together with such Person's Affiliates)
who, directly or indirectly, beneficially owns 9.9% or more of such class of
equity securities of the Company, as defined by Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
1.37 "UCC" shall have the meaning set forth in Section 5.4.
2. Interest. Simple interest shall accrue at the rate of ten percent
(10%) per annum (or such lesser amount as shall equal the highest rate of
interest allowable under applicable law) (the "Interest Rate"), on the
outstanding principal of this Note from the date of this Note until the Maturity
Date or the date this Note is otherwise repaid. The Company shall not be
obligated to make any payments of interest which shall have accrued under this
Note prior to the Maturity Date. Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed. In the event that the
principal amount of this Note, any interest, or any amount payable hereunder is
not paid in full when such amount becomes due and payable, or upon the
occurrence of an Event of Default, interest shall accrue at the lesser of (a)
the initial Interest Rate plus five percent (5%) per annum or (b) the highest
rate of interest allowable under applicable law, on the balance of all amounts
outstanding until such overdue amounts are paid or the Event of Default is
cured, and such interest shall be payable on demand.
3. Conversion.
3.1 Conversion.
(a) On the Conversion Date, the principal amount of this Note plus the
accrued and unpaid interest thereon (the "Interest Amount"), shall be
automatically converted into the number of fully paid and nonassessable shares
of Series E Preferred Stock equal to the quotient obtained by dividing (a) the
entire principal amount of this Note plus the Interest Amount by (b) the Price
Per Share.
(b) In the event that the Conversion Date has not occurred on or prior to
August 15, 2004 (the "Common Conversion Date"), then, following the Common
Conversion Date, the principal amount of this Note plus the Interest Amount
shall be convertible, at the option of Holder and from time to time, only into
Common Stock at a conversion price per share equal to $2.18, as adjusted for any
stock dividends, stock splits or similar consolidations or subdivisions,
following the date hereof; provided, however, that Holder shall not be permitted
to convert any portion of the principal of this Note or the Interest Amount
4
into Common Stock pursuant to this Section 3.1(b) if, at the time of such
conversion, the conversion would cause Holder to be a Ten Percent Holder.
3.2 Notice of Conversion. Upon conversion of this Note as provided in
Section 3.1, Holder shall surrender this Note to the Company and shall state the
name or names in which the certificate or certificates for such shares of Series
E Preferred Stock or Common Stock, as the case may be, are to be issued. The
Person or Persons entitled to receive the shares of Series E Preferred Stock or
Common Stock, as the case may be, issuable upon such conversion shall be treated
for all purposes as the record holder or holders (a) of such shares of Series E
Preferred Stock as of the Conversion Date and (b) of such shares of Common Stock
as of the date of any conversion pursuant to Section 3.1(b).
3.3 Delivery of Stock Certificates. Upon conversion of this Note as
provided in Section 3.1, the Company at its expense will issue and deliver to
Holder of this Note a certificate or certificates (bearing such legends as are
required by applicable state and federal securities laws in the opinion of
counsel to the Company) for the number of full shares of Series E Preferred
Stock or Common Stock, as the case may be, issuable upon such conversion.
3.4 Mechanics and Effect of Conversion. No fractional shares of Series E
Preferred Stock or Common Stock, as the case may be, shall be issued upon
conversion of this Note. In lieu of the Company issuing any fractional shares to
Holder upon the conversion of this Note, the Company shall pay to Holder the
amount of outstanding principal and interest that is not so converted. Upon
conversion of all amounts due under this Note, the Company shall be released
from all of its obligations under this Note.
4. Adjustments. The number of shares of Series E Preferred Stock or
Common Stock convertible hereunder are subject to adjustment from time to time
as follows:
4.1 Merger, Sale of Assets, Etc. Subject to Section 4.2, if at any time
while this Note remains outstanding and unexpired there shall be (a) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (b) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity, or a merger in which the Company is the
surviving entity but the shares of the Company's capital stock outstanding
immediately prior to the merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise or (c) a sale or
transfer of the Company's stock, properties or assets as, or substantially as,
an entirety to any other Person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that Holder
shall thereafter be entitled to receive by converting this Note the number of
shares of stock or other securities or property of the successor corporation
resulting from such reorganization, merger, consolidation, sale or transfer that
a holder of the shares deliverable upon conversion of this Note would have been
entitled to receive in such reorganization, consolidation, merger, sale or
transfer if this Note had been converted immediately before such reorganization,
merger, consolidation, sale or transfer (notwithstanding that the Stockholder
Approval may not yet have been obtained), all subject to further adjustment as
provided in this Section 4. The foregoing provisions of this Section 4.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation. If the
per share consideration payable to Holder hereof for shares in connection with
any such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
Company's Board of Directors based on the amount the Holder would have otherwise
been entitled to receive had the transaction or transactions not occurred. In
all events, appropriate adjustment (as determined in good faith by the Company's
Board of Directors) shall be made in the application of the provisions of this
Note with respect to the rights and interests of Holder after the transaction,
to the end that the provisions of this Note shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon conversion of this Note. The Company shall be
obligated to retain and set aside, or otherwise make fair provision for exercise
of the right of the Holder to receive, the shares of stock and/or other
securities, cash or other property provided for in this Section 4.1.
5
4.2 Election of Holder upon Merger or Sale of Assets. Notwithstanding
anything to the contrary contained herein, if an event shall occur as provided
in Section 4.1 hereof that would otherwise result in the occurrence of the
Maturity Date pursuant to clause (iii) or (iv) of the first paragraph of this
Note, then the Holder may, in its sole discretion, by written notice to the
Company elect to convert the principal amount of this Note plus the Interest
Amount into the number of shares of stock or other securities or property
described in Section 4.1, in lieu of receiving payment in full of all amounts
outstanding under this Note. The number of shares of stock or other securities
or property to be issued upon such conversion shall be determined in accordance
with Section 4.1 hereof, taking into account the occurrence of such event.
4.3 Reclassification, Etc. If the Company shall, at any time while this
Note, or any portion thereof, remains outstanding and unexpired, by
reclassification of securities or otherwise, change any of the securities as to
which conversion rights under this Note exist into the same or a different
number of securities of any other class or classes, this Note shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable with respect to the securities that were subject to the conversion
rights under this Note immediately prior to such reclassification or other
change, and the Price Per Share shall be appropriately adjusted, all subject to
further adjustment as provided in this Section 4.
4.4 Split, Subdivision or Combination of Shares. If the Company at any
time while this Note, or any portion thereof, remains outstanding and unexpired
shall split, subdivide or combine the shares of Series E Preferred Stock or
Common Stock into a different number of securities of the same class, the Price
Per Share or conversion price, as the case may be, shall be proportionately
adjusted.
4.5 Series E Adjustments. The initial Series E Conversion Price of the
shares of Series E Preferred Stock issued upon conversion of this Note pursuant
to Section 3.1 shall equal the Series E Conversion Price in effect on the
Conversion Date, subject to the adjustment of such Series E Conversion Price
from time to time thereafter as provided in the Series E Certificate of
Determination.
4.6 Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 4, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based.
4.7 No Impairment. The Company will not, by any voluntary action, avoid
or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of Holder against impairment.
5. Covenants. The Company covenants and agrees that until the earlier of
(i) the date on which all Obligations (as defined in the Security Agreement)
have been paid in full or (ii) the date on which all amounts outstanding under
the Notes have converted pursuant to Section 3.1(a) or Section 3.1(b):
5.1 Financial Statements and Other Information. The Company shall deliver
to the Holder of this Note the financial statements and other information
required to be delivered under Section 8.1 of the Note Purchase Agreement.
5.2 Financial Covenants. The Company shall at all times comply with the
financial and other covenants set forth in Schedule 8.5 to the Note Purchase
Agreement as if such covenants were set forth herein.
6
5.3 Indebtedness. The Company shall not, and shall not permit any
Subsidiary to, issue, incur, assume, create or have outstanding any
Indebtedness, provided, however, that the foregoing shall not restrict nor
operate to prevent:
(a) Indebtedness in favor of the Holders under the Loan Documents;
(b) Indebtedness existing on the date hereof, as set forth on Schedule 3.22
to the Note Purchase Agreement;
(c) Indebtedness for accounts payable incurred in the ordinary course of
business by the Company;
(d) Indebtedness incurred solely for the purpose of financing the
acquisition of any equipment, machinery, software, improvements or any other
similar property, or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount; provided, that the aggregate
outstanding principal amount of all Indebtedness permitted pursuant to this
clause (d) outstanding for more than sixty (60) days after the incurrence of
such Indebtedness shall not at any time exceed $500,000;
(e) Indebtedness of the Company evidenced by Capitalized Lease Obligations,
provided, that in no event shall the aggregate principal amount of Capitalized
Lease Obligations permitted by this clause (e) exceed $500,000 at any time
outstanding; and
(f) Any extension, renewal, refinancing, refunding, or replacement (each, a
"refinancing") of Indebtedness permitted by clauses (b) and (e) above, on such
terms and conditions as are, on the whole, not materially more onerous to the
Company than the terms and conditions of such original Indebtedness on the date
of such refinancing (including that the principal amount of such refinancing
Indebtedness does not exceed the principal amount of, plus the amount of accrued
and unpaid interest on, the Indebtedness so refinanced (plus the amount of
reasonable premium and fees and expenses incurred in connection therewith)),
provided that, in the case of a refinancing of Indebtedness owed by the Company
or any Subsidiary to SVB, this clause (f) shall only apply to the extent
consistent with the Subordination Agreement, dated as of the date hereof, by and
among SVB, the Holders and the Company (the "Subordination Agreement").
5.4 Liens. The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Company or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable), or assign any right to receive income or permit the
filing of any financing statement under the Uniform Commercial Code, as from
time to time in effect in the relevant jurisdiction (the "UCC"), or any other
similar notice of Lien under any similar recording or notice statute; provided,
that the provisions of this Section 5.4 shall not prevent the creation,
incurrence, assumption or existence of the following:
(a) Liens arising in the ordinary course of business by statute in
connection with worker's compensation, unemployment insurance, old age benefits,
social security obligations, statutory obligations or other similar charges
(other then Liens arising under ERISA), good faith cash deposits in connection
with tenders, contracts or leases to which the Company or any Subsidiary is a
party or other cash deposits required to be made in the ordinary course of
business, provided, that such Liens do not have a material adverse effect on the
ability of the Company to repay amounts due under the Notes;
(b) inchoate Liens for taxes, assessments or governmental charges or levies
not yet due or Liens for taxes, assessments or governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP;
(c) Liens in respect of property or assets of the Company or its
Subsidiaries imposed by law, which were incurred in the ordinary course of
business and do not secure Indebtedness for borrowed money, such as carriers',
warehousemen's, materialmen's and mechanics' liens and other similar Liens
arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Company's and its
Subsidiaries' property or assets taken as a whole or result in a material
adverse effect
7
on the Condition of the Company or (ii) which are being contested in good faith
by appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property or assets subject to any such Lien;
(d) the pledge of assets for the purpose of securing an appeal, stay or
discharge in the course of any legal proceeding, provided that the aggregate
amount of liabilities of the Company and its Subsidiaries secured by a pledge of
assets permitted under this subsection, including interest and penalties
thereon, if any, shall not be in excess of $500,000 at any one time outstanding;
(e) any interest or title of a lessor under any operating lease;
(f) easements, rights-of-way, restrictions and other similar encumbrances
against real property incurred in the ordinary course of business;
(g) the Liens existing on the date hereof identified on Schedule 3.22 to
the Note Purchase Agreement;
(h) Liens on cash deposited with account debtors to secure performance by
the Company or any Subsidiary in the ordinary course of business subject to
customary and reasonable terms;
(i) Liens upon assets of the Company or its Subsidiaries subject to
Capitalized Lease Obligations, provided, that (A) such Liens only serve to
secure the payment of Indebtedness permitted by Section 5.3(e) arising under
such Capitalized Lease Obligation and (B) the Lien encumbering the asset giving
rise to the Capitalized Lease Obligation does not encumber any other asset of
the Company or its Subsidiaries;
(j) Liens placed upon equipment, machinery, software, improvements or any
other similar property, used in the ordinary course of business of the Company
or any of its Subsidiaries at the time of the acquisition thereof by the Company
or any of its Subsidiaries or within ninety (90) days thereafter to secure
Indebtedness permitted by Section 5.3(d) above; provided, that the Liens
encumbering the equipment, machinery software, improvements or any other similar
property so acquired do not encumber any other asset of the Company or its
Subsidiaries;
(k) set-off rights of depository institutions; and
(l) Liens created by the Security Agreement (collectively with clauses (a)
through (k) hereof, the "Permitted Liens").
5.5 Fundamental Changes. The Company will not, and will not permit any
Subsidiary to, merge into or consolidate with any other Person, or permit any
other Person to merge into or consolidate with it, or sell, transfer, lease or
otherwise dispose of (in one transaction or a series of transactions) all or
substantially all of its assets, or all or substantially all of the stock of any
of its Subsidiaries (in each case, whether now owned or hereafter acquired), or
liquidate or dissolve, except that, if at the time and immediately after giving
effect thereto no Event of Default shall have occurred and be continuing (i) the
Company or any of its Subsidiaries may, with the prior written consent of the
Holders, merge with or into any other Person; (ii) any wholly-owned Subsidiary
of the Company (other than the Guarantor) may merge with or into the Company or
any other wholly-owned Subsidiary of the Company; (iii) any Subsidiary (other
than the Guarantor, and except as otherwise prohibited by this Note) may sell,
transfer, lease or otherwise dispose of its assets to the Company or to another
wholly-owned Subsidiary of the Company; and (iv) any Subsidiary may liquidate or
dissolve if the board of directors of the Company determine in good faith that
such liquidation or dissolution is in its best interests and is not
disadvantageous to the Holders.
5.6 Restricted Payments. The Company will not, and the Company will not
permit any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, except that (i) any Subsidiary may make a
Restricted Payment to the Company or any of its wholly-owned Subsidiaries, and
(ii) the Company or any of its Subsidiaries may make any Restricted Payment
required by the terms of the Note Purchase Agreement and the other documents
executed in connection therewith.
8
5.7 Transactions with Affiliates. The Company will not, and the Company
will not permit any Subsidiary to, sell, lease or otherwise transfer any
property or assets to, or purchase lease or otherwise acquire any property or
assets from, or otherwise engage in any other transactions with, any of its
Affiliates, except (a) transactions that are at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's length basis from unrelated third parties, (b) transactions
exclusively between the Company and the Guarantor and (c) transactions under the
agreements listed on Schedule 3.17 to the Note Purchase Agreement.
5.8 Investments. The Company will not, and the Company will not permit
any Domestic Subsidiary (as hereinafter defined) to, make an Investment in any
Person, except for Permitted Investments.
5.9 Nature of Business. The Company will not, and the Company will not
permit any Subsidiary to, engage in any business other than that conducted on
the date hereof and any businesses reasonably related thereto.
5.10 Property of Existing Domestic Subsidiaries. The Company will not
permit, or suffer to allow, any Subsidiary that is incorporated or otherwise
organized under the laws of the United States of America or any state thereof (a
"Domestic Subsidiary"), excluding the Guarantor, to (i) own, hold, lease,
license, purchase or otherwise acquire any personal or real property (excluding
any material intellectual property) in excess of $50,000 for all property held
by such Subsidiary, or $250,000 in the aggregate for all property held by all
Domestic Subsidiaries (ii) maintain any deposit account in its name, (iii) own
or otherwise hold any rights to any material intellectual property or (iv)
otherwise conduct any business or maintain operations.
5.11 Formation of Subsidiaries. The Company will not, and will not cause
or permit any of its Subsidiaries to, form, acquire or permit the existence of
any new domestic Subsidiary, without causing such domestic Subsidiary to execute
and deliver to the Holders a secured guaranty of the Notes and related security
document, in form and substance satisfactory to the Holders.
5.12 Books and Records. The Company shall keep proper books of record and
account, in which full and correct entries shall be made of all financial
transactions and the assets and business of the Company and its Subsidiaries in
accordance with GAAP consistently applied.
5.13 Inspection. The Company shall, and shall cause each of its
Subsidiaries to, permit representatives of the Holders to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested upon notice to the Company.
5.14 Maintenance of Business. The Company shall, and shall cause each
Subsidiary to, preserve and maintain its existence. The Company shall, and shall
cause each Subsidiary to, preserve and keep in force and effect all licenses,
permits, franchises, approvals, patents, trademarks, trade names, trade styles,
copyrights, and other property rights necessary to the proper conduct of its
business, except where the failure to do so could not reasonably be expected to
have a material adverse effect on the Condition of the Company or on the
prospects of repayment of the Notes.
5.15 Maintenance of Properties. The Company shall, and shall cause each
Subsidiary to, maintain, preserve and keep its property and equipment in good
repair, working order and condition (ordinary wear and tear excepted) and shall
from time to time make all needful and proper repairs, renewals, replacements,
additions and betterments thereto so that at all times the efficiency thereof
shall by fully preserved and maintained, except in each case to the extent that,
in the reasonable business judgment of such Person, any such property or
equipment is no longer necessary for the proper conduct of the business of such
Person.
9
6. The occurrence of any one or more of the following events shall
constitute an "Event of Default":
6.1 Failure To Pay. (i) The failure of the Company to pay any principal
due under any of the Notes when due and payable (whether by acceleration,
declaration, extension or otherwise), or (ii) the failure of the Company to pay
any other amounts due under any of the Notes when due and payable if such
failure is not cured within five (5) days of Company's receipt of notice thereof
from any of the Holders.
6.2 Financial Covenants. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the Financial Covenants
set forth on Schedule 8.5 to the Note Purchase Agreement, and incorporated by
reference in this Note in Section 5.2.
6.3 Other Covenants and Agreements. The failure of Company or any of its
Subsidiaries to perform, observe or comply with any of the covenants of this
Note, the Security Agreement or any of the other Loan Documents (other than the
Financial Covenants set forth on Schedule 8.5 to the Note Purchase Agreement,
and incorporated by reference in this Note in Section 5.2), if such failure is
not cured within sixty (60) days.
6.4 Representations and Warranties. If any representation or warranty
made by the Company or any of its Subsidiaries in the Loan Documents is not true
and correct in all material respects on the Initial Closing Date.
6.5 Default on Other Obligations. The occurrence of any condition or
default under any other indebtedness for borrowed money of the Company or any of
its Subsidiaries with a principal amount of at least five hundred thousand
dollars ($500,000) that results in the acceleration of such indebtedness which
is not cured within sixty (60) days.
6.6 Involuntary Bankruptcy. There shall be filed against the Company or
any of its Subsidiaries an involuntary petition or other pleading seeking the
entry of a decree or order for relief under the United States Bankruptcy Code or
any similar federal or state insolvency or similar laws ordering: (a) the
liquidation of the Company or any of its Subsidiaries or (b) a reorganization of
the Company or any of its Subsidiaries or the business and affairs of the
Company or any of its Subsidiaries or (c) the appointment of a receiver,
liquidator, assignee, custodian, trustee or similar official for the Company or
any of its Subsidiaries of the property of the Company or any of its
Subsidiaries.
6.7 Voluntary Bankruptcy. The commencement by the Company or any of its
Subsidiaries of a voluntary case under the federal bankruptcy laws or any
federal or state insolvency or similar laws or the consent by the Company or any
of its Subsidiaries to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or similar official for the Company or
any of its Subsidiaries of any of the property of the Company or any of its
Subsidiaries or the making by the Company or any of its Subsidiaries of an
assignment for the benefit of creditors, or the failure by Company or any of its
Subsidiaries generally to pay its debts as the debts become due.
6.8 Judgments, Awards. Any judgment or order for the payment of money is
rendered against the Company or any of its Subsidiaries in an amount in excess
of five hundred thousand dollars ($500,000) individually or in the aggregate and
either (i) enforcement proceedings are commenced by any creditor upon such
judgment or order and not stayed, or (ii) there is any period of sixty (60)
consecutive days during which such judgment has not been paid in full or a stay
of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, is not in effect.
6.9 Attachment by Lenders. Any assets of the Company or any of its
Subsidiaries shall be attached, levied upon, seized or repossessed, or come into
the possession of a trustee, receiver or other custodian and a determination by
any Holder, in good faith but in its sole discretion, that the same could have a
material adverse effect on the prospect for the Holders to fully and punctually
realize the full benefits conferred on the Holders by the Loan Documents.
6.10 Adverse Change in Financial Condition. Any event having a material
adverse effect on the business, operations, assets, properties or condition of
the Company and its Subsidiaries taken as a whole
10
shall have occurred and be continuing or a material adverse effect on the
validity or enforceability of this or any of the other Loan Documents or the
rights or remedies of the Holders hereunder or thereunder.
7. Remedies. Upon and after the occurrence of an Event of Default, the
Holder shall be entitled to the exercise the rights and remedies set forth in
the Security Agreement, the other Loan Documents and under applicable law, all
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently.
8. Prepayment. The Company may not prepay this Note prior to the Maturity
Date without the prior written consent of the Holders.
9. Seniority.
(a) Except as set forth in the Subordination Agreement, the Notes will rank
senior in right of payment to all other indebtedness of the Company, other than
the GA Notes and the January 2004 Notes, with respect to which the Notes will be
pari passu in right of payment in accordance with the Intercreditor Agreement.
(b) Notwithstanding anything to the contrary contained in the Notes, this
Note and the other Notes, and the terms and the conditions hereof and thereof,
are subject to the Intercreditor Agreement.
10. Assignment. Subject to the restrictions on transfer described in
Section 12 below, the rights and obligations of the Company and Holder shall be
binding upon and benefit the successors, assigns, heirs, administrators and
transferees of the parties. The Company shall not be permitted to assign this
Note without the prior written consent of the Holders.
11. Waiver of Notice. The Company hereby waives notice, presentment,
demand, protest and notice of dishonor.
12. Transfer of This Note. With respect to any offer, sale or other
disposition of this Note, Holder will give written notice to the Company prior
thereto, describing briefly the manner thereof, together with a written opinion
of such Holder's counsel, to the effect that such offer, sale or other
distribution may be effected without registration or qualification (under any
federal or state law then in effect); provided, that no opinion shall be
required for any transfer to an Affiliate or if the transfer is made in
compliance with the Securities Act, so long as the transferee can make the same
representations and warranties at the time of transfer as set forth in Sections
4.5, 4.6, 4.7, 4.8, 4.9, 4.10 and 4.11 of the Note Purchase Agreement. Promptly
upon delivering such written notice and opinion, if so required, Holder may sell
or otherwise dispose of this Note, all in accordance with the terms of the
notice delivered to the Company. Each Note thus transferred shall bear a legend
as to the applicable restrictions on transferability in order to ensure
compliance with the Securities Act, unless in the opinion of counsel for the
Company such legend is not required in order to ensure compliance with the
Securities Act. The Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions. Notwithstanding the foregoing, the
Holder shall not be permitted to transfer this Note to any Person who is not an
Affiliate until the earlier of (i) the obtaining of Stockholder Approval, (ii)
the receipt of written notice from the Company that Stockholder Approval cannot
be obtained, or the occurrence of an actual vote of the Company's shareholders
entitled to vote (whether by written consent or at a meeting specially called
for such purpose), the result of which is a decision by a majority of the
Company's shareholders entitled to vote to decline to grant Stockholder
Approval, (iii) six (6) months from the date hereof and (iv) the occurrence of
an Event of Default. This Note is registered as to both principal and stated
interest with the Company (or its agent) within the meaning of section
1.871-14(c)(1)(i) of the Income Tax Regulations. Accordingly, notwithstanding
anything to the contrary in this paragraph, this Note, together with any
interest thereon, may be transferred only (i) upon surrender of the Note by the
transferor to the Company (or its agent) and the reissuance of the Note (or the
issuance of a new Note) to the transferee, or (ii) by transfer of the right to
principal and interest through a book-entry system meeting the requirements of
section 1.871-14(c)(1)(i)(B) of the Income Tax Regulations that is maintained by
the Company (or its agent). In the case of a Holder that is not a "United States
person" within the meaning of section 7701(a)(30) of the Internal Revenue Code
of 1986, as amended (the "Code"), so long as an
11
exception under section 871(h) or section 881(c) of the Code does not apply, the
Company (or its agent) shall not withhold any U.S. federal income tax with
respect to such Holder provided that the Holder timely provides the Company (or
its agent) with a statement that meets the requirements of section 871(h)(5) of
the Code.
13. Treatment of Note. To the extent permitted by generally accepted
accounting principles, the Company will treat, account and report the Note as
debt and not equity for accounting purposes and with respect to any returns
filed with federal, state or local tax authorities.
14. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if sent by nationally recognized courier
service or mailed by registered or certified mail, postage prepaid, to the
respective addresses of the parties as set forth on the signature pages hereto
or if sent by facsimile to the respective facsimile numbers of the parties set
forth on the signature pages hereto. Any party hereto may by notice so given
change its address for future notice hereunder. Notice shall conclusively be
deemed to have been given and received when personally delivered or three (3)
business days after deposited in the mail or one business day after sent by
courier or upon confirmation of facsimile delivery in the manner set forth
above.
15. No Stockholder Rights. Nothing contained in this Note shall be
construed as conferring upon Holder or any other Person the right to vote or to
consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matters
or any rights whatsoever as a stockholder of the Company.
16. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California, excluding that body of law
relating to conflict of laws.
17. Amendments and Waivers. No amendments or waivers of any provision of
this Note, and no consent by the Holder to any departure by the Company, shall
in any event be effective unless the same shall be in writing, and signed by the
Holders of a majority of the outstanding principal amount of all of the Notes
issued by the Company pursuant to the Note Purchase Agreement, and then such
waiver or consent shall be effective only in the specific instance and for the
purpose for which given.
18. Severability. Any provision of this Note that is prohibited or
unenforceable in a jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
19. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER HEREBY (A)
COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT
BY A JURY, AND (B) WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH THE
COMPANY AND THE HOLDER MAY BE PARTIES, ARISING OUT OF, IN CONNECTION WITH OR IN
ANY WAY PERTAINING TO THIS NOTE, ANY OF THE LOAN DOCUMENTS AND/OR ANY
TRANSACTIONS, OCCURRENCES, COMMUNICATIONS, OR UNDERSTANDINGS (OR THE LACK OF ANY
OF THE FOREGOING) RELATING IN ANY WAY TO DEBTOR-CREDITOR RELATIONSHIP BETWEEN
THE PARTIES. IT IS UNDERSTOOD AND AGREED THAT THIS WAIVER CONSTITUTES A WAIVER
OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS NOTE.
THIS WAIVER OF JURY TRIAL IS SEPARATELY GIVEN, KNOWINGLY, WILLINGLY AND
VOLUNTARILY MADE BY THE COMPANY AND THE HOLDER, AND THE COMPANY AND THE HOLDER
HEREBY AGREE THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY
INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR
NULLIFY ITS EFFECT. THE COMPANY AND THE HOLDER ARE HEREBY AUTHORIZED TO SUBMIT
THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE
COMPANY AND THE HOLDER, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF
12
SUCH WAIVER OF RIGHT TO TRIAL BY JURY. EACH OF THE COMPANY AND THE HOLDER
REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS NOTE
AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS
OWN FREE WILL, AND/OR THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER
WITH COUNSEL.
20. Heading; References. All headings used herein are used for
convenience only and shall not be used to construe or interpret this Note.
Except as otherwise indicated, all references herein to Sections refer to
Sections hereof.
[the remainder of this page intentionally left blank]
13
IN WITNESS WHEREOF, the Company has caused this Note to be issued this 9th
day of March, 2004.
COMPANY:
CRITICAL PATH, INC.,
a California corporation
By:
------------------------------------
Name: William E. McGlashan, Jr.
Title: Chairman, Chief Executive
Officer
Critical Path, Inc.
350 The Embarcadero
San Francisco, CA 94105-1204
Telecopy: (415) 541-2300
Attention: Chief Financial Officer
With a copy to:
Pillsbury Winthrop LLP
50 Fremont Street
San Francisco, CA 94105
Telecopy: (415) 983-1200
Attention: Gregg Vignos, Esq.
Name of Holder:
----------------------------------------------------
Address:
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Telephone:
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Facsimile:
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CRITICAL PATH, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 11, 2004
The undersigned hereby appoints William E. McGlashan, Jr. and Michael J.
Zukerman, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all of the shares of common stock of
Critical Path, Inc. which the undersigned may be entitled to vote at the Special
Meeting of Shareholders of Critical Path, Inc. to be held at the Company's
offices located at 350 The Embarcadero, San Francisco, California on June 11,
2004, at 10:00 a.m., California time, and at any and all postponements,
continuations and adjournments thereof, with all powers that the undersigned
would possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1 THROUGH 7 AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT, AND IN
ACCORDANCE WITH THE DISCRETION OF THE PROXIES ON ANY OTHER MATTERS AS MAY
PROPERLY COME BEFORE THE SPECIAL MEETING. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
PROPOSAL 1: The issuance of approximately 7.3 million shares of Series E
preferred stock with a price per share of $1.50 to General
Atlantic Partners 74, L.P., GAP Coinvestment Partners II,
L.P., GapStar, LLC and GAPCO GmbH & Co. KG, issuable upon
conversion of $11 million principal amount and interest of
convertible secured notes, and such additional shares of
Series E preferred stock as they may purchase in connection
with the proposed rights offering.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: The issuance of approximately 10 million shares of Series E
preferred stock with a price per share of $1.50 to 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., issuable upon
conversion of $15 million principal amount of convertible
secured notes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: The issuance of approximately 12.3 million shares of Series E
preferred stock with a price per share of $1.50 to Permal U.S.
Opportunities Limited, Zaxis Equity Neutral, L.P., Zaxis
Institutional Partners, L.P., Zaxis Offshore Limited, Zaxis
Partners, L.P., Guggenheim Portfolio Company XIII, Crosslink
Crossover Fund IV, L.P., Sagamore Hill Hub Fund, Ltd.,
Criterion Capital Partners, Ltd., Criterion Capital Partners,
Institutional, Criterion Capital Partners, L.P. and Capital
Ventures International, issuable upon conversion of $18.5
million principal amount of convertible secured notes.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
PROPOSAL 4: The issuance of approximately 21.9 million shares of Series
E preferred stock with a price per share of $1.50 to Campina
Enterprises Limited, Cenwell Limited, Great Affluent Limited,
Dragonfield Limited and Lion Cosmos Limited, issuable upon
exchange of approximately $32.8 million principal amount of
5 3/4% convertible subordinated notes, and such additional
shares of Series E preferred stock as they may purchase in
connection with the proposed rights offering.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 5.
PROPOSAL 5: The amendment of warrants to purchase 625,000 shares of common
stock held by members of General Atlantic Partners 74, L.P.,
GAP Coinvestment Partners II, L.P., GapStar, LLC and GAPCO
GmbH & Co. KG that reduces the exercise price per share from
$4.20 to $1.50.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 6.
PROPOSAL 6: An amendment to our current amended and restated articles
of incorporation to increase the authorized number of shares
of common stock from 125 million to 200 million and the
authorized number of shares of preferred stock from 5 million
to 75 million.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 7.
PROPOSAL 7: An amended and restated certificate of determination of
preferences of Series D preferred stock to, among other
things, amend the Series D preferred stock liquidation
preference upon a liquidation and change of control, to
eliminate the participation feature, to reduce the conversion
price from $4.20 to $1.50 and to reduce the amount of
dividends to which the holders of Series D preferred stock are
entitled.
In their discretion, the proxies of the undersigned are authorized to vote upon
such other business as may properly come before the meeting or any
postponements, continuations and adjournments thereof.
Dated:
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SIGNATURES
Please sign exactly as your name
appears hereon. If the stock is
registered in the names of two or more
persons, each should sign. Executors,
administrators, trustees, guardians
and attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and
have a duly authorized officer sign,
stating title. If signer is a
partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED
RETURN ENVELOPE THAT IS POSTAGE