EXHIBIT 10.5
AMENDED AND RESTATED TERM SHEET
THIS AMENDED AND RESTATED TERM SHEET DATED JANUARY 31, 2005 (THE "TERM SHEET")
REPLACES AND SUPERCEDES THE TERM SHEET DATED DECEMBER 21, 2004, AND SUMMARIZES
THE BASIC TERMS AND CONDITIONS ON WHICH COMVEST INVESTMENT PARTNERS II LLC
("COMVEST") PROPOSES TO INVEST $6,500,000 OF FINANCING CONSISTING OF (I) A
$1,500,000 INVESTMENT IN SENIOR SECURED NOTES AND WARRANTS, (II) A $1,700,000
INVESTMENT IN CONVERTIBLE PREFERRED STOCK AND WARRANTS, AND (III) A $3,300,000
INVESTMENT IN COMMON STOCK AND PROTECTION WARRANTS (THE "FINANCING") IN CORVU
CORPORATION (THE "COMPANY").
THIS TERM SHEET IS NOT A COMMITMENT BY COMVEST TO CONSUMMATE THE FINANCING; IT
IS FOR DISCUSSION PURPOSES ONLY EXCEPT AS SET FORTH BELOW, AND COMVEST MAY
TERMINATE DISCUSSIONS AT ANY TIME WITHOUT LIABILITY OR OBLIGATION TO COMVEST.
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FINANCING
FINANCING TERMS: The Financing shall be in the form of a (i) a
$1,500,000 loan (the "Loan"), (ii) a $1,700,000
preferred stock and warrant investment (the "Preferred
Investment") and (ii) a $3,300,000 equity investment
(the "Equity Investment"). In consideration for the
Loan, the Company shall issue to ComVest, or a
subsidiary of ComVest, at the closing, a $1,500,000
senior secured note having the terms set forth below In
consideration for the Preferred Investment, the Company
shall issue ComVest 17,000 shares of Convertible
Preferred Stock, par value $100 per share, having the
terms set forth below, and warrants to purchase
3,400,000 shares of the Company's Common Stock at an
exercise price of $.50 per share (the "Preferred
Warrants"). In consideration for the Equity Investment,
the Company shall issue to ComVest, or a subsidiary of
ComVest, at the closing, 22,000,000 shares of Common
Stock (the "Shares"). In addition to the Preferred
Warrants, the Company shall issue to ComVest warrants to
purchase 2,000,000 shares of the Company's common stock
on the terms set forth herein (the "Protection
Warrants").
It is expected that the closing of the Financing will
occur on or about February 4, 2005.
TERMS OF THE PREFERRED
WARRANTS AND PROTECTION
WARRANTS: The Company shall issue five-year Preferred
Warrants to purchase 3,400,000 shares of Common Stock,
and five-year Protection Warrants to purchase 2,000,000
shares of Common Stock, both Preferred Warrants and
Protection Warrants having an exercise price equal to
$.50 (the "Exercise Price"). The shares to be issued
upon such exercise are hereinafter referred to as the
Warrant Shares. The Preferred Warrants and the
Protection Warrants shall contain (a) cashless exercise
provisions and (b) full-ratchet anti-dilution with
regard to the Exercise Price, but no anti-dilution
adjustment with regard to the number of Warrant Shares,
and other standard anti-dilution protection for
issuances below the Exercise Price, provided, that only
issuances for fair value agreed upon by the majority of
the Company's entire board of directors in the exercise
of the directors' fiduciary duties may trigger any
anti-dilution protection; further provided, that the
following issuances will not trigger any anti-dilution
protection: (i) issuances of shares of Common Stock upon
exercise of options, warrants or other stock purchase
rights or conversion rights (including, but not limited
to, issuances of shares of Common Stock upon conversion
of Series B Preferred Stock) outstanding at the time of
the signing of this Term Sheet; (ii) issuances of
options, restricted stock, stock appreciation rights or
other awards granted and to be granted to employees,
officers, directors and consultants of the Company
pursuant to a stock option plan approved by a majority
of the Company's entire board of directors and issuances
of shares of Common Stock upon exercise of such wards in
accordance with the terms of such plan; (iii) issuances
in connection with mergers, acquisitions, joint ventures
or other transactions with an unrelated party in a bona
fide transaction the purpose of which is not
fundraising; (iv) issuances at fair market value to the
Company's suppliers, consultants and other providers of
services and goods not to exceed $100,000 to any one
person or entity, and not to exceed an aggregate of
$250,000, in any fiscal year without the prior consent
of ComVest; and (v) issuances of options (the
"Replacement Options") to Justin MacIntosh at the then
fair market value in replacement of options held by Mr.
MacIntosh at the time of the closing of the Financing
upon their expiration and issuances of shares of common
stock upon exercise of any such Replacement Options,
provided, that such Replacement Options have to be
issued in accordance with the Company's then existing
stock option plan and approved by the majority of the
Company's Compensation Committee and by the Company's
Board of Directors.
In addition, the Protection Warrants shall become
exercisable only if (a) ComVest owns more than 5,000,000
shares of the Company's Common Stock and (b) less than
two Designees (as that term is defined below) of ComVest
are members of the Company's Board of Directors despite
the Designees having voted for their own nomination or
the nomination of replacement Designees and despite
ComVest having voted all of its shares in favor of the
election of the Designees to the Company's Board of
Directors.
Terms of the Note:
Interest Rate: The Note shall bear interest at 6% per annum, payable
quarterly in cash, for the first year, 9% per annum for
the second year, and 12% per annum for the third year.
Maturity: The Maturity Date shall be the earlier of (i) 36
months from the date of issuance, or (ii) upon a merger
or a combination of the Company or the sale of all or a
substantial part of the assets of the Company or (iii)
upon the acquisition by the purchase by a single entity
or person or Section 13D group of more than 50% of the
voting power or interest of the Company.
Prepayment: The Note may be prepaid, in whole or in part, at any
time, and the Company must use at least 50% of the
proceeds of any issuance of securities by the Company
(subject to certain exclusions) to repay the Note, in
each case without penalty or premium.
Security/
Ranking: The Note shall be secured by substantially all of the
assets of the Company and shall rank senior to any
existing or future indebtedness of the Company.
Covenants: The Note shall contain certain affirmative and
negative covenants including restrictions on incurrence
of debt or redemption of securities, payment of
dividends, mergers, increases in executive compensation,
related party transactions, etc., to be agreed to by the
parties. The only financial covenant shall be that the
Company shall maintain a cash balance of not less than
$750,000.
Default
Provisions: The Note shall contain standard default
provisions to be agreed to by the parties including as a
result of cross-defaults, certain litigation, filing of
bankruptcy, etc.
TERMS OF THE PREFERRED STOCK:
Dividends: 6% per annum for the first 12 months, 9% per annum
for the second year, and 12% thereafter, payable
quarterly in cash,
Conversion
Price: The Conversion Price shall be $.50 per
share, subject to anti-dilution adjustments as set forth
below.
Optional
Conversion: Each Preferred Share shall convert, at the election of
the holder, into the number of shares of Common Stock
determined by dividing (A) the stated value of the
Preferred Shares by (B) the Conversion Price. The number
of shares to be issued upon such conversion is
hereinafter referred to as the Conversion Shares.
Liquidation
Preference: Each Preferred Share shall have a stated value of
$100.00 per share and shall be entitled to receive, in
preference to holders of common stock and the holders of
any shares of preferred stock, an amount equal to
$150.00 per share (the "Liquidation Preference"). A
merger or consolidation, where existing stockholders do
not retain more than 50% of the voting power or
interest, a sale of all or a substantial part of the
Company's assets, or an acquisition of 50% or more of
the voting power or interest in the Company by a single
person or Section 13D group shall be deemed to be a
liquidation for purposes hereof.
Optional
Redemption: The Company shall have the right to redeem the
Preferred Shares, at any time, upon 10 business days
prior written notice. In addition, the Company shall be
obligated to redeem the Preferred Shares, from 50% of
the gross proceeds received by the Company from the
issuance of any new equity or debt securities.
Ranking: There shall not exist and the Company shall not
hereafter create or authorize any other stock ranking
senior to, or pari passu with, the Preferred Shares,
other than the existing outstanding shares of preferred
stock.
Anti-dilution: Same as the Preferred Warrants.
Voting Rights: The holders of Preferred Shares shall be
entitled to one vote per share of Common Stock issuable
upon conversion of the Preferred Shares on all matters
submitted to a vote of stockholders of the Company.
Covenants: Covenants with respect to use of proceeds, access
to books and records, delivery of monthly financial
statements, etc. to be mutually agreed to by the
parties.
MISCELLANEOUS TERMS:
Registration
Rights: One demand registration right and unlimited
piggyback registration rights.
Board
Composition: ComVest will have the right to designate two re-
presentatives for election to the Company's Board of
Directors (the "Designees"), both of which shall not
have been involved in any of the events set forth in
Item 401(f) of Regulation S-K during the last ten years
and shall be qualified to serve as directors of a
reporting company under the Securities Exchange Act of
1934, as amended, according to the assessment made by
the Company's Governance/Nominating Committee and at
least one of which shall satisfy the Nasdaq requirements
as an "independent" director. Such "independent"
director Designee shall be appointed to the Compensation
Committee, and any future increases in the compensation
of the CEO, or additional grants of options, to the CEO,
shall only be approved by unanimous consent of the
Compensation Committee except as otherwise provided in
this Term Sheet with regard to Replacement Options to
Justin MacIntosh. The Company will use its best efforts
to have the Designees nominated and elected to the Board
of Directors.
Pre-emptive
Rights: In the event that the Company shall seek to issue any
additional shares of Common Stock or other securities
convertible into or exchangeable for shares of Common
Stock, at a time when ComVest owns more than 5,000,000
shares of the Company's Common Stock, then ComVest shall
have the right to purchase such number of securities
from the Company, on the same terms as then being
offered by the Company, so as to maintain its then
percentage ownership in the Company.
Other
Covenants: The Company shall covenant for a period equal to the
shorter of (i) three years from the closing, and (ii)
such time as ComVest owns less than 5,000,000 shares of
the Company's Common Stock, not to issue or sell any
shares of Common Stock, or any securities convertible or
exchangeable into Common Stock, for an effective per
share price of less than $.25, without the prior
approval of ComVest.
The Company shall also agree not to incur any
indebtedness for borrowed money other than an asset
based senior line of credit without the prior approval
of ComVest.
ComVest agrees not to undertake any actions involving
ComVest or another entity affiliated with or controlled
by ComVest to take the Company private, including, but
not limited to, selling all or substantially all of the
Company's assets, merging the Company, or any other
transaction with similar economic effects, unless
ComVest has received the prior written consent of Justin
MacIntosh to any such proposed actions, it being the
understanding of the parties that ComVest is committed
in principle to continuing the Company's operation as a
publicly held company.
Shareholders
Agreement: Justin MacIntosh and his affiliates (other than Avant
Air and his wife Delia MacIntosh) shall have entered
into a shareholders agreement with ComVest, on terms
acceptable to Mr. MacIntosh and ComVest, which provides
that Mr. MacIntosh and such affiliates shall not sell or
otherwise transfer any of their shares of Common Stock
without offering ComVest the opportunity to sell the
same percentage number of shares on the same terms. In
addition, Mr. MacIntosh and such affiliates will agree
that until the Shares are fully registered and freely
tradable, he will not sell, transfer or otherwise
dispose of any securities of the Company in an open
market trade.
CONDITIONS TO CLOSING: Subject to the satisfaction of ComVest's due
diligence investigation of the Company, including,
without limitation, the Company's financial statements,
projections, cash burn rate, business prospects, capital
structure, contractual arrangements, and other customary
conditions.
There shall be outstanding (i) not more than
approximately 24 million shares of Common Stock and not
more than 600,000 shares of Series B Convertible
Preferred Stock; (ii) options to purchase up to
approximately 4.1 million shares of Common Stock granted
to employees under the Company's stock option plan and
options to purchase up to approximately 1.4 million
shares of Common Stock granted to employees outside of
the Company's stock option plan, at average exercise
prices ranging from $.91 to $1.58, (iii) warrants to
purchase up to 1,400,000 shares of Common Stock at an
exercise price of $.20, and (iv) warrants to purchase
not more than 2,805,275 shares of Common Stock at an
average exercise price of $1.71. The number of shares of
Common Stock under (i) above does not include shares of
Common Stock issued or to be issued to Justin MacIntosh
and members of his family upon conversion of Series B
Preferred Stock and upon conversion of their remaining
outstanding debt.
There shall be no debt outstanding, other than as set
forth in the Company's most recent public filings, and
accounts payable, trade payables and capital lease
obligations incurred in the ordinary course of business.
Justin MacIntosh and members of his family shall have
converted their shares of Series B Preferred Stock into
Common Stock on the terms set forth in such preferred
stock, and shall convert all of their remaining
outstanding debt into the terms of the Equity
Investment.
The Company shall have obtained key man life insurance
on the life of Justin MacIntosh in the amount of between
$2,500,000 and $5,000,000, subject to reasonable
availability, costs and terms of such insurance as
approved by Justin MacIntosh.
The Company's Board of Directors shall have increased
the number of directors by two and shall have elected
the two Designees as additional directors.
There being no material adverse changes in the
operations or financial situation of the Company or in
the capital or stock markets in general.
FEES: Upon the closing of the Financing, the Company shall pay
to ComVest a cash fee equal to $240,000,.
RIGHTS UPON TERMINATION:Provided that the Company is proceeding in good
faith at all times, including, without limitation,
providing all due diligence materials requested by
ComVest, ComVest shall have until February 11, 2005 to
close the Financing. In the event that the Company
elects not to proceed with the Financing prior to such
date without cause, or fails to proceed in good faith,
then in addition to any reimbursement of actual
reasonable out-of-pocket expenses, the Company shall pay
to ComVest a financial advisory and structuring fee of
$500,000 which shall, at ComVest's option, be payable in
cash or shares of Common Stock valued at $.25 per share.
In the event ComVest has informed the Company that it
will not close the Financing by February 11, 2005, or in
the event ComVest has not closed the Financing and has
not made its investment in accordance with the previous
terms by February 11, 2005, despite the Company acting
in good faith to close the Financing, then the terms of
this provision will expire and CorVu will not have any
further obligations to ComVest under this Term Sheet.
The foregoing Term Sheet when executed by the parties below shall constitute a
letter of intent between ComVest and the Company and the intention by both
parties (subject to the completion to its satisfaction of ComVest's due
diligence review) to proceed with the transaction described above.
Notwithstanding the foregoing, the provisions of the section entitled "Rights
Upon Termination" above shall be a binding obligation of the Company. By signing
this Term Sheet, the Company represents that the execution of this Term Sheet
does not conflict with any other agreement, and that the Company is not
obligated to pay any fee to any other person or entity as a result of the
Financing. The validity and interpretation of this Term Sheet shall be governed
by New York law.
If the foregoing is acceptable, please sign a copy of this Term Sheet in the
space provided below and return the copy to the undersigned no later than
January 31, 2005. If an executed copy of the Term Sheet is not received on or
prior to such date, this Term Sheet shall be void and of no further force or
effect.
Very truly yours,
ComVest Investment Partners II LLC
By: /s/ Carl Kleidman
Confirmed and Agreed To:
CorVu Corporation
By: /s/ David C. Carlson
Chief Financial Officer